04-002053 Abilities, Inc. vs. Department Of Education, Division Of Vocational Rehabilitation Status: Closed Recommended Order on Monday, May 9, 2005.

Summary: The case represents an agreed "do over" on a post-payment contract/sub-contract audit. Numerous filing periods were discussed. Accord and satisfaction were found.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ABILITIES, INC., )

)

Petitioner, )

)

vs. ) Case No. 04 - 20 53

)

DEPARTMENT OF EDUCATION, )

DIVISION OF VOCATIONAL )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, a disputed - fact hearing was held on

November 22 - 23, 2004, in Tallahassee, Florida, before Ella Jane

P. Davis, a duly - assigned Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: E.A. "Seth" Mills, Jr., Esquire

Quinn Henderson, Esquire

Mills, Paskert, Divers, P.A.

100 North Tampa Street, Suite 2010

Tampa, Florida 33602

For Respondent: Lee Ann Gustafson, Esquire

Thomas L. Barnhart, Esqui re

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

Whether Petitioner is owed $545,124.00 after Respondent

required Petitioner to return that amount originally paid under

two se parate contracts .

PRELIMINARY STATEMENT

This case arises from two contracts between Petitioner

Abilities of Florida, Inc. (Abilities), and Respondent

Department of Education, Division of Vocational Rehabilitative

Services (VRS), which agency also represent s the now disbanded

Occupational Access and Opportunity Commission (OAOC). The

contracts were part of a series of demonstration projects

created to privatize the delivery of core vocational

rehabilitation services to disabled citizens in selected regions

of Florida.

On December 18, 2003, the Department of Financial Services

(DFS) made a formal, written demand upon Abilities to return

$545,124.00, which Respondent had paid Abilities under the two

contracts. Abilities returned the $545,124.00 on January 12,

2004, and in May 2004, Abilities filed its Petition to determine

whether Abilities should receive back the refunded monies.

The matter was referred to the Division of Administrative

Hearings on May 24, 2004.

Prior to the disputed - fact hearing, the under signed

repeatedly raised the issue of whether this was a contract

dispute over which Article V courts are granted exclusive

jurisdiction. The parties consistently asserted that the

original contracts and other agreements provided for a hearing

before the Division, and the case proceeded to a merits hearing

on November 22 - 23, 2004.

Petitioner, in its case - in - chief, presented the oral

testimony of Carl Miller, Jr., Wayne Pierson, William Sandonato,

Earnest S. Urassa, Richard A. Lee, Lauratta Adams,

Janet Sam uelson, and Peter Dunbar. Petitioner's Exhibits 3 - 12,

14 - 17, 21 - 22, 24 - 25, 29 - 30, 35 - 36, 44, and 47 - 48, were admitted

in evidence as part of Petitioner's case - in - chief.

Respondent presented the oral testimony of

William Sandonato, Richard Speer, Tom Vla sak, Linda Parnell,

Joseph Knicely, and Peter Dunbar, and had Respondent's Exhibits

1 - 6 admitted in evidence.

In rebuttal, Petitioner had admitted in evidence two

depositions of Respondent's representative, Joseph Knicely, as

Petitioner's Exhibits 49 and 5 0.

At Respondent's request, and without objection by

Petitioner (TR - 38 - 39) official recognition was taken only of OMB

Circulars A - 87, A - 110, and A - 122, 1/ and Florida Comptroller's

Memorandum No. 08(2001 - 2002), dated April 1, 2002. At

Petitioner's request, official recognition was taken of

Respondent's written responses to Petitioner's interrogatories

and request for admissions.

The parties' Pre - hearing Stipulation was admitted as Joint

Exhibit A. It has been utilized in this Recommended Order as

indicat ed.

A Transcript was filed on December 9, 2004. Each party

timely filed a Proposed Recommended Order, which has been

considered in preparation of this Recommended Order.

FINDINGS OF FACT

1. On April 3, 2000, OAOC contracted with Able Trust, Inc.

to co nduct procurement activities for privatized vocational

rehabilitation services in Florida. (Stipulated Fact No. 1.)

2. OAOC, itself, was a privatized commission created by

statute and subsequently repealed. The predecessor in interest

of OAOC was the F lorida Department of Labor, Division of

Vocational Rehabilitation Services. The successor in interest

of OAOC is the Florida Department of Education (FDOE) , Division

of Vocational Rehabilitative Services. (Stipulated Fact No. 2.)

3. At all times ma terial, OAOC was responsible for

developing policy governing vocational rehabilitative services,

while VRS was responsible for administratively supporting OAOC's

efforts.

4. Hereafter, unless the individual entity is indicated,

the designation "VRS" will be used to mean OAOC and the Division

of Vocational Rehabilitation/Rehabilitative Services, wherever

located and however named. (Stipulated Fact No. 2, amplified.)

5. At the time VRS was attempting to privatize vocational

rehabilitative services, it was under scrutiny from the

Rehabilitation Services Administration of the United States

Department of Education (RSA).

6. Following a privatization project in Monroe County,

Florida was deemed a "high risk" state by RSA.

7. Able Trust, Inc., prepared and published a request for

proposals (RFP). (Stipulated Fact No. 3.)

8. According to the RFP, OAOC sought to enter into

contracts with private providers for the delivery of vocational

rehabilitation services in each of 24 regions of the state.

9. The RFP s tated that any transition period and/or

transition expenses would be negotiated separately from the

award of the contract and the cost for service delivery.

(Stipulated Fact No. 3.)

10. Petitioner Abilities is a private, non - profit

corporation, not a st ate or local government, nor a federally -

recognized Indian tribe.

11. Abilities submitted proposals to provide services in

Regions Seven and Twenty. Florida Institute for WorkForce

Innovation (FIWI) submitted a proposal for Region Nine.

(Stipulated Fa ct No. 4.)

12. Abilities' proposals indicated that Abilities would

"partner" or "team" with Lockheed Martin IMS n/k/a ACS State and

Local Solutions, Inc., (ACS). (Stipulated Fact No. 5.) ACS is

a private sector, for - profit corporation.

13. Abilities, with other proposers, attended a bidders'

conference on or about April 24, 2000. (Stipulated Fact No. 6.)

14. At the bidders' conference, VRS stated that the time

period needed for transition and any required start - up funds

(hereinafter "transition exp enses") would be negotiated

separately from the award of the contract and the cost for

service delivery. (Stipulated Fact No. 7.)

15. Proposers were instructed that transition expenses

were not to be included as part of their RFP response.

16. Due to c oncerns raised by RSA, only three of the

twenty - four regions of Florida were awarded contracts from the

proposals. (Stipulated Fact No. 8.) The contracts were also

re - designed to cover only one year with possible renewals for

two years.

17. Two of thes e contracts were awarded to Abilities for

Regions Seven and Twenty. A third contract was awarded to FIWI

for Region Nine. (Stipulated Fact No. 9.)

18. Region Seven includes Columbia, Union, Gilchrist, and

Dixie Counties. Region Twenty includes Indian River, St. Lucie,

Martin, and Okeechobee Counties.

