01-002858BID Public Consulting Group, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Tuesday, September 18, 2001.

Summary: Petitioner failed to prove that scoring was clearly erroneous; that evaluators were unqualified; and that agency`s determination that Intervenor`s proposal was responsive was clearly erroneous.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PUBLIC CONSULTING GROUP, )

INC., )

)

Petitioner, )

)

vs. )

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, ) Case No. 01-2858BID

)

Respondent, )

)

and )

)

HEALTH MANAGEMENT SYSTEMS, )

INC., )

)

Intervenor. )

______________________________)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division

of Administrative Hearings, conducted the final hearing in

Tallahassee, Florida, on August 22-24, 2001.

APPEARANCES

For Petitioner : David C. Ashburn

Seann M. Frazier

Greenberg Traurig, P.A.

101 East College Avenue

Tallahassee, Florida 32301

For Respondent : Kelly A. Bennett

Assista nt General Counsel

Agency for Health Care Administration

2727 Mahan Drive, Building Number 3

Tallahassee, Florida 32308-5403

For Intervenor : Steve Pfeiffer, Esquire

Theriaque & Pfeiffer

1114 East Park Avenue

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue is whether Respondent's tentative award of a

contract to Intervenor for Medicaid third party liability

services was consistent with the applicable statutes, rule, and

policies "that govern the award of government contracts," and

the request for proposals.

PRELIMINARY STATEMENT

By Formal Written Protest and Petition for Administrative

Hearing dated June 28, 2001, Petitioner sought an order

withdrawing Respondent's intention to award a contract to

Intervenor and granting the contract to Petitioner.

The formal written protest asserts that Respondent selected

an offeror whose conflicts of interest prevent it from

fulfilling its obligations under the contract, Respondent's

evaluators lacked the knowledge and experience required by law,

Respondent's evaluators used undisclosed and arbitrary criteria

to evaluate the proposals, and Respondent's evaluators assigned

arbitrary scores to the proposals.

The formal written protest claims that the conflicts of

interest to which Intervenor is subject disqualify its proposal

as nonresponsive and disqualify it as not a responsible offeror.

The formal written protest states that Intervenor failed to

disclose the subcontractors that Intervenor intended to use, if

awarded the contract, and that the legal subcontractor selected

by Intervenor has substantial conflicts of interest with

Respondent and Petitioner, its former client. The formal

written protest alleges that Sections 60.2.a, 60.4.e, 80.2.a,

and 80.4.e of the request for proposals require identification

of subcontractors. The formal written protest notes that the

disqualification of Intervenor's proposal would leave

Intervenor's proposal as the highest remaining responsive

proposal from a responsible offeror.

The formal written pro test identifies several areas of

alleged conflicts. The legal subcontractor identified by

Intervenor allegedly has two conflicts. First, the legal

subcontractor allegedly represented Petitioner under the 1996

third party Medicaid recovery contract with Respondent. The

formal written protest claims that, during the course of this

representation, the legal subcontractor gained access to

Petitioner's proprietary business information.

Second, the legal subcontractor allegedly has represented

Respondent, the largest nursing-home company in the United

States, and other health-care providers, including those against

whom Respondent and its contractor will seek third party

liability recoveries.

Intervenor allegedly has a conflict of interest because a

number of Florida hospitals pay it to bill and recover fees from

Medicaid. If Intervenor were to obtain the subject contract,

its responsibilities toward one set of clients, which have

obtained Intervenor's assistance to maximize payments from the

Medicaid program and Respondent, would allegedly conflict with

Intervenor's responsibilities toward Respondent, which would be

obtaining Intervenor's assistance, under the subject contract,

to maximize recoveries from third parties liable to the Medicaid

program.

The for mal written protest alleges that the request for

proposals contained over 90 undisclosed review criteria, whose

application by the evaluators resulted in the assignment of

clearly erroneous and arbitrary scores.

The formal written protest alleges that the evaluators were

unqualified to score the proposals because the team consisted of

individuals who lacked knowledge and experience of the third

party liability recoveries that were the subject of the request

for proposals.

The formal written protest allege s that the evaluators

committed numerous scoring errors and failed to contact the key

references provided in the proposals.

At the hearing, Petitioner called five witnesses and

offered into evidence 21 exhibits : Petitioner Exhibits 22,

25 -28, 32-33, 35, and 41-53. Respondent called one witness and

offered into evidence 19 exhibits : Respondent Exhibits 1-19.

Intervenor called four witnesses and offered into evidence five

exhibits : Intervenor Exhibits 2, 5, 7, and 11-12. All exhibits

were admitted.

Th e court reporter filed the transcript on August 31, 2001.

The parties filed their proposed recommended orders on

September 10, 2001.

FINDINGS OF FACT

1. On March 30, 2001, Respondent issued the Request for

Proposals for Medicaid Third Party Recovery Services, Proposal

No. RFP TPR 01-01 (RFP). Predicated on the principle that

Medicaid is the health-care payer of last resort, third party

recoveries effected by Respondent or its contractor, to

reimburse Medicaid expenditures, arise from three types of

claims : casualty recoveries from persons responsible for

medical expenditures on behalf of Medicaid recipients, estate

recoveries from or through the estates of Medicaid recipients,

and Medicare and other recoveries from sources such as CHAMPUS,

commercial insurers, and health maintenance organizations.

These are the third party liability ( TPL) services that

Respondent seeks in the RFP.

