State's no-bid contract takes fire

Some wonder if S.C. paid too much to insure property

COLUMBIA — South Carolina hired an insurance broker with ties to a former legislator to provide coverage without seeking competitive bids, a practice that may have cost millions of dollars during the past 25 years.

The state Budget and Control Board contracted with Columbia's Competitive Insurance Group LLC, formerly known as the Thomas Brown Agency, to provide the reinsurance for state-owned property without opening up the process to competitive bid since the late 1980s.

The annual contract was worth $20.8 million last year. One of the company principals is Bobby Kneece Jr., son of the late Rep. Robert Kneece of Richland, who served in the state House of Representatives from 1966 to 1976.

"We'll be happy to participate in any type of review process that the state deems necessary to satisfy their needs in receiving a valuable service at a fair price," Kneece said Thursday.

The Government Efficiency and Accountability Review Committee, ordered by Gov. Mark Sanford, issued a report earlier this month that estimates that the state could save more than $2 millionlion a year by bidding out the contract. It is not clear how much commission the company has collected.

"Any time that there's a process where somebody is selected without a competitive bid process, it looks suspect," said Rep. Murrell Smith, R-Sumter. "Everything needs to be out in the open."

Smith, who originally looked into the issue after it was raised by one of his constituents, wrote a directive that was passed by the Legislature, ordering the Budget and Control Board to rework its practices. The contract will be put out for bid next month.

Still, Smith noted that just because the contract wasn't put out to bid doesn't necessarily mean the state didn't get the best coverage at the best price. Rather, the process is what raises concern.

"We don't know if we're overpaying on this insurance," Smith said.

Reinsurance is an industry term that means insurance coverage for insurance companies. The state insures its own property but pays a premium to an outside company to share in the risk.

Competitive Insurance Group, under its old name, has been awarded the reinsurance contract for the last 25 years. The Budget and Control Board has relied on an exemption to award the contract without bid for the last 19 years.

Herbert Hayden, executive director of the State Ethics Commission, said he sees no conflict of interest. No prohibition exists for a company with ties to a former lawmaker to receive a government contract as long as that official does not participate in the decision to issue the work, Hayden said.

According to a 2001 agenda, the board was given information that a bid process could fail to yield a reinsurance contract because of troubles in the market. The staff recommended the board extend the contract through an existing exemption, as it had done twice before.

"The insurance staff has felt this is a very unique product, a very specific need, and it required someone with specific knowledge and background," said Michael Sponhour, spokesman for the Budget and Control Board. "Some states have had trouble getting all the reinsurance they need, and we have not had that problem here."

House Speaker Bobby Harrell, R-Charleston, said he is disappointed to learn about the practice. "Frankly, this says we have to take a close look at other contracts the Budget and Control Board is responsible for as well," he said.

Kneece stressed that although his company has continued to receive the contract through the exemption, the process was open.

"The details are there for review on an annual basis," he said. "Again, we believe we've provided a valuable service at a fair price."

The governor's accountability report estimates the annual projected savings based on Kneece's company collecting 10 percent commission on the premium, and also recommend the state pre-negotiate a flat fee with a broker.

Kneece said the report's estimates are speculative.

"Any assumption that there is an exorbitant amount of money being made on this is incorrect," Kneece said.

Sanford wants to dissolve the Budget and Control Board. He argues that putting control of administrative spending under the executive branch would provide more accountability and efficiency.

Reach Yvonne M. Wenger at ywenger@postandcourier.com or 803-799-9051.