09-002577BID Mhm Correctional Services, Inc. vs. Department Of Corrections Status: Closed Recommended Order on Monday, July 27, 2009.

Summary: Petitioner did not prove that its proposal was responsive or that the Department improperly decided to negotiate on the best terms and conditions pursuant to Section 287.057(6), Florida Statutes.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MHM CORRECTIONAL SERVICES, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 09-2577BID

)

DEPARTMENT OF CORRECTIONS, )

)

Respondent, )

and )

)

CORRECTIONAL MEDICAL SERVICES, )

INC., )

)

Intervenor. )

)

)

RECOMMENDED ORDER

A formal hearing was conducted in this case on June 12 and

17, 2009, in Tallahassee, Florida, before Suzanne F. Hood,

Administrative Law Judge with the Division of Administrative

Hearings.

APPEARANCES

For Petitioner: Christopher M. Kise, Esquire

Robert Hosay, Esquire

James McKee, Esquire

N. Wes Strickland, Esquire

Foley & Lardner, LLP

Highpoint Center, Suite 900

106 East College Avenue

Tallahassee, Florida 32301-7732

For Respondent: Lealand L. McCharen, Esquire

Susan P. Stephens, Esquire

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

For Intervenor: William E. Williams, Esquire

Michael E. Riley, Esquire

Amy W. Schrader, Esquire

Gray Robinson, P.A.

Post Office Box 11189

Tallahassee, Florida 32302-3189

STATEMENT OF THE ISSUES

The issues are as follows: (a) whether Respondent

Department of Corrections (the Department) properly determined

that there were no responsive proposals to the Request for

Proposals entitled Mental Healthcare Services in Region IV, RFP

#08-DC-8048 (the RFP); (b) whether the Department's intended

award of a contract to provide mental healthcare services to

inmates in Region IV to Intervenor Correctional Medical

Services, Inc. (CMS), pursuant to Section 287.057(6), Florida

Statutes (2008), is unlawful; and (c) whether Petitioner MHM

Correctional Services, Inc. (MHM), has standing to challenge the

Department's intended award of a contract to CMS pursuant to

Section 287.057(6), Florida Statutes (2008).

PRELIMINARY STATEMENT

By formal written protest dated May 4, 2009, MHM challenged

the Department's April 21, 2009, notice of intent to award the

contract for mental healthcare services in Region IV to CMS.

The formal written protest alleged that the Department’s

intended award to CMS was erroneous for the following four

specific reasons: (a) the Department failed to comply with

Section 287.057(6), Florida Statutes (2008), because it began

negotiations with CMS for a contract before it terminated the

RFP; (b) the Department’s Notice of Agency Decision provided no

reason for the decision to negotiate solely with CMS, other than

the Department negotiated with the highest ranking proposer;

(c) the Department’s decision that CMS was the highest proposer

was erroneous because MHM was the highest ranking proposer; and

(d) the Department’s decision to negotiate with CMS was not in

the best interest of the State because the resulting contract

with CMS will cost the State an additional five million dollars

over the life of the contract.

A Notice of Hearing dated May 15, 2009, scheduled the

hearing for June 12, 2009.

On May 18, 2009, CMS filed a Petition to Intervene. An

Order Granting Petition to Intervene was issued on May 20, 2009.

On June 3, 2009, MHM filed a Motion for Entry of Agreed

Confidentiality and Protective Order relative to the discovery

of confidential trade secret information. The Agreed

Confidentiality and Protective Order was issued on June 4, 2009.

On June 5, 2009, MHM filed a Motion to Compel Responses to

MHM's First Set of Interrogatories. When the hearing commenced,

MHM agreed that the motion was moot in part. After hearing oral

argument, the undersigned denied the motion as to the remaining

interrogatories in dispute.

On June 8, 2009, MHM filed a Motion to Compel Responses to

MHM's Request for Production of Documents by the Department of

Corrections. The Department filed an Amended Response to MHM's

Request for Production of Documents on June 11, 2009. During

the hearing, MHM agreed that the motion was moot.

On June 9, 2009, MHM filed a Motion to Continue Hearing and

Extend Time for Hearing. After hearing oral arguments in a

telephone conference on June 9, 2009, the undersigned issued an

Order Denying Continuance of Final Hearing on June 10, 2009.

On June 10, 2009, CMS and the Department filed a Joint

Motion in Limine to Limit Evidence Relating to Financial

Viability. MHM filed a Response in Opposition to the Motion in

Limine on June 10, 2009. After hearing oral argument when the

hearing commenced, the undersigned ruled that the motion was

granted in part and denied for reasons stated on the record.

On June 10, 2009, MHM filed an Emergency Renewed Motion to

Continue Hearing and Extend Time for Hearing. After hearing

oral argument when the hearing commenced, the undersigned denied

a continuance but agreed it might be necessary to extend the

hearing time.

On June 11, 2009, MHM filed a Motion to Re-open Discovery.

When the hearing commenced, the undersigned reserved ruling on

the motion pending MHM's renewal of its request to re-open

discovery on a limited basis.

The final hearing was held on June 12 and 17, 2009. MHM

called six witnesses: Susan Ritchey, Chief Financial Officer of

MHM; Steve Wheeler, President and Chief Operating Officer for

MHM; Forrest Frazier, CPA; Ana Ploch, Purchasing Analyst with

the Department’s Bureau of Procurement and Supply; Robert

Staney, Bureau Chief of the Bureau of Procurement and Supply

with the Department; and Richard Law, CPA. Respondent and

Intervenor did not call any witnesses.