2. The RFP describes in some detail the nature of the

services sought by Respondent. The RFP notes that Respondent

operates a Bureau of Third Party Liability within the Division

of Medicaid (Bureau). Florida and federal law authorize

Respondent to recover Medicaid expenditures from liable third

parties.

3. The RFP describes the scope of the Medicaid program in

Florida. On average, the Florida Medicaid program serves 1.7

million persons. State and federal agencies transmit

eligibility data to the Florida Medicaid program through a state

data system, known as the FLORIDA system, and a federal-state

data system, known as SDX files.

4. The RFP states that its purpose is to request proposals

from qualified organizations to recover for the Medicaid program

payments from liable third parties. The RFP anticipates a

contract for a three-year period commencing July 1, 2001, with

three annual renewals, at the option of Respondent.

5. RFP Section 10.6 provides that an organization seeking

to submit a proposal "must meet all legal requirements for doing

business in the State of Florida." The RFP requires that

organizations certify that they hold the appropriate licenses

and certifications.

6. The nomenclature in the RFP consistently distinguishes

between an "offeror" and a "contractor." As used in the RFP, an

"offeror" is an organization submitting a proposal, and a

"contractor" is the offeror whose proposal has been accepted by

Respondent.

7. RFP Section 20.19 authorizes Respondent, "in its sole

discretion, to waive minor irregularities in offeror proposals."

The RFP explains:

A minor irregularity is a variation from the

RFP specifications which does not affect an

offeror's proposed price, give one offeror

an advantage or benefit not enjoyed by other

offerors, or adversely impact the interests

of the State of Florida. Waivers, when

granted, shall in no way modify the RFP

requirements or excuse an offeror from full

compliance with the RFP specifications and

other requirements.

8. RFP Section 20.21 states that Respondent will reject

proposals that do not conform to the requirements of the RFP.

This section lists ten reasons for which Respondent will reject

an RFP. RFP Section 20.21.h authorizes rejection because "the

proposal is incomplete, or contains irregularities which make

the proposal indefinite or ambiguous and which cannot be waived

in accordance with Subsection 20.19, Acceptance of Proposals."

RFP Section 20.21.i authorizes rejection because "the offeror's

proposal contains false of misleading statements or provides

references which do not support an attribute, capability,

assertion, or condition claimed by the offeror." RFP Section

20.21.j authorizes rejection because "the proposal does not

offer to provide all services required by this RFP."

9. RFP Section 30 addresses mostly contractor issues and

thus generally applies to the offeror whose proposal Respondent

has selected RFP Section 30.5 requires the contractor to

"perform its obligations under a contract . . . in accordance

with all applicable federal, state and local laws, rules and

regulations now or hereafter in effect."

10. RFP Section 30.6 addresses conflicts of interest.

This section requires that all offerors disclose any officers,

directors, agents, or certain owners who are employees of the

State of Florida. Section 30.6 adds:

The contractor covenants that it presently

has no interest and shall not acquire any

interest, direct or indirect, which would

conflict in any manner or degree with the

performance of its services under the

contract. The contractor further covenants

that in the performance of the contract no

person having any such known interests shall

be employed.

11. RFP Section 30.18 addresses "subcontracts," which,

like other key terms, is not expressly defined by the RFP. The

RFP states:

The contractor shall not enter into any

subcontracts for services to be provided

under the contract without the express

written consent of the Agency. In all

instances, the contractor shall remain fully

responsible for all work to be performed

under the contract. Each approved

subcontract shall be subject to the same

terms and conditions as the contract.

12. RFP Section 30.29 requires the contractor to treat as

privileged and confidential all personally identifiable

information concerning Medicaid recipients.

13. RFP Sections 30.35 through 30.38 mark instances in

which the RFP does not designate as a "contractor" the offeror

whose proposal has been selected. However, for the

certifications required by RFP Sections 30.37 and 30.38, the RFP

properly refers to "offeror" because, until the offeror signs

these certifications, it has not gained "contractor" status.

14. RFP Section 30.40 acknowledges the prohibition, as set

forth in Section 287.017, Florida Statutes, against persons or

affiliates on the convicted vendor list from doing business with

any public entity for a specified period.

15. Noting that, by law, the Medicaid program is the

"payer of last resort," RFP Section 50.1 states that Section

409.910, Florida Statutes, requires Respondent to collect all

amounts determined available from liable third parties. The

casualty component of the services sought by the RFP requires

"follow-up collection services for casualty cases." The RFP

states that the contractor for this component will be paid a

"contingency fee on all amounts collected," and the current

contractor receives 10.5 percent of all such collections.

Section 50.1 states that the casualty recovery services

generally include "identification of relevant claims, filing of

appropriate documents to recover Medicaid's lawful share of any

claim payment, receiving funds, and closing the case file when

appropriate."

16. The succeeding subsections of Section 50 detail the

requirements of casualty recovery services. These sections

address in detail case handling, the preparation and filing of

liens, processing challenges to liens, processing requests for

reductions of liens, contractor contact with attorneys,

returning cases to Respondent, handling subpoenas, settling

accounts, and monthly reporting to Respondent.

17. Section 60.0 requires that a proposal demonstrate an

understanding of Respondent's goals for the contract, especially

the goal to "maximize the collections to reimburse Medicaid for

amounts paid where third party resources are determined to be

available." Section 60 contains the "minimum requirements the

bidder must meet in order to be considered." Explaining that

Respondent will evaluate the technical information before

evaluating the bid price, Section 60.0 warns, "Offerors not

meeting the minimum requirements will not be considered."

