08-002566BID Health Management Systems, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Friday, August 15, 2008.

Summary: Respondent`s proposed contract award pursuant to an invitation to negotiate was not contrary to the Agency for Health Care Administration`s policies or rules or the invitation to negotiate.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HEALTH MANAGEMENT SYSTEMS, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 08-2566BID

)

AGENCY FOR HEALTH CARE ADMINISTRATION, )

)

)

Respondent, )

)

and )

)

ACS STATE HEALTHCARE, LLC, AND )

MAXIMUS FINANCIAL SERVICES, )

INC., )

)

Intervenors. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case

on June 17 and 18, 2008, in Tallahassee, Florida, before Susan

B. Harrell, a designated Administrative Law Judge of the

Division of Administrative Hearings.

APPEARANCES

For Petitioner: Donna E. Blanton, Esquire

Jeffrey L. Frehn, Esquire

Radney, Thomas, Yon & Clark, P.A.

301 South Bronough Street, Suite 200

Tallahassee, Florida 32301

For Respondent: Kelly Ann Bennett, Esquire

William Blocker, II, Esquire

Agency for Health Care Administration

Fort Knox Building, Mail Stop 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

For Intervenor ACS State Healthcare, LLC:

Brian Newman, Esquire

Brandice D. Dickson, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302-2095

For Intervenor MAXIMUS Financial Services, Inc.:

W. Robert Vezina, III, Esquire

Eduardo Lombard, Esquire

Vezina, Lawrence & Piscitelli, P.A.

413 East Park Avenue

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent’s proposed

contract award for the Medicaid Third Party Liability Program,

AHCA ITN 0805, is contrary to Respondent’s governing statutes,

Respondent’s rules or policies, or the solicitation

specifications.

PRELIMINARY STATEMENT

On April 28, 2008, Respondent, Agency for Health Care

Administration (AHCA), posted its notice of intent to award the

contract for Medicaid Third Party Liability (TPL) Program

services to ACS State Healthcare, LLC (ACS). Petitioner, Health

Management Services, Inc. (HMS), timely filed a notice of intent

to protest the award to ACS and filed a formal written protest

on May 8, 2008.

The protest was forwarded to the Division of Administrative

Hearings on May 23, 2008. ACS and MAXIMUS Financial Services,

Inc. (MAXIMUS), petitioned to intervene in the proceeding, and

their petitions were granted. On June 3, 2008, HMS filed HMS’s

Motion to Amend Formal Written Protest. On June 6, 2008, an

Order was entered granting the motion to amend the protest, and

the amended protest was deemed filed as of June 6, 2008. On

June 12, 2008, HMS filed HMS’s Second Motion for Leave to Amend

Formal Written Protest Petition. The motion was granted by

Order dated June 13, 2008, and the Second Amended Formal Written

Protest Petition of Health Management Systems, Inc., was deemed

filed as of the date of the Order.

At the final hearing, HMS called the following witnesses:

Donna Price, Jennifer Barrett, and Ronald Singh. HMS's

Exhibits 1 through 21 A through E; 23 A, B, and C; 24 A and B;

and 26 through 38 were admitted in evidence. HMS's Exhibits 2

(Vol. 2), 3 (Vol. 2), 15, 24 B, and the exhibit to HMS's

Deposition Exhibit 27 were admitted under seal. HMS's

Exhibits 26 through 38 are the depositions of Michele Hudson,

Phil Williams, Carlton Dyke Snipes, David Suhrweir,

Cathy McEachron, Kay Newman, Daniel Roy, Jennifer Barrett, Pat

Ross, Alice Griffin, Melissa Lively, Cory White, and

Chuck Cliburn.

At the final hearing, AHCA called the following witnesses:

Jennifer Barrett, Kay Newman, and Cathy McEachron. ACS called

Melissa Lively and Patrick Ross as witnesses. ACHA's and ACS's

Joint Exhibits 5 through 9, 14, 15, 17, 23, 28, and 29 were

admitted in evidence. ACHA's and ACS's Joint Exhibit 23 was

admitted under seal. The parties were given leave to file

objections to the deposition testimony after the final hearing.

On July 2, 2008, the four-volume Transcript of the final

hearing was filed. On June 23, 2008, ACS filed objections to

deposition testimony. On July 8, 2008, an Order was entered

ruling on the objections to deposition testimony.

On July 9, 2008, the parties filed a Joint Motion

Concerning Treatment of Confidential Information in Proposed

Recommended Orders. On July 10, 2008, an Order was entered

regarding the confidential information. The parties filed their

proposed recommended orders on July 14, 2008. ACS and HMS filed

second proposed recommended orders pursuant to the Order

Regarding Confidential Information on July 16, 2008. The

parties' proposed recommended orders have been given

consideration in the preparation of this Recommended Order.

FINDINGS OF FACT

1. AHCA is the state agency responsible for administering

the Medicaid Program in Florida. Medicaid is the state and

federal partnership that provides health coverage for selected

categories of people with low incomes.

2. AHCA’s Division of Medicaid, TPL Unit, is responsible

for identifying and recovering funds for claims paid by Medicaid

for which a third party is liable.