MHM offered exhibits identified as P1-P21, P24-P27, and P29

that were accepted as evidence. Petitioner's Exhibit No. P27

included a composite exhibit consisting of 12 deposition

transcripts. Petitioner's Exhibit No. P28 was a composite of

exhibits to the depositions. The following exhibits in P28 were

offered and received into evidence: 1-9, 13, 16, 18-25, 28-29,

34, 36-38. Exhibits 16 and 24 in P28 were received under seal

as confidential/trade secret material.

Respondent offered one exhibit identified as R1 that was

accepted as evidence. Intervenor did not offer any exhibits.

On June 22, 2009, MHM and CMS filed a Motion for Entry of

Agreed Confidentiality Order with Respect to the Final Hearing

Transcript. On June 24, the undersigned issued an Agreed

Confidentiality Order.

The Transcript was filed on June 30, 2009. The parties

filed their Proposed Recommended Orders on July 10, 2009.

On July 15, 2009, the Department and CMS filed a Joint

Motion to Strike Portions of Petitioner's Proposed Recommended

Order. MHM filed a response in opposition to the motion on

July 23, 2008. The motion is hereby granted.

FINDINGS OF FACT

The RFP Process

1. The Department issued the RFP on February 5, 2009. Two

addendums were issued to the RFP, the first on February 6, 2009,

and the second on March 11, 2009. The Department did not

receive any protest of the RFP or addendums from MHM or any

other proposer within the statutorily set time limit of 72 hours

from the issuance of the RFP.

2. At the time of issuance of the RFP, MHM was the

incumbent provider of mental health services to inmates in

Region IV. At that time, MHM was providing the services at a

rate of $77.62 per month/per inmate. MHM's contract to provide

mental health services in Region IV was the result of a prior

vendor being financially unable to perform the contract at its

agreed rate.

3. The RFP sought proposals from vendors to provide

comprehensive mental healthcare services for inmates located at

14 correctional institutions located in the southern part of the

State beginning on July 1, 2009. The Department’s contract with

MHM for those services was set to expire on June 30, 2009. The

Department had previously attempted another procurement for

replacement of those services in late 2008.

4. Proposals to the RFP were received and opened in a

public meeting on March 23, 2009, from CMS, MHM, the University

of Miami's Department of Psychiatry and Behavioral Sciences (the

University of Miami), and Wexford Health Sources, Inc.

(Wexford).

5. The Department’s Bureau of Procurement and Supply (BPS)

was responsible for overseeing the RFP. The Procurement Manager

for the RFP was Ana Ploch. Ms. Ploch’s duties included drafting

the proposal with the assistance of the Office of Health

Services, managing the procurement process by coordinating

release of documents, conducting related meetings (such as

proposers’ conferences, proposal opening, and price opening),

conducting site visits, supervising the evaluation process, and

keeping records of the process through completion of a summary

report of the procurement.

6. Once the Department received the proposals, it began

the eight-phased review and evaluation process as set forth in

Section 6 of the RFP. Phase 1 of the review and evaluation

process began with the public opening of the proposals that took

place on March 23, 2009. Phase 1 also included the review of

the proposals to determine if they met mandatory responsiveness

requirements. Determination of meeting mandatory responsiveness

requirements was made by BPS staff.

7. Mandatory Responsiveness Criteria or “fatal criteria”

is described in Section 5.1 of the RFP as requirements that must

be met by a proposer for the proposal to be considered

responsive. A failure to meet any one of the three following

criteria would result in an immediate finding of non-

responsiveness and the rejection of the proposal: (a) the

subject proposal must be received by the Department by the date

and time specified in the RFP; (b) the proposal must include a

signed and notarized Certification Attestation Page for

Mandatory Statements; and (c) the price proposal must be

received by the Department by the date and time specified in the

RFP and must be in a separate envelope or package in the same

box or container as the project proposal. There is no dispute

that all four proposals met these mandatory responsiveness/fatal

criteria.

8. In addition to the fatal criteria, a proposal could be

found to be non-responsive for failing to conform to the

solicitation requirements in all material respects. The RFP,

Section 1.20, clearly set forth the definition of a “material

deviation” and the basis for rejecting a proposal as follows:

1.20 Material Deviations : The

Department has established certain

requirements with respect to proposals to be

submitted by vendors. The use of shall,

must or will (except to indicate simple

futurity) in this RFP indicates a

requirement or condition which may not be

waived by the Department except where any

deviation therefrom is not material. A

deviation is material if, in the

Department’s sole discretion, the deficient

proposal is not in substantial accord with

this RFP’s requirements, provides an

advantage to one proposer over other

proposers, or has a potentially significant

effect on the quantity or quality of items

or services proposed, or on the cost to the

Department. Material deviations cannot be

waived and shall be the basis for rejection

of a proposal . (Emphasis in original.)

9. A Responsive Proposal is defined in the RFP Section

1.29 as “[a] proposal, submitted by a responsive and responsible

vendor that conforms in all material respects to the

solicitation.”

10. A minor irregularity is defined in Section 1.26 of the

RFP as:

1.26 Minor Irregularity : A variation

from the RFP terms and conditions which does

not affect the price proposed or gives the

proposer an advantage or benefit not enjoyed

by the other proposers or does not adversely

impact the interests of the Department.

11. Phase 2 consisted of a review of the

business/corporate qualifications and technical proposal/service

delivery narratives contained in the proposals. This phase was

completed individually by evaluation team members.