18. Section 70.1 states that federal law requires the

Medicaid program administrator to recover assets from the

probate estates of certain deceased Medicaid recipients.

Section 70.1 explains that Respondent must calculate the amount

of any claim and file its claim with the appropriate probate

court.

19. The succeeding subsections of Section 70.1 detail the

sources of operating guidelines, 31 specific services,

settlement guidelines, reporting requirements, and requirements

for the representation of Respondent in litigation.

20. Section 90.1 states that Respondent pursues payments

from Medicare for claims paid by Medicaid. Section 90.1 notes

that limitations in the present database require the maintenance

of a separate database for all eligible Medicaid recipients and

any related Medicare information.

21. The succeeding subsections of Section 90 describe

specific responsibilities in pursuing institutional and medical

claims, updating Respondent with information concerning non-

Medicaid payers, invoicing carriers, and monthly reporting.

22. The RFP requires each offeror to sign a Certificate of

Compliance, which is reprinted at RFP Appendix D. RFP Appendix

D.3 provides:

We understand and agree that we have read

the state's specifications provided in the

RFP and that this proposal is made in

accordance with the provisions of such

specifications. By our written signature on

this proposal, we guarantee and certify that

all items included in this proposal shall

meet or exceed any and all such state

specifications. We further agree, if

awarded a contract, to deliver services that

meet or exceed specifications provided in

the RFP.

23. The RFP requires each offeror to sign a Certification

Regarding Debarment, Suspension, Ineligibility and Voluntary

Exclusion Contracts/Subcontracts, which is reprinted at RFP

Appendix F. RFP Appendix F.5 provides:

The provider agrees by submitting this

certification that, it shall not knowingly

enter into any subcontract with a person who

is debarred, suspended, declared ineligible,

or voluntarily excluded from participation

in this contract/subcontract unless

authorized by the Federal Government.

24. In scoring each of the two components, Respondent

converted the highest raw score to an absolute number--2000 for

technical and 1000 for cost. For the technical score,

Respondent then assigned each of the remaining proposals a score

derived by multiplying the absolute number by a fraction whose

numerator was the average raw score of the subject proposal and

whose denominator was the average raw score of the best

proposal. Respondent scored the cost proposals on a similar

proportional basis. Respondent scored the technical and cost

components of five offerors.

25. For the technical component, the highest score was

earned by First Coast Service Options, Inc. (First Coast), whose

average raw score of 7.666 earned 2000 points. Petitioner's

average raw score of 7.567 earned 1974 points, and Intervenor's

average raw score of 7.469 earned 1948 points.

26. Scoring of the cost component was straightforward.

Pursuant to provisions contained in the RFP, Respondent

calculated a weighted average of the percentage contingency fees

contained in each proposal for casualty recovery, estate

recovery, and Medicare and other recovery. For the cost

component, the highest score was earned by Intervenor, whose

weighted average contingency fee of 6.17 percent earned 1000

points. Respondent's Bureau of Third Party Liability, which had

performed many TPL services prior to the RFP contract start-up

date, also submitted a proposal and earned 960 points for a

weighted average contingency fee of 6.43 percent. Petitioner

earned 869 points for a weighted average contingency fee of 7.10

percent, and First Coast earned 666 points for a weighted

average contingency fee of 9.27 percent.

27. The two highest totals were : Intervenor--2948 points

and Petitioner--2843 points. On the basis of these scores,

Respondent proposed the selection of Intervenor's proposal, and

Intervenor timely filed a notice of protest and formal written

protest.

28. Assuming that the scores of the other offerors

remained unchanged, Petitioner would have to raise its average

raw score from 7.567 to 7.997 to obtain sufficient points on the

technical component to earn the highest point score. This would

represent an average increase of 0.43 raw points over the 73

items scored by each of the five evaluators, although Respondent

dropped items for which evaluators entered no score (as opposed

to a zero).

29. Petitioner objects to the scoring of several items due

to the evaluators' use of items to "consider." These items were

prepared by Respondent's issuing officer, Connie Ruggles, who

was supervising the procurement. After the RFP had been

published, Ms. Ruggles prepared these items to consider for the

purpose of helping the evaluators focus on issues that they

might address in evaluating the responses. However, these items

were never disclosed to the offerors prior to their submittal of

proposals.

30. Petitioner objects to the scoring of RFP Section

60.2.a, which states: "Describe the organization and its

history, legal structure, ownership, affiliations and related

parties. Provide this same information for any

subcontractor(s)."

31. The undisclosed items to consider when scoring Section

60.2.a are:

* The extent to which the offeror's

description of its background and experience

provides assurance of its capability to

provide casualty recovery services and

systems.

* The resources available to the

organization due to its ownership,

affiliations and related parties.

* Whether the offeror's expertise,

capabilities, and experience are comparable

and compatible with the services required by

the RFP.

* The longevity and stability of the

organization.

* History of providing casualty recovery

services for other organizations.

32. RFP Section 80.2.a and its items to consider contain

identical provisions, except for estate recovery services. RFP

Section 100.2.a and its items to consider contain identical

provisions, except for Medicare and other third party recovery

services.

33. Petitioner objects to the scoring of RFP Section

60.4.e, which states:

Provide a full description of subcontractor

assignments in fulfilling the contract

requirements.

