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Georgia software company sues Citizens Property Insurance over no-bid deal

A Georgia software company has sued Citizens Property Insurance Corp. saying it broke the law when it awarded a $60 million contract in late October without soliciting competitive bids.

SagoTec Group is challenging Citizens' agreement with Inspection Depot to reinspect policyholders' homes that have wind mitigation credits. Citizens says there is an emergency need to verify such credits because they account for $700 million in premium discounts annually for the state-run insurer. If a reinspection shows the credit is undeserved, Citizens, the state's largest insurer, could recoup substantial revenues.

But Frederick Bateman, the Tallahassee lawyer representing SagoTec, said Citizens has exaggerated the crisis.

"That emergency option is for when we have a hurricane and need adjusters to run out into the field with checks so people don't starve to death," he said. "It's not to award a huge customer service contract. That's absurd."

John Kuczwanski, a spokesman for Citizens, declined to comment on the complaint, but said the insurer "stands by its decision to move forward due to the significant financial impact that would have resulted with delayed implementation of this project."

Florida statute requires that all contracts over $25,000 must go to competitive bid except where deemed an emergency purchase. On Oct. 23, Citizens' board approved the largest no-bid contract in its history, giving Inspection Depot of Jacksonville the responsibility for coordinating reinspections of up to 400,000 homes in a deal potentially worth as much as $60 million.

The two parties finalized the contract earlier this month for a pilot project involving up to 1,500 homes. An initial group of 500 property owners have been notified of the reinspection program, which is expected to be completed by March 31.

Inspection Depot will receive $25 per inspection from Citizens to administer the program, including gathering and analyzing the data.

Inspection companies hired to do the reinspections will receive $95 per home, with about half of that going to the field worker. Although Inspection Depot has an affiliate that performs inspections, it will assign at least half of the work to unrelated companies.

If the pilot program results in savings for Citizens through the recovery of unwarranted discounts, the contract could be expanded.

Though Citizens' officials argued that the bidding process would have months of delays, SagoTec's lawyer said a competition could have been faster and cheaper.

"It's always better to have two or three parties bidding because there are checks and balances," said Bateman, who says his client's software program could have been ramped up for Citizens' project in short time. "Citizens is just thumbing its nose at the statute."

Recently released e-mails related to Citizens' discussions with Inspection Depot show talks were fast-tracked.

Paul Palumbo, senior vice president of underwriting, first met with Michael Rowan, Inspection Depot's chief executive, on Aug. 13. An e-mail says Bob Ricker, who stepped down as head of Citizens three years ago, was expected to attend the meeting.

Within six weeks, the parties were hammering out preliminary terms of a deal despite the vendor's limited experience. A staffer in Citizens' contracts department complained that she could find little background on Inspection Depot other than its corporate registration papers.

"Unfortunately there isn't much information on Inspection Depot to research them or get additional business info," Amy Grissom wrote to her bosses on Sept. 21. "Aside from doing a Dunn and Bradstreet (sic) report, I have reached an end to Inspection Depot. If you have other ideas or suggestions, please let me know."

Kris Hundley can be reached at or (727) 892-2996.

Georgia software company sues Citizens Property Insurance over no-bid deal 12/21/09 [Last modified: Monday, December 21, 2009 9:49pm]
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