12. The evaluation team, which consisted of 5 employees

from the Department’s Office of Health Services, met with

Ms. Ploch on March 24, 2009, for instruction on how to proceed

with the evaluation. The team members were given the evaluation

materials on that date. Evaluation and scoring of the proposals

was done separately by each individual without discussion among

the members.

13. At the March 31, 2009, bid tabulation meeting, which

occurred after the team members scored the proposals, Ms. Ploch

told the team members that MHM and the University of Miami were

non-responsive to the RFP. Then the scores for the different

categories were recorded as announced by each member of the

evaluation team.

14. All four proposals were scored for the three

categories listed in RFP Section 5.3 (business/corporate

experience), Section 5.5 (project staff) and Section 5.6

(technical proposal and service delivery narrative). There is

no allegation that the scores assigned to the proposals were

done in error or that they were not in compliance with

Department rules or procedures.

15. Phase 3 of the review and evaluation process was

completed at the same time as Phase 2 and 4, by Ms. Ploch and

the BPS staff. That review of the proposals included a

determination as to whether the proposers were in compliance

with Section 5.3 “Business/Corporate Qualifications.” At that

point in the review process, BPS determined that the University

of Miami’s proposal was non-responsive in that the proposer did

not have the necessary business experience. This finding has

not been disputed by any party.

16. An independent Certified Public Accountant (CPA)

completed Phase 4 of the review and evaluation process. The

Department hired the CPA to review the financial requirements of

Section 5.4 of the RFP. The CPA, Richard Law, was given all the

proposals, including the financial documentation, on March 24,

2009. He conducted his review separately from the Department's

reviews in Phases 2 and 3.

17. Mr. Law has been a licensed CPA for over 30 years.

His major practice area is conducting audits for state

governments, as well as private businesses. With more than 10

years of experience reviewing financial documentation for the

Department and assisting on the setting of financial benchmarks

for numerous procurements, he is highly qualified to perform the

evaluation and assessment of these basic financial criteria.

18. The financial requirements and the financial

documentation and information that the proposers had to submit

are set out in Section 5.4 of the RFP. That section is entitled

“Financial Documentation,” and provides as follows in pertinent

part:

5.4 Tab 4-Financial Documentation

The Proposer shall provide financial

documentation that is sufficient to

demonstrate its financial viability to

perform the Contract resulting from this

RFP. Three of the following five minimum

acceptable standards shall be met, one of

which must be either item d, or item e,

below. The Proposer shall insert the

required information under Tab 4 of the

Proposal.

a. Current ratio: .9:1 or (.9)

Computation: Total current assets ÷

total current liabilities

b. Debt to tangible net worth: 5:1

Computation: Total liabilities ÷ net

worth

c. Dun and Bradstreet credit worthiness

(credit score): 3 (on a scale of 1-5)

d. Minimum existing sales: $50 million

e. Total equity: $5 million

NOTE: The Department acknowledges that

privately held corporations and other

business entities are not required by law to

have audited financial statements. In the

event the Proposer is a privately held

corporation or other business entity whose

financial statements ARE audited, such

audited statements shall be provided. If

the privately held corporation or other

business entity does not have audited

financial statements, then unaudited

statements or other financial documentation

sufficient to provide the same information

as is generally contained in an audited

statement, and as required below, shall be

provided.

The Department also acknowledges that a

Proposer may be a wholly-owned subsidiary of

another corporation or exist in other

business relationships where financial data

is consolidated. Financial documentation is

requested to assist the Department in

determining whether the Proposer has the

financial capability of performing the

contract to be issued pursuant to this RFP.

The Proposer MUST provide financial

documentation sufficient to demonstrate such

capability including wherever possible,

financial information specific to the

Proposer itself. All documentation provided

will be reviewed by an independent CPA and

should, therefore, be of the type and detail

regularly relied upon by the certified

public accounting industry in making a

determination or statement of financial

capability.

To determine the above ratios, the most

recent available and applicable financial

documentation for the Proposer shall be

provided. This financial documentation

shall include :

5.4.1 The most recently issued audited

financial statement (or if unaudited,

reviewed in accordance with standards issued

by the American Institute of Certified

Public Accountant). All statements shall

include the following for the most recently

audited (immediate past) year.

a. auditors’ reports for financial

statements;

b. balance sheet;

c. statement of income;

d. statement of retained earnings;

e. statement of cash flows;

f. notes to financial statements;

g. any written management letter issued by

the auditor to the Proposer’s management,

its board of directors or the audit

committee, or, if no management letter was

written, a letter from the auditor, stating

that no management letter was issued and

that there were no material weaknesses in

internal control or other reportable

conditions; and

h. a copy of the Dun & Bradstreet

creditworthiness report dated on or after

February 5, 2009. (Emphasis in original)

19. The RFP provided as follows in Section 5.4.2:

5.4.2 If the year end of the most recent

completed audit (or review) is earlier than

nine (9) months prior to the issuance date

of this RFP, then the most recent unaudited

financial statement (consisting of items b,

c, d and e above) shall also be provided by

the Proposer in addition to the audited

statement required in Section 5.4.1. The

unaudited financial data will be averaged

with the most recent fiscal year audited (or

reviewed) financial statement to arrive at

the given ratios.