3. The TPL Program is intended to implement the federal

mandate that Medicaid be the payor of last resort. In this

regard, as the state agency responsible for administering the

federal Medicaid program, AHCA must take all reasonable measures

before paying for medical services to ascertain whether a third

party is liable for such services and should pay instead of

Medicaid. In cases where a liable third party is not found

until after Medicaid has already paid, AHCA is required to seek

reimbursement from the third party for the costs paid by

Medicaid. The TPL vendor is responsible for identifying

potential third-party payors and recouping from them the costs

that have been paid by Medicaid. Third parties include private

insurance carriers, the Medicare program, estates, liability

insurers, third-party administrators, pharmacy benefits

managers, and any other individual, entity, or program that “may

be, could be, should be, or has been liable for all or part of

the cost of medical services related to any medical assistance

covered by Medicaid.” § 409.901(26), Fla. Stat. (2007). 1

4. AHCA’s TPL functions are outsourced, and HMS is the

incumbent vendor.

5. On January 22, 2008, AHCA issued an invitation to

negotiate (ITN) for the purpose of selecting a vendor to provide

TPL program services. The scope of the services consists of

eight components: (a) casualty recovery, (b) estate recovery,

(3) trust and annuity recovery, (4) Medicare and other third-

party payor recovery, (5) cost avoidance, (6) Medicaid Reform

Opt Out Program, (7) Health Insurance Premium Payment Program,

and (8) other recovery programs. The selected vendor would be

paid a combination contingency fee and fixed fee based on rates

offered by the vendor.

6. The ITN established a two-step process for selecting a

vendor with which to contract: the evaluation phase and the

negotiation phase. In the evaluation phase, each vendor was

required to submit a reply to the ITN containing its technical

proposal and price proposal for the services identified in the

ITN. A total of 980 points was available in a variety of

categories.

7. The vendor responses were to be evaluated and scored

based on detailed criteria set forth in the ITN. The ITN

includes the following statement:

Each evaluator will calculate a total score

for each response. The Issuing Officer will

use the total point scores to rank the

responses by evaluator (response with the

highest number of points = 1, second highest

= 2, etc.). The Chairman will then

calculate an average rank for each response

for evaluators. The Agency will negotiate

with the three highest ranked vendors.

8. The purpose of the scoring was to determine which

vendors would participate in the negotiations. The scoring did

not determine which vendor would be awarded the contract. The

award of the contract would be based on the vendors’

presentations during the negotiation phase. The ITN did not set

forth evaluation criteria that would be used in the negotiation

phase. The criteria in Attachment E of the ITN pertained to the

criteria that would be used to determine the responsive and

responsible vendors with whom AHCA would negotiate, and, to that

extent, the criteria in Attachment E were relevant to the

negotiation phase of the procurement process. No vendor

objected to the specifications contained in the ITN.

9. The ITN provided a deadline for the vendors to submit

questions regarding the ITN and stated:

The Agency will receive all questions

pertaining to this solicitation no later

than the date and time specified for written

inquiries in Section C.6, Solicitation

Timeline. All inquiries must be made in

writing to the Issuing Officer identified in

Section C.5. Questions may be sent by US

Mail, email, fax or hand delivered. (Email

is preferred and encouraged.) No telephone

calls will be accepted. No questions,

written or otherwise, will be accepted

except as indicated in Section C.6,

Solicitation Timeline. The Agency’s

response to questions received will be

posted as an addendum to this solicitation

as specified in Section C.6, Solicitation

Timeline. (Emphasis in original)

The timeline contained in the ITN set February 4, 2008, as the

deadline for receipt of written inquiries from the vendors.

10. The ITN set March 6, 2008, as the deadline for

receiving responses to the ITN from the vendors. On

February 12, 2008, a vendors’ conference was held to allow the

vendors to ask questions concerning the ITN. Representatives

from ACS, MAXIMUS, and HMS attended the conference. During the

vendors’ conference, AHCA personnel stated that if the vendors

had additional inquiries concerning the ITN that the inquiries

should be directed to the procurement office.

11. The ITN provided that AHCA would accept oral questions

during the vendors’ conference and that AHCA would “make a

reasonable effort to provide answers to oral questions” at the

vendors’ conference. The ITN also provided: “[O]ral answers

and discussions are not binding on the agency. Only those

communications, which are in writing from the Agency, may be

considered as duly authorized expressions on behalf of the

State.”

12. The ITN solicitation timeline indicated that the

anticipated date for AHCA’s responses to the vendors’ written

inquiries would be February 22, 2008.

13. On February 13, 2008, Jeannine Zibilich from ACS sent

an e-mail to Cathy McEachron with the following inquiry:

Given the significant number of questions

asked and the anticipated date for the

responses, ACS respectfully requests that

the proposal due date for ITN 0805, Florida

Medicaid Third Party Liability Program, be

extended to March 28, 2007 [sic]. We thank

you for your prompt consideration of this

request and look forward to an answer at

your earliest convenience.

14. Ms. McEachron forwarded the e-mail to Jennifer Barrett

who is the AHCA administrator within the Division of Medicaid,

TPL unit. Ms. McEachron and Ms. Barrett agreed that the

March 28 date was too much of an extension, but agreed that the

deadline for submitting the responses to the ITN could be

extended to March 14, 2008.

15. On February 14, 2008, AHCA provided written responses

to the inquiries made by the vendors. The written responses

were published as part of Addendum No. 1 of the ITN. The verbal

directive allowing additional inquiries after February 4, 2008,

which changed the timeline in the original ITN, was not

published as an addendum to the ITN. 2 Addendum No. 1 also

changed the deadline for submitting responses to the ITN to

March 14, 2008.

