*Editor's note: This story has been updated throughout.

Serious missteps by the Texas Health and Human Services Commission’s management resulted in a $20 million software contract that “skirted” the edge of state law and revealed problems that should delay a planned agency consolidation, according to a “strike force” appointed by Gov. Greg Abbott.

The health commission “has experienced a program failure,” the team said in its report, which was released Monday. It pinned the blame mostly on a lack of leadership from current management overseen by Executive Commissioner Kyle Janek. The report said he over-relied on a “kitchen cabinet” of close associates who kept him insulated from bigger problems that surfaced with existing work and kept the rest of staff in the dark about many major decisions.

Abbott praised the team’s work but was blunt about the report’s findings.

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"The report’s findings are deeply troubling,” the governor said in a statement. “It is now more clear than ever that the Texas Health and Human Services Commission has been riddled with operational, managerial, structural and procedural problems that go far beyond any individual or contract. That is unacceptable.”

Abbott added that he wants time to consider the findings before making any decisions about the agency.

Those decisions will probably include whether Janek, who has said he was misled by staffers about the state’s software contract with Austin firm 21CT, remains at the helm.

In January, Abbott had dispatched the team — led by Billy Hamilton, executive vice chancellor and chief financial officer of the Texas A&M University System — to conduct an outside review of the commission’s management operations and contracting methods after revelations that a $20 million fraud-tracking software contract with 21CT was not competitively awarded.

"While the 21CT controversy was the product of a near-perfect storm of circumstances — a lax procurement process, aggressive pursuit of a single vendor, internal control weaknesses at HHSC and poor contracting — the real problem was leadership," the report stated. 

The 21CT deal was struck in 2012, before Janek, an anesthesiologist and former state senator, landed the top job. But Janek’s failure to intervene with bigger questions about how the software was selected and how it was on track to receive a $90 million extension was cited as just one example of the agency’s leadership vacuum.

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“The 21CT agreement as it developed could have been stopped by one correct decision at several points along the way, but it was not,” the report stated. The health commission canceled the contract last December after questions were raised about it.

Mike Rosen, a 21CT spokesman, issued a statement criticizing Abbott's team for never talking to officials at the company. 

"The Strike Force never contacted 21CT to discuss the findings, or how the state can continue to utilize the solutions we provided even after the contract ended," Rosen said in a statement. "It is disturbing the Strike Force interviewed ‘a segment of the vendor community,’ yet ignored the vendor whose contract is in question." 

The strike force report, based on interviews with commission employees and news reports, detailed how Janek’s group of close aides kept other key officials out, even on decisions involving their departments or agencies.

One example cited in the report was how the head of the Department of State Health Services told Abbott’s team that the agency knew nothing of the competitive bid process that had begun to privatize the management of Terrell State Hospital until very late in the bidding process.

That process “subsequently became another major problem for HHSC and the subject of another State Auditor review,” the report stated.

The report’s release comes as the Legislature is debating whether to move forward with an ambitious — and controversial — plan to restructure the state’s five health and human services agencies, including the massive health commission, and combine them into one “mega-agency.” This month, Senate Finance Chairwoman Jane Nelson suggested slowing down that consolidation in light of concerns about contracting at HHSC.

"A strong case can be made that the public health and child and adult protective services functions, at minimum, should remain at separate agencies under HHSC oversight," the report said. "They will be more likely to attract and retain the sort of leadership they need at separate agencies rather than two divisions within a 'mega-agency.'" 

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State Rep. Garnet Coleman, D-Houston, has been a vocal critic of consolidation since last year. He was among a group of state lawmakers who were privately briefed about the report before it was handed out to reporters.

“It’s what I thought,” Coleman said of the report’s findings about management problems and how they should delay consolidation until they are fixed. “At least I know my gut still works.”

In recent months, several state lawmakers have called on Janek to resign in light of the contracting scandal. Abbott has said he wouldn't make a decision on Janek's future until after the release of the report. But the governor's office declined to give a timetable on the decision-making process.

The report describes Janek as a manager who, while affable and knowledgeable, was “insulated from many issues by his immediate staff and not always well-served by them.”

Janek did not respond to a direct call for comment. His agency released a letter he wrote to Lt. Gov. Dan Patrick in which he thanked Abbott and the strike force for its “thorough report” that outlines how to rebuild the agency.

“That is a vision I share and am committed to achieving,” Janek wrote.

Abbott’s team could not reach a conclusion on one thing: whether HHSC’s deal with 21CT was illegally steered in 2012 by Jack Stick, who was then deputy inspector general.

The company was selected outside a competitive bidding process from a list of vendors compiled by the Texas Department of Information Resources. Last fall, the Austin American-Statesman found that Stick, who eventually became HHSC’s chief counsel, was once a business partner of 21CT’s lobbyist, James Frinzi.

While the team found that executive staff at the office of inspector general “exercised judgment so poor that it put HHSC's credibility at risk," it left the decision about whether anything illegal occurred to another investigation team at the state’s public integrity unit, which is still investigating.

Last December, the commission's inspector general, Doug Wilson, and Stick were forced to resign after the connection between Stick and the lobbyist were revealed.

That same month, the Texas Sunset Advisory Commission voted in support of consolidating the five social services agencies into one entity. HHSC oversees four other state agencies — the Department of Aging and Disability Services, Department of Family and Protective Services, Department of State Health Services and Department of Assistive and Rehabilitative Services. Together they are $34 billion entity, about a third of the state budget.

The team behind the HHSC report also included Heather Griffith Peterson, chief financial officer of the Texas Department of Agriculture; Scott McCown, clinical professor and director of the Children’s Rights Clinic at the University of Texas School of Law; and former state Rep. Talmadge Heflin, director of the Center for Fiscal Policy at the Texas Public Policy Foundation.

Aman Batheja contributed to this report.

Disclosure: The Texas A&M University System, University of Texas at Austin and the Texas Public Policy Foundation are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

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