20. Throughout Section 5.4 of the RFP, the emphasis is on

the need for audited financial statements. The use of unaudited

financial statements alone does not apply to MHM pursuant to the

terms of the RFP, but they did apply to other proposers. Both

audited and unaudited financial statements were averaged to

determine ratios for CMS and Wexford, where their audited

financial statements were older than 9 months. This was clearly

permissible under Section 5.4.2.

21. MHM’s proposal included audited financial statements

dated September 30, 2008, and also additional information,

including unaudited financial statements and a financial

narrative in which it admitted that its current ratio as of

September 30, 2008, was 0.82 and that it had a negative equity

of $24.8 million dollars.

22. MHM was fully aware that it could have difficulty

meeting the financial ratios before the Department issued the

RFP. As early as January 2008, MHM was considering a stock

repurchase. MHM knew its existing contract would come up for

rebid. MHM also knew that the Department sometimes used

financial criteria and financial ratios as pass/fail ratios.

MHM was concerned that the stock repurchase would trigger one of

those ratios, causing them to lose the contract.

23. In January 2008, Susan Ritchey, MHM's Chief Financial

Officer, and Steve Wheeler, MHM's President and Chief Operating

Officer, contacted Mr. Law. Ms. Ritchey and Mr. Wheeler wanted

to discuss their concerns regarding financial ratios that the

Department might require in the future. During the hearing,

Mr. Wheeler denied that the contact with Mr. Law had anything to

do with the instant RFP. There is no persuasive evidence that

Mr. Law gave Ms. Ritchey and Mr. Wheeler inappropriate advice.

24. The independent review by Mr. Law of MHM’s financial

documentation resulted in the finding that MHM only met two of

the minimum acceptable standards required by Section 5.4 of the

RFP. Mr. Law set out his conclusions on a Department form

entitled “Phase IV, Financial Documentation Review to Be

Completed by Independent CPA.” That sheet reflected that MHM

had failed the current ratio with a score of .819, when a ratio

of 9:1 or (.9) was required (item a). Likewise, MHM failed

(items b and e, respectively), since MHM had a negative equity

of $22 million dollars.

25. MHM passed the two remaining criteria. First, it met

the minimum existing sales (item d) with sales at $217 million

(greater than or equal to $50 million). Second, it met the

requirement of the Dun & Bradstreet creditworthiness score (item

c), which needed to be less than or equal to 3, with a score of

1. The Dun & Bradstreet score was not noted on the Department

review form because MHM had already failed three of the

financial minimum acceptable financial standards.

26. MHM disputes the finding that it failed the “Debt to

tangible net worth” requirement (item b) which was a ratio of

5:1 or “less than or equal to 5 to 1, a whole number.” Net

worth is the same as equity. Following proper accounting

practices and a commonsense reading of this mathematical phrase

required that both numbers be whole numbers, neither could be a

negative. Put simply, a proposer could only have a maximum of

five dollars in debt for every one dollar in net worth to pass

this minimum acceptable standard. So, for purposes of

evaluating this ratio, once it was determined that MHM had a

negative equity of $22 million dollars, there was no way for MHM

to pass this critical requirement.

27. The “Debt to tangible net worth” criteria, was meant

to be “Debt to net worth.” The computation set out below the

criteria reflects the proper calculation needed to find debt to

net worth, not debt to tangible net worth. Mr. Law performed

the computation for debt to net worth as set out in the

description of the computation, which was more advantageous to

proposers than debt to “tangible net worth,” and resulted in a

more favorable ratio.

28. The ratio of “-1.77,” reflected on MHM's financial

documentation review sheet is a mistake because Mr. Law used the

number he reached averaging the audited and unaudited financial

statements. The correct number is “-2.16,” which is based only

on MHM's audited financial statement of September 30, 2008.

That is, it was a greater negative number, but still negative.

Either way, MHM fails this criteria. MHM had no dollars in net

worth as of the issuance date of the RFP. Instead, MHM had a

negative net worth of $24,785,000.00 as of the end of its fiscal

year on September 30, 2008, as reflected in its audited

financial statement.

reached by taking the total current assets ($23,493) and

dividing into that number the total current liabilities

($28,692), both reflected on the MHM’s audited financial

statement of September 30, 2008. These numbers taken from MHM’s

audited financial statements for total current liabilities;

total current assets and total equity represent millions,

rounded for accounting purposes. MHM reached a similar finding

of .82 using its September 30, 2008, audited financial

statements.

30. On the date the RFP was issued, February 5, 2009,

MHM’s audited financial statement of September 30, 2009, was

indisputably less than 9 months old and was the only financial

statement under Section 5.4.2 of the RFP that could be used to

compute the ratios in Section 5.4.2. Even if the unaudited

financial statement submitted by MHM were averaged with the most

recent audited financial statement, as demonstrated by Mr. Law’s

attempts to do so, MHM would still not have met the current

ratio. Nowhere in the RFP does it allow for the use of

unaudited financial statements alone when there are existing

audited financial statements.

31. Mr. Law’s completed Phase 4 review of the financial

documentation. He returned it to the Department on March 30,

2009.

32. The Department conducted Phase 5 of the review and

evaluation process, the Public Opening of the price proposals,

on April 2, 2009, in a properly noticed meeting. At that time,

the Department knew that there were only two responsive

proposals (CMS and Wexford). No public announcement regarding

the status of the other proposals had been made at that time.

33. The RFP contained a price cap of $70.00 per inmate per

month as reflected in Section 5.11.2 of the RFP and the Price

Information Sheet. The intent of the price cap of $70 per month

was to achieve a price savings for the Department over what it

was then paying for mental healthcare services in Region IV,

which was nearly $78.00. The goal of $70 was considered to be

possibly unrealistic, but the true intent was to keep from

exceeding the current rate of $78.00.