16. HMS claims that ACS received a benefit from the

extension of the time frame for submitting responses to the ITN

and that HMS did not receive a benefit because it did not need

additional time to submit a response. The extension of time to

submit responses to the ITN benefited all vendors. Each vendor

had additional time to prepare and submit a better response to

the ITN.

17. On February 26, 2008, Chuck Cliburn from ACS sent

e-mails to Ms. McEachron requesting additional information

concerning claims paid, the number of members for managed care

and fee for service, and the total benefits paid for the current

casualty cases. Ms. McEachron forwarded the e-mail to

Ms. Barrett with the following notation:

Hey. We’ve received one more question on

the TPL solicitation. Since it is after the

question and answer period, technically, we

don’t have to answer it. Keep in mind,

however, the more information the vendors

have, the better their responses will be.

If we have this info readily available, I’d

recommend providing it. If you decide to, I

will post it to VBS as addendum number 2.

18. Ms. Barrett advised Ms. McEachron that the information

was not readily available, but that some information could be

accessed on a website, and provided Ms. McEachron the website

link. Ms. McEachron issued Addendum No. 2 on March 3, 2008,

providing the website link to the vendors. The information

requested by ACS was provided to all vendors. HMS claims that

it did not have the advantage of being able to ask questions

after the ITN deadline. The only question identified by HMS

that it would have asked after the deadline was answered at the

vendors’ conference.

19. The ITN required that contact with the procurement

officer by the vendors was to be done in writing. Ms. McEachron

lifted the restriction on written responses by allowing the

vendors to make telephone calls with general inquiries such as

asking whether their proposals had been received or complaining

that the AHCA website was unavailable. The use of telephone

calls for general inquiries applied to all vendors.

20. AHCA Deputy Secretary Carlton Dyke Snipes appointed

three evaluators to independently score most aspects of the

responses. An additional individual was appointed to evaluate

financial stability. Another individual was asked to award

points for past performance. Points for the cost element of the

responses were awarded by the ITN’s issuing officer.

21. Three vendors submitted responses to the ITN: HMS,

ACS, and MAXIMUS. AHCA determined that MAXIMUS’ response was

not responsive to the ITN.

22. Both ACS and HMS are wholly-owned subsidiaries. The

parent company for ACS is Affiliated Computer Services, and the

parent company for HMS is HMS Holdings Corp.

23. The ITN provides that the vendors were to submit their

most recent financial information with their response. The

information could be submitted as either the most recent

financial statement or the most recent audit. Both ACS and HMS

submitted the annual reports on the Form 10-K for their parent

companies. AHCA customarily accepts the financial information

for the parent company for evaluation of vendor responses.

24. The Form 10-K submitted by HMS contained a note that

provided financial information directly related to HMS. The

Form 10-K submitted by ACS did not contain specific financial

information about ACS. Affiliated Computer Services is a larger

company than HMS Holdings Corp. 3 Because Affiliated Computer

Services is such a large company, the financial information for

ACS would not be reported separately as was the information

relating to HMS.

25. Both ACS and HMS were evaluated based on their parent

companies' financial capability. ACS received a score of five

in the evaluation of the financial information it submitted. A

score of five meant that ACS was considered to have excellent

financial capabilities. HMS received a score of four on its

financial information. A score of four meant that ACS had above

average financial capability.

26. The ITN required the vendors to list the

subcontractors that they intended to use. If a vendor was going

to use a sister corporation as subcontractor, AHCA did not

require that the sister corporation be listed and so advised the

vendors during the vendors’ conference.

27. ACS Recovery Services, Inc., and ACS Commercial

Solutions, Inc., operate within ACS Commercial Solutions Group,

which is a line of business of Affiliated Computer Services,

Inc. ACS; ACS Commercial Solutions, Inc.; and ACS Recovery

Services, Inc., are considered by ACS to be sister corporations,

but are separate corporate entities.

28. ACS intends to use its sister corporations to perform

many of the services offered in ACS’s reply to the ITN. The

reply states that the services will be provided by the sister

corporations, but does not list the sister corporations as

subcontractors. ACS will not actually enter into a subcontract

with its sister corporations.

29. The responses submitted by HMS and ACS were evaluated,

and HMS received the highest number of points and, thus, was

ranked number one.

30. On March 25, 2008, AHCA sent letters to both ACS and

HMS advising them that they had been selected as candidates for

negotiations and providing dates that were available for the

negotiation sessions. Each letter stated: “The negotiation and

selection process will consider each company’s ability to meet

or exceed the business, technical, and financial requirements of

the Agency.”

31. The ACS negotiation was scheduled for April 7, 2008,

and the HMS negotiation was scheduled for April 8, 2008. On

April 3, 2008, confirmation letters were sent to ACS and HMS,

confirming the scheduled negotiation dates and times. The

letters directed each vendor to “plan to provide handout

materials for four (4) AHCA team members.” Each letter also

included a “list of topics to be discussed.” The topics were

based on the information provided in each vendor’s response to

the ITN.

32. ACS provided AHCA with copies of their written

responses to topics listed in its confirmation letter prior to

the commencement of the negotiation session. Ms. Barrett

received a copy of the written responses on the morning of the

negotiation session with ACS and had time to quickly read the

materials prior to the negotiation session. HMS did not provide

advance copies of their written responses, and the negotiators

received HMS’s materials at the negotiation session. Neither

ACS nor HMS was advised, prior to the negotiations, whether it

was permissible to provide AHCA with advance copies of the

written responses or other handout materials. Ms. Barrett

reviewed both vendors’ written responses after the negotiation

sessions.