19. Funding for these contracts was provided through a

federal grant from a Vocational Rehabilitation Title I, Section

110, Innovation and Expansion Program grant . (Stipulated Fact

No. 10.) There was te stimony that the "spread," as it were, was

that the federal government put up four dollars (80%) for every

dollar (20%) contributed by the State, but the contracts show

that no state funds were used. Therefore, it is found that only

federal funds were use d for the prime contracts with Abilities.

20. OAOC was both the "designated state agency" (DSA) for

receipt of federal funds and the "designated state unit" (DSU)

for expenditures of federal and state funds under the State Plan

for Vocational Rehabilitati ve Services. FDOE was never so -

designated.

21. The contracts were initially intended to fund services

for a twelve - month period from October 1, 2000 through

September 30, 2001. (Stipulated Fact No. 11.)

22. VRS ultimately awarded fixed rate contract s to

Abilities and FIWI only for the six - month period from April 1,

2001 through September 30, 2001. (Stipulated Fact No. 12,

amplified.)

23. After notifying Abilities that it had been awarded the

contracts for core services for Regions Seven and Twenty , OAOC

delayed the contract s implementation date to April 1, 2001.

24. Award of a bid is not a guarantee that a contract will

be awarded or executed with the successful proposer/bidder.

Many unforecast events can intervene. 2/ Section 287.058(2),

Florida Statutes, recognizes this concept, and provides, in

part, that "the written agreement shall be signed by the agency

head and the contractor prior to the rendering of any

contractual service. . . ." Moreover, in the prime contracts

finally signed between the parties, Attachment G.III.A. (page

31) states ". . . Except as may otherwise be expressly stated in

this Agreement, OAOC/VRS shall not be obligated to pay any

amount for expenses, services rendered, or goods provided prior

to the effective date of this Agreement."

25. Although 12 months of funding had been allocated for

the provision, throughout 12 months, of core vocational

rehabilitative services, the delay in contract implementation

meant that only six months' worth of funding would be consumed

for the provision of the core vocational rehabilitative services

over a time - span of six months, to begin on April 1, 2001.

26. On February 15 and 16, 2001, the parties held a

meeting in Lake City, Florida, to discuss the transitional

procedures and expenses in accordance with the terms of the RFP.

(Stipulated Fact No. 13.)

27. As of the February 2001, meeting, the contracts had

not been signed and Abilities had assumed none of the duties of

the contract. At that point, VRS employees were actually "doing

t he job." VRS's Bureau Chief of Field Services, Linda Parnell,

was responsible for the management and supervision of state

employee - VRS counselors and the program of service delivery to

Florida's disabled citizens. She anticipated from the official

discus sions and written agreements reached in the main

February 2001, meeting that once the contracts were signed,

current State employees would be co - workers with the out - sourced

providers for a transitional period of time and that the

transitional period would start at the beginning of the contract

period and continue for a minimum of one month (all of

April 2001). The topics at the meeting between Bureau personnel

and the successful bidders were aspects of service delivery; how

the providers would receive cli ents from the State; how the

providers would be housed in existing Division offices; and what

duties the providers would assume.

28. At the same date and location, in a "side - meeting"

with William Sandonato of Abilities and Dr. Bruce Waite of FIWI,

Carl Miller, then - Director of VRS, offered to use the remaining

six months' worth of unencumbered contract funds, which funds

otherwise would not have been spent on core services, due to the

shortened span of the contract, to pay the successful

proposers'/prov iders' transition expenses. (Stipulated Fact No.

14, with additional clarifying language.) The remaining funds

on Abilities' proposed contracts totaled $545,124.00.

29. William Sandonato previously had been a member of

OAOC. At that time, he simultane ously had been president of

Abilities. Like Mr. Sandonato, more than one - third of OAOC

commissioners also were vocational rehabilitation providers.

Mr. Sandonato testified that he played no part in the selection

of Abilities pursuant to the RFP. The RFP was not drafted by

OAOC, but by Able Trust, Inc., as an agent for OAOC.

Mr. Sandonato recused himself from the RFP selection process.

When Abilities had become the apparent successful bidder on the

RFP, Mr. Sandonato resigned from OAOC. He later signed the VRS -

Abilities contracts and two contract extensions as president of

Abilities.

30. Mr. Sandonato's paid employment with Abilities ended

on January 31, 2001, but he continued to represent Abilities, as

its unpaid president, for an indeterminate p eriod thereafter.

Also, between January 31, 2001 and July 1, 2002, he was a paid

employee of ACS, the for - profit subcontractor to Abilities for

Abilities' two contracts with VRS.

31. At the February meeting, Mr. Miller was told that

Abilities had hired s taff, which already had been interacting

with existing VRS state employees, regarding case loads during

the period from July 1, 2000, to April 1, 2001.

32. Mr. Miller believed that Abilities was "working"

before the contracts were even executed.

33. Mr. Miller erroneously concluded that the "transition"

period under the VRS contracts with Abilities ran from July 1,

2000, the date the contracts were initially scheduled to be

effective, to April 1, 2001, the actual start date of the

contracts.

34. In fact , Mr. Miller did not sign the prime contracts

for VRS with Mr. Sandonato, signing for Abilities, until

March 29, 2001 ( see infra. ), and Abilities did not sign its

subcontracts with ACS until May 2, 2001, with those subcontracts

being retroactively effectiv e from April 2, 2001 forward.

Mr. Sandonato signed for Abilities on the subcontracts.

35. After the February 2001 meeting, Mr. Miller requested

submission of proposed amounts of expected transition expenses.

(Stipulated Fact No. 15.)

36. Abilities an d FIWI submitted correspondence to VRS

outlining the total proposed transition expenses. (Stipulated

Fact No. 16.)

37. Mr. Sandonato testified that he had recognized that

the sum Mr. Miller had offered, during their February 2001,

meeting, for transiti onal expenses, would not cover the

transitional expenses of Abilities/ACS, but would cover a

significant portion thereof. He considered the six months'

funds amount to be a cap on what Abilities could request from

VRS for transition expenses. He further testified that for that

reason, Abilities just took the money amount that was available

and "indicated [to VRS] that's the number we [Abilities] would

like to have."

38. Further documentation of the expected transition

expenses was requested by VRS fro m both Abilities and FIWI.

(Stipulated Fact No. 17.)

39. Abilities and FIWI each submitted budgets to justify

their respective projected transition expenses. (Stipulated

Fact No. 18, amplified for clarity.) In Abilities' case, this

amounted to exactly $545,124.00.

40. The proposed transition expenses were incorporated

into the contract amounts for the fixed amount contracts for

Regions Seven, Nine, and Twenty. (Stipulated Fact No. 19.)

41. Draft contracts for services were prepared by VRS

staff an d reviewed by various divisions, including legal,

financial, and contract management. All VRS reviewers approved

the final form and content of the contracts. (Stipulated Fact

No. 20.)

42. VRS approved the final versions of these contracts,

which were e xecuted by VRS and Abilities. (Stipulated Fact No.

21.)

43. Abilities' contracts with VRS were numbered VH521 and

VH531. (Stipulated Fact No. 22.) Mr. Miller, for VRS, executed

them on March 29 and 30, 2001. Mr. Miller had both apparent and

actual au thority from OAOC to enter into the contracts and

subsequent extensions. Mr. Sandonato signed for Abilities.

