The California State Bar has recommended that a new technology contractor take over the long-running attempt to overhaul the agency’s internal case management system, slamming the efforts of downtown’s Daily Journal Corp. to solve the problem.

The recommendation that Texas-based Tyler Technologies Inc. be given a $3.4 million contract comes some six months after billionaire investor Charlie Munger’s Daily Journal was axed from the project after three years and few, if any, results. In a report delivered July 20 to the state bar’s board of trustees, which must still approve of the contract, the agency said its analysis showed the work done by Daily Journal subsidiary Sustain Technologies Inc. – now Journal Technologies Inc. – on the project was “seriously flawed.”

“Attempts to build a custom case management system using developers from Sustain floundered for years without yielding any discernable benefit to the State Bar,” the report reads.

The project, which was initiated in 2003, is part of an overhaul of the bar’s much

maligned system to resolve client claims of attorney malfeasance in the state. A report released in May by state auditors showed the quasi-public agency had 5,500 unresolved complaints and that it can take five years

for aggrieved clients to receive monetary relief from the bar. The organization is the largest bar association in the country and

is responsible for licensing more than 250,000 attorneys.

The July 20 report on the bar’s efforts to implement its internal case management system warned that the technology project had veered toward territory once occupied by California’s judicial branch. The state court system also undertook a wholesale rebuild of its case management software in the early 2000s – separate from the bar’s efforts – which ultimately cost taxpayers more than $500 million. That project was scrapped in 2012 without ever going online after widespread criticism from both politicians and stakeholders in the legal community.

While the bar’s report to its board is exhaustive in covering the criteria for choosing Tyler Technologies as a new contractor, the agency did not provide an estimate of the project’s total cost and also claimed not to have made any payments to Sustain in relation to the project – meaning the company did three years of work for free.

The Daily Journal did not immediately return a request for comment.

Part of the bar’s decision to give the contract to Tyler Technologies was based on its analysis that the Daily Journal project failed because it attempted to build a custom product. Tyler Technologies instead will implement a ready-made case management system.

“Recent experience in the California judiciary has shown that a commercial off-the-shelf system has the greatest likelihood of success and minimizes the risk inherent in a large technology project,” Leah Wilson, the bar’s newly appointed chief operating officer, said in a statement.

Bad news bar

These developments come in the wake of a tough 18-month stretch for the bar’s public image following the dismissal of former executive director Joseph Dunn.

Dunn’s ouster set off an ugly public battle that divided the bar sharply. A whistleblower lawsuit filed by the organization’s former chief in November 2014 alleged the bar was intentionally hiding a massive backlog of client complaints that hadn’t been adjudicated. Tension escalated when parts of a confidential investigation conducted by downtown law firm Munger Tolles & Olson into Dunn’s tenure as executive director were then leaked to the press. Dunn’s lawsuit was dismissed by an arbiter in April, but was resurrected in June after his attorney Marc Geragos of downtown’s Geragos & Geragos filed an amended suit.

The revelations about the glut of discipline cases at the agency’s Office of the Chief Trial Council ultimately led to the downfall of the unit’s leader Jayne Kim, who stepped down in April shortly before the state’s stinging report that revealed the case backlog. The audit also showed some of the bar’s top executives were paid more than California’s governor and attorney general.

Despite the outsized pay, a separate audit of the bar’s case management system by MTG Management Consultants said guidance by bar leaders on the case management project was weak and contributed to the Daily Journal’s failure to create the customized product.

Governments often struggle to foster innovative solutions

Ambitious government technology solutions, including the notable examples of Healthcare.gov and Sam.gov (System for Award Management), are often plagued by budget extensions, broken deadlines, and perhaps worst of all, poor user experiences. These programs and others like them have embarrassed the Obama administration in recent years, and cost taxpayers significantly.

But why are sound solutions so hard to come by?

Peter Marx, who served as L.A.’s chief innovation technology officer until earlier this summer, said part of the answer lies in public expectations versus government realities. While government procurement is normally about buying finished products, websites such as Healthcare.gov and Sam.gov are inherently iterative endeavors, meaning they are built in stages and then improved upon. However, the government has a responsibility to deliver fully functioning, stable services to its citizens right away – an added pressure not faced by private web development projects, which often go through extensive beta testing.

“In the government world, failure is simply not acceptable,” Marx said. “In the private world you try something out, you stub your toe, it turns into a learning experience.”

What’s more, the constantly evolving nature of technology means big government tech expenditures are often outdated before a project is even complete.

“Government is sort of synonymous with long processes,” said Marx. “In the city of Los Angeles it takes on average 450 days from thinking up something you want to do to actually buying it. Could you imagine saying, ‘Hey, I’m going to buy the smartphone from a year and a half ago and that’s what I’m going to use for many years to come?’”

Yigal Arens, Director of USC’s Information Sciences Institute’s Intelligent Systems Division, works primarily on the problem of delivering data from government-funded medical studies to the wider research community and general public.

Agencies such as the National Institute of Health, he explained, face problems due to the nature of storing vast amounts of information on their servers. That data often comes from a variety of different sources, including private businesses such as insurance firms in the case of Healthcare.gov.

“Many government systems are trying to integrate pieces that have been created by a multiplicity of players,” said Arens. “They have no control over these companies and that makes the problem even bigger.” – Carter Stoddard

Munger’s moves

The loss of the state bar contract doesn’t seem to have dented the resolve of Munger, ranked No. 47 on the Business Journal’s list of Wealthiest Angelenos in May with an estimated net worth of $1.46 billion, to keep investing in the legal technology space. The Daily Journal chairman and business partner of Warren Buffett acknowledged the company’s profitability was tired largely to its stock holdings. For example, Munger used the company’s cash reserves to purchase a large stake in Wells Fargo & Co. at market bottom in 2009. Munger said at a shareholder meeting in February that the rebranded Journal Technologies offered potential profits despite it being a “slow, expensive, troublesome thing,” according to a transcript provided by ValueWalk.

Despite Munger’s assurances, the company has been the target of criticism in recent years after a string of auditors criticized the Daily Journal’s internal controls and financial reporting. A 2014 Ernst & Young report described “material weaknesses” at the company, a sentiment echoed again last year by BDO USA. After these reports, both auditors were dismissed and a third accounting firm, Squar Milner, was hired in February to take on outside accounting duties.

Securities & Exchange Commission filings also show several ties between company leadership and contracts paid to family members working on the tech side of the business. Daily Journal Chief Executive Gerald Salzman’s son Jon Darin Salzman is listed as being paid $112,000 for software consulting work in 2015 and $111,000 in 2014. Daily Journal Vice Chairman J.P. Guerin’s son Riley Guerin received about $200,000 in 2015 and $178,000 in 2014 for software consulting through his company FC Flamingo, according to the SEC filings.

Journal Technologies does appear to do robust business with California courts. Public filings by the state show the company was paid more than $2.7 million between Jan. 1 and June 30 last year for consulting services, technology licenses, and other IT work done for numerous superior court systems. The company also has a contract with Los Angeles Superior Court worth more than $3 million. In Munger’s address to shareholders in February, he said that despite the challenges, legal technology business could be lucrative if the company managed to find a toehold.

“The new business is interesting because it’s a big market,” he said. “If we get entrenched in it, it will be very sticky.”