33. Each negotiation session was conducted by

Ms. McEachron, the director of AHCA’s Procurement Office and the

issuing officer for the ITN. David Suhrweir and Daniel Roy, two

of the three evaluators, were also designated as negotiators.

Ms. Barrett, the AHCA TPL contract manager, was also a

negotiator. Ms. Barrett had been listed as client reference by

HMS because Ms. Barrett was the contract manager for the current

contract with HMS for TPL services. With the exception of

Ms. McEachron, at the time of the negotiations, the negotiators

were unaware of the total scores received by HMS and ACS during

the evaluation of their responses. Ms. McEachron did not inform

the other negotiators of the evaluation scores prior to

negotiations to prevent any bias towards the vendors based on

the scores they received during the evaluation phase. The

negotiation sessions were transcribed by a court reporter.

34. Each negotiation session was scheduled to last for two

hours and ACHA’s decision to award a contract was to be based on

the information that was provided during the negotiation

sessions. At the beginning of each negotiation session, the

vendors were informed that any topic was open for discussion

during the negotiation.

35. HMS had submitted a lower cost proposal than ACS.

Prior to the commencement of the negotiations, Ms. Barrett sent

an e-mail to Ms. McEachron inquiring whether price could be

negotiated during the negotiation sessions. Ms. McEachron

advised Ms. Barrett that price was open for discussion.

Ms. Barrett wanted to negotiate price with ACS to see if AHCA

could get a lower price. Because HMS had the lower prices, she

did not intend to bring up the subject of price with HMS, but

felt that HMS was not precluded from negotiating a lower price.

36. During the negotiation with ACS, Ms. Barrett asked ACS

whether it would lower its prices and stated:

I will ask the all important question . . .

In reference to the cost proposal, is there

any chance that ACS would be willing to

reduce some of their costs they are

proposing? . . . It’s mainly in the area of

the cost avoidance per policy. And then the

opt out, there is a wide difference in the

amount that was proposed in costs in those

three areas.

Ms. McEachron gave ACS until the end of the week to come up with

a best and final offer for prices. The end of the week would

have been April 11.

37. The negotiators were more impressed with the

presentation by ACS than the presentation by HMS. ACS was more

organized and well-prepared than HMS. To the negotiators, HMS

appeared to be disjointed, flustered, and confused.

38. A 2006 United States Supreme Court decision, Arkansas

Dept. of Health and Human Services v. Ahlborn , 547 U.S. 268

(2006), limited Medicaid liens to the medical portion of

recoveries in casualty cases, and ACS proposed to address the

impact of the decision by taking a proactive approach and work

with the attorneys on the cases prior to the cases going to

trial or settlement. HMS claims that ACS misrepresented its

success in dealing with the Ahlborn decision by stating that ACS

had successfully argued the Ahlborn issue in Florida courts.

39. During the negotiations, Melissa Lively, an attorney

for ACS, indicated that ACS had success in working with the

attorneys for the Medicaid clients by discussing the Ahlborn

decision during the early stages of litigation. As a result of

ACS’s proactive approach, ACS had been successful in its

recoveries.

40. Following each of the negotiation sessions, the

negotiators spoke together briefly to share their general

impressions and thoughts of the negotiation. Later in the

afternoon following the last negotiation, Ms. Barrett, Mr. Roy,

and Mr. Suhrweir again met to further discuss their impressions

of the two vendors based on the negotiation sessions. The three

negotiators jointly and unanimously agreed to recommend to

AHCA’s senior management that ACS be awarded the contract.

41. Ms. Barrett drafted a memorandum recommending that the

contract be awarded to ACS and, on April 9, 2008, provided the

memorandum to Mr. Roy and Mr. Suhrweir for their review and

comments. The memorandum listed the following as “items [that]

are representative of issues ACS presented to the Agency during

the negotiations that provides a justification for this

recommendation”:

Case Tracking System – The case tracking

system for casualty, estate, trusts, and

annuities demonstrated by ACS currently has

the capability to automatically relate and

unrelate claims based upon injuries. This

feature will eliminate some of the manual

processes in identifying claims that are

related to a Medicaid recipient’s accident

or incident. The system also automatically

generates letters with an electronic

signature that go directly to ACS’s mail

operations.

Ahlborn Supreme Court decision – ACS

indicated it will take a proactive approach

and become involved with attorneys in the

beginning of a case to ensure the Medicaid

lien amount is included in the total

settlement amount, thus preventing a

hearing. ACS advised it would conduct

outreach regarding the Ahlborn decision in

order to educate attorneys on Medicaid’s

rights to recovery.

Quality control – ACS proposes using the

Report Card process for quality control.

ACS has identified a full-time quality staff

person as required by the ITN. ACS

demonstrated a clear understanding of the

importance of quality control in all areas

of the contract.

Cost Avoidance – ACS has presented an

innovative approach to cost avoidance data.

Through its Smart TPL and MEVSNET systems,

real time cost avoidance is provided thereby

potentially increasing cost avoidance and

carrier billing collections.

Innovation – ACS has presented innovative

approaches to increasing recoveries. For

example, ACS will review the dates of death

of Medicaid recipients and file a Caveat by

Creditor in the deceased recipient’s county

of residency. The clerk of the Court will

then be required to provide a Notice of

Summary Administration and ACS would file an

estate claim on behalf of the Agency.