34. At the price opening, the following prices were

announced: (a) MHM’s price was $70.00 per inmate per month;

(b) the University of Miami’s price was $69.49 per inmate per

month; (c) CMS’s price was $74.49 per inmate per month; and

(d) Wexford’s price was $95.00 per inmate per month.

35. It was later determined that CMS had also submitted an

alternative price sheet. However, the alternative price sheet

did not affect the responsiveness of CMS's proposal or the

Department's subsequent decision.

36. Based on the fact that CMS’s and Wexford’s proposed

prices exceeded the amount set by the RFP, their proposals were

deemed non-responsive to the RFP. Consequently, as of April 2,

2009, there were no responsive proposers to the RFP.

37. BPS staff prepared a final score and ranking sheet as

required by Section 6.2.7 of the RFP. The scoring and ranking

included just the two proposals, CMS and Wexford, that were

responsive going into the Phase 5 Price Opening. BPS staff did

not perform further scoring and ranking of the two proposals

that were non-responsive prior to the Price Opening.

38. Department of Corrections’ Procedure 205.002, entitled

“Formal Service Contracts,” addresses the Department’s

procedures, terms, and conditions for soliciting competitive

offers for certain types of services. The Procedure has

separate sections for Invitations to Bid, Requests for

Proposals, Invitations to Negotiate and general sections that

address all three. There is no requirement in the procedure

that addresses the specific situation facing the Department in

the mental healthcare procurement.

39. The section of Procedure 205.002 that Petitioner

points to, Section (5)(r)3., applies only to instances when the

Department is seeking to single source a procurement or

negotiate with a single responsive bidder. The section reads as

follows in pertinent part:

(r) Receipt of One or Fewer Responsive

Bids, Proposals or Responses:

* * *

3. If the department determines that

services are available only from a single

source or that conditions and circumstances

warrant negotiation with the single

responsive bidder, proposer, or respondent

on the best terms and conditions, the

department’s intended decision will be

posted in accordance with section 120.57(3),

F.S., before it may proceed with

procurement.

This section of the procedure is clearly inapplicable in the

instant case since there were no responsive proposals.

Section 287.057(6), Florida Statutes (2008)

40. Faced with no responsive proposers, the Department

considered its options. The Department then decided to

negotiate for a contract on best terms and conditions pursuant

to Section 287.057(6), Florida Statutes (2008), in lieu of going

through a third competitive solicitation.

41. The Department’s decision to negotiate was ultimately

made by the Assistant Secretary for Health Services in the

Department's Office of Health Services. The BPS staff and legal

counsel advised Assistant Secretary Dr. Sandeep Rahangdale about

the options available to the Department. Dr. Rahangdale had the

following three options: (1) to reject all proposals and begin

what would be the third competitive procurement for mental

healthcare services in less than 8 months; (2) to negotiate a

contract on best terms and conditions under Section 287.057(6),

Florida Statutes (2008), since there were less than two

responsive proposals to the RFP; or (3) to use the statutory

exemption for health services under Section 287.057(5)(f),

Florida Statutes (2008), and enter into a contract with any

vendor the Department selected. Option 1, to begin a new

procurement was time-barred because the Department needed a new

contract in place by July 1, 2009.

42. Dr. Rahangdale’s primary concern was to insure that

the Department provided constitutionally mandated health care,

including mental healthcare to all inmates in its custody. In

making the decision to negotiate, Dr. Rahangdale reasonably

chose to begin negotiations with CMS. He made this decision

because, of the two proposers who were responsive except for

exceeding the price cap, CMS’s price was closest to the $70.00

per inmate per month goal. Wexford, the other proposer that was

responsive except for price, had submitted a price of $95.00 per

inmate per month. Thus, the Department had a reasonable belief

there was a better chance of reaching its $70 goal through

negotiations with CMS.

43. Additionally, CMS was the highest scored technical

proposal of the only two responsive proposals prior to the Price

Opening. Thus, CMS was a better choice for the Department from

a delivery of services standpoint.

44. The Department made a reasoned decision to not abandon

all the criteria of the RFP that had to do with qualifications,

such as business experience (failed by University of Miami) or

financial viability (failed by MHM). Dr. Rahangdale considered

and determined that the nature of MHM’s and the University of

Miami’s failure to be responsive could not be changed or cured

in the negotiation process unless the Department lowered its

expectations regarding performance and corporate viability.

45. Negotiations were conducted between April 7, 2009, and

April 9, 2009, by Jimmie Smith of the Office of Health Services.

Dr. Rahangdale instructed Mr. Smith to undertake negotiations

with CMS on best terms and conditions, and to strive to get as

close as possible to a price of $70.00 per inmate per month in

the negotiations.

46. Mr. Smith is a Registered Nurse working in the

Department’s Office of Health Services. His working job title

is Assistant Program Administrator/Contracting. He has the

responsibility to contact potential vendors for health-related

services and commodities and to ensure that formal contracts or

purchase orders are issued for the required health-related

services and commodities. Mr. Smith typically is charged with

making initial contact with vendors, handling negotiations for

exempt health service contracts, and coordinating the

procurement of the services with BPS. He is also a contract

manager for healthcare services and advises other contract

managers. Mr. Smith was eminently well qualified to negotiate

this contract for mental healthcare services on behalf of the

Department.

