One of the more interesting comments I received from a number of readers regarding the last post on Parthenon’s role in the NIGP #CodeGate controversy, is whether or not the NIGP actually practices what it preaches in terms of adhering to the principles of good contract management.
Specifically, in 2001 when Periscope acquired the rights to the NIGP Code through it’s acquisition of Simonton Enterprises, and again in 2014, with Parthenon Capital Partners “Control recapitalization of Periscope Holdings” and the simultaneous merger with BidSync.
The thinking here is that there had been material changes to the relationship in which a transfer of the existing contract between the NIGP and Periscope took place through either a takeover or merger.
Based on my research, there are a number of potential issues and questions relating to the original contract, and the two critical transfer points in both 2001 and 2014.
To start, what was the nature of the actual agreement between the Founding NIGP Code’s creators and Simonton? Were there any prohibitions on transfers, or did the contract’s terms permit free assignment? It would be great to obtain an original copy of that contract.
Even assuming that the assignment of the NIGP Code custodianship rights to Periscope when they acquired Simonton was permitted, there are according to research, still a number of issues that can arise with “transferring rights and obligations under a contract.”
Once again, and as highlighted in my April 10th, 2015 post The NIGP Code History: A Timeline To Trouble?, even though Simonton had been granted exclusive contract rights for what was at the time a nascent tool, there must have been some belief by all concerned that the NIGP Code would become increasingly important over time. Given this importance, one would reasonably conclude that the original contract with Simonton would provide the Code’s originators with a high degree of flexibility relative to its stewardship, if and when a new entity entered the picture.
Of course the original 1983 agreement granting Simonton exclusive contract rights would appear to be a far simpler process than it would be in 2001, when Periscope acquired Simonton.
Back in 1983 the customer or Code user base was perhaps modest at best – although it would be interesting to see if said users extended beyond the founding member’s government entities.
However, when the Code user or licensee base grew to include 33 States, and numerous government entities such as municipalities, the Periscope acquisition could (or should) not have involved a mere assignment of the existing Simonton contract. The same would also apply in 2014 – especially since the relationship between the key principles now included a third party being Parthenon.
“If the assets of a company are taken over or the company merges with another, this will affect its legal identity. When this happens, any contracts which that company is a party to will need to be adjusted so that any rights and obligations it has will transfer to the new company.” – out-law.com
This is an important consideration given the degree of impact that the 2001 and 2014 transfer points had on NIGP Code customers or licensees.
For example, did the NIGP in 2001 engage the customer base or licensees from both the government and vendor communities to seek their consent through a novation or novation agreement? Or did they rely on what is referred to as a deemed acknowledgment of transfer?
With a deemed acknowledgement of transfer it is assumed that the customers – if properly notified of a change in ownership – acknowledges said change by starting to deal with the new company (Periscope). In this instance, their actions could be taken as an agreement to the novation.
However, and according to the out-law.com site, there is a risk that a court could decide that the “lack of written consent” from the customers, could mean that “the novation – and therefore the complete transfer of the contract – is ineffective.” In essence, could the original Periscope acquisition of Simonton still be challenged in a court of law? After the time that has elapsed I do not think that it could. Of course prior to Parthenon, I do not believe that there would have been a reason to challenge – even though in hindsight it might have made sense to do so.
That being said, the next question in the here and now is whether or not Parthenon’s “control recapitalization” of Periscope and the subsequent BidSync merger would be considered a material change in ownership? If it is, and given that I have not yet come across a novation or novation agreement, does this give customers such as Perfect Commerce as a licensee, the right to challenge the 2014 Parthenon – Periscope agreement relating to both the recapitalization and merger? Might be worth investigating further given that both the NIGP and Periscope have threatened to pull their license as a result of their winning the Missouri bid?
After all, there was a merger that took place per the Parthenon 2014 Year In Review release involving Periscope and BidSync – refer to the image and corresponding link below.
Based upon the above, it would certainly appear that a merger involving Periscope has taken place. If it has, then at least in theory, Perfect Commerce – or anyone else who felt that their licensing rights to the code were being unjustly threatened, could possibly void the merger if not the entire Parthenon deal.
This of course brings us full circle back to the NIGP practicing what they preach in terms of proper contract management.
All of this at this point is somewhat speculative, especially since I have not yet had the opportunity to review the original contract between the Code’s Founders and Simonton, or the 2001 agreement with Periscope after they acquired Simonton. I would also like to review the fine details of the Parthenon deal with Periscope including the BidSync merger to see how the NIGP handled this latest transfer in terms of their contract practices relating to the Code’s stewardship.
One thing is certain however . . . if the licensees did not give their consent for the 2014 Parthenon recapitalization/merger deal involving Periscope, and it was deemed to be a requirement, then this whole story could take a very interesting turn.
A Final Thought
Periscope is both the licensor and licensee of the NIGP Code? In and of itself, isn’t this a potentially serious conflict of interest? Shouldn’t the licensor and licensee be two separate and unrelated entities? Based on research, this is another ‘principles of procurement’ kind of issue . . . being the Contract Administrator and being able to issue yourself a license from the contract.
How would Periscope the licensee be monitored for compliance by Periscope the Contract Administrator? And what about the conflict of Periscope monitoring customers of their eProc system for license compliance?
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