42. By e-mail dated April 10, 2008, ACS notified

Ms. McEachron that ACS would revise its pricing. In its

original pricing ACS’s proposed prices were higher than HMS’s

prices in three of the four categories. ACS’s revised prices

were higher than HMS’s prices in two of the four categories.

The negotiators had made a decision to recommend the contract

award to ACS prior to receiving the revised pricing, and the

revised pricing was not determinative of the recommendation to

award to ACS.

43. The negotiators’ recommendation was presented to

management of AHCA’s Division of Medicaid. The deputy secretary

for Medicaid considered the recommendation and directed the

award of the contract to ACS.

44. On April 28, 2008, AHCA posted a notice listing the

scores and rankings for both HMS and ACS. The notice announced

the agency’s intent to award the contract to ACS.

45. Prior to the award of a contract, the procurement

office maintains a solicitation file, which contains the

documents relating to the solicitation process. After the award

of a contract, the procurement office will create a contract

file, which contains certain information required by Subsection

287.057(3)(b), Florida Statutes. In the instant case, the

contract award has not been made, and, therefore, the contract

file has not been created.

CONCLUSIONS OF LAW

46. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding. §§ 120.569 and 120.57, Fla. Stat. (2008).

47. Petitioner challenged the contract award to ACS

pursuant to Subsection 120.57(3), Florida Statutes, which

provides:

In a protest to an invitation to negotiate

procurement, no submissions made after the

agency announces its intent to award a

contract, reject all replies, or withdraw

the solicitation which amend or supplement

the reply shall be considered. 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, proposals, or

replies, 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

solicitation 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

proposals, or replies, the standard of

review by an administrative law judge shall

be whether the agency’s intended action is

illegal, arbitrary, dishonest, or

fraudulent.

48. Agency action will be found to be “clearly erroneous”

if it is without rational support and, consequently, the trier-

of-fact has a “definite and firm conviction that a mistake has

been committed.” U.S. v. U.S. Gypsum Co. , 333 U.S. 364, 395

(1948).

49. An act is “contrary to competition” if it unreasonably

interferes with the objectives of competitive bidding, which

are:

To protect the public against collusive

contracts; to secure fair competition upon

equal terms to all bidders; to remove not

only collusion but temptation for collusion

and opportunity for gain at public expense;

to close all avenues to favoritism and fraud

in various forms; to secure the best values

for the [public] at the lowest possible

expense; and to afford an equal advantage to

all desiring to do business with the

[government], by affording an opportunity

for an exact comparison of bids.

Wester v. Belote , 138 So. 721, 723-24 (Fla. 1931).

50. “An action is ‘arbitrary if it is not supported by

logic or the necessary facts,’ and ‘capricious if it is adopted

without thought or reason or is irrational.’” Hadi v. Liberty

Behavioral Health Corp. , 927 So. 2d 34, 38 (Fla. 1st DCA 2006).

51. In its Second Amended Formal Written Protest Petition,

HMS alleges the following grounds for protesting the intended

contract award:

[T]he “negotiations” conducted with the

vendors were anti-competitive, fundamentally

unfair, and contrary to Chapter 287, Florida

Statutes, and AHCA ITN 0805 because ACS was

given the opportunity to revise its cost

proposal through a “best and final offer”

and HMS was given no such opportunity.

[T]he “negotiations” conducted by AHCA with

the vendors were contrary to the

specifications in the ITN, which established

detailed evaluation and scoring criteria.

Both ACS and HMS were scored pursuant to

the ITN’s criteria, and HMS was awarded

many more points than ACS by each

evaluator. . . . Nothing occurred in the

evaluations that would have provided a

rational basis for ignoring the evaluator’s

scores and substituted a different decision

by proposing to award the contract to ACS.

AHCA’s recommendation of award to ACS is

contrary to the specifications of the ITN,

given that HMS scored higher than ACS on the

issues that AHCA identified as “a

justification” for its proposed award to

ACS, and ACS proposed no changes to its

offer that could have prompted a rational

reversal of AHCA’s initial appraisal of

those issues either during or after the

negotiations.

AHCA’s recommendation to award to ACS is

contrary to [S]ection 287.057(3)(b), Florida

Statutes, which provides that “[t]he

contract file must contain a short plain

statement that explains the basis for vendor

selection and that sets forth the vendor’s

deliverables and price, pursuant to the

contract, with an explanation of how these

deliverables and price provide the best

value to the state.”

The negotiation process was anti-

competitive, fundamentally unfair, contrary

to [C]hapter 287, Florida Statutes, and in

violation of the ITN because AHCA engaged in

meaningful negotiations with only one vendor

(ACS), but declined to engage in meaningful,

good faith negotiations with the vendor

(HMS) . . . .

[T]he recommended contract award to ACS was

clearly erroneous, arbitrary and capricious,

and contrary to [C]hapter 287, Florida

Statutes, and the ITN specifications to the

extent that it was based on the

recommendations of two evaluators who had

judged the proposals of ACS to be inferior

to that of HMS.

[T]he ACS proposal is nonresponsive because

it fails to include the requisite number of

client references reflecting projects for

services similar in nature to those

described in the ITN. [4]

AHCA impermissibly disclosed information

relating to HMS’s proposed costs to ACS

thereby giving ACS an unfair competitive

advantage during the negotiation phase of

the ITN process.

[I]t was an impermissible conflict of

interest for Jennifer Barrett to serve as a

client reference for HMS in addition to

serving as the primary negotiator under the

ITN, and . . . Ms. Barrett gave undue weight

to her own client reference evaluation and

scores in recommending the award of the

contract to ACS.