47. Prior to beginning his negotiations, Mr. Smith

obtained a complete copy of CMS’s proposal, including the price

proposal. He contacted CMS'S Senior Director of Business

Development, Frank Fletcher, by telephone to conduct the

negotiations.

48. Emails dated April 9, 2009, between the Department and

CMS’s representative reflect an offer by CMS to perform the

scope of work described in the RFP at a capitated rate of $70.00

for the first year of service, with a $2.50 escalator per year

for a five-year non-renewal contract term.

49. CMS also proposed adding a 30-day period for

correction of performance measures, prior to the imposition of

liquidated damages. The Department counter-offered with a

requirement that any failure to correct the performance measure

violation within the 30-day period would result in retroactive

imposition of liquidated damages to the day of the violation.

50. These terms and conditions were presented to

Dr. Rahangdale who approved them. Dr. Rahangdale considered the

$2.50 escalator, but decided he was satisfied with the initial

year price of $70, a 10% savings for the Department over its

current contract and a savings of three million over the life of

the contract.

51. On April 10, 2009, Mr. Smith confirmed the tentative

agreement to Mr. Fletcher by email. CMS understood that the

agreement was tentative until the Department posted a notice of

agency decision.

52. The BPS staff prepared an Agency Action Memo, the

Summary Report, and the Notice of Intent to Award. The Agency

Action Memo contained a recommendation for award and an option

of non-award.

53. The Agency Action Memo stated as follows in part:

The Department made the determination that

it was in the best interest of the State to

proceed with negotiations as authorized by

Section 287.057(6), Florida Statutes. The

Department negotiated with the highest-

ranked Proposer on the best terms and

conditions for the resulting Contract.

Based upon the results of the negotiation

conducted, it is recommended that the

Department awards a Contract to Correctional

Medical Services, Inc.

54. A Summary Report was attached to the Agency Action

Memo. The report explained the RFP process in detail. It

explained the reasons for finding MHM and the University of

Miami non-responsive. It explained that CMS and Wexford were

non-responsive because they exceeded the price cap.

55.. The report charted the results of the Phase 5--Public

Opening of Price Proposals as follows in abbreviated form:

PROPOSER UNIT PRICE ANNUAL COST FINANCIAL EXPERIENCE

CMS $74.59 $16,536,780 Passed Passed

Wexford $95.00 $21,090,000 Passed Passed

U. of M. $69.49 $15,426,780 Passed Failed

MHM $70.00 $15,540,000 Failed Passed

56. The report set forth the Department's reasons for

negotiating on best terms and conditions pursuant to Section

287.057(6), Florida Statutes (2008), in pertinent part as

follows:

Phase 8--Notice of Agency Decision

The procurement of Mental Healthcare

Services in Region IV was under competitive

solicitation for over eight (8) months, via

two (2) different solicitations (ITN and

RFP). The companies that submitted

proposals in response to this RFP also

submitted responses to the previous ITN.

Pursuant to Section 287.057(6), Florida

Statutes, the Department negotiated with the

highest-ranking proposer on the best terms

and condition and in the best interest of

the state, in lieu of resoliciting

competitive proposals for a third time.

57. The last page of the report charted the Final Score

and Ranking for CMS and Wexford. The first chart showed the

actual points received by the proposers, the highest points

received by any proposal, and the awarded points. The second

chart showed the proposed unit price, the lowest verified price,

and the awarded points. The third chart showed the total

response points, with CMS having 500 and Wexford having 454.64.

58. MHM and the University of Miami were non-responsive as

to RFP requirements that the Department, in its sole discretion,

determined were non-negotiable. Therefore, the Department

properly determined that CMS was the highest-ranking proposer

after the Price Opening.

59. As Bureau Chief, Mr. Staney was ultimately responsible

for verifying that the four proposals were non-responsive. He

and Dr. Rahangdale signed the Agency Action Memo, recommending

an award to CMS. On April 15, 2009, Mr. Staney sent the

documents to his supervisor, Director of Administration Millie

J. Seay.

60. The BPS staff briefed Ms. Seay regarding the Agency

Action Memo. Ms. Seay questioned whether the Department should

negotiate with Wexford. The BPS staff explained that

Dr. Rahangdale had considered negotiating with Wexford but that

he was satisfied with the negotiated rate and the higher

technically-scored proposal from CMS.

61. On Monday, April 20, 2009, Ms. Seay signed the Agency

Action Memo. The next day the Department posted its intent to

award a contract to CMS.

62. The Department's Notice of Agency Decision announced

the intent to award a contract for Mental Healthcare Services in

Region IV to CMS as follows:

DEPARTMENT OF CORRECTIONS

NOTICE OF AGENCY DECISION

RFP #08-DC-8048

MENTAL HEALTHCARE SERVICES IN REGION IV

Pursuant to the provisions of Chapter

287.057(6), Florida Statutes, the Department

of Corrections announces its intent to award

a contract for MENTAL HEALTHCARE SERVICES IN

REGION IV to the following vendor:

Correctional Medical Services, Inc.

This announcement gave all interested parties notice that the

Department was taking some action with regard to the referenced

RFP. The Notice also contained the statutorily required

language giving all interested parties a point of entry to

challenge the Department’s intent to award. Accordingly, no

proposers were denied an opportunity to inquire into the details

of the process that led to an award under the referenced

statute, including the evaluation of the proposals and the

Department’s decision to wait until it had completed Section

287.057(6), Florida Statutes (2008), negotiations to post the

intended agency decision.