44. Abilities was acknowledged as a "vendor" of vocational

rehabilitation services, as opposed to a "sub - recipient,"

within each of its contrac ts with VRS.

45. At the end of the initial contract period, VRS, FDOE ,

and Abilities entered into two 30 - day extensions of contracts

VH521 and VH531. (Stipulated Fact No. 23.) T he extensions for

October 2001, and November 2001, expressly incorporated t he

terms of the original contracts. Mr. Miller signed the contract

extensions for V R S, and Mr. Sandonato signed for Abilities.

46. Abilities, and ACS through Abilities, was also paid

separately for the two contract extensions at a rate of

$30,626 .00 p er month for Region Seven and $70,485 .00 per month

for Region Twenty. These additional payments represented one -

sixth of each contract amount, less the transition expenses.

47. ACS's subcontracts with Abilities essentially imposed

the same duties upon AC S as the VRS contracts imposed upon

Abilities. See infra.

48. Every dollar received by Abilities from VRS under the

contracts was paid directly to ACS, under the subcontracts. It

is noted that, pursuant to Section 216.181 (16) (a) and (b),

Florida Stat utes, advance payments may only be paid by a state

agency to other governmental agencies or to not - for - profit

corporations. As a for - profit corporation, ACS could not have

received advance payments directly from VRS, but nothing

precluded ACS being paid b y Abilities as a subcontractor , or

precluded ACS from making a profit, provided all other legal

requirements were met.

49. Abilities submitted monthly invoices to VRS for

payment. (Stipulated Fact No. 24.) The invoices were submitted

and paid at the fro nt of the month in which the services were to

be incurred, for each of the six months. Each invoice amounted

to a calculated one - sixth of the total contract amount .

50. According to Mr. Sandonato, Abilities' process of

billing VRS for transitional expen ses was "passing everything

right through, . . . one - invoice - in [from ACS to Abilities] and

one - invoice - out [from Abilities to VRS]," without Abilities

going behind any ACS invoice to verify how expenses were

incurred or monies disbursed.

51. At hearing , Mr. Sandonato's personal knowledge of what

constituted the transition expenses incurred by ACS was largely

limited to the payment of his ACS salary, but he also vaguely

knew something about office space and equipment either being

moved or purchased.

52. VRS employees reviewed each monthly Abilities' invoice

to determine if payment was proper and allowable, then forwarded

the invoice, with additional supporting documentation, to DFS

for processing and payment. (Stipulated Fact No. 25.)

53. Although in hindsight certain VRS and FDOE witnesses

disavowed specific VRS and DOE signature and approval stamps as

being affixed by themselves personally, the invoices/payment

processing documents show on their face that DOE and VRS

personnel affirmatively signe d - off, for each Abilities' invoice,

that the transactions were "in accordance with the Florida

Statutes and all applicable laws and rules of the State of

Florida," and that these costs "were allowable costs and in

compliance with the grant budget."

54. A fter receiving the documents from VRS, DFS also

reviewed each invoice to determine if the payments were

allowable and if sufficient funds existed for payment.

(Stipulated Fact No. 26.)

55. DFS approved the invoices and paid Abilities each of

the invoice d amounts. (Stipulated Fact No. 27.)

56. Each invoice submitted by Abilities and each payment

by VRS was in the amount set forth in contracts VH521 and VH531.

(Stipulated Fact No. 28.)

57. In turn, Abilities paid the whole of the disputed

transition expense funds to ACS, in the amount of $545,124.00.

Abilities did not retain any of the transition expense money

itself. Abilities acted only as a "pass - through" conduit to its

subcontractor.

58. Abilities relied on VRS's and DFS's approval of the

invo ices Abilities submitted to those agencies as constituting

the agencies' determination of "reasonable and necessary

expenses" and "allowable" expenses for Abilities, in turn, to

pay ACS, pursuant to the subcontracts.

59. After all payments under the cont racts and sub -

contracts had been made, the Office of Program Policy and

Government Accountability (OPPAGA) questioned VRS's methods of

doing business on these contracts.

60. In 2002, the Auditor General of the State of Florida,

an officer associated with the Legislature, issued a report on

the federal award program for the fiscal year ending June 30,

2001. This report questioned in excess of $1,000,000 of the

costs charged under the three VRS contracts assigned to

Abilities and FIWI.

61. On January 24, 2002, the Inspector General of the F DOE

issued Final Report No. 01 - 130, detailing an investigation of

Abilities' contracts VH521 and VH531, as well as the contract

awarded to FIWI. (Stipulated Fact No. 29.)

62. The F DOE Inspector General (IG) concluded that VRS had

violated federal and state regulations by not conducting an

analysis to verify if an additional award of $545,124.00, to

Abilities was reasonable or necessary, or more cost effective

than services provided by the State. (Stipulated Fact No. 3 0.)

63. F DOE's IG also concluded that VRS' payment of the

additional funds invalidated the bid process. (Stipulated Fact

No. 31.) This determination rested on defining differences

between "start up costs" and "ramp - up costs " ; not allowing

negotiation o f the proposers' terms and conditions; and not

resubmitting proposals for the transition expenses to OAOC.

64. VRS published a response to the DOE IG's report,

objecting to the IG's findings.

65. Apparently, the overriding concern of OPAGGA, F DOE,

and DFS was that VRS's failure to conduct an analysis to verify

if an additional award was reasonable or necessary, or more

cost - effective than services provided by state employees was

"because it places the state at a substantial risk of the

disallowance of a ll, or a portion, of the [total amount VRS paid

to both Abilities and FIWI] which may have to be repaid from

non - federal funds to the grantee." ( See IG Report, page 5 of

16; bracketed material substituted for clarity.)

66. Regardless of the foregoing pro nouncements within

Florida's state government, neither the United States Department

of Education, RSA, nor any other federal authority has ever

disallowed any payments to VRS, to the "prime" (Abilities), or

to the "sub" (ACS), or issued any written request to F DOE or VRS

for return of federal grant money in connection with any of the

funds involved with these contracts.

67. The IG Report contained a series of recommendations,

including but not limited to the recommendation that VRS seek an

appropriate leg al remedy to address the costs awarded to the

vendors outside of the RFP process, i.e. the transition

expenses.

68. In March 2002, F DOE assigned Joe Knicely, C. P. A.,

one of its educational finance specialists, to check into the

perceived problem. He r equested access to Abilities' records so

that he could select a sample of disbursements to determine if

they were allowable under the p rogram and to determine if they

seemed reasonable and necessary to the p rogram. He received

from Abilities a general led ger with many entries. This

material was insufficient for him to conduct his review, because

it did not contain the detailed disbursements for the P rogram.

It only showed a transfer of funds from Abilities to ACS. He

then sought out receipt and disburse ment information from ACS,

which ACS supplied, pursuant to the express terms of its

subcontract with Abilities. Ultimately, he only got sketchy

material with quite a lot of salary information on employees.

69. Mr. Knicely was able to determine that if all of ACS's

records (mostly profit and loss statements) which he saw were

correct, then ACS did not expend $459,644.00 on its sub -

contracts with Abilities. However, he was unable to complete an

audit to determine whether ACS's records were accurate; whet her

the costs ACS listed on paper had actually been expended for the

purposes listed; or whether the $459,644.00 figure could be

accounted for as "profit".