[I]n serving as a negotiator Jennifer

Barrett impermissibly based her decision on

matters outside of HMS’s proposal and not

otherwise submitted as part of the ITN

process, as reflected in Ms. Barrett’s notes

relating to the negotiations.

[I]n serving as a negotiator Jennifer

Barrett impermissibly based her award

recommendation on her own criteria rather

than on the criteria in the ITN, as

reflected in Ms. Barrett’s notes relating to

the negotiation.

[T]he AHCA negotiators violated the ITN and

Chapter 287 by negotiating a contract with

ACS and then recommending the award of the

contract to ACS without first scoring or

ranking the respective responses based on

the criteria in the ITN, or without taking

into account or even knowing how the

evaluators scored or ranked the respective

responses based on the ITN criteria.

[T]he ACS proposal is non-responsive because

it fails to include financial information

relating to the vendor as required by the

ITN.

[T]he ACS proposal is non-responsive where

ACS is proposing to perform the contract in

partnership with ACS Commercial Solutions

Group (“CSG”), which “will perform many of

the services” offered in the ACS proposal,

but CSG was not named in the ACS proposal as

one of the vendors or a subcontractor, and

did not meet any of the requirements in the

ITN relating to vendors or subcontractors.

Cathy McEachron violated [S]ection

287.057(24), Florida Statutes, and the ITN

specifications by lifting the restrictions

on telephone contacts by inviting the

vendors to call her before the expiration of

the 72-hour period following the posting of

the proposed award.

ACS received an unfair competitive advantage

in violation of ITN Sections C.8 and C.9

when ACS submitted written inquiries to AHCA

after the February 4, 2008 deadline for

receipt of written inquiries specified in

Section C.6.

ACS received an unfair competitive advantage

when ACS submitted written responses to the

negotiation subjects identified by AHCA

nearly five hours before ACS’ April 7,

2008[,] negotiation meeting with AHCA . . .

ACS presented misleading and false

information in its proposal and in the

negotiations in violation of the ITN

specifications. . . . In misleading the

agency with respect to the success of its

approach to Ahlborn , ACS obtained an unfair

competitive advantage.

52. Subsection 287.057(3), Florida Statutes, authorizes

the use of an ITN and provides:

(3)(a) If the agency determines in writing

that the use of an invitation to bid or a

request for proposals will not result in the

best value to the state, the agency may

procure commodities and contractual services

by competitive sealed replies. The agency's

written determination must specify reasons

that explain why negotiation may be

necessary in order for the state to achieve

the best value and must be approved in

writing by the agency head or his or her

designee prior to the advertisement of an

invitation to negotiate. An invitation to

negotiate shall be made available to all

vendors simultaneously and must include a

statement of the commodities or contractual

services sought; the time and date for the

receipt of replies and of the public

opening; and all terms and conditions

applicable to the procurement, including the

criteria to be used in determining the

acceptability of the reply. If the agency

contemplates renewal of the contract, that

fact must be stated in the invitation to

negotiate. The reply shall include the

price for each year for which the contract

may be renewed.

(b) The agency shall evaluate and rank

responsive replies against all evaluation

criteria set forth in the invitation to

negotiate and shall select, based on the

ranking, one or more vendors with which to

commence negotiations. After negotiations

are conducted, the agency shall award the

contract to the responsible and responsive

vendor that the agency determines will

provide the best value to the state. The

contract file must contain a short plain

statement that explains the basis for vendor

selection and that sets forth the vendor's

deliverables and price, pursuant to the

contract, with an explanation of how these

deliverables and price provide the best

value to the state.

53. Best value is defined by statute and means “the

highest overall value to the state based on objective factors

that include, but are not limited to, price, quality, design,

and workmanship.” § 287.012 (4), Fla. Stat. In the letter

inviting the vendors to negotiate, AHCA stated that “[t]he

negotiation and selection process will consider each company’s

ability to meet or exceed the business, technical and financial

requirements of the Agency.”

54. In several of its allegations, HMS essentially argues

that the contract award to ACS was contrary to Chapter 287,

Florida Statutes, because HMS received the highest score during

the evaluation phase of the procurement. HMS’s argument is

without merit. AHCA conducted the procurement of the services

for the TPL Program in accordance with Subsection 287.057(3),

Florida Statutes. An ITN was developed to determine which

vendors would participate in the negotiations. Based on the

criteria in the ITN the vendors were evaluated and ranked. In

the instant case, the ITN provided that negotiations would be

held with the three highest ranking vendors. Because only two

vendors were deemed responsive to the ITN, negotiations were

limited to those two vendors, HMS and ACS.

55. Subsection 287.057(3), Florida Statutes, requires that

the procuring agency award the contract based on the

negotiations to the responsive and responsible vendor who

provides the best value to the state. The evaluation criteria

in the ITN was used to determine which vendors are responsive

and responsible by meeting the criteria established in the ITN

and which vendors will participate in the negotiation process.

In determining the best value to the state during the

negotiation phase, the agency is not limited to the criteria

that are used to determine who will participate in the

negotiations. If that were so, there would be no need to use an

ITN; a request for proposals would suffice. The idea behind

negotiating with vendors is to cut the best deal for the state.

Negotiation allows the vendors to lower their prices or offer

additional or enhanced services during the negotiation process.

