Appeals ruling puts EBT project in limbo

A federal appeals court has ruled that the Treasury Department improperly awarded a
multimillion-dollar contract to Citibank to provide electronic benefits transfer services
in eight southeastern states.

The decision, handed down Aug. 13, reverses a ruling by the U.S. District Court for the
District of Columbia that upheld Treasury's use of a noncompetitive invitation for
expressions of interest (IEI) for selecting an EBT services contractor [GCN Sept.
18, 1995, Page 72].

The new ruling leaves the status of the seven-year pact, valued at between $400 million
and $1 billion, in doubt.

In their ruling, the appellate justices ordered the case sent back to Treasury
"for proceedings not inconsistent with this opinion."

The ruling has the department perplexed. "I don't know what it means," said
John P. Galligan, director of payment modernization at Treasury's Financial Management
Service. "There have been quite a few meetings with attorneys and officials. We're
going to stand by and see what the administration's position is."

A spokesman for Transactive Corp., the Austin, Texas, company that filed the suit
challenging Treasury, was more certain as to the decision's meaning. "We believe this
decision clearly eliminates an IEI procurement for EBT services," spokesman Marc
Palazzo said.

That interpretation would clear the way for Transactive to compete for the cooperative
state-federal program for what is dubbed the Southern Alliance of States. Transactive
operates other state-level EBT programs.

Citibank, which has been negotiating contracts for EBT services with SAS member states,
said in a prepared statement that it was disappointed in the decision.

"Citibank believes that the IEI process is valid and that use of the process
protects the interests of the state and federal governments," the statement said.

SAS, which includes Alabama, Arkansas, Florida, Georgia, Kentucky, Missouri, North
Carolina and Tennessee, joined with the Federal EBT Task Force in 1994 to develop a
program that was to be a model for electronic delivery of state and federal benefits.

Recipients would use debit cards to access special accounts through automated teller
machines and retailers' point-of-sale terminals. FMS officials estimate that the system
will save millions of dollars spent processing benefit checks and will reduce fraud.

Treasury, which selected the prime contractor for the program, maintained that a
financial agent of the government was needed for the job and used the IEI process, which
is limited to financial institutions. Transactive, which wanted a shot at the contract,
argued unsuccessfully in the lower court that the process violated the Competition in
Contracting Act.

But the appeals court agreed with Transactive. Though federal laws do not address EBT
specifically, the justices noted that the processes are similar to direct deposits and
electronic funds transfers, for which Treasury regulations do not require use of a
designated financial agent.

"Treasury based its decision to use an IEI on its mistaken belief that only a
financial agent of the federal government could legally fulfill the specifications of its
EBT design," the court ruled.

Three of the eight SAS member states already have negotiated contracts with Citibank.
Transactive's Palazzo said that because the federal portion of the contract has been
invalidated, he believed the entire program--even the signed deals--now must be thrown
open to competition.

"SAS will, either as a multistate consortium or as individual states, have to
issue requests for proposals in the future," Palazzo predicted.

About the Author

William Jackson is a Maryland-based freelance writer.

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