02-002659BID Publicis Sanchez &Amp; Levitan vs. Department Of Lottery Status: Closed Recommended Order on Friday, October 18, 2002.

Summary: Petitioner failed to prove that the Department`s actions were clearly erroneous, contrary to competition, arbitrary, or capricious. Recommend dismissing protest.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PUBLICIS SANCHEZ & LEVITAN, LLC, )

)

Petitioner, )

)

vs. ) Case No. 02 - 2659BID

)

DEPARTMENT OF LOTTERY, )

)

Respondent. )

___________________________________)

RECOMMENDED ORDE R

A formal hearing was held pursuant to notice, on

August 13, 2002, in Tallahassee, Florida, before Barbara J.

Staros, assigned Administrative Law Judge of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Chris H. Bentley, Esqu ire

John L. Wharton, Esquire

Rose, Sundstrom & Bentley, LLP

2548 Blairstone Pines Drive

Tallahassee, Florida 32301

For Respondent: Paul J. Martin, Esquire

Office of the Attorney General

PL - 01, The Capitol

Tallahassee, Florida 32399 - 1050

Kenneth H. Hart, Jr., General Counsel

Departme nt of the Lottery

250 Marriott Drive

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

Whether the proposal Petitioner submitted in response to

Respondent's Invitation to Negotiate No. 03 - 01/02/C was no n -

responsive.

PRELIMINARY STATEMENT

On March 22, 2002, the Florida Department of the Lottery

(Department) posted its "Notice of Responsiveness and

Responsibility Notice of Agency Decision" for Invitation to

Negotiate (ITN) No. 03 - 01/02/C, which sought in p art for

provision of advertising and related services in a category

entitled Spanish Language Hispanic Market Advertising. The

Notice found Petitioner and several other proposers to be non -

responsive. Petitioner, Publicis Sanchez & Levitan, LLC,

timely f iled a Petition and Formal Written Protest challenging

the decision of the Department that its proposal was non -

responsive. Petitioner filed an Amended Petition for Formal

Written Protest which was forwarded to the Division of

Administrative Hearings on o r about July 22, 2002. A formal

hearing was scheduled for July 31, 2002.

The parties filed a Joint Motion for Continuance which

was granted. A formal hearing was rescheduled for August 13,

2002.

The parties filed a Prehearing Stipulation. At hearin g,

Petitioner did not present any witnesses. Petitioner's

E xhibit numbered 1 was admitted into evidence. Respondent

presented the testimony of David Faulkenberry. The parties

stipulated to the admission of Joint Exhibits 1 through 4.

A Transcript, con sisting of one volume, was filed on

August 27, 2002. The parties filed a Joint Motion for

Extension of Time in which to file Proposed Recommended

Orders. The motion was granted. The parties timely filed

Proposed Recommended Orders which have been consi dered in the

preparation of this Recommended Order.

FINDINGS OF FACT

Stipulated Facts

1. In December of 2001, Petitioner timely responded to

ITN Number 03 - 01/02/C issued by the Department. The ITN

sought in part, proposals for the provision of advertisin g and

related services in a category entitled "Spanish Language

Hispanic Market Advertising."

2. On March 21, 2002, Petitioner was notified that its

proposal was deemed non - responsive for the following reason:

"Financial information for Publicis USA Hold ings, Inc. was not

provided (SEC 4.9)." In determining Petitioner non - responsive

to the ITN for failing to submit financial statements for

Publicis USA Holdings, Inc., the Department assumed that

Publicis, Sanchez & Levitan, LLC, was the product of a merg er

between Sanchez & Levitan, Inc., and Publicis USA Holdings,

Inc., and thus was required under the second paragraph of

Section 4.9 of the ITN to submit financial statements or

federal income tax returns for pre - merger entities.

