Maryland's Board of Public Works, a panel that includes the governor and other top state officials, did little to scrutinize millions in contracts it awarded in recent years to the financially strapped operator of a group home where a 10-year-old boy died this month, records show. And state agency officials who recommended LifeLine for various contracts from 2011 through September did not mention the company's fiscal and quality problems to the board — even as they touted a new process to reward only top-quality contractors.
With little discussion, the state spending board approved contracts for LifeLine to care for disabled foster children even though the company was deemed to be "fiscally insolvent" and had its adult care license revoked for posing an "imminent threat" to its clients. The company is now being investigated in the wake of the death of Damaud Martin at its Laurel-area home on July 2.
Advocates say the state must remain vigilant as it reduces the number of group home operators. Shelley Tinney, executive director of the Maryland Association of Resources for Families and Youth, said that as such changes are made, the state has "not been able to create a system to ferret out which programs are quality and which are not."
Gov. Martin O'Malley, who sits on the board with Comptroller Peter Franchot and Treasurer Nancy Kopp, said they rely on the expertise of state agencies when awarding a "phone book" of contracts every two weeks. But he said the state could learn lessons from LifeLine's contracting record.
"When should the fiscal solvency of an organization trigger a termination of the state contract?" O'Malley, a Democrat, said in an interview Tuesday. "I don't know that we have a standard for that that's clear in the law. That's what we'll all be asking and looking to learn from this."
A Baltimore Sun investigation revealed that LifeLine has struggled for years to provide round-the-clock care for adults and children and that state regulators were not aware of many of the company's problems.
State lawmakers have called for hearings and legislation in response to the death of Damaud, one of about a dozen children in the Laurel-area apartments used by LifeLine for a group home. State regulators were in the process of moving all of the children from the apartments after regulators determined that care was inadequate and told LifeLine they were going to revoke its license. The last children were moved out on July 3, the day after the boy died.
Del. Sandy Rosenberg, a Baltimore Democrat, said he would propose legislation requiring state auditors to inform the Board of Public Works when a contractor was deemed insolvent and prohibiting such companies from winning contracts.
O'Malley said such flagging is best handled by agencies that are awarding contracts and licenses — in this case the Department of Human Resources and the Department of Health and Mental Hygiene.
"Whenever there is a loss of life in any group home or another setting where the state has some regulatory responsibility, we take it very, very seriously and go through a thorough investigation to look for things that we might learn from the tragedy that would help us better safeguard kids as we move forward," O'Malley said. "The Board of Public Works will generally defer to the expertise of DHR or DHMH on these matters."
State regulators are investigating the circumstances of Damaud's death. The probe will consider whether LifeLine's care was inadequate, but officials have cautioned that it is too early to draw conclusions.
LifeLine officials did not respond to requests for comment. Franchot and Kopp also did not respond.
Department of Human Resources Secretary Ted Dallas has for three years been telling the board that his new process of awarding contracts is focused on top performers.
At a meeting on March 23, 2011, Dallas explained the significance of a $245 million award that board members were being asked to approve for 71 providers to care for more than 1,300 foster children. The overall award that day marked a 41 percent decline from a year earlier, indicating the state's push to rely less on group homes.
Dallas told the board that "as we are able to safely reduce the number of group homes, we can also focus on making sure the group homes we have are of the highest quality," according to a transcript of the meeting.
LifeLine was part of that overall award. The board's approval provided a $15 million contract to the company, owned by a Baltimore County businessman who was on home detention prior to his trial for first-degree arson. (He was later convicted.)
Just five days before the board met, the health department had issued an order to immediately suspend the company's license to care for disabled adults at its Owings Mills and Laurel facilities because regulators said conditions there posed "an imminent risk to the health, safety and welfare of individuals served by LifeLine." One reason for the suspension was that inspectors found deficient care of two adult LifeLine residents who died.
On June 6, 2012, Dallas' agency returned before the board for an agenda item dedicated solely to LifeLine's contract. The agency was requesting a $4.7 million reduction to the $15 million contract and asked to place one new "medically fragile" child in LifeLine's care.
Despite the changes, DHR officials made no mention of LifeLine's problems other than to report in the agenda that the company "has been unable to fill beds" at 16 locations. "As a result, it has terminated the leases and will discontinue providing services at these locations," the report stated.
Two months after that June meeting, LifeLine filed in federal bankruptcy court to restructure its debt. LifeLine was obligated by its state contract to report the bankruptcy, according to state officials, but it never did. State officials found out about the filing but were assured by a top executive that the company was solvent.
The bankruptcy filings listed $163,993 in assets and $639,080 in liabilities, including $388,000 in taxes owed to the Internal Revenue Service. That jumped to $1.2 million by July 2013, according to a tax lien filed against the company.
The Department of Human Resources ordered an audit of the company even as it was being assessed for another round of contracts that Dallas was billing as a new "performance-based" procurement process. When the bidding did not finish in time, his agency went to the Board of Public Works in March 2013 to request three-month contract extensions for 55 contractors and a six-month extension for LifeLine and two other companies that care for disabled foster children.
The board approved the extensions with no debate, providing an additional $872,289 to LifeLine.
At the time, Dallas' agency had been in possession of LifeLine's audit for five days, according to documents The Sun obtained through a Public Information Act request.
The audit found that LifeLine had $13 in liabilities for every $1 in assets in 2012. The company had paid founder Randall Martin $329,000 and said most of the money was to repay loans; auditors found no documentation for the loans. The company owed $79,247 for unpaid overtime to the U.S. Department of Labor and $44,585 in unpaid payroll taxes to the Maryland comptroller.
"In our opinion LifeLine has severe cash flow problems," the audit stated. "Specifically, it is questionable that cash and other current assets are sufficient to meet payroll, pay loan balance, and other short term liabilities. … Due to LifeLine's financial condition there is considerable concern that lifeline will be able to continue as a going-concern and provide services to children without obtaining additional funding."
After the contract was awarded, the state required the company to provide a plan to correct its financial issues. It placed LifeLine on a "hot list" that prohibited it from taking on new residents.
LifeLine's plan called for lowering expenses, in part by eliminating lease payments by selling two vehicles, cutting out late fees by paying rent on time and improving scheduling to "ensure there is no time overlap during shift changes" by nurses. The company also requested an increase in the amount the state paid for each child's care, but that request was denied.
The plan stated that financial problems arose because LifeLine was unable to fill 50 beds awarded through its state contract despite having "secured 22 three-bedroom apartments." It added, "Having to secure the homes and prepare them for moving in prior to actually knowing where the children were coming from, proved to be the major contributing factor to our ultimate financial ruin leaving us with no other alterative but to file bankruptcy."
The state accepted the plan in June 2013 and soon removed the company from the "hot list." By September, the Board of Public Works approved without discussion $34.5 million in contracts to four companies — including $4.9 million awarded to LifeLine for a nearly three-year contract.
The board was informed at its Sept. 18 meeting that the contracts were to provide "specialized care for children who have debilitating or life threatening medical conditions," according to the agenda item. The awards, the agency's remarks stated, "are deemed to be in the State's best interest."
After state health officials became aware of complaints this year about the care of children at LifeLine's facility, inspectors wrote deficiency reports in February and late May. In early June, inspectors told LifeLine officials that they were recommending revoking their license.
LifeLine CEO Theresa Martin responded with a letter saying she was closing the program for children due to financial problems she blamed on inadequate state funding. "Simply stated, the monthly cost per child … is $12,617 and the current contract rate is $10,773, a deficit of $1,884 per child which equates to (negative) $20,284 per month," her letter said.