34. The undisclosed items to consider when scoring Section

60.4.e are:

* Subcontractors are not prohibited but

must be approved by the Agency.

* Whether any subcontractors meet

requirements for participation in contract.

35. RFP Section 80.4.e and its items to consider contain

identical provisions for estate recovery services, and RFP

Section 100.4.e and its items to consider contain identical

provisions for Medicare and other third party recovery services.

36. The items to consider under RFP Section 60.2.a raise

issues of relevant experience in casualty recovery services that

are not fairly stated in Section 60.2.a itself. However, the

presence of these items to consider does not appear to have

differentially affected the scoring of the proposals of

Petitioner and Intervenor.

37. Kay Newman gave both proposals a 9 for Section 60.2.a,

limiting herself, according to her notes, to the material

requested in Section 60.2.a itself. Jerome Todd gave

Petitioner's proposal an 8 and Intervenor's proposal a 7 for

Section 60.2.a, and he also appears to have limited himself to

Section 60.2.a itself. Jake McWilliams gave both proposals an 8

for Section 60.2.a. He considered the relevant experience added

by the items to consider, but found that both offerors had such

experience. Qi Zhou gave Petitioner's proposal an 8 and

Intervenor's proposal a 7 for Section 60.2.a; she gave

Petitioner the higher score based on relevant experience, which

is contained only in the undisclosed items to consider. Theresa

Mock gave both proposals an 8 for Section 60.2.a, noting

Intervenor's relevant experience, but not making any notes

regarding Petitioner. If anything, the undisclosed item to

consider for Section 60.2.a helped Petitioner. The scoring,

apparent reasoning, and effects are similar for RFP Sections

80.2.a and 100.2.a.

38. The items to consider under RFP Sections 60.4.e,

80.4.e, and 100.4.e do not add anything that is not already

raised under the disclosed requirements.

39. Petitioner has thus failed to prove that the

evaluators' use of undisclosed items to consider was clearly

erroneous, contrary to competition, arbitrary, or capricious

(Clearly Erroneous).

40. Petitioner objects to the practice of evaluators'

assigning no score to certain items and Respondent's omission of

these unscored items from the total items scored when compiling

average raw scores. This practice was most marked as to RFP

Sections 60.4.e, 80.4.e, and 100.4.d.

41. For RFP Section 60.4.e, for instance, the evaluators

gave Petitioner, which supplied the names of two law firms as

subcontractors, scores of "na," 8, 10, 8, and 8. However, the

evaluators gave Intervenor, which did not supply the names of

its law firms as subcontractors, all "na's” except for one 10,

even though the evaluator scoring a 10 notes that Intervenor has

no subcontractors. These scoring patterns applied to RFP

Sections 80.4.e and 100.4.d.

42. The ten points assigned to Intervenor's proposal by

one evaluator for RFP Sections 60.4.e, 80.4.e, and 100.4.d,

despite the absence of subcontractors, is odd. The evaluator's

reasoning seems to be that Intervenor's refusal to rely on

subcontractors means that subcontractors cannot be a problem.

43. Petitioner also objects to Respondent's failure to

treat na's as zeros when scoring the proposals. RFP Sections

60, 80, and 100 all state: "An offeror who fails to answer a

question shall receive no evaluation points for that question."

44. However, nothing in the RFP informs offerors that, if

they do not propose an optional item, such as a subcontractor,

they will receive zeros, which will reduce their average raw

score.

45. The impact of three tens assigned by one evaluator to

Intervenor's proposal at RFP Sections 60.4.e, 80.4.e, and

100.4.d is negligible, even if it is supported by little

reasoning. Given the lack of materiality to the impact of these

three 10s, in light of the gap that Petitioner is trying to

close, Petitioner has thus failed to prove that one evaluator's

assigning of three tens or the omission of the "na's” from the

average raw scores was Clearly Erroneous.

46. Petitioner challenges the qualifications of the

evaluators. Ms. Ruggles is employed by Respondent as a Senior

Management Analyst II in the Office of the Deputy Secretary for

Medicaid. She has been employed by Respondent since 1993.

47. Ms. Ruggles prepared the RFP, selected the evaluators,

and supervised the evaluation process. After issuing the RFP,

Respondent received no challenges to the specifications.

48. Ms. Ruggles selected five persons as evaluators.

Because Respondent's Bureau of Third Party Liability was allowed

to submit a proposal, Ms. Ruggles excluded from the pool of

potential evaluators those persons who were employed at the

Bureau or had been employed at the Bureau within the past year.

Mr. Ruggles declined to ask other states for evaluators because

she knew that Florida would not be able to reciprocate.

49. Respondent received five complete proposals and a

proposal for one component of the three components covered by

the RFP. Respondent rejected the partial proposal. Ms. Ruggles

and another Medicaid employee checked the proposals for the

mandatory items. She had other Medicaid employees check the

references supplied by the offerors. Although the record

suggests that the reference checks may not have been performed

thoroughly, the record does not support an inference that this

omission was material as to Intervenor.

50. The evaluators scored the five proposals in an

assigned conference room over two weeks. Ms. Ruggles directed

them not to discuss their scoring and gave them the proposals in

different orders, so that two evaluators would not likely be

scoring the same proposal at the same time. The evaluators

could speak to each other concerning matters not directly

related to scoring, such as program requirements. When they had

a scoring question, they had to address it to Ms. Ruggles.