3. Petitioner is a Delawa re limited liability company

authorized to do business in Florida. Petitioner was created

on March 14, 2002, under the name Sanchez & Levitan, LLC. At

the time of its creation, Petitioner was owned 100% by Sanchez

& Levitan, Inc., a Florida corporation. On March 16, 2001,

Publicis USA Holdings, Inc., a Delaware corporation, acquired

a minority ownership of 49% of Petitioner. The ownership of

the controlling majority interest of 51% was retained by

Sanchez & Levitan, Inc. On June 18, 2001, Petitioner am ended

its name from Sanchez & Levitan, LLC, to its current name,

Publicis Sanchez & Levitan, LLC. Sanchez & Levitan, Inc.,

continues to own the controlling majority interest of 51%,

while Publicis USA Holdings, Inc., continues to own a minority

interest o f 49%.

4. For the past several years, Petitioner's parent

company, Sanchez & Levitan, Inc., a Florida corporation

incorporated on October 10, 1985, was a contractor to the

department providing Spanish language Hispanic market

advertising and related ser vices.

5. Petitioner is a separate company created in 2001 and

is not the product of a merger. Petitioner is a subsidiary of

its parent company, Sanchez & Levitan, Inc.

6. Because Petitioner was created in March of 2001, and

its response to the ITN was submitted on December 5, 2001, it

had neither certified financial statements nor federal income

tax returns for the past two years.

7. Similarly, Petitioner's parent company, Sanchez &

Levitan, Inc., did not have consolidated financial statements

f or the past two years because Petitioner, the subsidiary, did

not exist for 1999 and 2000.

8. In response to Section 4.9 of the ITN, Petitioner

submitted federal income tax returns for calendar years 1999

and 2000 for Petitioner's parent company, Sanchez & Levitan,

Inc.

Findings of Fact Based on the Evidence of the Record

9. While Petitioner's parent company provided Spanish

language Hispanic market advertising to the Department for the

past several years, that contract was assigned to Petitioner

in Augus t 2001. The Department acknowledged that at the time

Petitioner submitted its proposal to the ITN, Petitioner was

performing essentially identical services in a successful and

financially responsible manner.

10. Section 5.2 of the ITN specifies that the evaluation

of responses for each category of the ITN will be conducted in

two phases. All responsive proposals will be reviewed in

Phase I by an evaluation committee. Those proposers scoring

90% or more of the total possible points for Phase I will be

in vited to participate in Phase II as a finalist. Thus, this

case only involves whether or not Petitioner's proposal should

be evaluated in Phase I.

11. Section 2.1 of the ITN specifies that the Department

has established certain mandatory requirements whi ch must be

included as part of any proposal and that the use of the words

"shall", "must", or "will" in the ITN indicates a mandatory

requirement.

12. The language of the ITN is clear in informing

potential proposers that non - compliance with material

re quirements will have harsh consequences. Section 2.2 of the

ITN provides in pertinent part:

2.2 NON - RESPONSIVE PROPOSALS, NON -

RESPONSIBLE RESPONDENTS

Proposals which do not meet all material

requirements of this ITN or which fail to

provide all requ ired information,

documents, or materials, or are conditional

will be rejected as non - responsive.

Material requirements of the ITN are those

set forth as mandatory, or without which an

adequate analysis and comparison of

proposals is impossible, or those which

affect the competitiveness of proposals or

the cost to the State. The Lottery

reserves the right to determine which

proposals meet the material requirements of

the ITN.

13. The section of the ITN which is at issue in this

controversy is Section 4.9 and is a material requirement. As

amended, 1/ it reads in pertinent part as follows:

4.9 Financial Statements

Respondents and substantial subcontractors

in all categories will be required to

submit certified financial statements in

conformity with ge nerally accepted

accounting principles for the last two

years including an auditor's report for

both years and any management letters that

have been received, or Federal Income tax

returns for the past two years if certified

financial statements are unavai lable. If

financial statements are not yet completed

for the most recently completed fiscal

year, the entity must submit statements for

the two (2) prior years and subsequently

submit the most recently completed fiscal

year statement immediately upon its

issuance.

If a Respondent does not have certified

financial statements, or if applicable,

Federal Income tax returns, as a result of

a merger of other entities, each pre - merger

entity must submit certified financial

statements, or if applicable, Federal

Income tax returns, for the two most recent

years. Certified financial statements or,

if applicable, Federal Income Tax returns

for the Respondent that are available must

be submitted with its proposal, and any

that become available during the

procurement process must be submitted

immediately upon issuance.