70. Before Mr. Knicely could form any other conclusions,

the F DOE IG asked him to stop his audit. He believes that this

request came in July or August of 2002, but he was not certain

of the date.

71. Obtaining the necessary information to commence an

audit was a preliminary step to doing an audit. Because he was

ordered to stand down, Mr. Knicely d id not continue to request

backup material from ACS or Abilities so that an audit could be

performed. He also did not perform an audit within the

parameters of "generally accepted accounting principles and

standards," because at the time he was ordered to stop pursuing

the information to conduct an audit, he did not have enough

information to perform such an audit.

72. Mr. Knicely therefore formed no conclusions concerning

the reasonableness, necessity, or allowability of the costs

incurred by ACS in performing its subcontracts.

73. The total recorded expenses by ACS for Region Seven

(contract VH531) for the period April 1 , through September 2001,

which were placed in evidence at hearing, were $185,260. For

Region Twenty (contract VH521) , the total recorded expenses for

the period April 1, through September 2001, which were placed in

evidence, were $507,086.00. These amounts together total

$692,346. 00 . Abilities had received $1,151,806.00, through its

two VRS contracts for that period , which it pas sed through to

ACS . There appears to be $459,460.00 paid by VRS to Abilities,

which is unsupported by ACS's expense records in evidence.

Abilities now claims this amount was a legally permissible

"profit" to ACS.

74. At hearing, Mr. Knicely testified th at the recorded

$692,346 .00 also is not backed up with other records of

sufficient detail which would permit him to determine their

appropriateness under the program.

75. Mr. Knicely was called off the audit when the DOE IG

informed DFS of the IG's findin gs and the DOE IG coordinated

activities with DFS to seek the return of the money from

Abilities.

76. DFS also performed no audit on the situation, but

assigned investigators.

77. On October 14, 2003, representatives of Abilities met

with representativ es of DFS , concerning the funds identified by

the IG's Report. (Stipulated Fact No. 32.)

78. Peter Dunbar, attorney for Abilities October 2003 -

January 2004, was serving as General Counsel of DFS at the time

of the disputed - fact hearing in November 2004 . He did not

accept the position with DFS until July 1, 2004.

79. Mr. Dunbar and Abilities' then - president,

Janet Samuelson, testified credibly that they understood at the

October 14, 2003, meeting with DFS personnel that if Abilities

did not return all the money which VRS had paid Abilities for

transition expenses, DFS would continue to investigate, not just

the transition expenses, but all aspects of the two contracts in

dispute; would delay other funds due on these contracts; and,

possibly, would with hold funds on other VRS - Abilities contracts,

pending the investigations.

80. At the October 14, 2003 , meeting, Abilities' president

and its legal counsel admitted no wrong - doing and disagreed with

DFS's legal position that return of the funds was appropri ate,

required, or owed. The meeting concluded without a resolution

of the dispute.

81. Abilities had received from VRS only the amount of

payment authorized in the fixed price contracts, which it had

already passed through to ACS.

82. At no time has Abi lities or ACS ever refused the F DOE

IG, VRS, or DFS access to its books or accounts, but Mr.

Sandonato testified that since Abilities never verified any of

ACS's charges (one - sixth of the total amount per month for six

months), there was nothing from Abili ties for any reviewing

authority to audit. Apparently, there are no further records to

be obtained from ACS, either.

83. A demand for the return of the $545,124.00, which had

been paid to Abilities as transition expenses under its two

contracts, was m ade to Abilities in November 2003. (Stipulated

Fact No. 33.)

84. Mr. Dunbar, on behalf of Abilities, and Richard E.

Speer, DFS Law Enforcement Investigator II, negotiated the

language in a demand letter sent by Mr. Speer on December 18,

2003, to Mr. Dun bar. That letter read, in pertinent part, as

follows:

This is to confirm that our investigation

has determined that the Florida Department

of Education, Division of Vocational and

Rehabilitation Services has made unallowable

payments in the amount of $545 ,124 to your

client, Abilities, Inc. Said payments were

inconsistent with procurement documents and

with state and federal guidelines, and there

was no documentation to justify the expenses

as reasonable and necessary.

We anticipate that the good faith e videnced

by Abilities, Inc. at the October 14, 2003

meeting will result in the repayment of this

sum by Abilities, Inc. This will resolve

all of the remaining issues concerning the

demonstration projects for region 7 and

region 20.

Please confirm your cl ient's intention

concerning this matter at your earliest

convenience. If the matter cannot be

successfully concluded as anticipated above

by 1/12/04, it will be necessary for the

State of Florida to consider the alternative

action we have previously discu ssed.

85. The parties stipulated that Abilities returned the

funds ($545,124.00) in December 2003, and the funds were

ultimately delivered to VRS. (Stipulated Fact No. 34,

modified.)

86. In fact, Abilities' check for $545,124.00 was sent to

Mr. Spe er, accompanied by a January 12, 2004, letter from Mr.

Dunbar, Abilities' attorney, which stated, only:

In accordance with your letter of

December 18, 2003, enclosed is check #029022

in the amount of $545,124.00 payable to the

State of Florida.

I would ap preciate you acknowledging receipt

of the check in the signature block noted

below. . . .

87. The check was dated January 9, 2004 , and did not

specify on its face the purpose of the payment.

88. Upon receiving the foregoing check from Abilities, DFS

cl osed its case.

89. On January 15, 2004, Mr. Speer forwarded the check to

FDOE /VRS.

90. It cannot be ascertained from this record when or how

FDOE /VRS handled return to RSA of the federal grant monies. The

best the undersigned can glean from the record and Mr. Knicely's

depositions is that, despite RSA making no demand or

disallowance related to these contracts and subcontracts,

FDOE /VRS at some point informally credited the funds back to the

United States Department of Education by not "drawing down" a s

much as the state Agency would otherwise have been entitled to

"draw down" from "the feds" from other grants or monies. This

credit/debit system could have occurred before or after

Abilities paid back the money to VRS via DFS.

91. Mr. Dunbar testified that at the time Abilities' check

was tendered , he thought that all state agencies concerned had

appreciated that Abilities was returning the money with the

option to file the instant action. Mr. Speer testified that he

understood that the return of the m oney was in exchange for the

S tate ceasing its investigation of the transition expenses on

Abilities' specific two contracts.

92. The parties stipulated that Abilities filed this

administrative action pursuant to the dispute resolution

provision of Contr act Numbers VH521 and VH531, to contest the

final agency action in demanding return of the contract

payments. (Stipulated Fact No. 35. modified.) The Division's

file reveals that the date of the mailed service of the Petition

was February 4, 2004, and th at it was filed at FDOE that day.

The Petition recited that "All conditions precedent to filing

this petition have occurred, been waived, or are now futile."

An Amended Petition was served by mail on May 12, 2004. FDOE

referred the matter to the Divisio n of Administrative Hearings

on May 24, 2004.

93. The dispute resolution language of the contracts

relied on by the parties, provides, at Attachment E, SPECIAL

PROVISIONS, 3. (pages 15 - 16), for a series of informal and

formal negotiation stages, totaling 81 days, and ends with:

c. The action of the OAOC/VRS Director is

final and binding unless one party wants to

seek remedy through the Administrative

hearing system.

