Some staff felt frustrated and powerless. But Coastal Cloud and Palm Coast's mayor trusted the attorney and the unanimous votes.
Updated 10:26 a.m. Feb. 26
In her recent editorial, Cindi Lane criticized me for not publishing the results of my investigation into what she called the "tricky" relationship between Palm Coast and Coastal Cloud. I'll explain why: Ultimately, I found no evidence of unethical behavior, no smoking gun.
However, throughout my research and other interviews leading right up to the time I'm writing this, I can understand both why city staff felt frustrated and powerless — and why Mayor Milissa Holland and the owners of Coastal Cloud felt blindsided by Lane's commentary.
Now that she has brought the subject forward, I would like to share my analysis of the relationship between the city and Coastal Cloud. It's a story that shows the difficulty of staff members speaking up against the boss, and it also shows the frustration of a company that feels like it's being punished for doing a good deed.
How the partnership started
The city of Palm Coast began exploring a 311 — a customer service and engagement platform — about two years ago, using software systems it already had. None of the systems were working right, and different staff members had different views on how close the city was to finding a solution.
Meanwhile, a local tech company called Coastal Cloud was gaining a national reputation. It was founded by Tim and Sara Hale, and they were trying to get into a new market sector: government contracts. But so far, they had been shut out of city of Palm Coast bids because of lack of experience. They felt the bid process stifled innovation.
Milissa Holland was elected mayor in 2016, and in June 2017 the Hales hired her to help them get into the government software business. City Manager Jim Landon took a longer look and got excited about supporting Coastal Cloud's growth. It made the city look good, and it helped a local company. Could Coastal Cloud be involved in the 311 solution?
Because of Holland’s employment, Landon wasn’t comfortable hiring Coastal Cloud, and the company still wasn’t qualified to fulfill the city’s software needs through a normal bid process, so he came up with a compromise: Let Coastal Cloud use city staff as a laboratory to learn how cities work. Then, Coastal Cloud could develop a prototype of municipal software that it could use to expand its business in other communities.
There was one very important condition: No money could be exchanged. There could never be even a hint of a conflict of interest, Landon said. The optics of any arrangement would be a lightning rod for criticism.
Landon prepared a document called the “Innovation Partnership Agreement,” and on Aug. 14, 2018, it was presented to City Council by Wynn Newingham, who was serving as the chief innovation officer. She explained that helping Coastal Cloud was part of the city’s “entrepreneurial ecosystem,” a way to show the city is friendly to businesses.
The arrangement would help Coastal Cloud gain an “understanding of what a 311 system would mean for the city,” Newingham said. The city, meanwhile, would see an innovative tech company at work and get some ideas as well. She called it a “very mutual learning experience from both sides.” And she reiterated Landon’s condition: “No cost.”
Misunderstanding 1: scope
But later in the Aug. 14, 2018 meeting, Hale and Holland both made comments demonstrating that they understood the agreement to mean something more than just a learning experience. To them, it was an agreement to build and deliver an actual 311 system for the city to use. Coastal Cloud saw it also as a gift to the city, not unlike the company's other charitable work with the school district.
The agreement, however, does not state that the city will adopt Coastal Cloud’s product, but instead that the city has the “right to contract with other entities for the same or similar services."
When Hale addressed the City Council on Aug. 14, 2018, he said, referring to a yet-to-be-developed Coastal Cloud version of 311, “We need this to work well.” He said he was hoping Coastal Cloud would “get a great referral out of it. Does that all make sense what we’re trying to do?”
Before anyone from staff or the City Council responded, Holland confirmed what Hale had suggested. She said Coastal Cloud intended to make a 311 system for the city that would be “first in class.”
Landon appeared to try to rein in the conversation without offending Holland or the Hales. After all, Holland was one of his bosses (as were the other City Council members), and the Hales were Holland’s bosses, so the dynamic was tricky. How boldly do you correct or challenge them?
In this case, not very boldly.
Landon said the city was looking forward to working with Coastal Cloud, but that “we’re already starting to implement some things.” He never explicitly stated that the city staff didn’t feel it was necessary to have Coastal Cloud build a free 311 at all. They were already working on other possibilities.
But Hale’s comments seem to indicate that the miscommunication continued. He said Coastal Cloud could implement the city’s desired functions “incrementally.” Then he joked, “These projects are frankly never done.”
Landon replied, using conciliatory and noncommittal language, “We learn a lot, you learn a lot, and that’s what the partnership’s all about.”
The miscommunication then extended to the rest of the City Council, as it became clear in the meeting that City Councilmen Vincent Lyon and Bob Cuff also believed that Coastal Cloud was being commissioned — for free — to actually build the city's 311 system. Cuff later told me that his understanding was also based on outside research, so it wasn't just based on the agreement Landon had drafted.
