No Time for a Punch Clock: Managing the People Who do the Public's Business

Tax-preparation giants Intuit and H&R Block won a temporary injunction Thursday against the Department of General Services and the Franchise Tax Board that freezes work on the boards promise to have fillable EZ return tax forms available online by Jan. 1. Further, Judge James Ford commented that, when the case concludes in November, it is likely that the states contract for the necessary software will be ruled invalid and illegal.

Block and Intuit filed suit over a technicality of procurement. The states contract with Andersen Consulting was a subcontract of the states telecommunications deal two years ago with Pacific Bell and MCI for massive redesign of the states telecommunications system, in a project dubbed the California Integrated Information Network (CIIN). The contract allowed the private firms to subcontract components. One such subcontract was given without competitive bid in late summer to Andersen Consulting to create tax-calculation software for the Franchise Tax Board.

Internal board e-mail cited by Intuit and Block indicate a desire to facilitate the tax project quickly, without using normal procurement methods, and suggest some concern that such a subcontract might not be completely allowed under the
CIIN contract. After Intuit complained of that, during the rushed invitation to bid process run not by the state, but by Pacific Bell, the Department of General Services amended the contract on Sept. 22 to broaden it co cover "custom-designed software applications."

The crux of the dispute is that the state claims the Andersen deal is merely a subcontract, while Intuit and Block argue that tax-calculation software is not a telecommunications project at all, and therefore cannot be part of the telecom contract. This being the case, the tax software would have been required to be open to public bidding, which it was not.

Ford quizzed state attorneys Thursday on the specifics of the deal, and on the exact nature of the telecommunications and tax projects. Lawyers for the state agencies and the CIIN vendors argued that the Andersen program would be a
simple calculation and transmission program, not a tax-preparation program. The Pacific Bell invitation that Andersen eventually won, however, does say the proposed software must "be able to prepare both the federal 1040 EZ and state 540 EZ tax returns."

The states attorneys filed statements observing that, since the state has run programs allowing professional tax preparers to file documents online, and allows low-income residents to file by phone, the proposed tax project is merely the next step in service. Frank Lanza, the tax boards director of electronic tax administration, filed a statement that, since the specialized functions of professional tax preparation and advising would not be included in the program, "the functions of the pilot are properly characterized as data entry, basic mathematics and data transmission," not actual tax preparation.

Ford prodded the state to find where, exactly, in the description of the tax project it was defined as a data transmission. This sent the attorneys and a dozen private- and public-sector advisers into two recesses as technical experts and legal experts conferred, and the judge didnt seem entirely satisfied on the issue.

At the end of the day, Ford came out strongly in favor of Intuit and Block.

"The publics interest is best served in restraining further deployment of this system to protect the integrity of the state procurement law," he said. "Ive found a strong likelihood that these people are very likely to succeed on the merits of this complaint. The CIIN contract is OK. The Andersen subcontract is a separate contract and has to be open to public bid."

Because the litigation is ongoing -- the case reconvenes Nov. 10 -- Franchise Tax Board and Department of General Services spokesmen declined to comment on the hearing. Jim Reber, director of communications of the Franchise Tax Board, did say that regardless of the resolution of this contract issue, the board would not abandon efforts to get tax filing online.

"The temporary stay was narrowly focused on the contract issue, and in no way, shape or form is it going to prohibit us from our sovereign obligation to provide services to California taxpayers," Reber said. "Were going to develop forms and applications and instructions that help make this arduous process of tax filing as simple as possible.'