How one company is enticing lobbyists to push contractor-monitoring software
The software company behind a nationwide push to get state governments to require IT contractors to use aggressive monitoring software recruited its first lobbyists with the potential for lucrative gains — like a 90,000 percent return on investment — in exchange for their advocacy work.
In a 10-page document obtained by StateScoop, the software firm, TransparentBusiness, lays out a program in which it offers government relations firms “an opportunity to earn exceptional financial compensation” in the form of cash and equity in the company. In the lobbying guide and other materials, TransparentBusiness bills itself as the next great tech startup, with a plan to eclipse the $60 billion market capitalization that the customer-service software company Salesforce reported in 2017, when the lobbying guide was written.
Lawmakers in at least 23 states have introduced legislation that would require any company doing at least $100,000 worth of government contract work to “use software to verify the legitimacy of the hours billed for work performed on a computer under a contract with a 10 state agency or a political subdivision,” as the version under consideration in Arkansas reads. All of the bills, none of which have passed, stipulate that the tracking software in question take a screenshot of contract workers’ computers at least once every three minutes, and in many instances also mandate the logging of keystrokes and mouse movements.
As it happens, TransparentBusiness’ flagship product is capable of that kind of monitoring. But the software isn’t just an aggressive tool, marketed aggressively. It’s the extension of the ambitions of a Russian expat who sees sales to state governments as part of a broader plan to become the next billionaire tech tycoon.
It’s also prompted fears among state chief information officers that the legislation would blow up their relationships with the IT contracting industry. The National Association of State Chief Information Officers, in a rare show of political activity, issued a forceful statement against what the bills would potentially do to states’ technology governance. The group’s executive director, Doug Robinson, also told StateScoop that forcing contractors to use software that takes frequent screenshots of their work would potentially capture citizens’ personal information, putting states in violation of federal privacy and cybersecurity rules.
TransparentBusiness and lobbyists that spoke with StateScoop said the privacy concerns are overblown. “We don’t want to look at anyone’s private information,” said Joyce Nardulli, the company’s lobbyist in Illinois.
The ‘equity-based approach’
For TransparentBusiness, and its founder, Alex Konanykhin, the lobbying spree is designed to fulfill a vision of propulsive growth. Initially, lobbyists were offered a chance to share the potential returns. It’s indeed legal to offer lobbyists a stake in a company, as long as the equity isn’t tied to a specific contingency, like the passage of a bill.
Konanykhin verified to StateScoop that the 2017 document is real, but said it has since been revised. Even so, it shows the company’s expectations for the government market. The 2017 version lays out a compensation plan in which lobbyists could be paid not only cash, but also stock in the company, which it anticipates will be worth $20 per share upon an initial public offering. For instance, during the first six months of work, lobbyists are promised 3,000 shares per month — worth $60,000 if the company hit its ideal IPO valuation — but no cash. The following six months, the stock compensation increases to 10,000 shares per month, and a monthly cash retainer of $5,000 kicks in.
“Equity-based approach allows us to partner with government relations professionals who are confident of their ability to achieve results,” the document reads. “The objective is to achieve market saturation before competition develops. We believe risk-takers should be properly rewarded.”
TransparentBusiness offered its stock as payment for lobbying work no matter the results. The lobbying guide also encouraged the company’s representatives to pitch major corporations on TransparentBusiness’ products, offering 20 percent shares of any resulting business-to-business contracts.
Still, the idea of paying lobbyists in equity rather than all cash was linked to the potential returns TransparentBusiness sees for itself if any of the bills it’s pushing become law.
“A policy requiring government contractors to provide transparent verification of billable hours in just one state, would result in many major companies becoming clients of TransparentBusiness,” the guide reads. “Replicating this policy nationwide would result in creating a major SaaS [software-as-a-service] company valued in tens of billions of dollars and you can be a major beneficiary of this success.”
Konanykhin’s lodestar in this pitch is Bradley Tusk, a former political operative who amassed a fortune after accepting an equity stake instead of cash in 2011 to be Uber’s lobbyist in New York City. The value of Tusk’s shares in the ride-hailing company grew 150-fold to be worth more than $100 million, he said in 2017, a figure TransparentBusiness’ lobbying guide quotes repeatedly.
TransparentBusiness’ dreams are bigger than Uber. In a video released last June, the company sought to entice investors by suggesting that the adoption of polices requiring government contractors to use tracking programs like the one it makes could push it past Salesforce’s valuation, creating a 90,000 percent return and giving it “an express ticket to Fortune 500 listing.”
Konanykhin may have even asked Tusk to look at his venture, tweeting at Tusk in October 2017 about emailing a proposal. Tusk replied by offering his email address, though it appears the pitch did not go far.
“We have no clue who TransparentBusiness, Inc. is,” a spokesperson for Tusk Ventures told StateScoop. “Bradley gets a lot of these requests like these on Twitter. If he did talk to the guy, nothing came of it. We have nothing to do with them.”
While none of the state bills have become law, TransparentBusiness does claim a roster of private-sector clients, including Google, Hewlett-Packard, Sony and Mastercard. The lobbying guide also describes the company as a “partner” of several more companies, including Microsoft, Facebook, Cisco and the consulting firm Ernst & Young. Its single largest client is the government of Saudi Arabia, which paid the company $1.3 million to develop a pilot program for the kingdom’s labor ministry, according to the document.
Some of the company’s claimed relationships, though, do not appear as robust. The first page of the lobbying guide states that New York City’s Department of Information Technology and Telecommunications “is conducting a review” of TransparentBusiness, though DoITT told StateScoop the city has no record of interaction with the company.
The ‘over-billing mafia’
In an email Friday, Konanykhin told StateScoop that the lobbying handbook is outdated, and that TransparentBusiness no longer offers its statehouse lobbyists stock as payment, or encourages them to solicit other companies to adopt the software.
“We were indeed offering stock as a part of the monthly retainers, since that approach worked spectacularly well for Uber and Bradly [sic] Tusk, according to the [Wall Street Journal] article, mentioned in the document,” he wrote. “We have since abandoned this approach and retain [government relations] firms with straight cash retainer as we discovered that most GR firms prefer to stay in their ‘comfort zone’ and had little interest in business development or stock.”
But that doesn’t mean the lobbying push is slowing down, despite the revision to the compensation plan or — most recently — the response from state CIOs, who have called a tracking-software requirement outdated and unnecessary.
Governments do occasionally have to deal with contractors that overcharge them, and to justify its business plan, TransparentBusiness always points to an extreme example: a 2012 case in which Science Applications International Corporation was fined $500 million for billing New York City nearly $700 million for a payroll management system that was supposed to cost the city $63 million. (Three SAIC managers were also sent to federal prison.)
“It’s a great concept and it would save states a lot of money,” said Joan Milas, TransparentBusiness’ lobbyist in Rhode Island.
Konanykhin himself shows no signs of backing down on the legislative push, acknowledging that statehouse successes would benefit his growing company.
“We intent [sic] to remain the leader of this transition and, just like Uber and Airbnb, we strive to convert our first-mover advantage into the dominant market share, creating a major SaaS company,” he told StateScoop. “There’s no doubt that the opposition from the deeply entrenched ‘over-billing mafia’ is going to be fierce: the billions saved to the states are the billions which over-billers won’t be able to loot from the states, so the crooks are going to fight tooth and nail for the opportunity to rob their government clients blind.”
Read TransparentBusiness’ lobbying guide.