At the meeting, Lyon started making requests of Coastal Cloud to add functions to the new 311. Cuff asked Tim Hale — not Landon — about a phone app version.
Holland chimed in and said the partnership was a fulfillment of Newingham’s introductory comments on the entrepreneurial ecosystem, adding jobs to a local business.
Landon concluded the presentation by saying, “Coastal Cloud grows, our eco system grows.” Note that he did not say anything like, "Coastal Cloud builds our 311 system."
Hale concluded by saying: “It’s a public private partnership. Very transparent what we all get out of it.”
But it wasn’t transparent to some staff members. In the coming weeks, then-Communications Manager Cindi Lane and another member of the marketing team, Jason Giraulo, were involved in promoting what became known as Palm Coast Connect. Giraulo said staff was under the impression that Coastal Cloud would build this prototype, “and then at the end, we were going to decide if we were going to go the Coastal Cloud route or something else.”
Holland was more involved than normal in the marketing process throughout, Lane said. Holland and City Manager Matt Morton told me recently that they don't feel Holland was especially involved. But regardless, Lane certainly felt extra pressure to help Palm Coast Connect succeed — because of Holland's stake in it.
Landon recalled in my December 2019 interview with him: “I can specifically remember having conversations with staff members who basically confronted me and said, ‘We’re getting mixed messages. Are we going to continue on with our [Tyler] project that we’ve been working on for months and years? Or are we stopping that and going with Coastal Cloud?’ I was emphatic and very clear: ‘No, go forward with your project. This isn’t to take the place of the current program. This is intended to benefit Coastal Cloud and to allow Coastal Cloud to use the city as a laboratory to learn how to be competitive in the local government market.’”
Meanwhile, an even bigger issue had yet to be resolved: the cost of Salesforce licenses.
Misunderstanding 2: cost
Back to the Aug. 14, 2018, workshop.
Holland made the case that day to the rest of the City Council that the 311 system Coastal Cloud would create was a great deal for the city because, for example, Nashville had recently spent $1.2 million for a 311 system, and Coastal Cloud was going to build one for the Palm Coast for free. Then she emphasized that last phrase and said, “At no cost for the city.”
At that point in the meeting, Hale corrected his employee, Holland. “There is still going to be a cost to the city,” he said. He explained, briefly, that the city would need to buy licenses from Salesforce, the preferred platform of Coastal Cloud. So, there would be no money given to Coastal Cloud, but if Coastal Cloud was to build this 311 system for the city at no charge, technically, “there is still a cost to the city” because of the Salesforce platform requirement.
The dollar amount was not disclosed in the meeting, and it was not mentioned in the written agreement that the City Council approved unanimously the following week.
(Holland was absent the following week and did not vote. She purposely steered clear of any of the meetings between the city and Coastal Cloud, besides the Aug. 14 workshop. Landon made sure of that, to make sure to avoid any appearance of a conflict.)
But when the Aug. 14, 2018, workshop ended, there was no reason for the Hales to doubt that the city was going to pay for the Salesforce licenses. After all, Tim Hale had mentioned it, warning the city of the cost, and no one said otherwise. To him, it was an obvious cost of doing business in the software solutions world.
Moreover, Landon was told months earlier that Salesforce licensing would be required. In a June 22, 2018, email, Landon responded to a Coastal Cloud employee, saying, “We will need to discuss the cost of the Salesforce licensing when you have an estimate.”
Apparently, that concern was never resolved, and Landon wrote the agreement to make it clear that the city wouldn't be paying anything — to anyone.
The cost of Salesforce licenses ended up being $100,000 — per year.
When Landon found out, he decided he could never agree to it because he felt it crossed an ethical line and also didn’t make sense for the city. It amounted to spending $100,000 for a duplication of a service, he felt. The city didn’t need Coastal Cloud to create a 311 system; the plan was to pursue a 311 through other platforms it was already using. It was one thing to help Coastal Cloud in an incubator-style entrepreneurial ecosystem, but not if it cost the taxpayers $100,000 per year.
“I was never asked the question directly, but I made it very clear: ‘We’re not writing a check for Salesforce,’” Landon recalled in Dec. 16, 2019, interview. “No way I was going to do that.”
Why didn’t Landon state his objection more clearly? If he wasn't asked the question directly, why didn't he make sure his feelings were known? Holland said to me recently that she was shocked that Landon would claim ignorance of the need for Salesforce licensing. She said he had never told her that he was opposed to it.