Certified financial statements must be the

result of an audit of the entity's records

in accordance with generally accepted

auditing standards by a certified public

accountant (CPA). The financia l statements

must include balance sheets, income

statements, statements of cash flows,

statements of retained earnings, and notes

to the financial statements for both years.

Respondents or substantial subcontractors

who are CMBE's may provide for the tw o (2)

years most recently completed, the

information provided to become a certified

minority

business enterprise (CMBE) including the

supporting documentation used to arrive at

the financial information. If the CMBE has

not been a CMBE for two (2) years, it must

provide the information submitted with its

current CMBE application and similar

information for the preceding year, as well

as any other documentation which may

substantiate the CMBE's financial

responsibility.

If a Respondent submits a consolida ted

financial statement of its parent

corporation, the parent corporation must

serve as financial guarantor of Respondent.

Parent corporations that serve as financial

guarantors of the subsidiary firms shall be

held accountable for all terms and

condition s of the ITN and resulting

Contract and shall execute the Contract as

guarantor.

The Lottery shall hold all firms jointly

and severally responsible for carrying out

all activities required by the Contract.

* * *

Fin ancial statements must be submitted with

Respondents' proposals.

14. There is nothing in the record to indicate that

Petitioner challenged the terms of Section 4.9 of the ITN as

being too restrictive at a time it could have done so.

15. David Faulkenber ry, Director of Finance and Budget

for the Department, was responsible for determining whether or

not proposals were in compliance with Section 4.9 of the ITN.

He analyzed each submittal received to determine whether the

proposer achieved compliance throu gh any of the methods set

forth in Section 4.9 of the ITN.

16. When initially reviewing Petitioner's proposal, he

assumed that Petitioner had been the product of a merger and

applied the language of the second paragraph of Section 4.9.

Petitioner was f ound to be non - responsive because neither the

certified financial statements or federal income tax returns

of pre - merger entities had been submitted. This conclusion

resulted in the Department's posting of the Notice of

Responsiveness and Responsibility that Petitioner was non -

responsive because, "financial information for Publicis USA

Holdings, Inc. was not provided (Sec.4.9)".

17. After the posting of the Notice of Responsiveness

and Responsibility, Mr. Faulkenberry became aware that

Petitioner was not the product of a merger. As a result, Mr.

Faulkenberry then reviewed the financial information submitted

by Petitioner to determine whether it was responsive to

Section 4.9. He reviewed the submission of Petitioner in

light of each avenue of compliance provided in Section 4.9 of

the ITN and determined that the proposal was non - responsive:

Q As a result of that understanding, did

you go back and review the financial

information submitted by Publicis to

determine whether indeed it was responsive

to Sect ion 4.9?

A Yes. I looked at what they submitted

and examined each of the avenues in Section

4.9 that a respondent could take. And,

again, they did not submit -- if you look at

route 1, the respondent could submit

certified financial statements, or, if

they -- those aren't available, federal

income tax returns. They did not do that.

So they were not -- they did not pass that

test.

The next test was the merger outlet. We

now understand that it was not a merger, so

that outlet was closed. We knew they

weren't a CMBE contractor respondent, so

that paragraph did not apply.

And then the last outlet was a respondent

could have their parent submit consolidated

financial statements. We did not receive

consolidated financial statements of the

parent, so th at outlet or avenue was not

met.

And based on those outlets they, again,

were found non - responsive.

18. The information submitted by Petitioner in response

to Section 4.9 of the ITN did not meet any of the avenues

specified in that section.

19 . The Department applied Section 4.9 of the ITN to all

proposers in the same manner as it did to Petitioner.

CONCLUSIONS OF LAW

20. The Division of Administrative Hearings has

jurisdiction over the parties and subject matter in this case

pursuant to Secti ons 120.569, 120.57(1), and 120.57(3),

Florida Statutes.

21. Petitioner has challenged the Department's proposed

agency action of determining that Petitioner's proposal is

non - responsive.

22. The burden of proof resides with the Petitioner.

See Section 120.57(3)(f), Florida Statutes.

23. The underlying findings of fact in this case are

based on a preponderance of the evidence. Section

120.57(1)(j), Florida Statutes.