51. Petitioner contends that the evaluators were

unqualified. The backgrounds of the five evaluators varied.

Mr. Todd had the most direct relevant experience because he had

been the Chief of the Bureau of Third Party Liability for two

and one-half years, ending in 1996. As was the case with

another Chief of the Bureau, Mr. Todd had no third party

liability experience when he first assumed the responsibility.

52. Ms. Newman is an Other Personnel Services employee

working as a Senior Management Analyst for Respondent's Medicaid

Director. She is a certified public accountant with

considerable experience auditing private and public entities.

She has also evaluated a third party liability refund process.

53. Ms. Mock is a Senior Human Services Program Specialist

employed by Respondent (and its predecessor) since 1984.

Assigned to the Medicaid Program Integrity Bureau, Ms. Mock has

investigated fraud and abuse since 1992 and assisted in the

recovery of Medicaid funds.

54. Mr. McWilliams is a Database Administrator in

Respondent's Bureau of Information Technology. He earned a

bachelor's degree with majors in computer science and business

administration. Creating and maintaining Respondent's

databases, Mr. McWilliams sometimes helps maintain the database

of the Bureau of Third Party Liability. Mr. McWilliams also

helped create and maintain the EAGLE system, which is a data

processing and case management system for third party liability

recovery services.

55. Ms. Zhou was a Senior Systems Project Administrator

with Respondent, although she terminated her employment on

August 6, 2001. She worked on computer networking and database

maintenance for the six years that she was employed by

Respondent. Ms. Zhou also worked with the EAGLE system.

56. Obviously, the different expertise that each evaluator

added to the scoring process is limited by the inability of the

evaluators to discuss their scoring. However, each evaluator

was experienced in important aspects of TPL, and the RFP

provided detailed descriptions of the services sought by

Respondent. Although Mr. Todd had the most relevant

qualifications, he and another former Bureau Chief lacked any

relevant experience before assuming their TPL responsibilities.

TPL is not a highly technical or complex area, but instead

represents a regulation-driven, large-scale collections process.

A review of the scores reveals that the evaluators did not score

important areas of the RFP irrationally.

57. Petitioner has thus failed to prove that the

evaluators were so unqualified as to render their scoring

Clearly Erroneous.

58. Petitioner argues that Intervenor has a conflict of

interest because of the work of one of its subsidiaries for

health-care providers. The subsidiary is known as HCM, which

Intervenor is in the process of selling.

59. HCM provides decision-support software to HCA, a

national hospital chain with over 40 hospitals in Florida.

These services help hospitals account for their costs by

identifying the costs of specific services to determine, among

other things, if these services are properly priced.

60. Neither Intervenor nor any of its affiliates presently

provide billing services for any health-care provider in

Florida. From 1997-99, HCM provided underpayment recovery

services. HCA recovered $12 million in underpayments. In one

instance, HCM's software identified $40,000 in Medicaid-related

payments.

61. Additionally, Intervenor has implemented a compliance

program including separation of organizations (with no one below

the level of the chief financial and operating officer

responsible for more than one business segment), operating

procedures, software, and employee monitoring.

62. Petitioner has thus failed to prove that Respondent's

decision not to find Intervenor's proposal nonresponsive, or

Intervenor not responsible, due to conflicts of interest between

Intervenor and Respondent was Clearly Erroneous.

63. Petitioner contends that Intervenor's failure to

disclose its legal subcontractor in its proposal renders its

proposal nonresponsive. Intervenor intends to use Fowler White

for legal services. Although it mentioned Fowler White in its

proposal, Intervenor did not list Fowler White as a

subcontractor.

64. The parties disagree as to the definition of a

subcontract or subcontractor. RFP Section 30.18 states under

the heading, "Subcontracts":

The contractor shall not enter into any

subcontracts for services to be provided

under the contract without the express

written consent of the Agency. In all

instances, the contractor shall remain fully

responsible for all work to be performed

under the contract. Each approved

subcontract shall be subject to the same

terms and conditions as the contract.

65. Clearly, a subcontract would involve a contract

between the contractor and a third party under which the latter

agreed to provide the services under one of the three

components : casualty, estate, and Medicare and other. However,

the question remains as to the status of the third party, under

the RFP, that enters into a contract to provide data services,

labor services, or, most importantly, legal services--all of

which may involve more than one component and do not constitute

the entirety of any single component.

66. The definition of "subcontractor" is important.

RFP Section 30.26 requires the contractor to inde mnify

Respondent for various acts and omissions of the contractor's

subcontractors. Section 30.18 refers to any agreement for

services to be provided under the contract. Although there may

be a de minimis exception here, attorneys provide critical

services under this RFP. In one year, while representing

Petitioner in third party liability work in Florida, Fowler

White's legal billings to Petitioner exceeded Petitioner's

contract payments from Respondent. Thus, Fowler White would

qualify as a subcontractor under the RFP.

67. However, the fact that a law firm is a subcontractor

under the RFP does not mean that an offeror must disclose this

subcontractor in its proposal. Section 30.18 requires only that

a "contractor" obtain Respondent's written approval before

entering any service subcontracts. Sections 60.2.a and 60.4.e,

as well as their counterparts, require the disclosure of certain

information concerning subcontractors, but these provisions

easily harmonize with the provisions of Section 30.18 by

applying the requirements of Sections 60.2.a and 60.4.e only to

those subcontractors whom an offeror had already selected by the

time that it was submitting its proposal.

