State asks court to force completion of $2.3M procurement software contract

Delaware taxpayers could be on the hook for a nearly $2.3 million state procurement website that may never function as originally envisioned by state officials.

In 2014, the state's procurement office, known as Government Support Services, hired the North Carolina-based company SciQuest Inc. to build a website where various state agencies could advertise open contracts, private vendors could submit bids and the public could keep tabs on the proceedings.

Two years later, only a portion of that site has been launched. Meanwhile, GSS and SciQuest are now embroiled in a legal battle over the long-delayed project that stalled out in September.

GSS, a division of state's Office of Budget and Management, is suing SciQuest Inc. in Delaware Chancery Court, claiming the 21-year-old software company violated the $2.26 million contract by halting the project.

Having already paid $1.12 million to SciQuest, the agency is withholding the remaining funds in the hopes the court will force the company to complete the job.

GSS also is asking Vice Chancellor Tamika Montgomery-Reeves to block SciQuest from suspending its access to the one portion of the project that is complete – a web portal known as the State of Delaware eMarketplace that launched last fall. Closed to the public, the site is now used by various state agencies to comparison shop among multiple suppliers for frequently used items like office supplies, milk, pharmaceuticals, computers and ammunition.

The unfinished portions of the website would provide the ability to "receive, administer and validate sourcing activities," according to court documents.

"The state will suffer irreparable harm if the project is limited, canceled or suspended," Deputy Attorney General Lawrence Lewis wrote in the state's suit. "[T]he marketplace function that is conditionally accepted and currently used by state agencies to perform statutory purchasing duties on a daily basis would abruptly cease, causing major and immediate disruption in state government."

SciQuest has filed counterclaims arguing it met every contract requirement and more.

The company insists it provided the software that GSS needs, while even throwing in additional software and $61,000 worth of software licenses for free to ensure it met the terms of the contract.

The problem, SciQuest contends in court documents, is that GSS sought "never-ending and unbridled customization requests" even though the company promised to deliver "out-of-the-box" products and not custom-built software.

A typical client who buys SciQuest's software submits four or five "enhancement requests," SciQuest attorney Lawrence Kunin said during a court hearing Tuesday. To date, GSS has submitted 97.

"The project went out of scope," he said. "SciQuest tried to work with the customer, but it got to the point where enough was enough."

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Three days after eMarketplace's launch, GSS sent the contractor a letter stating it would be withholding about $290,200 from its annual payment to SciQuest as a result of the company's "failure to deliver a fully functional electronic procurement system."

After several months of negotiation, SciQuest informed GSS on Feb. 22 that it would be suspending work on the project.

"SciQuest tried for months to be patient and address GSS's out-of-scope requests ... but it became clear that GSS was refusing to accept its own requirements and refusing to pay as contractually required," according to court documents.

GSS filed its lawsuit against SciQuest less than a week later.

While stating his arguments to Montgomery-Reeves in person on Tuesday, Lewis said SciQuest still owes the state a functioning website. The contract is slated to end in August 2017 while a final payment of $584,000 is due on Aug. 22.

Kunin said his client still wants to be a "good vendor" and "keep its word."

"The products are capable of being implemented in their current condition," he said. "And we have not turned off [eMarketplace]. But we haven't been paid and if we're not going to be paid, we'd like to turn it off."

Montgomery-Reeves said she would consider whether to issue a summary judgment. But she also suggested attorneys for both sides may want to consider negotiating an amicable resolution or begin preparing for trial.

"I don't see any reason you can't resolve this without my help," she said. "We have two willing parties and it seems like one of those [cases] that should be settled between you."

GSS Director Dean Stotler and the attorneys representing the agency declined to comment on the case this week. SciQuest officials and their attorneys also declined repeated requests for comment.

Contact business reporter Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.