94. There also is language at Attachment G.IV.G. (pages

34 - 35) of the prime contracts that provides:

Remedies of OAOC/VRS Cumulative. In

addition to all remedies available to

OAOC/VRS, hereunder, in the event Provider

breaches its obligation under this

Agreement, OAOC/VRS shall be entitled to

exercise any remedy available or provided

under Florida law (all rights and remedies

granted in this Agreement to OAOC/VRS

available at law or equity shall be

cumulative and not mutually exclusive ) .

95. Both prime contracts VH521 and VH531 are termed

"AGREEMENTS," within themselves. Both require, at Attachment

G.II.C. (pages 21 - 22), that the provider (Abilities) will:

1. . . . maintain (in accordance with

generally accepted accounting procedures)

and retain, during and for three (3) years

after termination of this Agreement, books,

records and all o ther documents relating to

this Agreement which sufficiently and

properly reflect all expenditures of funds

provided by OAOC/VRS under this Agreement

(collectively, the "Records"). If an audit

has been initiated and audit findings have

not been resolved a t the end of such three

(3) year period, provider shall retain the

Records until resolution of the audit

findings.

* * *

6. To submit all invoices for payment

for services or expenses in form acceptable

to the OAOC/VRS and in detail sufficient for

prope r pre - audit and post - audit thereof.

96. Attachment G.II.C. 7 - 12 (pages 22 - 23) of the prime

contracts specifies that some types of audits in compliance with

OMB Circular A - 133 may be ordered by the provider at the

provider's expense and submitted by the p rovider, or the

provider may pay the expenses of some audits if they are done by

the Auditor General. Because of the limited nature of this

case, and a pre - trial ruling eliminating OMB Circular A - 133 as a

federal requirement that Abilities may have been b ound by for

purposes of this case (See Preliminary Statement supra. and

Endnote 1.), whatever OMB Circular A - 133 required or did not

require by way of audits may not be pursued here. However, the

language employed at G.II. 7 - 12 of the prime contract is

no netheless significant, because it requires delivery of such

reports and audits to OAOC/VRS by the "provider . "

97. Then, at Attachment A.III 1 - 2 (pages 4 - 5) the prime

contracts provide for audits and reporting packages by or on

behalf of the "recipients" to be submitted to, among others,

OAOC. It also is specifically stated, at A.III.5 (page 5), that

delivery is to be by the "recipients" to OAOC, as follows:

5. Recipients, when submitting audit

reports to Occupational Access and

Opportunity Commission/V ocational

Rehabilitation Services for audits done in

accordance with OMB Circular A - 133, Florida

Statutes, and Chapter 10.600, Rules of the

Auditor General, should indicate the date

that the audit report was delivered to the

recipient in correspondence acc ompanying the

audit report.

98. In this context, because OAOC cannot deliver an audit

or report to itself, Abilities must also qualify under these

contracts as both a "provider" and a "recipient," although "sub -

recipient" might, to a layman, be more de scriptive of the

relationship. These common words, "provider," "recipient," and

" sub - recipient," become "words of art" pursuant to law, and the

parties disagree as to the effect of those legal definitions.

(See Conclusions of Law))

99. The prime contra cts between VRS and Abilities clearly

provide, at Attachment D.1. (page 14), that they are "fixed

rate" contracts , and neither party disputes that Abilities is

both a "vendor" and a "provider" under express language

throughout the contracts.

100. The part ies disagree as to what is meant by the term,

a "fixed rate contract". Petitioner's concept is that it means

that the vendor/provider, Ab ilities, shall get paid by the

S tate, regardless of whether the work is justified by the

vendor's/provider's expense i temization, provided the total

amount of money fixed in the contract is never exceeded by the

invoicing. VRS contends that Abilities' view is wholly

inconsistent with the actions of the parties; the terms and

express intent of the federal grant; the prime contracts; and

the sub - contracts.

101. In fact, what constitute the instant fixed rate prime

contracts in this case is specified within the terms of the

contracts themselves. The AUTHORITY is found on page 1,

thereof, and states:

This contract is entere d pursuant to

the Rehabilitation Act of 1973 as amended

[referred hereinafter as the "Act " ] Florida

Statutes, Chapter 413 (Part II), Public Law

93 - 112 as amended by Public Laws 93 - 516, 98 -

221, 99 - 506, 100 - 630 - 102 - 569,103 - 073, and

105, 220. Other applicabl e regulations

include the Education Department of General

Administrative Regulations (EDGAR), 3/ the

State Plan and the State OAOC/VRS Program

Regulations in 34 CFR Part 361.

102. See, also, Attachment G . (page 20) of the prime

contract:

II. The Provid er Agrees:

A. Contractual Services: To provide all the

services it is obligated to provide as

specified in the Agreement.

B. Federal and State Laws and Regulations:

1. If this Agreement provides for payment,

in whole or in part, with federal funds, to

c omply with the applicable provisions of 34

CFR, Parts 74 and 80, all applicable OMB

Circulars, and other applicable regulations

specified in this Agreement.

* * *

103. Both contracts VH521 and VH531 provide, at Attachment

E.9. (pages 17 - 18), for the r eturn of overpayments by the

provider, Abilities, for unearned funds,:

9. Return of Funds (Overpayments and

interest penalty ) (Provider agrees) to

return to OAOC/VRS any overpayments due to

unearned funds or funds disallowed pursuant

to the terms of this contract that were

disbursed to the provider by OAOC/VRS. In

the event that the provider or its

independent auditor discovers that an

overpayment has been made, the provider

shall repay said overpayment within forty

(40) calendar days without prior

notif ication from OAOC/VRS. In the event

that OAOC/VRS first discovers an overpayment

has been made, OAOC/VRS will notify the

provider by letter of such a finding.

Should repayment not be made in a timely

manner, OAOC/VRS will charge interest of one

(1) perce nt per month compounded on the

outstanding balance after forty (40)

calendar days after the date of

notification. (Emphasis supplied)

104. Moreover, contracts VH521 and VH531 provide, at

Attachment G.II.S.(page 28), that "program income" shall be us ed

by OAOC/VRS to either reduce the contract award or fund

additional services eligible for Federal funding.

1. . . . Program income shall be used, at

the direction of the OAOC/VRS, to either

reduce the contract award or fund additional

services eligible for State and Federal

funding. For purposes of this Agreement,

"program income" shall mean gross income

received by Provider directly generated by a

grant supported activity, or earned as a

result of this Agreement during the term of

this Agreement. If any payment due under

this Agreement results directly from a

budget line item submitted by Provider and

Provider's actual costs/expenditures during

the Agreement term are less than the amount

budgeted, the resulting excess payment shall

be deemed, for the purposes of this

Agreement, "program income."

* * *

105. Attachment G.II.J. (pages 24 - 25) also contains a

provider agreement:

. . . To return to OAOC/VRS any overpayment

of funds disallowed pursuant to the terms of

this Agreement that were disbursed t o the

Provider by OAOC/VRS. . . .

