Monday, Aug 17, 2009, 10:06AM CST
By Matt Pulle
When MPH Industries, a Kentucky-based company that makes digital video cameras for patrol cars, lost out on a state contract, it claimed it never had a chance. That's because, the company argued, the Texas Department of Public Safety wrote the requests for proposals in such a way that only one bidder would win.
That bidder was WatchGuard Video, which at the time it landed the contract in 2006, had two state representatives--Republicans Ken Paxton and Byron Cook --among its initial investors. Another financial backer, Bob Griggs, was a former GOP member of the state House.
In correspondence with state officials obtained by Texas Watchdog, MPH Industries does not mention its rivals' well-connected investors, and it's unclear if the company knew of them. But MPH claims that WatchGuard Video may have received favorable treatment from Texas officials.
MPH's argument was highly technical in nature, but their main point was clear: State officials outlined a very specific type of digital camera that it wanted--and WatchGuard was the only company that made that type of camera. That device wasn't better suited to the demands of police work, MPH claimed. It was just uniquely positioned to take advantage of the state's bidding process.
"The manner in which the specifications are written is so narrow that the WatchGuard is the only system on the market that can meet them," wrote acting president Kevin Willis in a letter to state officials obtained by Texas Watchdog. "We hope the state will give due consideration to our product, which has been on the market longer and has much wider use than Watchguard."
(View the state document that shows all bidding companies, except for WatchGuard, were disqualified, and MPH Industries' response to the bid specifications.)
In a story first reported by the Associated Press, Paxton and Cook were among the early investors in WatchGuard Video, while Cook served on the company's board. Both Paxton and Cook voted for massive spending bills that funded the state's contract with the company they partly owned.
Watchguard's deal with the state, which could be worth as much as $10 million, calls for trooper vehicles in Texas to be fitted with WatchGuard digital cameras. Last year the Texas Parks and Wildlife Department also awarded a contract to the firm.
The Associated Press reported that in April 2008, WatchGuard Video claimed that its net earnings skyrocketed 250 percent. About three months later, Cook sold off his investment, with Paxton unloading most of it. On their personal financial statements on file with the state, both Paxton and Cook had disclosed ownership in WatchGuard Video in past years. But in the form filed in 2008, and covering calendar year 2007, Paxton did not disclose his ownership share.
Paxton and Cook's stake in WatchGuard Video may have breached the state constitution, which prohibits lawmakers from benefiting from a contract put in place by the legislature. But even if their ties merely place them in a legal gray area, political observers say that Paxton and Cook shouldn't have anything to do with a company doing business with the state.
“How can Texans ever come to believe that their government acts in the citizens’ best interests when their legislators can’t keep from mixing up their investments with their votes?" says Bill Baumbach, the editor of The Collin County Observer, a local news and political Web site. "And then when found out, these same legislators emit smoke screens that all too frequently go uncontested by the press."
'Not a small-time enterprise'
At issue is whether Watchguard benefited by having two lawmakers sign on as investors.
Tela Mange, a spokesperson for the Texas Department of Public Safety, says nobody at the agency had any contact with Cook or Paxton at the time they were evaluating bids for the videocam contract. She says the agency choose Watchguard because it made the precise type of digital recording device it was looking for.
Robert Vanman, the CEO and founder of WatchGuard, says he didn't divulge the names of his investors to the state, so it's not like he could have used them to curry favor during the bidding process.
Still, the Plano executive does admit to one curious thing: Using Paxton and Cook's status as elected officials to build the name of his fledgling firm. An early profile for Watchguard Video noted that his company is "held by an influential shareholder group that includes three state representatives, a judge, and a number of distinguished entrepreneurs."
If Paxton and Cook were not significant investors -- as Vanman is now claiming -- why reference them at all?
"The candid answer, " he says, before a deep pause. "That original profile was on our Web site during the start-up phase of our company, and it was intended to help demonstrate the case that the funding of Watchguard was significant and this was not a small-time enterprise. That was the point of putting that in there."
One ethics expert says that's hardly a good excuse.
"The CEO’s logic seems to be if the state has no knowledge that these lawmakers have a vested interest in the company receiving the contract, then it’s all cool," says Bruce Barry, a management professor at Vanderbilt University. "But concerns about conflict of interest in public affairs are as much about the appearance of conflict as the corruption that may result. The lawmakers who voted these spending bills knew they were investors in firms bidding on state contacts. So they have a vested interest in the contracting procedure."
Vanman says WatchGuard won its contract with the state of Texas for one simple reason: It produced a better product than MPH, its letter-writing rival. He claims his company's patrol cameras have features that come in handy in the course of routine traffic stops and arrests.
For example, WatchGuard's devices can play back and record video at the same time, allowing an officer to show a drunk driving suspect his erratic behavior while still providing footage of the offender's ongoing actions. Watchguard's patrol cameras also allow officers to record video on hard drive, a useful feature when the tape runs out.
"MPH, in our view, is kind of silly," Vanman says. "Their product is far less capable, and they have very little market success compared to WatchGuard. There's no way that MPH would be successful in winning a contract with the state of Texas because the product they offer is not capable of meeting the needs that a large agency has."
MPH did not want to comment for this story.
WatchGuard CEO defends investors, state constitution bans certain lawmaker conflicts of interest. On page 2.