And yet, Landon said it was clear to staff that he was opposed. Lane and others also felt the $100,000 price tag was crossing an ethical line, regardless of whether the money was going to Coastal Cloud or Salesforce. So why didn't they say anything to her or to Coastal Cloud? Why didn't they say, "Hey, we're working on other solutions, and we aren't sure Palm Coast Connect is the best solution"?
Maybe they felt like it would be an insult to the mayor. Maybe they felt that they would be seen as not being team players and might not be needed anymore.
“Once the train has started down the tracks, maybe if you don’t like what you were getting you could have stopped it,” Lane said in a Dec. 16, 2019, interview. “But if it’s the mayor’s company, can you?”
Was that a justified fear? Would she or other staff members have been reprimanded or ostracized for speaking up? If so, that's not a healthy culture in City Hall, and the mayor and the city manager hopefully will be sympathetic to those concerns and find a way to encourage all staff opinions to be shared, if they will benefit the community.
By the time the decision about spending money on Salesforce came up for a vote, Landon was gone. On Sept. 18, 2018, Holland motioned to terminate his contract, and Landon was voted out. He believed the Coastal Cloud arrangement was a factor, but Holland gave many other reasons during the Sept. 18 meeting: She said Landon failed to pursue City Council goals, failed to deliver meeting agendas in a timely manner and was slow to “pivot” to the council’s priorities. She also pointed out that Landon had refused to commit to a retirement date, putting the city at a disadvantage relative to choosing his successor.
Holland has a point: Even if Coastal Cloud had been part of her motivation, it certainly wasn’t her decision to fire him: It was a unanimous vote of the City Council. She is not the city manager's boss but is only one of five bosses.
Besides, she said she wasn't even aware of Landon's opposition to spending money on Salesforce. She interpreted the Palm Coast-Coastal Cloud agreement to mean that the city would not pay any money to Coastal Cloud. Paying Salesforce, in Holland's and Hale's mind, was a different matter.
In November 2018, while Beau Falgout was interim city manager, the City Council voted to spend the $100,000 for Salesforce. Holland recused herself to avoid any perception of impropriety.
City Attorney William Reischmann said in a Dec. 16, 2019, interview with me that the contract for Salesforce is perfectly legal. “No taxpayer money went from Palm Coast to Coastal Cloud,” Reischmann said. “If there had been money transferred to whoever was going to do this work, we wouldn’t have been able to do it that way.”
But staff was still stuck on the original interpretation of Landon's agreement. Lane and Giraulo both felt that the arrangement with Coastal Cloud changed when they realized that the Salesforce licenses were a necessity.
“They said it was free, and we were excited about it, but then the next thing you know, and we’re saddled with a huge cost annually,” Giraulo said in a Dec. 16, 2019, interview.
Lane felt that Coastal Cloud should have been subject to the same vetting process that any other company has to go through — regardless of the promise of no cost. Reischmann said the law didn't require a bid process, but it did require City Council approval, which served as the public vetting process.
Palm Coast Connect went live in June 2019. A week later, Lane resigned. The following week, Giraulo did too. Several others resigned, including Newingham, though none mentioned Palm Coast Connect or Coastal Cloud in their letters.
Did differences of opinion about Palm Coast Connect contribute to any of the former city staff leaving?
“Absolutely not,” Holland said. “I will say that on the record.”
Morton spoke to each City Council member to explain the transition process, and “not one discussion had anything to do with Palm Coast Connect,” Holland said.
There is no contract between the city and Coastal Cloud to deliver Palm Coast Connect as a product. The closest thing is the Innovation Partnership Agreement, but that’s not clear enough because of the ambiguity about cost. It would be wise to amend the agreement to clarify the expected costs of Salesforce licenses and who will pay for them. That may satisfy any other staff members who might be concerned, and it would give Coastal Cloud a chance to charge for updates if the donated labor becomes too much. Sara Hale told me that Coastal Cloud has invested $320,000 in the product.
I can sympathize with Lane and Giraulo and Landon. I can also see Holland and the Hales’ frustration; they feel the cost and the scope were clear from the beginning.
I spoke with City Councilman Bob Cuff, who voted for the agreement, and he said he wasn't surprised by the cost of Salesforce, even at the Aug. 14, 2018, meeting. He felt paying for Salesforce was worth it to get Coastal Cloud's contribution for free. Apparently, so did the rest of the City Council, at least by November 2018.
"I understood there would be a cost," Cuff said in a Feb. 25, 2020, interview. "There was no misunderstanding on my part that anybody involved in this — staff, Coastal Cloud or anyone — misled the City Council as to what was going to be required to make this work."
In the end, he said he's happy with the way it turned out.
"From the results I have seen with Palm Coast Connect, cases are being resolved quicker," he said. "So far, it's a success. To me, that's the real measure."