106. 34 CFR § 74.2, defines "award," for purposes of that

federal regulation, dealing with what the federal government

pays out in grants, as:

Award means financial assistance that

provides support or stimulation to

a ccomplish a public purpose. Awards include

grants and other agreements in the form of

money or property, in lieu of money, by the

Federal Government to an eligible recipient.

The term does not include --

(1) Technical assistance, which

provides services i nstead of money;

(2) Other assistance in the form of

loans, loan guarantees, interest subsidies,

or insurance;

(3) Direct payments of any kind to

individuals; and

(4) Contracts which are required to be

entered into and administered under

procurement laws and regulations. (Emphasis

supplied)

107. 34 CFR § 74.24(b), provides that program income

earned during the project period must be retained by the program

recipient (VRS) in this situation, (VRS) and, in accordance with

United States Department of Educa tion regulations or the terms

or conditions of the award, must be used in one or more of the

following ways:

* * *

(3) Deducted from the total project or

program allowable cost in determining the

net allowable costs on which the Federal

share of costs is based.

108. Abilities subcontracted with ACS after appropriate

notice to VRS. Both contracts VH521 and VH531, at Attachment

E.5.(page 16) permitted Abilities to subcontract with another

party as follows:

Subcontracts: The Provider may assign or

delega te obligations under this Agreement to

another party and may subcontract for any

work contemplated under this Agreement with

an OAOC/VRS approved vendor or, with the

written approval of OAOC/VRS. . . . The

Provider is solely liable for the

performance of a ll obligations outlined in

this Agreement which are not the exclusive

responsibility of the OAOC/VRS. . . .

In the event the Provider subcontracts all

or any portion of its obligations under this

Agreement, the subcontractor is bound by the

terms of the A greement and all applicable

laws and regulations.

After the execution of the contract, if a

subcontract is found to be in violation of

federal/state rules and regulations, the

Provider will be considered to be in breach

of contract.

109. Abilities expe cted that its subcontractor ACS would

be bound by the same agreements by which Abilities was bound.

110. On or about May 2, 2001, Abilities and ACS , using

some new words of art, entered into subcontracts providing that

Abilities would pass through the f ederal grant funds to ACS for

performing the services and obligations under S tate VRS

contracts VH521 and VH531, by the following sub - contract

language:

PRIME CONTRACT

Notwithstanding any other provision of this

Agreement, this Agreement is a subcontra ct

under the Prime Contract [VRS and Abilities]

and each and every provision of the Prime

Contract, as may be tailored herein, and any

amendments thereto, as added to this

Subcontract, shall extend to and be binding

upon SUBCONTRACTOR [ACS]as part of this

Agreement. With respect to any references

in the Prime Contract to CONTRACTOR and

CUSTOMER for purposes and applicability to

this Subcontract, CONTRACTOR shall mean and

include SUBCONTRACTOR and CUSTOMER shall

mean and include CONTRACTOR. (Bracketed

mater ial added for clarity.)

111. Every dollar received by Abilities under the

contracts was paid directly to its subcontractor ACS.

112. The subcontracts between Abilities and ACS also

specifically provided at pages 4 and 5 of the subcontracts that

Att achment E and Attachment G of prime contracts VH521 and VH531

apply to the subcontractor. Once again, different words of art

were employed for the same entities. See the subcontracts:

7.0 SPECIAL PROVISIONS

Attachment E, Special Provisions, of the

Prime Contract shall apply to this

Subcontract.

12.0 OAOC/VRS STANDARD TERMS AND CONDITIONS

Attachment G of the Prime Contract, OAOC/VRS

Standard Terms and Conditions Attachment

shall apply to this Agreement, except that

the following shall apply to SUBCONTRA CTOR

under the identified sections of the

Standard Terms and Conditions:

B. Federal and State Laws and Regulations

SUBCONTRACTOR shall be subject to applicable

OMB circulars for For - Profit organizations.

C. Audits and Records Access to records for

SUBCON TRACTOR shall be accommodated at

Subcontractor's facility in Austin, Texas.

Such access shall exclude information

related to profit or business proprietary

information.

E. Indemnification Relative to

indemnification to CUSTOMER, CONTRACTOR and

SUBCONT RACTOR agree to cross indemnify each

other relative to any cause of action

brought by the CUSTOMER under this

Agreement.

113. The expenditures claimed by Abilities and ACS would

have to be examined in accordance with 34 CFR § 74.27, which

provides, in p art:

(a) For each kind of recipient, there is a

set of cost principles for determining

allowable costs.

Allowability of costs are determined in

accordance with the cost principles

applicable to the entity incurring the

costs, as specified in the followin g chart.

For the cost of a - Use the principle in -

Private nonprofit organization OMB Circular A - 122

other than

(1) An institution of higher education;

(2) a hospital; or (3) an organization

named in OMB Circular A - 122 as not

subject t o that circular OMB Circular A - 122.

Educational Institution OMB Circular A - 21

Hospital Appendix E to 45 CFR part

74

Commercial for - profit

organization other than a

hospital and an educational

institution 48 CFR part 31 Contract

Costs

Principles and Procedures

or institu tion. Uniform

and accounting standards

that comply with cost

principles acceptable to

ED.

114. OMB Circular A - 122 states that in order for costs to

be allowable under an award, they must be "reasonable for the

performance of the award and be allocable thereto under these

principles."

115. ACS was a commercial for - profit organization, and

pursuant to its subcontract with Abilities, ACS had to comply

with 48 C.F.R. Part 31. Those provisions state, in part:

31.102 Fixed - price contracts.

The applicable subparts of part 31 shall be

used in the pricing of fixed - price

contracts, subcontracts, and modifications

to contract s and subcontracts whenever (a)

cost analysis is performed, or (b) a fixed -

price contract clause requires the

determination or negotiation of costs.

However, application of cost principles to

fixed - price contracts and subcontracts shall

not be construed a s a requirement to

negotiate agreements on individual elements

of cost in arriving at agreement on the

total price. The final price accepted by

the parties reflects agreement only on the

total price. Further, notwithstanding the

mandatory use of cost pri nciples, the

objective will continue to be to negotiate

prices that are fair and reasonable, cost

and other factors considered.

116. 48 CFR 31.201 - 2 provides:

31.201 - 2 Determining allowability.

(a) A cost is allowable only when the cost

complies with all of the following

requirements:

(1) Reasonableness

(2) Allocability

(3) Standards promulgated by the CAS Board,

if applicable, otherwise, generally accepted

accounting principles and practices

appropriate to the circumstances.

(4) Terms of the cont ract.

(5) Any limitations set forth in this

subpart . . .

* * *

(d) A contractor is responsible for

accounting for costs appropriately and for

maintaining records, including supporting

documentation, adequate to demonstrate that

costs claimed have been incurred, are

allocable to the contract, and comply with

applicable cost principles in this subpart

and agency supplements. The contracting

officer may disallow all or part of a

claimed cost that is inadequately supported.

(Emphasis supplied)

117. In the prime contract, at Attachment G.II.B., the

provider, Abilities, agreed:

4. To comply with all applicable laws,

statutes an regulations of the State of

Florida and the United States, and to

complete any forms required under such law,

statutes, and regu lations, whether or not

such forms are referenced in this Agreement.

