Texas multimillionaire H. Ross Perot has wedged a foothold in the lucrative federal contract market for computer services that could lead to bigger contracts and profits for a subsidiary of his holding company, Electronic Data Systems Corp. of Dallas.
In a move that ended a nine-month-long battle between the Department of Housing and Urban Development and a consortium of 132 private insurers who had run the nation's flood insurance program for eight years, HUD yesterday awarded a $12 million, one-year contract to an EDS subsidiary.
Beginning Jan. 1, EDS Federal Corp. will process flood insurance claims for the national flood insurance program, while the federal government will cover any losses which exceed funds available from insurance premiums.
The National Flood Insurers' Association, the consortium which runs the program through Dec. 31, unsuccessfully sought to block the EDS award in the courts and through intensive lobbying efforts on Capitol Hill.
A federal court judge delayed the award from its initial Dec. 2 signing date to grant NFIA a hearing on its motion for an injunction, but later dismissed the consortium's suit.
Congress could have blocked the award by a joint resolution barring HUD Secretary Patricia Roberts Harris from changing the type of program under which the flood plan is administered. Many senators and congressmen attempted to pressure the White House and HUD into delaying any decision on the flood program until Congress reconvenes Jan. 19, but their efforts during the last hectic weeks of this session had little impact.
NFIA operated the program as an underwriter with $48 million of capital at risk, although none of it was ever actually paid out, in addition to administering the program and writing policies. EDS, which is primarily a data processing firm, will undertake no risk - that burden will be shifted to HUD under the new program.
This change and a dispute which arose over alleged discrepancies in the bids presented by NFIA and EDS for 1978 were the key issues in the congressional fight over the flood plan.
When negotiations between HUD and NFIA broke down this fall, HUD awarded EDS Federal Corp. a $660,000 unbidding transition contract to study and arrange the administrate transfer of the computer records of policyholders from NFIA to whatever firm was to be selected under competitive bidding for the 1978 contract.
An EDS spokesman in Dallas, however, yesterday denied that the company is planning an aggressive move into the federal contracts arena. He said the flood insurance contract "is a very natural fit for us. We have a lot of experience in the insurance business and in claims and underwriting . . . I wouldn't say it's part of a grand scheme though."
Government sources and electronics industry analysts say Perot, whose companies have not handled a federal contract before, apparently is gearing up to bid on much larger federal projects. Perot hold 58.8 per cent of the outstanding shares of EDS Corp., which last year reported $16,428 million in profits.
Some sources hinted that he plans to capitalize on the expertise of two of his divisions - computer operations and health care facilities - in making proposals for Medicare, Social Security and national health insurance programs, should the latter come into existence.
The EDS subsidiaries, however, National Health Insurance Co. and EDS Fidelity Corp., currently underwrite claims benefit payments for the Texas state medicaid program and North Carolina's state prepaid pharmaceutical plan.
The dispute over the HUD award to EDS also brought the light EDS' recent difficulties with two unrelated ocmputer contracts.
The company is the defendant in a $115 million suit brought by the F & M Schefer Corp. of New York for breach of contract, negligence and fraud in the design, implementation and operation of a data processing system. The corporation owns the brewery which manufacturers Schaefer and Peils beer.
Last March, the award of a contract to EDS by the Massachusetts' Registry of Motor Vehicles was referred to that state's attorney general when it was learned that two officers of another computer company, Sci-Tek Associates, were members of the state board that awarded the contract. At the time, Sci-Tek was negotiating with EDS on a private subcontract. The circumstances of the award was reported last month by WBF-TV's investigative team in Boston.
The state recently concluded its investigation and found that Sci-Tek and EDS had not committed any criminal violations, according to Peter Lucas of the Massachusetts attorney general's office.
He said staff attorneys noted, however, that Sci-Tek officials had created the impression of a conflict of interest in the award. Several administrataive changes in letting contracts were recommended to state Secretary of Administration and Finance John Buckley to prevent such problems from arising again, Lucas said.
The Schaefer case has been scheduled to go to trial Nov. 14 in U.S. District Court for the Southern District of New York. But following a number of pretrial skirmishes between the parties and EDS' filing of six counter-claims against the brewer, Judge Constance Bakesr Motley recently postponed the trial to April 10.
At a pretrial hearing at the end of November, Judge Motley made a precedent setting ruling that computer specialists and their clients have a "special relationship," which may made data processing companies like EDS liable for their actions even years after a contract has ended.