63 MHM timely filed its Formal Bid Protest Petition with

the Department on May 4, 2009.

CONCLUSIONS OF LAW

64. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter pursuant to

Sections 120.569, 120.57(1), and 120.57(3), Florida Statutes

(2008).

65. As the party protesting the Department's proposed

action, MHM has the burden of proving the allegations raised in

its protest pursuant to Section 120.57(3)(f), Florida Statutes

(2008), which provides as follows in relevant part.

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, 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.

MHM has not met its burden of persuasion in this case regardless

of whether the standard of proof is "clearly erroneous, contrary

to competition, arbitrary, or capricious" or "illegal,

arbitrary, dishonest, or fraudulent." See § 120.57(3)(f), Fla.

Stat. (2008).

66. The RFP process is governed by Section 287.057,

Florida Statutes (2008), which provides as follows in relevant

part:

(2)(a) If an agency determines in

writing that the use of an invitation to bid

is not practicable, commodities or

contractual services shall be procured by

competitive sealed proposals. A request for

proposals shall be made available

simultaneously to all vendors, and must

include a statement of the commodities or

contractual services sought; the time and

date for the receipt of proposals and of the

public opening; and all contractual terms

and conditions applicable to the

procurement, including the criteria, which

shall include, but need not be limited to,

price, to be used in determining

acceptability of the proposal. The relative

importance of price and other evaluation

criteria shall be indicated. If the agency

contemplates renewal of the commodities or

contractual services contract, that fact

must be stated in the request for proposals.

The proposal shall include the price for

each year for which the contract may be

renewed. Evaluation of proposals shall

include consideration of the total cost for

each year as submitted by the vendor.

MHM's Financial Viability

67. Regarding a challenge to specifications in a

solicitation, Section 120.57(3)(b), Florida Statutes (2008),

provides as follows in pertinent part:

With respect to a protest of the terms,

conditions, and specifications contained in

a solicitation, including any provisions

governing the methods for ranking bids,

proposals, or replies, awarding contracts,

reserving rights of further negotiation, or

modifying or amending any contract, the

notice of protest shall be filed in writing

within 72 hours after the posting of the

solicitation.

Under Section 120.57(3)(b), Florida Statutes (2008), MHM is

barred as a matter of law from now challenging the

specifications contained in the RFP and its addenda because it

failed to file a protest within the statutory allotted time.

68. MHM's petition alleges that the Department should have

found its proposal to be responsive as to the financial

viability criteria under Section 5.4 of the RFP. Specifically,

MHM contends that the Department mistakenly determined its

proposal was non-responsive by (a) not considering its unaudited

financial statements alone, and (b) not interpreting one of the

stated financial requirements (debt to tangible net worth) in

the proper manner.

69. The greater weight of the evidence indicates that the

Department appropriately applied the RFP specifications in

reviewing only MHM's most recent audited financial statements.

Under the RFP, the Department was not required to review any

additional financial documentation in making the determination

that MHM was non-responsive to mandatory financial viability

requirements. MHM has not met its burden of showing that its

proposal met the RFP's financial viability requirements.

Section 287.057(6), Florida Statutes (2008)

70. As to the negotiations entered into after the

Department determined that there were no responsive proposals,

MHM alleges that the Department violated the provisions of

Section 287.057(6), Florida Statutes (2008), as follows: (a) by

not terminating the RFP process before negotiating; and (b) by

not posting a notice of intent to negotiate pursuant to Section

287.057(6) before negotiating under that statute with CMS. For

the reasons set forth below, MHM has failed to carry its burden

on these issues.

71. Upon determining that there were no responsive

proposals, the Department considered its options of proceeding

with a third competitive solicitation, proceeding under the

exemption set forth in Section 287.057(6), Florida Statutes

(2008), or proceeding under the exemption set forth in Section

287.057(5)(f), Florida Statutes (2008).

72. Section 287.057(5), Florida Statutes (2008), states as

follows in relevant part:

(5) When the purchase price of

commodities or contractual services exceeds

the threshold amount provided in s. 287.017

for CATEGORY TWO, no purchase of commodities

or contractual services may be made without

receiving competitive sealed bids,

competitive sealed proposals, or competitive

sealed replies unless:

* * *

(f) The following contractual services

and commodities are not subject to the

competitive-solicitation requirement of this

section:

* * *

6. Health services involving

examination, diagnosis, treatment,

prevention, medical consultation, or

administration.

73. The Department made a reasoned decision to negotiate

on the best terms and conditions with CMS pursuant to Section

257.057(6), Florida Statutes (2008), which states as follows:

(6) If less than two responsive bids,

proposals, or replies for commodity or

contractual services purchases are received,

the department or other agency may negotiate

on the best terms and conditions. The

department or other agency shall document

the reasons that such action is in the best

interest of the state in lieu of

resoliciting competitive sealed bids,

proposals, or replies. Each agency shall

report all such actions to the department on

a quarterly basis, in a manner and form

prescribed by the department.

74. When the Department decided to negotiate pursuant to

Section 287.057(6), Florida Statutes (2008), it was no longer

governed by the requirements of the RFP. At that point, the

Department was free to negotiate with any vendor.