CONCLUSIONS OF LAW

118. The undersigned initially had reservations, as set

out in the Preliminary Statement, whether, once Abilities

returned the claimed money to the State, the Divisi on of

Administrative Hearings would have jurisdiction over the parties

and subject matter of this case. Those reservations remain.

(See Finding of Fact 94, with regard to other types of relief

reserved to the State.) Given that the parties stipulated that

Petitioner initiated this action via its February 4 , 2004,

Petition to challenge the State's demand as the "final agency

action" (see Finding of Fact 92), and that the money had already

been paid back, it would seem that the Division is without

jurisd iction, pursuant to Section 120.57(1), Florida Statutes,

Assuming, arguendo , that the parties intended to refer to the

demand for repayment as the " proposed final agency action," did

the proposal not reach finality with the payment of the full

amount dema nded? If so, it still would seem that the Division

is without jurisdiction, pursuant to Section 120.57(1), Florida

Statutes, to determine any disputed facts.

119. Then there is the timeliness question. Section

120.57 (1), Florida Statutes, contemplate s, and Fl orida

Admin istrative Code Rule 28 - 106.111 (2) - (4), provides , for a

request for a disputed - fact hearing to be filed with the party

Agency within 21 days of the first window of opportunity, unless

some other time limit applies. Counting from Mr. Sp eer's

December 18, 2003 , demand letter to the Petition herein, mailed

on February 4, 2004, the time elapsed is 48 days. Counting from

the date of tender o f Abilities' check on January 12, 2004, the

time elapsed is 23 days. None of the foregoing computati ons

accounts for the 81 days provided for informal and formal

negotiations, but the "conditions precedent" language of the

Petition (See Finding of Fact 92) is vague , and neither party

demonstrated herein that any negotiations ever occurred after

January 1 2, 2004, so as to toll the time for filing the

Petition.

120. However, the parties have stipulated that the

Division has jurisdiction, and each party has represented that

the Division's jurisdiction is specifically authorized by the

terms of the contrac ts at issue. The contracts permit that any

dispute between the parties that cannot be resolved informally

may be resolved through the administrative process, including,

if necessary, via a disputed - fact hearing before the Division.

(See Finding of Fact 9 3.) For those reasons only, this

Recommended Order will proceed to the merits of the case.

121. Petitioner Abilities asserts several legal theories

based on construction of the contracts, sub - contracts, and

federal regulations, as to why VRS has no clai m on the

$545,124.00 . These theories are couched in terms that if the

federal regulations consider VRS to be "the recipient" and if

the federal grant money goes to "the recipient," VRS cannot

pursue the federal grant monies VRS has disbursed to VRS's prim e

contractor and which the prime contractor has disbursed to its

subcontractor without a preced ing demand or disallowance by the

United States Department of Education against the recipient,

VRS. This construction requires reading several items together.

(See Findings of Fact 103 - 105 and 107.) In greater detail,

Petitioner first contends that there were no "unexpended funds, "

"unexpended sums," or "unexpended program income," because

Abilities passed - through every cent to ACS, thus expending all

funds. A bilities next asserts that without either a

"disallowance" by the United States Department of Education of

VRS's expenditures or an "overpayment" (unearned funds), VRS was

never entitled to recoup the $545,124.00, which VRS had paid to

Abilities. Abilitie s further asserts that "a state procurement

contract" cannot qualify as an "award" under 34 CFR § 74.2.

(See Findings of Fact 103 - 107). The last proposition that it is

a state procurement contract that is exempted is contrary to a

clear reading , in conte xt , of that portion of the federal

regulations, and is rejected. All three of the foregoing

propositions are also rejected for the following reasons.

122. The prime contracts between VRS and Abilities clearly

contemplated that Abilities would maintain, retain, and produce

adequate financial and performance records and that a post -

payment audit would occur , even after the prime contract

invoices were paid, if the State deemed such an audit was

necessary. ( See , among others, Findings of Fact 95, 96, 97, 9 8 ,

and 1 1 7.) The subcontracts obligated ACS according to the prime

contracts. Therefore, Abilities' claim that VRS and DFS cannot

legally go behind Abilities' and ACS's invoices is without

merit. On the same basis, Abilities' concept that VRS's and

DFS' s review, approval, and payment of Abilities' invoices in

the course of the short (six months) of the contracts' run

constitutes an " equitable estoppel " against the State to perform

a post - payment audit, and Abilities' theory that the two

contract "amendme nts" [ sic. t he two one - month successive

contract extensions for October and November 2001] "ratified"

the State's prior six months' worth of payments, are likewise

meritless.

123. The State contracts contemplate that the provider

will maintain records pursuant to generally accepted accounting

standards and principles. The contracts and federal laws and

regulations contemplate that the State, as "recipient" of the

federal grant money, will maintain the State's records and

perform the State's audits of i ts contracts with providers in

accord with generally accepted accounting standards and

principles . The fact that insufficient records for the State's

review and audit were maintained and submitted to the State by

Abilities /ACS should not render the State helpless to seek

return of grant monies from Abilities, which was a de facto sub -

recipient of federal grant monies. ( See , among others, Findings

of Fact 19 - 20 and 95 - 117).

124. Herein, VRS did not act in a way to inspire public

confidence in its contract drafting, bidding, letting, paying or

auditing, and VRS should henceforth be more consistent and clear

in drafting contracts incorporating federal statutes,

regulations, circulars, and words of art, but it would be

nonsensical to assume that because Abili ties' and ACS's records

provided to Mr. Knicely were insufficient for an audit, that the

State must suffer in silence.

125. OAOC was both the DSA and the DSU for federal and

state funds. ( See Finding of Fact 20.) VRS's funding from

federal grants may h ave been at stake here. Awaiting a prior

disqualification or demand from the federal grantor would not

have preserved the State's or the United States Department of

Education's opportunity for a meaningful audit. In Bennett v.

Kentucky Department of Educ ation , 470 U.S. 656 (1985), the

United States Supreme Court noted that "the State gave certain

assurances as a condition for receiving the federal funds, and

if those assurances were not complied with, the Federal

Government is entitled to recover amounts spent contrary to the

terms of the grant agreement." The opinion emphasizes that

neither substantial compliance with the grant agreement, nor

lack of bad faith absolves a state from liability for funds that

are spent by it, contrary to the terms of the gr ant agreement.

Relying on Bennett , supra ., the Eleventh Circuit in Department

of Education v. Bennett , 769 F. 2d 1501 (11th Cir. 1985), has

held that even a slight variance in compliance with a grant

agreement allows the Secretary of the United States Dep artment

of Education to demand a refund of all federal funds expended by

a school board for the relevant period.

12 6 . Petitioner Abilities' concept that the State's "fixed

rate contract" means that a "provider," who has been designated

a "vendor" (not a "recipient" or "sub - recipient") by that State

contract is only limited by the "cap" of funds expressed in the

State contract, is wholly inconsistent with the actions of the

parties; the terms and express intent of the prime contracts

(VHS521 and VHS531); and the terms of the subcontracts between

Abilities and ACS.