68. The incentive to disclose subcontractors is not

necessarily additional points, given the omission of " na's" from

the scoring and one evaluator's decision to award ten points to

a proposal without subcontractors. The incentive to disclose

subcontractors is the knowledge, prior to the execution of a

contract, that Respondent has approved a specific subcontractor.

Free to decide whether to require disclosure of subcontractors

prior to the selection of a proposal, Respondent chose not to

require such disclosure, giving the prevailing offeror the

option of seeking subcontractors after the proposed award of the

contract.

69. Petitioner has thus failed to prove that Respondent's

decision not to find Intervenor's proposal nonresponsive, or

Intervenor not responsible, due to Intervenor's failure to

identify Fowler White as its legal subcontractor was Clearly

Erroneous.

70. Although Intervenor has mentioned elsewhere in its

proposal the intent to use Fowler White, its failure to submit

for Respondent's approval Fowler White as a subcontractor means

that it is premature to consider in detail Fowler White's

possible conflicts with Respondent and Petitioner. However,

several points are relevant.

71. The determination of a conflict of interest involving

an attorney is fact-driven and, at times, complex. It is a

determination that focuses on an attorney's ethical obligations

and is not intended to serve in assessing the validity of

contracts between nonattorneys, such as Respondent and the

successful offeror.

72. The introduction to the Rules of Professional Conduct

governing attorneys warns:

Violation of a rule should not give rise to

a cause of action nor should it create any

presumption that a legal duty has been

breached. The rules are designed to provide

guidance to lawyers and to provide a

structure for regulating conduct through

disciplinary agencies. They are not

designed to be a basis for civil liability.

Furthermore, the purpose of the rules can be

subverted when they are invoked by opposing

parties as procedural weapons. The fact

that a rule is a just basis for a lawyer's

self-assessment, or for sanctioning a lawyer

under the administration of a disciplinary

authority, does not imply that an antagonist

in a collateral proceeding or transaction

has standing to seek enforcement of the

rule. Accordingly, nothing in the rules

should be deemed to augment any substantive

legal duty of lawyers or the extra-

disciplinary consequences of violating such

duty.

73. Rule of Professional Conduct 4-1.7(a), (b), and (c)

provides:

(a ) Representing Adverse Interests. A

lawyer shall not represent a client if the

representation of that client will be

directly adverse to the interests of another

client, unless:

(1 ) the lawyer reasonably believes the

representation will not adversely affect the

lawyer's responsibilities to and

relationship with the other client; and

(2 ) each client consents after

consultation.

(b ) Duty to Avoid Limitation on Independent

Professional Judgment. A lawyer shall not

represent a client if the lawyer's exercise

of independent professional judgment in the

representation of that client may be

materially limited by the lawyer's

responsibilities to another client or to a

third person or by the lawyer's own

interest, unless:

(1 ) the lawyer reasonably believes the

representation will not be adversely

affected; and

(2 ) the client consents after

consultation.

(c ) Explanation to Clients. When

representation of multiple clients in a

single matter is undertaken, the

consultation shall include explanation of

the implications of the common

representation and the advantages and risks

involved.

74. Rule of Professional Conduct 4-1.8(b) provides:

Using Information to Disadvantage of Client.

A lawyer shall not use information relating

to representation of a client to the

disadvantage of the client unless the client

consents after consultation, except as

permitted or required by rule 4-1.6.

75. Rule of Professional Conduct 4-1.9 provides:

A lawyer who has formerly represented a

client in a matter shall not thereafter:

(a ) represent another person in the same or

a substantially related matter in which that

person's interests are materially adverse to

the interests of the former client unless

the former client consents after

consultation; or

(b ) use information relating to the

representation to the disadvantage of the

former client except as rule 4-1.6 would

permit with respect to a client or when the

information has become generally known.

76. Petitioner contends that Fowler White has two

conflicts arising out of its former representation of

Petitioner. First, when Fowler White was first retained by

Intervenor, Fowler White was still litigating a case for

Petitioner. However, a comment to Rule 4-1.7 notes that a

lawyer may, without client consent, represent clients whose

interests are only "generally adverse," such as "competing

economic enterprises." On the other hand, Fowler White did not

undertake the representation in this case of Intervenor, whose

interest is directly opposed to Petitioner, because Fowler White

still was litigating a case for Petitioner.

77. Second, Petitioner objects to a conflict that arises

from Fowler White's access to Petitioner's proprietary

information during the course of that representation. There is

no reason to doubt that Fowler White would respect its ethical

obligation to protect client confidences. There is little more

reason in the record to infer that much proprietary information

concerning TPL is in the hands of Petitioner or Intervenor, and

not the other. Fowler White's representation of Petitioner in

TPL work ended in 1997 and does not pose a conflict, if Fowler

White now represents Intervenor in TPL work. Both of these

situations are covered by Rule 4-1.9, and nothing in that rule

suggests that Fowler White would have a conflict representing

Intervenor now.

78. Petitioner also objects to Fowler White's conflicts

with Respondent. First, Petitioner notes RFP Section 30.6,

which requires the contractor to covenant that it has no

conflicts with Respondent. Although this provision will apply

to subcontractors, pursuant to Section 30.18, the determination

of any such disqualifying conflicts concerning Fowler White

awaits the formal designation of Fowler White as a legal

subcontractor.