75. The issue of whether an agency is required to follow

any particular rules or procedures when it decides to negotiate

under Section 287.057(6), Florida Statutes (2008), is not

addressed by statute or rule. However it is addressed in

Motorola, Inc. v. Department of Management Services , DOAH Case

No. 00-2921BID (DOAH, October 3, 2000). In that case, the

agency terminated a RFP by posting a notice declaring two

proposals non-compliant. See Motorola , at paragraph 6. The

next day, the agency advised the two vendors that it had decided

to follow a negotiation process pursuant to Section 287.057(4),

Florida Statutes. 1/ See Motorola at paragraph 7. Subsequently,

the agency advised the vendors that it reserved the right to

negotiate concurrently or sequentially with each of them. See

Motorola , at paragraph 9. After a series of meetings with both

vendors, the agency decided to negotiate sequentially beginning

with one of the vendors. See Motorola , at paragraph 16. The

other vendor filed a "Petition to Formally Protest Decision to

Negotiate Sequentially and Initially with Com-Net Ericsson

Critical Radio Systems, Inc." See Motorola , at paragraph 17.

76. In concluding that the agency's decision to negotiate

sequentially was permissible, Administrative Law Judge Don Davis

stated as follows:

73. There are no rules, policies, or

proposal specification applicable to this

procurement. The applicable statute is

Section 287.057(4)(m) Florida Statutes. The

Department's charge under that statute is to

negotiate a contract under the best terms

and conditions. There is nothing in the

statute limiting or controlling the process

by which the Department went about its

negotiations and there is no requirement

that the Department justify its decision to

negotiate sequentially with Com-Net first.

See Motorola , at paragraph 73.

77. MHM's argument that the Department should have

negotiated with MHM instead of CMS because MHM received the

highest technical scores, had the lowest proposed unit price,

and had successfully provided the services for three years is

likewise without merit. The Department reasonably decided to

negotiate with CMS because it was the highest ranked proposer

that, except for cost, had not failed a mandatory, non-

negotiable requirement of the RFP.

78. In accordance with Section 287.057(6), Florida

Statutes (2008), the Department documented its reasons for

choosing to negotiate on best terms and conditions instead of

issuing a third solicitation. There was no statutory or other

legal requirement for the Department to document its reasons for

proceeding under Section 287.057(6), Florida Statutes (2008),

before commencing its negotiations with CMS. Additionally, the

Department was not required to post a notice that all proposals

had been deemed non-responsive before commencing negotiations

with CMS.

79. Nothing in the statutes or rules required the

Department to include MHM in the negotiations. Under its

contract, MHM was receiving $77.62 per inmate/per month. CMS's

proposal was for $70 per inmate/per month for the first year.

That is a significant change in the reimbursement rate.

Considering its past experience with the vendor prior to MHM,

the Department was especially concerned that the vendor under

the new contract be financially viable. Therefore, the

Department properly exercised its discretion not to include MHM

in the negotiations.

80. The Department has no policies or procedures

applicable to this procurement. As stated above in the Findings

of Fact, the Department of Corrections Procedure 205.002, Formal

Service Contracts, Section 7(r)(3), does not apply.

81. MHM has not been prejudiced by the Department's

decision to post one notice. To the contrary, MHM has been

afforded the opportunity to raise all of its issues relating to

the RFP and the procurement process in this proceeding. Even if

it would have been better practice for the Department to post

separate notices that all proposals were determined to be non-

responsive, the Department's failure to do so could only

constitute harmless error. There is no reason to believe that

the Department would have followed a different decision-making

process or reached a different decision.

Standing

82. The course chosen by the Department was “in lieu of a

competitive procurement” when it decided to negotiate under

Section 287.057(6), Florida Statutes (2008). The Department

could have chosen to proceed under the exemption in Section

287.057(5)(f), Florida Statutes (2008). Under either statute,

none of the proposers had standing to challenge the method used

for negotiations because they are exempt from any competitive

process. See University of South Florida College of Nursing v.

State of Florida Dept. of Health , 812 So. 2d 572 (Fla. 2nd DCA

2002).

83. Petitioner has failed to establish as a matter of law

that its proposal was responsive or that the Department’s

decision to negotiate with CMS pursuant to Section 287.057(6)

was contrary to the Department's governing statutes, rules,

policies, or the solicitation specifications in a manner that

was "clearly erroneous, contrary to competition, or an abuse of

discretion" or "illegal, arbitrary, dishonest, or fraudulent."

See Section 120.57(3)(f), Florida Statutes (2008).

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

Recommended:

That the Department enter a final order awarding the

contract for Mental Healthcare Services in Region IV to CMS and

dismissing the protest of MHM.

DONE AND ENTERED this 27th day of July, 2009, in

Tallahassee, Leon County, Florida.

S

SUZANNE F. HOOD

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 27th day of July, 2009.

ENDNOTE

1/ This section has been renumbered as Section 287.057(6),

Florida Statutes (2008).

COPIES FURNISHED :

Lealand McCharen, Esquire

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

Robert H. Hosay, Esquire

Foley & Lardner, LLP

Highpoint Center, Suite 900

106 East College Avenue

Tallahassee, Florida 32301-7732

Susan P. Stephens, Esquire

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399

William E. Williams, Esquire

Gray Robinson, P.A.

Post Office Box 11189

Tallahassee, Florida 32302-3189

Walter A. McNeil, Secretary

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

Kathleen Von Hoene, General Counsel

Department of Corrections

2601 Blair Stone Road

Tallahassee, Florida 32399-2500

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit exceptions within 10 days

from the date of the Recommended Order. Any exceptions to this

Recommended Order should be filed with the agency that will

issue the final order in this case.