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Florida tries to undo traffic school owner's publishing contract

Kenneth Underwood, owner of LowestPriceTrafficSchool.com, has exclusive ad rights in the Official Florida Driver’s Handbook.

DIRK SHADD | Times

Kenneth Underwood, owner of LowestPriceTrafficSchool.com, has exclusive ad rights in the Official Florida Driver’s Handbook.

Six years ago, traffic school owner Kenneth Underwood signed a contract with the Florida Department of Highway Safety and Motor Vehicles in what seemed like a win-win deal for both.

At no cost to the state, Underwood would print and distribute the Official Florida Driver's Handbook, used by millions of people, most of them teenagers, to prepare for their driver's license exam.

In return, Underwood would have exclusive rights to advertising in the handbook.

The contract was definitely a win for Underwood. The only ads in this year's book are full-color, full-page ones for his LowestPriceTrafficSchool.com. The DMV's website links directly to the school, where people can get a "free'' copy of the handbook by paying Underwood's company $6.95 for shipping and handling.

But if the contract has been a boon for Underwood, it has been a headache for the DMV and his competitors.

Critics say the advertising deal has driven dozens of other traffic schools out of business because of perceptions that Underwood's school is the only one approved by the state. Competitors wonder how much of his success is due to the more than $700,000 he has spent on lobbying and campaign contributions since 2005.

The DMV says the contract has hurt its ability to partner with other organizations interested in traffic safety. Department officials have fielded angry calls from parents about "e-mail after e-mail'' urging kids to sign up for offerings from Underwood's growing roster of businesses, including an online music game and other things that have nothing to do with traffic safety.

The DMV concedes that Underwood has done what he said he would do — print handbooks. "It was all the other stuff that came out of this contract that caused us countless hours and money to resolve,'' said Sandra Lambert, director of the driver's license division.

Last year, the department told Underwood it would cancel the contract. He sued, and a trial judge ruled he had the right to renew for another five years. A week ago, the 1st District Court of Appeal sided with the DMV, potentially causing another round of litigation.

"We're reviewing our options for the continuation of our free service that has saved Florida taxpayers nearly $5 million,'' Underwood said.

Much is at stake for Underwood, too. As he told the judge last year, the driver's handbook is the "centerpiece'' of an ambitious teen-oriented marketing plan that could make him "millions and millions of dollars'' between now and 2015.

From ticket, success

Underwood, 52, a former American Airlines pilot and self-styled "serial entrepreneur,'' declined to be interviewed for this story.

Testifying in his lawsuit against the DMV, Underwood said he became interested in the traffic school business in 1994 when he received a ticket and chose to take a Basic Driver Improvement Course to avoid points on his license.

"I sat there for four hours, and it was some of the worst safety education I had ever seen,'' Underwood said. "So I started doing research.''

He opened his first school that year and expanded to more than 100 locations before selling out in 1999. After a noncompete agreement expired in 2003, he started the National Safety Commission and online courses to appeal to the many people pressed for time.

"As a result, we had very rapid growth,'' he said.

In 2003, Underwood struck a deal with the DMV to print the driver's handbook through 2005 in return for exclusive advertising rights. But before the 2005 printing, the department announced a change.

"They said, 'We've been fielding so many phone calls from your competition threatening to sue us that we have no choice but to put it out for bid,' '' Underwood testified.

He was the only bidder, with other traffic schools later saying they were scared off by what they thought was a requirement that the winner post a $1 million bond. Underwood said he couldn't afford that either, so he submitted a "best final offer,'' reducing the amount to $200,000. The DMV accepted his offer and made it part of a five-year contract with an option to renew in 2010 for five more years.

Underwood testified he once had to get a second mortgage on his oceanfront Ponte Vedra home to pay printing costs, which he estimated at $700,000 to $750,000 the first year of the contract. "I could have lost everything,'' he said.

But his success in removing the $1 million bond left hard feelings.

"Half the people didn't bid on it (the contract) because they didn't know about it,'' said Bart Cassidy Sr. of the American Safety Institute, which also offers online traffic courses. "And once the bid process was completed, all these arduous things you really couldn't do were taken out.''

The perception of something fishy was also fueled by this: Sherry Dickinson, a lobbyist for Underwood, was married to then-DMV executive director Fred O. Dickinson.

