Government spending never enhances economic growth precisely because governments only have money to spend insofar as they have taxable access to private economic activity. In other words, government spending is an effect of economic growth, never an instigator.

Except that the challenges of government spending don’t just stop right there. Take the difficulties that are presently being experienced by Sagitec, a software development company. The company is being sued by the University of California (Regents of the University of California v. Sagitec Solutions), and the UC lawsuit against the company is rooted in a dispute over Sagitec’s revamp of the UC’s pension administrative system which is used, among other things, to calculate and distribute retirement pay to former UC employees. Which requires a pause.

Presently the UC system employs something in the range of 250,000 individuals. From this it’s easy to speculate that thousands retire every year, and that the number of UC retirees is quite large. Which means the revamp overseen by Sagitec would have had to have been quite large, and quite involved.

From this, it’s no reach to conclude why the project was farmed out to a private sector software developer. Precisely due to the complications related to calculation of retirement benefits and distribution of same, the kind of technological know-how necessary to create software capable of engineering what’s so complicated wouldn’t necessarily be found inside government. That’s not a knock on government as much as it’s a comment that the skills required to craft intricate software programs rate compensation higher than what governments can generally offer.

Which brings us to the lawsuit. The UC System contends that Sagitec not only did a sub-standard job with the revamp, but it also committed fraud against the government. Sagitec disputes both allegations, and asserts that it delivered a working product requested by the UC System, and that it did so amidst an endless series of requests from UC that continuously altered the scope of the project.

About the merits of the UC’s lawsuit, along with Sagitec’s response, no opinion will be offered here as there’s no presumption of knowledge about what happened between the software developer and its client in the UC System. What will be commented on is the UC’s invoking of the California False Claims Act in its lawsuit, which enables governmental entities to pursue triple damages in claims made against private contractors. Which requires another pause.

The UC System’s annual budget is somewhere in the range of $50 billion annually. Stop and think about that. And think about it vis-à-vis corporations that contract with the UC System or any other large state governmental entity. Applied to Sagitec, while there’s no publicly available earnings data on the private company, for it to take on a UC suit that invokes California’s False Claims Act is for Sagitec to enter a lawsuit with existential implications. How to battle what has such deep pockets?

It all speaks not just to the economic implications of governments at the city, state and national levels arrogating to themselves the power to spend the fruits of private sector production, but it also speaks to the dangers inherent in private sector businesses pursuing government contracts. If things go wrong the legal implications can be grotesque, hence the view expressed above about the warping qualities of government spending. In other words, it’s not just that governments aren’t spending their own money in ways that distort the shape of private businesses that work for them, it’s what they do once things perhaps go wrong after the money is spent.

For now, the UC System’s public filings indicate that it wants to bring the project contracted out to Sagitec in-house. About the plan, color this writer skeptical, both for the UC System and the taxpayers on the hook. Governments aren’t exactly known to be efficient and/or effective when it comes to executing large-scale and highly complicated projects, not to mention that the UC System has brought projects of this size in-house before. Think UCPath, the System’s internal payroll function that only came into existence after years of delays, cost overruns, and payroll mistakes that generated all manner of lawsuits. Attempts to replicate or improve on Sagitec’s prior work bring to mind the old saying about triumph of hope over experience.

Whatever the answer, there’s a private software developer that finds itself in the crosshairs of a sizable arm of California’s government, one that has the means to bring immense damage to it. This is a problem no matter one’s view of the dispute between the UC System and Sagitec, and it’s one that rates more thought as tax revenues vacuumed up by governments at all levels continue to grow.