79. Petitioner argues that Fowler White represents two

broad categories of clients whose interests directly conflict

with those of Respondent : licensed health care providers

subject to disciplinary proceedings and health care providers in

their ordinary operations.

80. The record does not demonstrate the nature of the

conflict between the interests of Respondent, in maximizing TPL

recoveries, and the interests of health-care licensees, in

successfully defending licensing cases brought against them by

Respondent or other agencies. Obviously, the prosecuting

attorneys in disciplinary cases work in different divisions of

Respondent from those persons in Medicaid TPL with whom Fowler

White would be dealing.

81. The record does demonstrate cause for concern as to

potential conflicts between health care providers, in their

ordinary operations, and Respondent as to TPL work. The

prospect of conflicts in estate recoveries is low because Fowler

White does not typically represent the personal representatives

of estates whose decedents qualified for Medicaid coverage.

However, the same is not true for the other two components.

82. In 1997, the Fowler White partner in charge of

compliance stated in a letter to Petitioner that Fowler White

had to discontinue its representation of Petitioner due to

continuing "conflicts of interest with our existing clients in

the health care industry." At present, one Fowler White lawyer

has at least one active file in which Fowler White is

representing health care providers against allegations of

overbilling.

83. However, the nature of these potential conflicts will

emerge only as Intervenor assigns Fowler White litigation

matters. At that time, Fowler White can determine whether a

conflict exists and, if so, whether it may ethically undertake

the representation with the consent of one or both clients, as

required under Rule 4-1.7(a) and (b).

84. Petitioner has thus failed to prove that Respondent's

decision not to find Intervenor's proposal nonresponsive, or

Intervenor not responsible, due to conflicts of interest between

Fowler White, on the one hand, and Intervenor or Respondent, on

the other hand, was Clearly Erroneous.

85. Petitioner also contends that Intervenor inadequately

disclosed the services of its chosen law firm in obtaining the

subject contract. Petitioner argues that Intervenor's proposal

is nonresponsive due to its failure to certify that it used no

lobbyists in obtaining the subject contract.

86. RFP Section 30.37 requires that each "offeror" shall

be required to sign a Certification Regarding Lobbying, which is

reprinted in RFP Appendix E, "as a condition of contract award."

As already noted, this requirement actually applies to the

selected offeror, not every offeror. To make the transition

from "selected offeror" to "contractor"--i.e., to obtain a

contract--the selected offeror will have to sign the lobbying

certification, so there was no need for an offeror to provide a

signed certificate with its proposal.

87. Also, the certification provides, for other than

federal appropriate funds, that the entity signing the contract

disclose any lobbying in connection with a federal contract.

Assuming that this is a federal contract, there is ample time

for the disclosure of the agreement between Intervenor and

Fowler White that Intervenor pay the law firm $30,000 for

services in obtaining the subject contract.

88. Petitioner has thus failed to prove that Respondent's

decision not to find Intervenor's proposal nonresponsive, or

Intervenor not responsible, due to a failure to execute and

deliver with the proposal the Certification Regarding Lobbying

was Clearly Erroneous.

CONCLUSIONS OF LAW

89. The Division of Administrative Hearings has

jurisdiction over the subject matter. Section 120.57(1) and

(3), Florida Statutes. (All references to Sections are to

Florida Statutes.)

90. Section 120.57(3)(f) provides:

. . . Unless otherwise provided by statute,

the burden of proof shall rest with the

party protesting the proposed agency action.

In a competitive-procurement protest, other

than a rejection of all bids, the

administrative law judge shall conduct a de

novo proceeding to determine whether the

agency's proposed action is contrary to the

agency's governing statutes, the agency's

rules or policies, or the bid or proposal

specifications. The standard of proof for

such proceedings shall be whether the

proposed agency action was clearly

erroneous, contrary to competition,

arbitrary, or capricious. In any bid-

protest proceeding contesting an intended

agency action to reject all bids, the

standard of review by an administrative law

judge shall be whether the agency's intended

action is illegal, arbitrary, dishonest, or

fraudulent.

91. Section 120.57(3)(f) thus states t hat the standard of

proof in this case is whether the proposed agency action is

clearly erroneous, contrary to competition, arbitrary, or

capricious (Clearly Erroneous Standard).

92. Typically, a standard of proof governs the

determination of the basic facts that underlie the determination

of the ultimate facts, and the determination of the ultimate

facts underlie the determination of the legal issues. However,

the language of Section 120.57(3)(f) applies the Clearly

Erroneous Standard only to the proposed agency action, such as

whether the proposed award is contrary to statutes, rules,

policies, or the RFP. Under Section 120.57(1)(j), the

preponderance standard governs the determination of the basic

facts, such as the contents of a proposal and statements made at

an offerors' conference.

93. There are also ultimate questions of fact to which the

Clearly Erroneous Standard applies. Ultimate questions of

fact--express and implied--link the basic facts to the final

legal conclusion, which is whether the proposed decision to

award is contrary to statute, rule, policy, or the RFP. In some

cases, the question arises whether a deviation in a bid or

proposal is a material variance or a minor irregularity or

whether a bid or proposal is responsive. These are ultimate

questions of fact, and the Clearly Erroneous Standard requires

the factfinder to defer to these policy-influenced

determinations.

