Maximus highlights profits, not poor service

The performance of Maximus B.C., which has been administering provincial Medical Services Plan and PharmaCare records since last April, can't help but be bad news for parent company Maximus Inc., headquartered in Reston, Virginia.

Numerous news reports of mail apparently left unopened for weeks and phones that aren't answered, along with fines levied by the B.C. government for poor performance (details of which have not been made available by the government), must surely have head office a little worried about the 10-year, $324-million agreement signed last November.

The negative coverage can't exactly be encouraging for those considering investing in Maximus Inc.'s New York Stock Exchange-traded shares. Nor can it be an inducement for governments elsewhere thinking of signing outsourcing contracts with Maximus, whose slogan is: "Helping government serve the people."

Yet the parent company appears to be doing well, judging by its latest financial statement filed with U.S. securities authorities. Income grew by 8.4 percent, to a record US$173.3 million, according to Maximus Inc.'s quarterly report for the period April 1-June 30.

Well, thank goodness Maximus's operations elsewhere in the world are doing well, in sharp contrast to the problems its newly minted B.C. operation faces.

But in the parent company's "operations segment"-which includes the B.C. contract-Maximus did even better in percentage terms.

The company is formally crediting its B.C. operations with part of its revenue growth in that segment.

Year over year, third-quarter revenue jumped by 11.2 percent this year, according to the statement, known as a "10-Q" report.

"This increase was primarily attributable to the contribution from the new British Columbia Health Operations contract, which launched on April 1, 2005, and new federal work in the medical management area," according to Maximus management's "discussion and analysis of financial conditions and results of operations" included in the quarterly report.

However, the report also notes that the company's overall "operating margin" in the operations segment decreased 1.4 percentage points in the quarter, a decrease "primarily attributable to the realization of start-up losses we had expected from the British Columbia health operations contract and certain precontract expenses related to a large new contract."

Since management was discussing important background information relevant to understanding the financial statements, here would be a perfect place for a report on the fines and the potentially serious consequences of Maximus B.C. continuing to miss its performance requirements.

But there's not a word on the fines or the poor performance in B.C., even though the fines were levied starting in April-the first month of the company's third quarter.

Mary Rowles, a spokesperson for the B.C. Government and Service Employees' Union, was surprised by the lack of reference to the company's B.C. problems.

"It's a bit of a disconnect from reality," Rowles told the Georgia Straight.

Rowles added that the BCGEU understands that Maximus will face further nonperformance fines in July and August, meaning that the company has failed to deliver in every month of the contract so far.

A Maximus B.C. official who asked not to be identified told the Straight that Brian Pollick, the acting president of the B.C. subsidiary (president Richard Mason resigned in mid-August), would not comment on the financial statements, and referred questions instead to Maximus Inc.

A Maximus spokesperson did not return a call by the Straight's deadline.

Is the Maximus B.C. contract really in jeopardy?

As it turns out, there's some pretty tough language in the lengthy agreement, providing the government with all sorts of reasons to exit the arrangement.

Article 21 of the contract, called "Default and Termination", has a two-page list of events that would mean Maximus is in "material breach" of the agreement.

For instance, one is "any failure by the service provider to continuously and without interruption perform and provide the uninterruptible services”¦"

Another takes place when Maximus "breaches or defaults in the performance of any of its material obligations under this agreement”¦including but not limited to any failure”¦to achieve the service levels”¦which has a substantial adverse effect upon the province, the province customers or stakeholders”¦" and "fails to deliver a cure plan within 72 hours" of receiving written notice from the province of its failure.

Along with other material breaches, that, in turn, would constitute a "service provider default." Among the remedies such a default allows the government is the termination of the agreement, taking the work back in-house, and charging Maximus the cost of doing that.

That's exactly what the BCGEU's Rowles thinks should happen, and it's hard to find fault with that view.

Health Minister George Abbott has refused to say what it would take for the government to cancel the contract, except that he wants to see improvement. Last November, when the government announced the Maximus deal, the news release was headed: "Government Moves to Improve MSP and PharmaCare Services."

Then-health minister Colin Hansen said in the release that under Maximus, "telephone calls to MSP will no longer be associated with a busy signal, and automated services will be faster and more user friendly."

Given Maximus B.C.'s performance to date, that promise now sounds laughable.