An Illinois-based company’s million-dollar contract with Kentucky could be in trouble after one of its executives testified it paid a state lobbyist on a “success basis” during a federal bribery trial earlier this month.
Kentucky pays Cannon Cochran Management Services Inc. about $1 million a year to manage the state’s workers’ compensation claims. The company won the contract in 2005 under former Republican Gov. Ernie Fletcher and has kept it ever since.
State officials recently renewed the contract for another two years. But that was before Jerry Armatis, CCMSI’s executive vice president for sales, testified during James Sullivan’s federal bribery trial last week in Lexington. Armatis said how much money they paid Sullivan’s consulting firm depended on whether the company won a state contract.
“We paid them on a success basis,” Armatis testified in court, defining success as “winning a contract.”
Armatis testified the company continued to pay Sullivan’s firm a percentage of the contract’s value each year because “quite frankly, we are loyal to people who help us obtain business.”
But state law bans lobbyists from being paid in this way. The law, KRS 11a.236, says people cannot lobby “for compensation that is contingent in any way on the outcome of an executive agency decision.” There is an exception for paying sales employees based on incentives, as long as the same plan is offered to other employees who are not lobbyists.
The law’s purpose is to prevent situations of lobbyists being tempted to bribe lawmakers and government officials. It has been in place since 1993, part of an overhaul of the state’s ethics laws after 22 lawmakers and lobbyists were charged with giving and taking bribes regarding legislation governing the horse industry.
‘We have grave concerns’
CCMSI’s contract was awarded by the Kentucky Personnel Cabinet. Friday, a state official sent Armatis a letter indicating his testimony and “recent events continue to raise concerns” regarding the contract.
“It is imperative that we meet to discuss the matters raised at trial,” Chris Lewis, executive director of the Office of Employee Relations, wrote in the letter.
Personnel Cabinet Secretary Tom Stephens attended the trial and heard Armatis’ testimony. Last week, he began an internal review of the contract that could include termination. Most state contracts allow the state to withdraw for any reason with 30 days’ notice.
“We have grave concerns with what’s come up in the trial,” Stephens said. “We take it very seriously and we are beginning our due diligence process to look into it.”
Armatis did not return a phone call from The Associated Press seeking comment.
Ending the contract would require a lot of work. Kentucky’s workers’ compensation program is massive, paying out about $20 million a year in claims. CCMSI has an office in Louisville of people who do nothing but manage claims for the state. In the 2015 fiscal year, the company saved the state more than $12 million, according to Armatis’ testimony during the trial.
CCMSI hired Sullivan’s consulting firm to help it win the contract. While a registered lobbyist, Sullivan made multiple cash payments to Tim Longmeyer, who at the time was responsible for signing the contract with the state. The FBI says these were illegal bribes. But Sullivan called them loans between friends.
Authorities said there is no evidence CCMSI knew about the payments between Sullivan and Longmeyer.
Last week, a federal jury found Sullivan not guilty of bribing Longmeyer to keep the contract with CCMSI. But they did convict him of bribing Longmeyer later, when he was deputy attorney general under Democrat Andy Beshear. In that case, prosecutors had video and audio recordings of Sullivan handing Longmeyer $1,000 in cash after speaking with him about possibly giving a contract to some outside law firms.