94. The Clearly Erroneous Standard also applies to

subordinate questions of law and mixed questions of fact and

law, such as interpretations of an agency rule or RFP, and

questions of fact requiring the application of technical

expertise, such as whether a specific product offered

qualitatively complies with the specifications.

95. This approach is consistent wi th State Contracting and

Engineering Corporation v. Department of Transportation , 709

So. 2d 607 (Fla. 1st DCA 1998). In State Contracting , the court

affirmed the agency's final order that rejected the

recommendation of the administrative law judge to reject a bid

on the ground that it was nonresponsive. The bid included the

required disadvantaged business enterprise form, but, after

hearing, the administrative law judge determined that the bidder

could not meet the required level of participation by

disadvantaged business enterprises. The agency believed that

responsiveness demanded only that the form be facially

sufficient and compliance would be a matter of enforcement.

Rejecting the recommendation of the administrative law judge,

the agency reasoned that the administrative law judge had failed

to determine that the agency's interpretation of its rule was

clearly erroneous.

96. In affirming the agency's final order, the State

Contracting court quoted the provisions of Section 120.57(3)(f)

for evaluating the proposed agency action against the four

criteria and Clearly Erroneous Standard. Addressing the meaning

of a de novo hearing in an award case, the court stated, at page

609:

In this context, the phrase "de novo

hearing" is used to describe a form of

intra-agency review. The [administrative

law judge] may receive evidence, as with any

formal hearing under section 120.57(1), but

the object of the proceeding is to evaluate

the action taken by the agency.

97. Significantly, the State Contracting court did not

apply the Clearly Erroneous Standard merely to the agency

decision to award. The court concluded that the agency's

interpretation of one of its rules and determination that the

bid was responsive were not "clearly erroneous."

98. In the s ubject case, then, the preponderance standard

applies to all basic facts and the Clearly Erroneous Standard

applies to the ultimate questions of fact, mixed questions of

fact and law, subordinate questions of law, and questions of

fact involving agency expertise. Based on the resulting

findings, the conclusions of law determine whether the proposed

agency decision to award the contract to Intervenor is

consistent with statutes, rules, policies, and the RFP.

99. Petitioner has failed to prove by the Cle arly

Erroneous Standard that Respondent's decision to select the

proposal of Intervenor is inconsistent with statutes, rules,

policies, or the RFP.

100. The use of undisclosed items to consider, three tens

for an item addressing subcontractors when the proposal failed

to name any, and omitting items scored "na" were immaterial.

The evaluators' qualifications were sufficient for the task and

did not approach the unfitness of the evaluators in Knauss

Systems, Inc. of Florida v. Department of Children and Family

Services , 1999 W.L. 1486544 (R.O. Fla. Div Admin. Hrgs. 1999),

final order issued by Department of Children and Family

Services, Order No. DCF-00-061-FO . In that case, evaluators

wholly unsuited to assess the financial condition of an offeror

badly misexecuted their responsibilities, as was plainly evident

from the relevant financial statements.

101. No significant conflicts of interest appear to exist

between Intervenor and Respondent. The failure to disclose

Fowler White as Intervenor's legal subcontractor was irrelevant

because the RFP did not require this disclosure. Also, the

record disclosed no significant conflicts between Petitioner and

Fowler White.

102. It is possible that Fowler White will encounter

conflicts between its representation of Respondent, as

Intervenor's legal subcontractor, and its representation of

various health care providers in their ordinary operations.

However, this is no basis for overturning the proposed award.

First, even actual conflicts may not justify Petitioner's

attempted use of the ethical rule to induce Respondent to

withdraw its proposed intent to award the contract to

Intervenor. Second, the extent and frequency of these conflicts

have yet to emerge, so it is premature to consider their effect,

if any, upon the ability of Fowler White and, more importantly,

Intervenor to service this contract.

RECOMMENDATION

It is

RECOMMENDED that the Agency for Health Care Administration

enter a final order awarding to Health Management Systems, Inc.,

the subject contract under Request for Proposals for Medicaid

Third Party Recovery Services, Proposal No. RFP TPL 01-01.

DONE AND ENTERED this 18th day of September, 2001, in

Tallahassee, Leon County, Florida.

___________________________________

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488- 9675 SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of September, 2001.

COPIES FURNISHED:

Rhonda M. Medows, Secretary

Agency for Health Care Administration

2727 Mahan Drive

Fort Knox Building Three,

Suite 3116

Tallahassee, Florida 32308

Julie Gallagher, General Counsel

Agency for Health Care Administration

2727 Mahan Drive

Fort Knox Building Three,

Suite 3431

Tallahassee, Florida 32308

Kelly A. Bennett

Assistant General Counsel

Agency for Health Care Administration

2727 Mahan Drive, Building 3

Tallahassee, Florida 32308-5403

Steve Pfeiffer

David A. Theriaque

Theriaque & Pfeiffer

1114 East Park Avenue

Tallahassee, Florida 32301

David C. Ashburn

Seann M. Frazier

Greenberg Traurig, P.A.

101 East College Avenue

Tallahassee, Florida 32301

Michael S. Gardener

Kevin M. McGinty

Mintz, Levin, Cohn, Ferris, Glovsky,

And Popeo, P.C.,

One Financial Center

Boston, Massachusetts 02111

Diane Grubbs, Agency Clerk

Agency for Health Care Administration

Fort Knox Building Three, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

10 days from the date of this recommended order. Any exceptions

to this recommended order must be filed with the agency that

will issue the final order in this case.