The use of negotiation does not mean that the vendor who scored

the highest during the evaluation phase will be awarded the

contract. Therefore, contrary to HMS’s assertion, it is

immaterial whether prior to the negotiations that all the

evaluators were informed of the rankings of the vendors based on

the evaluation phase of the procurement.

56. The proposed award will not be overturned so long as

the decision is based on an honest exercise of discretion.

Scientific Games, Inc. v. Dittler Brothers, Inc. , 586 So. 2d

1128, 1131 (Fla. 1st DCA 1991). “Absent a showing that

Respondent . . . was not engaged in an honest exercise to obtain

the best value for the state, Respondent . . . was free to use

whatever criteria in the negotiation phase that it chose.” M/A-

Com, Inc., v. Dept. of Management Services , Case No. 04-1091BID

(DOAH May 25, 2004). AHCA's actions in the procurement of TPL

services demonstrate a honest exercise to obtain the best value

for the state.

57. HMS alleges that the recommended award was contrary to

Subsection 287.057(3)(b), Florida Statutes, which provides that

certain information be placed in the contract file. This

allegation is without merit. AHCA currently maintains a

solicitation file, and the contract file will be created after

the contract is awarded. Nothing in Subsection 287.057(3)(b),

Florida Statutes, requires that the contract file be created

before the contract is awarded. Until the contract file is

created, AHCA is not required to place the required information

in a contract file.

58. HMS alleges that ACS failed to include financial

information with its reply to the ITN. This allegation is

without merit. Both HMS and ACS are wholly owned subsidiaries,

and both vendors submitted the Form 10-K for their parent

corporations. AHCA customarily accepts Form 10-Ks of parent

companies for the financial evaluation of their subsidiaries.

Both HMS and ACS were evaluated based on the information of

their parent companies; thus, both vendors were treated the same

in evaluating their financial submissions. The reliance by AHCA

on the financial information of the parent company is neither

arbitrary nor capricious, it is not clearly erroneous, it is not

anti-competitive, and it does violate any statute governing

AHCA, any policy or rule of AHCA, or the specifications of the

ITN.

59. HMS alleges that during the negotiations that AHCA

impermissibly disclosed information related to HMS’s cost

proposal to ACS. Nothing in the ITN, the statutes governing the

procurement, and AHCA’s policies or rules prohibits AHCA from

disclosing to ACS information concerning HMS’s cost proposal

during the negotiation phase. The object of the negotiations is

to get the best value for the state, which could include getting

a lower price if possible. Thus, it was reasonable and logical

that AHCA would ask ACS if it would lower its prices.

Additionally, the recommendation to award to ACS was determined

prior to ACS’s submission of its revised prices so that the

revision to prices did not give ACS a competitive advantage over

HMS.

60. HMS alleges that the negotiations were anti-

competitive because HMS was not given an opportunity to revise

its cost proposal, and AHCA engaged in meaningful negotiations

with ACS and not with HMS. This allegation is also without

merit. During the negotiations, the vendors were advised that

everything was up for discussion. If HMS had desired to lower

its prices, there was nothing which prevented it from doing so.

The direct request to ACS concerning its price was not anti-

competitive.

61. HMS alleges that ACS presented misleading and false

information during the negotiation phase concerning the success

of ACS’s approach to the Ahlborn decision. ACS did not make

misleading or false statements concerning its approach to the

Ahlborn decision. It is clear from reading the transcript of

the negotiation session with ACS that ACS was making the point

that it had success on the Ahlborn issue by taking a proactive

approach with the attorneys who represented the Medicaid

recipients in the early stages of the litigation rather than

trying to deal with the recovery after the casualty case went to

trial or a settlement was reached.

62. HMS alleges that ACS received an unfair competitive

advantage when it submitted written responses to the topics

identified in ACHA’s confirmation letter of April 3, 2008, prior

to the beginning of the negotiations. Nothing in the

confirmation letter or the ITN prohibited the vendors from

submitting their written responses prior to the commencement of

the negotiations. While Ms. Barrett may have quickly reviewed

ACS’s written responses prior to the commencement of the

negotiations, she thoroughly reviewed the responses of both

vendors after the negotiation session. ACS did not receive an

unfair competitive advantage.

63. HMS alleges that ACS received an unfair competitive

advantage by submitting written inquiries to AHCA after the

February 4, 2008, deadline set forth in the ITN. The first

inquiry was to extend the time for filing replies to the ITN.

The time for filing replies to the ITN was extended for eight

days, less than requested by ACS, and the time frame was amended

in the first addendum to the ITN. The vendors had been told at

the vendors' conference that they could submit inquiries after

the February 4 deadline. However, this extension was not

published as part of any addendum to the ITN. Technically,

because the extension was not published as an addendum to the

ITN, the vendors should not have relied upon the oral

representation made by AHCA at the vendors' conference.

However, the extension of time that was granted was given to all

vendors and was published as part of an addendum to the ITN.

ACS did not receive an advantage not enjoyed by the other

vendors.

64. HMS alleged that ACS received an unfair competitive

advantage by submitting a written inquiry after the February 4,

2008, deadline for submission of written inquiries. ACS sent an

e-mail to Ms. McEachron asking about the number of claims paid,

the number of members for managed care and fee for service, and

the total benefits paid for current casualty cases. Although,

the inquiry was past the deadline for written inquiries, AHCA

decided to respond in hopes of getting better responses from the

vendors. Again, the information was provided to all vendors

through the publication of the second addendum to the ITN. ACS

did not receive an unfair competitive advantage.

