DOT releases papers on Easley's order

Secrecy written into contract

When McKinsey & Co. filed a bid in March for a state Department of Transportation contract, the management consulting firm added a string of proposals to wrap secrecy around its work.

McKinsey didn't get everything it sought. But DOT granted many of the firm's requests for confidentiality -- and agreed to pay every dollar McKinsey wanted.

The details were made public Thursday evening when DOT released uncensored contract documents under orders from Gov. Mike Easley.

The materials were released amid apparent disagreement about the roles of DOT officials and state Department of Justice lawyers in DOT's initial decision to withhold release of contract details.

The new documents show that McKinsey wanted to keep secret every word of its 43-page proposal for its tax-funded project. When The News & Observer asked for the contract documents, DOT initially released 13 pages of McKinsey's March 16 proposal with most details blacked out.

A preliminary review of the new documents shows that, except for a few details, DOT incorporated McKinsey's complete proposal into its April 11 contract. DOT agreed to pay McKinsey's asking price of $1.1 million for a candid, wide-ranging assessment of the department's structure and strategy.

The contract was expanded June 9 when McKinsey agreed to help DOT implement sweeping changes intended to make the agency more efficient, businesslike and accountable.

DOT officials have said the original contract revisions were made by lawyers for McKinsey and DOT. The department's primary counsel, Elizabeth McKay, is a state special deputy attorney general who reports to Attorney General Roy Cooper.

Officials at DOT and the governor's office said Wednesday the release of the contract documents was delayed because lawyers in the Attorney General's Office were reviewing them. But Noelle Talley, spokeswoman for Attorney General Roy Cooper, said DOT was responsible.

"The Attorney General believes the DOT should release the contract and other related documents and is prepared to defend that decision in court," Talley said in an e-mail message at 6:12 p.m., a few minutes before DOT said it would fax the documents to The N&O.

"The DOT did not follow the Deputy AG's advice in this matter, and no one from the Attorney General's office redacted any material," Talley said.

What was blacked out

Much of the information revealed Thursday, which previously had been blacked out, concerns what McKinsey calls its own special techniques. The description of McKinsey's methods were sprinkled with phrases such as "deep-structure interviews (DSIs)," "Organizational Performance Profile (OPP) analysis," and "the 'portfolio of incentives,' or POI, model."

In March, when McKinsey filed its bid for the $1.1 million DOT evaluation, it offered a preliminary estimate of $1.85 million for the rest of the job. In June, when McKinsey filed a detailed proposal for the remaining work, the bid rose to $2.5 million, the sum DOT later agreed to pay.

Mark L. Foster, DOT's chief financial officer, had laid out the work plan in a March 9 document that explained what DOT wanted and invited consultants to bid for the contract. Foster asked for an evaluation of DOT operations, with a preliminary report to be filed by e-mail May 18 and a final report to be delivered June 1.

In an interview, Foster said DOT and McKinsey later had agreed that there would be no written reports. But it was not clear in the documents released Thursday that the two parties ever changed the original requirement for a written report.

In its March 9 proposal, McKinsey said it would survey DOT workers and conduct extensive interviews to evaluate the department's strengths and weaknesses. "The resulting diagnostic report would include both a synthesis and details of all the data collection activities," McKinsey wrote.

Under instruction from Easley, DOT Secretary Lyndo Tippett promised this week to get a written, public report from McKinsey when the contractor finishes its work with DOT later this month.

McKinsey is a privately held firm with offices in 51 countries, according to the documents released Thursday, with gross revenues of more than $3 billion per year.

The consultant sought and DOT agreed to add contract language guaranteeing McKinsey's control over all "concepts, analyses, know-how, tools, frameworks, models, and industry information and perspectives" in its work for DOT.

At McKinsey's request, DOT also agreed in the April 11 contract that it would not disclose reports from the company, attribute any information to McKinsey or even make public reference to McKinsey without the company's permission.

McKinsey also proposed to restrict the state auditor's access to records related to its work, but this provision does not appear to have been included in the final contract.