24. Section 24.105(16), Florida Statutes (2001)

authorizes the Department to "enter into contracts for the

purchase, lease, or lease - purchase of such goods and services

as are necessary for the operation and promotion of the state

lottery . . ."

25. Petitioner argues that the only proposed agency

action subject to review in thi s proceeding is that which was

posted in the Department's Notice of Responsiveness and

Responsibility, i.e. , that the basis for the Department's

decision that Petitioner was non - responsive was that financial

information for Publicis USA Holdings, Inc., was not provided.

26. However, this proceeding is de novo and was

conducted for the purpose of evaluating the action that was

taken by the agency in an attempt to determine whether that

action is contrary to the agency's governing statutes, the

agency's rule s or policies, or the ITN specifications. See

Section 120.57(3)(f), Florida Statutes, and State Contracting

and Engineering Corporation v. Department of Transportation ,

709 So. 2d 607 (Fla. 1st DCA 1998). From the time the

Department posted its Notice of Responsiveness and

Responsibility and Petitioner's protest, the Department had

the opportunity to further review the proposal in light of the

claims raised by Petitioner. Accordingly, this de novo

proceeding encompasses a review of all of the Department' s

actions leading up to this proceeding.

27. The standard of proof is whether the proposed agency

action was clearly erroneous, contrary to competition,

arbitrary or capricious. Section 120.57(3)(f), Florida

Statutes.

28. An agency action is capricious if the agency takes

the action without thought or reason or irrationality. An

agency decision is arbitrary if it is not supported by facts

or logic. Agrico Chemical Co. v. State Department of

Environmental Regulation , 365 So. 2d 759, 763 (Fla. 1st DCA

1 978).

29. Section 4.9 of the ITN specified various methods of

compliance to that requirement of the ITN. Mr. Faulkenberry

reviewed Petitioner's submission with regard to each avenue of

compliance enumerated in Section 4.9 in the same manner as he

review ed the submissions of the other proposers, thus not

giving one proposer a competitive advantage over another. See

Harry Pepper & Associates v. City of Cape Coral , 352 So. 2d

1190, 1193 (Fla. 2nd DCA 1977). By this process Mr.

Faulkenberry acceptably conc luded that Petitioner failed to

comply with a material requirement. 2/

30. Petitioner failed to prove that the Department's

actions were clearly erroneous, contrary to competition,

arbitrary or capricious.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions

of Law set forth herein, it is

RECOMMENDED:

That the Department of the Lottery enter a final order

dismissing Petitioner's protest.

DONE AND ENTERED this 18th day of October, 2002, in

Tallahassee, Leon County, Florida.

BARBARA J. STAROS

Administrative Law Judge

Division of Administrative Hearings

The DeSo to Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of October, 2002.

ENDNOTES

1/ On or about October 26, 200 1, the Department issued ITN 03 -

01/02/C. On November 15, 2001, the Department issued an

addendum to the ITN, thereby completing the specifications and

requirements necessary for all proposals.

2 / Petitioner argues that the language of Section 4.9 of the

ITN is too restrictive in that Petitioner, a company in

existence less than one year, under no circumstances could meet

the various avenues of compliance. However, Petitioner's

opportunity to challenge the ITN's specifications has past.

See Capeletti Brothers, Inc. v. Department of Transportation ,

499 So. 2d 855 (Fla. 1st DCA 1986); and Optiplan, Inc. v.

School Board of Broward County , 710 So. 2d 569 (Fla. 4th DCA

1998).

COPIES FURNISHED:

Chris H. Bentley, Esquire

John L. Wharton, Esquire

Rose, Sundstrom & Bentley, LLP

2548 Blairstone Pines Drive

Tallahassee, Florida 32301

Paul J. Martin, Esquire

Office of the Attorney General

PL - 01, The Capitol

Tallahassee, Florida 32399 - 1050

Kenneth H. Hart, General Counsel

Department of the Lottery

250 Mar riott Drive

Tallahassee, Florida 32301

David Griffin, Secretary

Department of the Lottery

250 Marriott Drive

Tallahassee, Florida 32301

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 should be filed with the agency that

will issue the final order in this case.