News

Sandoval County Claims Broadband Bamboozle
— continued

Audit raises questions; lawsuit filed
The New Mexico State Auditor's office was the next one to jump into the fray when they launched an investigation into the case in February, 2007. The ensuing audit revealed a stunning series of problems and missteps. Their findings included:

• Jonathan Mann, who had been hired to write the county's bid specifications for the broadband project was allowed to bid on that contract and, ultimately, won the contract. Such a practice is reportedly banned by the State, but not by the county. However, the State auditor admonished it as a poor practice.
  
  
• The County paid tens of thousands of dollars to contractors before the work in question was completed and verified.
  
  
• The primary contractor (Sandoval Broadband) was not required to post a performance bond to ensure that the job would be completed as promised. Liability insurance was finally purchased over a year after the project began.
  
  
• The County failed to report $2.2 million in expenditures, which included $1.3 million for broadband construction—to the state Department of Finance for the audit. Failure to disclose this would have affected county bond ratings and "exposes the county—to possible fraudulent activity."
  
  
• The county paid over $50,000 to set up Olle Grande (later renamed to Sandoval Broadband) as a private company. This allowed the hiring of subcontractors and for payment of public money to be shielded from public scrutiny. It also raised issues of compliance with government requirements imposed on ISPs.

New Mexico State Auditor Hector Balderas further concluded that county officials' "lack of accountability hurt the taxpayers of Sandoval County." He added that "had they [Sandoval County officials] followed simple, prudent, governmental finance practices … the contractors would probably have been held more accountable. And there would have probably been a substantial savings or at least a minimization of the cost to the taxpayers."

In November, 2007—weeks before the audit was officially released—Sandoval County filed a lawsuit against Jonathan Mann and Dewayne Hendricks. According to reports by the Albuquerque Journal, the suit alleges that the men deliberately deceived the county about their ability to complete the project and that they failed to fulfill their obligations to provide the promised services.

There were also allegations of fraud, breach of trust, unjust enrichment, violation of the unfair trade practices act and that Mann and Hendricks provided false and misleading allegations about their credentials and ability to provide a functional broadband network.

The lawsuit further alleged that the "defendants used exaggeration, innuendo or ambiguity as to material facts regarding the goods to be provided and the services to be performed under the contracts with the intent to deceive the county, and did in fact deceive the County." Additionally, the Journal reports that the suit charges that Hendricks and Mann "willfully and maliciously" engaged in a breach of good faith that resulted in harm to the citizens of the county.

Sandoval County, represented by the Albuquerque law firm of Sutin, Thayer & Browne, is seeking repayment of costs, attorney fees, punitive damages and whatever additional compensation is deemed appropriate by the court. And this may not be the end to the possible legal actions.

"We also have a special investigation going on to identify certain transactions that may have been above the waste threshold and venture into an abuse and criminal threshold," said Balderas. "If we have findings in that area, I will refer them to the appropriate authorities and the FBI."

But was it really that bad?
Since his resignation from Sandoval Broadband, Hendricks has formed a new company: Tetherless Access, Inc. It is his sixth business.

Meanwhile, Sandoval County, while suing Hendricks and Mann, is going to spend more money to complete their work.

In fact, the one thing that everyone does seem to agree upon is that the project is feasible. Sandoval County recently hired the services of San Diego, California based NetLogix and international technology company CH2MHill to pick up where Sandoval Broadband left off. They will begin by building a backbone Internet link that starts from the Sandoval County Judicial Complex at a cost of about $144,000. CH2MHill will be responsible for equipment installation under a separate contract.

The next phase will be to build a network to distribute services to customers. Netlogix, has estimated the cost to buy and install wireless equipment to complete the currently proposed network at $950,000.

It would seem that Hendricks and Mann must have had some success—enough to persuade the county to spend a million dollars to complete their work.

Exceptional or all too normal case?
For now, it appears that part or all of the project will continue, as will the many questions surrounding it. One of the major questions to emerge from the Sandoval Broadband case is whether this is an isolated incident or if it is symptomatic of the larger issue of whether municipalities should even be involved in planning and financing such systems.

One example is the city of Chicago which recently "reevaluated" its plan to spend $18.5 million on a wireless system. The city now plans to redeploy the project in a year or two. New York and Philadelphia have also run into problems getting their Wi-Fi programs running.

In what may be the ultimate broadband scandal, accusations of corruption involving a national broadband network in the Philippines threatens to topple the government of President Gloria Macapagal Arroyo. The case involves a $329 million contract with Chinese firm ZTE and allegations of payoffs, kickbacks and bribes that total about $130 million. That contract has since been scrapped, but only after calls for the President to resign when her husband, lawyer Jose Miguel Arroyo, was accused of bribery and corruption.

In a report titled, "Wi-Fi Waste: The Disaster of Municipal Communications Networks," published by the Pacific Research Institute, the authors state that publicly financed broadband systems invariably cost more and deliver less than promised. In a survey that examined 52 government-owned networks that compete in the broadband, cable and telephone markets, the study concluded that government-owned systems are "financial disasters."

Muniwireless.com echoed this sentiment when they recently scaled down growth estimates for the industry from 108 percent to 35 percent. One reason is the problem of forcing contractors to provide services at the price that the local government has promised to voters.

"I am finding out that there is not enough compliance monitoring in governmental contracting," noted Balderas. "There is potential for abuse in the finance of these projects because you don't really have someone monitoring the backdoor."

In the case of Sandoval Broadband, he added, "Ultimately, I think the county could have prevented a lot of this, but made things actually even worse."

—End

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