State auditors found no evidence that the relationship "directly influenced'' the contract award. But they said such arrangements "could give rise to allegations of conflicts of interest and a resulting loss of public confidence in the fairness of the department's procurement process.''

Dickinson said his wife only did legislative work for Underwood and never lobbied the DMV on his behalf. "We went overboard in trying to solicit as many partners or potential partners, including the competition that is now complaining,'' said Dickinson, who resigned in 2007.

Underwood's exclusive advertising deal up-ended Florida's traffic school industry.

In 2006, the American Safety Council was still the state's leading provider of online traffic courses. That year, 149,750 people took its Basic Driver Improvement course compared to 88,700 for Underwood's LowestPriceTrafficSchool.com. A year later, Underwood's school surged to 134,000 while the safety council's number dropped to 128,150.

Competitors have complained that Underwood's advertised prices often omit fees and assessments that bring the actual cost close to the $30 typically charged by others. But since he got the contract, the number of students at competing schools has nose-dived.

"We haven't lost our business, but it's down to almost nothing,'' said David Rayburn of Plant City-based Florida Online Driver School.

Gari Garimella, manager of National Driver Safety Services and I Drive Safely, said his companies offer online courses in 30 states. But Garimella said he has never come across the kind of arrangement Florida has with Underwood. None of the nation's largest states — New York, California and Texas — allow traffic school ads in their driver handbooks.

"There is a significant share of the market in Florida that is locked up because of the advertising that is happening," Garimella said.

Crist veto helps

The handbook ads weren't the only promotion for Underwood's business. State troopers, who are DMV employees, at one point were giving motorists a "traffic school reference guide'' listing approved schools. LowestPriceTrafficSchool.com topped the list with a 1 by its name.

Sen. Mike Fasano, R-New Port Richey, said he called Col. Christopher Knight, head of the patrol, after getting complaints.

"I said I had concerns that some of your troopers, when they pulled an individual over to give a ticket, would then hand them a sheet showing traffic schools and it happened to be Underwood's and that was very inappropriate,'' Fasano said.

The practice stopped. Underwood later hired Knight after he resigned from the FHP in an unrelated controversy.

Worried about the perception that state government "was bending over backward'' to help one school, Fasano put proviso language in the state budget that would have banned the DMV from printing the driver handbooks with advertising. The ban was vetoed by Gov. Charlie Crist, one of many beneficiaries of Underwood campaign contributions.

On March 31, 2006, Crist, running in the Republican primary for governor, received the maximum allowable $500 contribution from each of 14 similarly named companies — a total of $7,000 in a single day. All 14 companies had been created four days earlier and listed Underwood as the sole officer.

Since 1999, Underwood and his companies have contributed a total of $425,675 to the Republican Party of Florida and elected officials. Most of the contributions have been made since he bid on the handbook contract in 2005.

Underwood's National Safety Commission has spent at least $300,000 more on Tallahassee lobbyists.

"He's given to governors and senators and representatives, and that's how influence was waged,'' said Cassidy of the American Safety Institute. "No matter who you turned to, you couldn't get any help with this (contract) and getting it rescinded.''

Lots of litigation

In 2008, the Florida Providers for Traffic Safety, which included Cassidy's company and other traffic schools, sued the DMV and Underwood seeking to invalidate the handbook contract.

The case was settled early last year, with Underwood paying the group $15,000 in return for his competitors agreeing not to sue him or the DMV again.

"All I had heard from the department was complaints, complaints, complaints,'' Underwood testified. "Now I could go to them and say, 'I have this settlement agreement with, you know, the hounding dogs,' as the department refers to them a lot of times.''

But in its own settlement with the traffic schools, the DMV said it would not renew the contract. That did not sit well with Underwood, and he sued.

During a nonjury trial last October, Julie Jones, the DMV's executive director, explained her decision.

"Mr. Underwood admitted he gets 100,000 hits from the Highway Safety website back to him that gives him marketing opportunities,'' Jones said. "So from a good policy aspect I thought it was very important to rein all this in, get it directed back down to what the handbook is supposed to be about, which is educating first-time drivers, period.''

Jones said the contract also hurt the department's ability to partner with others.