12 7 . The preliminary budgets submitted by Abilities were

contrived to justify just "divvying - up" the six months of

unallocated contract/grant monies, but the contracts clearly

show that any sub contracts of Abilities also would be regulated

by the provisions of the State contracts, and if the

subcontractor w ere a for - profit organization, OMB Circulars and

48 CFR Part 31 would also apply.

12 8 . Abilities indicated that it understood its continuin g

obligation to maintain documentation of costs pursuant to its

contract with VRS by specifically including in its own

subcontract that Abilities' subcontractor ACS "shall be subject

to applicable OMB Circulars for For - Profit organizations."

Abilities and ACS agreed to cross - indemnify each other if any

cause of action was brought by VRS or OAOC. ( See Finding of

Fact 112.)

12 9 . Accordingly, despite Abilities' position herein, the

contracts and subcontracts must be construed to require that

Abilities ha d to provide more than simply its own invoices to

VRS and the invoices from ACS to Abilities in order to meet its

cost documentation obligations.

1 30 . The provisions of 48 CFR § 31.102, regarding fixed -

price contracts, make the prime contracts, and deri vatively the

subcontracts, subject to the same cost principles as other

contracts dealing with the same subject matter.

13 1 . Abilities' invoices are not sufficient to show that

federal funding for VRS services was spent on VRS services, and

neither are the invoices and profit - loss statements, etc.

provided by ACS.

13 2 . Simply, the funds allegedly used for these services

could not be verified or audited by VRS/DFS unless more detailed

records were provided by ACS

13 3 . Rather than requesting more infor mation from

Abilities, and, derivatively from ACS, about the transition

expenses, the State attempted to resolve all money issues on the

contracts by requesting that Abilities' return the total

transition expenses figure. In doing so, a liquidated amount

was demanded. DFS's investigator wrote, "We anticipate . . .

the repayment of the sum by Abilities, Inc. This will resolve

all of the remaining issues concerning the demonstration

projects for region 7 and region 20." ( See Findings of Fact 79

and 84.) There was no haggling over a greater or lesser amount,

and Abilities tendered the exact amount demanded, memorializing

no reservations in writing. ( See Findings of Fact 86 - 87.) As a

result, VRS/DFS did not attempt to get more financial records

from Abili ties or ACS and did not pursue any legal action

against Abilities, as they may have been permitted to do. There

was no attempt by the State to further investigate any accounts

concerning core rehabilitation charges associated with these

contracts or to in vestigate or delay payment on any other

Abilities' contracts. All of the foregoing, plus

disqualification of Abilities from bidding on any other VRS

contracts, could have been options for the State. ( See Finding

of Fact 94.)

13 4 . Respondent rightfull y claims that there has been an

"accord and satisfaction." Generally speaking, in order for an

accord and satisfaction to be of any legal effect, it must be

supported by a new contract, express or implied , and any

settlement must reflect the intent of the parties. Partial

payment issues which cloud many " accord and satisfaction " cases

do not cloud this one. The amount at issue was undisputed .

W hether or not that entire debt was owed by Abilities to the

State of Florida was the only issue between the par ties , but

p ayment of the whole, liquidated amount was tendered by the

alleged debtor to the alleged creditor by check. A majority of

"accord and satisfaction" cases in Florida involve a scenario in

which a debtor tenders a check that either on its face, o r by a

separate transmittal letter, states that the check settles all

debts; the creditor cashes the check but later attempts to

collect more money from the debtor on the pre - existing debt; and

the debtor interposes the defense of "accord and satisfaction" .

When this has occurred, the courts have looked to the intent of

the parties manifested in their written materials at the time

the check was presented, and they have eschewed to release a

debtor entirely when the release language on the check was

ambiguo us or where, for some reason, the creditor was being

taken advantage - of. Herein, a liquidated amount was demanded

and paid , without written reservations of rights . The creditor,

VRS/DFS , refrained from the acts it could otherwise have taken

if its demand had not been accepted by the debtor. The bargain

was complete.

13 5 . Petitioner's assertion of surprise or inequitable

treatment by Respondent's raising, for the first time at the

merits hearing, the defense of "accord and satisfaction" is

rejected. Th ere is no requirement of a mandatory Answer, let

alone a requirement of timely notice of an affirmative defense,

under the Administrative Procedure Act. See Fla. Admin. Code R .

28 - 106.203. Also, "accord and satisfaction" is an attorney work

product legal theory advanced by Respondent's lawyers. It is

not an undisclosed witness or expert witness' opinion or an

undisclosed exhibit , such as were the bases for relief upon

grounds of "surprise" in the cases cited by Petitioner.

13 6 . That said, since this c ase seems to be founded on the

parties' agreement to a "do over," it should be observed that

when Petitioner Abilities became the sword - wielder , by filing

the Petition herein, it assumed the duty to go forward and the

burden to prove, by a preponderance of the evidence, that it is

entitled to the $545,124.00. Abilities has not met that burden

by affirmative proof herein, because the expense records in

evidence are insufficient to justify the amounts paid. The

concept that any unaccounted - for or unsubstant iated funds

constitute a reasonable profit by the subcontractor misconstrues

the burden of proof. Adequate records possibly could result in

such a determination, but inadequate records do not permit any

determination.

RECOMMENDATION

Based on the foregoin g Findings of Facts and Conclusions of

Law, it is

RECOMMENDED that the Florida Department of Education,

Division of Vocational Rehabilitative Services enter a final

order dismissing the Petition and Amended Petition herein.

DONE AND ENTERED this 9th day of May, 2005, in Tallahassee,

Leon County, Florida.

S

___________________________________

ELLA JANE P. DAVIS

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 (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 9th day of May , 2005.

ENDNOTES

1/ In response to Abilities' Second Set of Interrogatories, VRS

generally listed multiple statutes, rules, regulations, and

federal circulars allegedly violated by Abilities. An Order was

entered compelling a more specific response. In its more

specific response, VRS failed to list OMB Circular A - 133. After

the filing of the Pre - hea ring Stipulation and after all

depositions had been taken, VRS attempted to add OMB Circular A -

133 back into its list of offended "laws . " Abilities claimed

surprise , and VRS's request was denied. (TR 33 - 37) In

retrospect, however, it may be noted that A bilities' allegation

of surprise may have be en disingenuous in that OMB Circular A -

133 is prominently and repeatedly referred - to or incorporated in

both prime contracts at issue.

2/ Some examples might be loss of funding or a bid protest.

3/ Pursuant to 34 CFR § 77.1, EDGAR means the Education

Department General Administrative Regulations (34 CFR parts 74,

75, 76, 77, 79, 80, 81, 82, 85, 86, 97, 98, and 99).

COPIES FURNISHED:

E.A. "Seth" Mills, Jr., Esquire

Quinn Henderson, Esquire

Mills, Paskert, Divers, P.A.

100 North Tampa Street, Suite 2010

Tampa, Florida 33602

Lee Ann Gustafson, Esquire

Thomas L. Barnhart, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

L inda Parnell, Interim Director

Bureau o f Rehabilitation and Reemployment

Department of Education

Division of Vocation Rehabilitation

2002 Old St. Augustine Road, B uilding A

Tallahassee, Florida 32301 - 4862

Daniel J. Woodring, General Counsel

Department of Education

1244 Turlington Building

325 West Gaines Street

Tallahassee, Florida 32399 - 0400

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 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.