65. HMS alleges that ACS was not responsive to the ITN

because it did not list ACS Commercial Solutions Group as a

subcontractor. ACS was not required to list its sister

corporation as a subcontractor, and ACS’s reply to the ITN made

it clear that sister corporations would be providing some of the

services. ACS was responsive to the ITN.

66. HMS alleges that it was a conflict for Ms. Barrett to

serve as a primary negotiator when she was a client reference

for HMS’s past performance portion of HMS’s reply to the ITN.

This claim is without merit. Subsection 297.057(17)(b), Florida

Statutes, requires that the negotiators collectively have

“experience and knowledge in . . . the program areas and service

requirements” for the services that are sought. Obviously, the

requirement for this experience and knowledge is so that the

negotiators can apply their expertise during the negotiation

phase to get the best value for the state. Ms. Barrett has

experience and knowledge in the program areas and services

requirement for the TPL program. As contract manager for the

contract, it is logical that she would be one of the

negotiators.

67. HMS alleges that Ms. Barrett impermissibly based her

contract award recommendation on matters outside HMS’s proposal

and on criteria not reflected in the ITN. As discussed above,

the evaluation criteria in the ITN did not determine the vendor

to whom the contract would be awarded. The evaluation criteria

were used to determine which vendors were responsive and

responsible and were eligible to participate in the negotiation

phase. Ms. Barrett's recommendation to award to ACS was based

on the negotiations. In determining which vendor to recommend

the award of the contract, she was free to consider her

experience as contract manager for the current contract.

68. HMS alleges that Ms. McEachron violated Subsection

287.057(24), Florida Statutes, which provides:

Each solicitation for the procurement of

commodities or contractual services shall

include the following provision:

“Respondents to this solicitation or persons

acting on their behalf may not contact,

between the release of the solicitation and

the end of the 72-hour period following the

agency posting the notice of intended award,

excluding Saturdays, Sundays, and state

holidays, any employee or officer of the

executive or legislative branch concerning

any aspect of this solicitation, except in

writing to the procurement officer or as

provided in the solicitation documents.

Violation of this provision may be grounds

for rejecting a response.

As the procurement officer, Ms. McEachron allowed the vendors to

call her by telephone between the release of the solicitation

and the end of the 72-hour period following the agency posting

of the intended award. The telephone calls would be general in

nature such as whether a vendor’s proposal had been received or

inquiring about the unavailability of AHCA’s website. The

inquiries did not affect the substance of the solicitation or

give any particular vendor an unfair advantage. Allowing the

use of the telephone rather than requiring written inquiries for

such general information was applied equally to all the vendors.

69. In its Proposed Recommended Order HMS argues the

proposal where AHCA and ACS failed to reach an agreement on

critical contract terms that are essential to a best value

determination.” Specifically, HMS was referring to ACS’s use of

the Smart TPL and MEVSNET technology. This issue was not raised

in the Second Amended Formal Written Protest Petition of Health

Management Systems, Inc. Subsection 120.57(3)(b), Florida

Statutes, requires “[t]he formal written protest shall state

with particularity the facts and law upon which the protest is

based.” HMS amended its formal written protest two times and

did not include the issue in either amendment; therefore, the

issue can not be raised after the final hearing.

70. HMS has failed to establish that the proposed contract

award to ACS was contrary to ACHA’s governing statutes, AHCA’s

rules or policies, or the specifications of the ITN. HMS failed

to prove that the intended award is clearly erroneous, contrary

to competition, arbitrary or capricious.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that a final order be entered dismissing

HMS’s formal written protest and awarding the contract to ACS.

DONE AND ENTERED this 15th day of August, 2008, in

Tallahassee, Leon County, Florida.

S

SUSAN B. HARRELL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 15th day of August, 2008.

ENDNOTES

1/ Unless otherwise indicated, all references to Florida

Statutes are to the 2007 codification.

2/ At the time that ACS submitted its e-mail on February 13,

2008, the first addendum had not been issued, and ACS would have

no way to know that the oral response given by AHCA at the

vendors’ conference would not be published as an addendum.

3/ As reflected in the 10-Ks of the parent companies, Affiliated

Computer Services had gross revenues of 5.7 billion dollars, and

HMS Holdings Corp. had gross revenues of 87 million dollars.

4/ HMS stated at the final hearing that this allegation was no

longer an issue.

COPIES FURNISHED :

Donna E. Blanton, Esquire

Jeffrey L. Frehn, Esquire

Radney, Thomas, Yon & Clark, P.A.

301 South Bronough Street, Suite 200

Tallahassee, Florida 32301

Kelly Ann Bennett, Esquire

William Blocker, II, Esquire

Agency for Health Care Administration

Fort Knox Building, Mail Stop 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Brian Newman, Esquire

Brandice D. Dickson, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302-2095

W. Robert Vezina, III, Esquire

Eduardo Lombard, Esquire

Vezina, Lawrence & Piscitelli, P.A.

413 East Park Avenue

Tallahassee, Florida 32301

Holly Benson, Secretary

Agency for Health Care Administration

Fort Knox Building, Suite 3116

2727 Mahan Drive

Tallahassee, Florida 32308

Craig H. Smith, General Counsel

Agency for Health Care Administration

Fort Knox Building, Suite 3431

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308

Richard J. Shoop, Agency Clerk

Agency for Health Care Administration

Fort Knox Building, Mail Stop 3

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 should be filed with the agency that

will issue the Final Order in this case.