"We've got teen driving initiatives with the Department of Transportation, with the Highway Patrol, with the sheriff's association. These are things we should be marketing to our youth, not all of these products that Mr. Underwood has been throwing out. It's out of control.''

Underwood acknowledged that the handbook is key to his business plan, which includes not only new types of traffic courses but other products aimed at teenagers such as his Stereofame music game and cell phone applications featuring popular music groups.

He said record companies are more likely to deal with him because he has "something that other app developers can't offer, and that is access to 700,000 teens in Florida.'' He described one example of potential cross-promotion: Up-and-coming bands like Burnham, an opening act for teen idol Justin Bieber's 2010 world tour, could be featured in handbook ads urging young drivers to "buckle up.''

"Everything revolves around that handbook,'' Underwood testified. "That's what we have that's unique to us and nobody else has. We try to leverage that as much as we can.''

In December, Leon County Circuit Judge Jackie Fulford ruled that Underwood's National Safety Commission had "an unambiguous, unilateral renewal'' option that entitled it to print the handbook for another five years.

But the appeal court, in its 2-1 ruling, said the contract is governed by chapter 287 of Florida law, which requires "mutual agreement'' of both parties to renew a state contract won through competitive bidding.

"Having submitted itself to chapter 287 in order to win the contract,'' the court said, "NSC should not now complain if chapter 287 governs the contract.''

'Efficiency in business'

While the case goes on, the two sides have continued to spar.

Late last year, the DMV canceled the online learner's permit tests offered by Underwood and others since the 1990s. The department said the online tests were unreliable because a study involving several hundred people found that nearly 60 percent of those who passed online failed when they took a retest in a driver's license office.

Underwood hired his own expert, who concluded the state study was flawed. He also got help from state Sen. Tony Hill, D-Jacksonville, who in the final days of the 2011 legislative session introduced an amendment requiring the DMV to restore the online tests.

Hill said it "just disturbed'' him that the department seemed to be retaliating against Underwood for winning at trial.

"For several years we've been trying to get the lines down so you're not waiting four or five hours'' in a driver's license office, Hill said, adding that online testing "is just another efficiency in business.''

The amendment passed, and online testing resumed in July. Underwood's school and three others offer the online test, which costs about $30 and is taken by nearly 125,000 Florida teenagers each year as a prerequisite for getting a license.

Although the economy has hurt all Florida traffic schools, LowestPriceTrafficSchool.com last year had 25 percent of the market for the basic driver improvement course and 53 percent for the Traffic Law and Substance Abuse Education course, required for all first-time drivers. No other school came close.

If the DMV prevails in court, it means an end to Underwood's exclusive ad deal but also a scramble to print the 2012 handbook. Officials have estimated the cost at $300,000, although a lawyer for the DMV noted at trial that an insurance company paid Underwood nearly $200,000 for a single ad in last year's handbook.

"You could get tire companies,'' said attorney E. Jason Vail. "There's a whole range of potential advertisers beyond traffic schools.''

Testifying last fall, Jones, the DMV director, expressed her frustration over an issue that has bedeviled her department for six years.

"Ever since this contract was made two executive directors ago, everybody has been fighting. My desire to level the playing field has nothing to do with Mr. Underwood. I think he did everything he needed to do. He's a clever businessman, (he's) good at what he does. … But the contract, the way it is written, I think it limits my ability to use the handbook to market public safety.''

Susan Taylor Martin can be contacted at susan@sptimes.com or (727) 893-8642. Dan Sullivan can be contacted at dsullivan@sptimes.com or (813) 226-3321.

Different in name only

Under Florida law, an individual cannot contribute more than $500 to a state candidate in a primary or general election. But businesses connected to an individual donor can each contribute $500.

On March 27, 2006, Ponte Vedra traffic school owner Kenneth L. Underwood incorporated 14 similarly named companies that listed him as the sole officer. On March 31, each company contributed the maximum amount to Attorney General Charlie Crist's gubernatorial campaign. As governor, Crist vetoed a provision in 2007 that would have hurt Underwood's traffic school business.

Florida tries to undo traffic school owner's publishing contract 10/14/11 [Last modified: Saturday, October 15, 2011 9:56pm]

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