ODVA software deal ended in litigation

The Journal Record Logo

By M. Scott Carter | August 21, 2012

OKLAHOMA CITY – From 1999 to 2003, the Oklahoma Department of Veterans Affairs paid more than $7 million for custom-designed software that it never received, court documents obtained by The Journal Record show.

Detailed in evidence exhibits, memos and court filings, documents show that the ODVA spent $7,506,584 with Texas-based Novosad Hayes and Associates, or NHA, to make sure ODVA computers were ready for the Dec. 21, 1999, calendar change and to develop custom software to link the agency and its seven veterans centers.

The records were part of a lawsuit filed by then-Attorney General Drew Edmondson’s office against Novosad in 2004. And though the case originated in Oklahoma City federal court, it was eventually remanded back to Oklahoma County District Court, where it was settled.

Developed in 1999, a technology services agreement between Novosad and the ODVA earmarked millions of dollars in state funds for the three-year project. Documents show that the first year’s goals included making computers at the ODVA and its seven veterans centers compatible for the turn of the century.

“This approach should eliminate most Y2K-related problems from the agency’s computer system,” according to an attachment to the ODVA contract. “However, ODVA expects some Y2K problems to remain.”

As the year 2000 approached, many government agencies and private companies feared that outdated computer calendar software would cause problems when the calendar changed from 1999 to 2000. Across the country, governmental agencies and private companies spent millions of dollars seeking to prevent system failures and software problems.

However, on New Year’s Day in 2000, few computers suffered from Y2K glitches.

But in their lawsuit, ODVA officials reported that Novosad accomplished only the first-year goals of the contract.

The project had become so mired in problems and change orders that just three days after Novosad sent a demand letter to the ODVA seeking an additional $5.2 million in funds, the ODVA responded by ordering Novosad staff to vacate the agency’s building.

“On Jan. 24, 2003 Novosad demanded to be paid an additional $5,236,983, yet still had not delivered the software product that was the subject of years two and three,” the ODVA said in a court filing. “Novosad has breached the agreement by failing to deliver the software product.”

On Jan. 27, ODVA officials demanded that the company leave the agency’s building.

“(The) ODVA gave NHA notice to vacate the premises due to its breach, thereby canceling the agreement for cause,” the ODVA said in its complaint.

Novosad, state records show, had requested at least three different change orders in the project. In one order, ODVA staff members justified the change, saying it was caused by several circumstances that were expected but not foreseeable.

In a memo from ODVA auditor Steven Diffee to Betty Cricklin, a buyer with the Department of Central Services, Diffee said the change – which totaled $385,700 – was due to the additional programming and software development identified in the operational analysis.

Novosad, Diffee wrote, needed to complete the operational analysis so they could identify what needed to be done in the way of programming and software design in order to have the ability to plan and execute the work requirements in an effective and efficient manner.

“To do this NHA visited each of our facilities and identified roughly 200 or so staff functions per center,” he wrote. “The number of functions identified was far greater than what was originally anticipated. This change accounts for the large increase in programming hours necessary to complete the project.”

Diffee said the company had originally planned to purchase software packages that could be customized to each function. However, that idea didn’t work out. Instead, Diffee wrote that Novosad determined the software could not be changed and that custom-developed software was needed.

“As you know it is always more expensive to develop and write in-house custom software as opposed to purchasing software packages,” he wrote.

Novosad responded to the lawsuit, filing a counterclaim and seeking to dismiss the case. In addition, Novosad attorney Heather Hintz wrote, the ODVA caused the problems by failing to provide Novosad with adequate work space, supplies and equipment and wrongfully withholding payments due the company.

“As a result of ODVA’s constant breaches of its obligations under the technology services agreement, NHA was forced to expend thousands of man-hours and millions of dollars in an attempt to complete the project,” Hintz wrote.

The company’s former attorney, Bob Sheets – a shareholder with the Phillips Murrah law firm – said the case was eventually settled out of court.

“We filed a counterclaim,” he said. “That was a while back, but it was settled.”

Telephone calls to the ODVA and Novosad were not returned.