New Audit Finds Dire Warnings Ignored in KentuckyWired Procurement

FRANKFORT, Ky. – A new audit finds repeated warnings during the KentuckyWired procurement process were ignored. 

Auditor Mike Harmon released the second phase of his investigation into the troubled rural broadband project. His latest audit finds that despite repeated warnings from outside consultants before and after the contract was signed state officials went through with the project–causing the taxpayers to be on the hook for the $1.5 billion projects. 

Harmon says the state paid the consultants $1.3 million and mostly ignored their advice. 

Phase two of the investigation looks at three major parts of concern: the original request for proposal (RFP) issued by the Commonwealth in July 2014 to when the project agreements were signed in September 2015. The report details Macquarie was selected to build KentuckyWired through a contract with the state in December 2014 but they continued to negotiate with the company shifting the financial burden from the company to the state. 

A January 2015 email from an outside law firm on the contract warned the state of the changes in the contract. 

“…the agreement significantly shifts, most, if not all, of many risks, both financial and liability-based, to the Commonwealth. It is heavily weighted in favor of Macquarie’s interest,” the email read.

Despite that warning and others from outside counsel, the state went through with the contract–but the signed master agreement would see many changes.

“To this date, we’ve been able to document 407 changes even after the master agreement was signed and many of those the original buyer with the Finance and Administration Cabinet was not made aware of it,” said Harmon. “It brings some great concerns in regards,” Harmon says the changes were significant and in part caused the commonwealth to bear most of the risk from the project instead of the private companies. 

It’s too late to make changes to the KentuckyWired project now but Harmon hopes to expose the flaws with the process that can help ensure the state doesn’t go down the same path with other projects including reigning in some of the power of the Finance and Administration Cabinet secretary.

“if you got a situation the General Assembly basically approves $30 million and you have with the signature of one powerful person can flip that to $1.5 billion,” Harmon said. “then definitely there needs to be some additional parameters to restrain that authority so this doesn’t happen again.” 

Bernard “Deck” Decker, The Interim Executive Director of Kentucky Communications Network Authority agrees the procurement process was largely mishandled. 

“In regards to the ignoring of outside counsel recommendations, I would point out that their warnings to the Commonwealth have all been realized,” he wrote in a letter to Harmon. “I would assume you ask for outside counsel’s advice due to lack of internal knowledge. By ignoring those that knew what they were talking about, those involved in this contract have increased the cost to the Commonwealth by hundreds of millions of dollars that they did not have a right to risk.”

Two rings of the KentuckyWired project have been turned on.