STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

KNAUS SYSTEMS INC. )

OF FLORIDA, )

)

Petitioner, )

)

vs. ) Case No. 99-1230BID

) DEPARTMENT OF CHILDREN AND ) FAMILY SERVICES, )

)

Respondent, )

)

and )

) DECISIONONE CORPORATION, )

)

Intervenor. )

______________________________)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in Tallahassee, Florida, on August 4, 1999.

APPEARANCES

For Petitioner: William E. Williams

Andrew Berton, Jr. Huey Guilday

Post Office Box 1794 Tallahassee, Florida 32302-1794

For Respondent: R. Beth Atchison

Assistant General Counsel Department of Children

and Family Services Building 2, Room 204

1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

For Intervenor: Gregory P. Borgognoni

Kluger Peretz

17th Floor, Miami Center

201 South Biscayne Boulevard Miami, Florida 33131

STATEMENT OF THE ISSUE

The issue is whether Respondent's proposed decision to award a computer-maintenance contract to Intervenor is clearly erroneous, contrary to competition, arbitrary, or capricious.

PRELIMINARY STATEMENT

By Formal Written Protest and Petition for Formal Administrative Proceeding filed February 22, 1999, Petitioner alleged that Respondent issued a request for proposals to maintain computer equipment. Petitioner challenged Respondent's proposed decision to award the contract to Intervenor. The petition alleges that Respondent ranked Intervenor and a third offeror higher than Petitioner, but the proposals of Intervenor and the third offeror were nonresponsive. The petition alleges that proper scoring of their offers would have resulted in determinations that they were nonresponsive or merited lower scores than the score assigned to Petitioner's offer.

The petition alleges that Respondent's proposed decision to award the contract to Intervenor is contrary to applicable statutes, applicable rules and policies, and specifications of

the request for proposals. The petition thus concludes that the proposed decision to award the contract to Intervenor is clearly erroneous, contrary to competition, arbitrary, or capricious.

Specifically addressing the scoring of Intervenor's offer, the petition alleges that the financial information provided by Intervenor was insufficient to allow a proper evaluation of the offer in light of the applicable scoring criteria or "affirmatively demonstrates that . . . [Intervenor does not have] a ratio of current assets to current liabilities of at least 2:1[,] . . . a debt to net worth ratio

. . . equal to or less than 1[,] cash/operating capital exceeding projected monthly expenses over the past three years[,] or the sufficient financial resources to complete the project described in the RFP."

Among the factual issues identified by the petition are:

Whether [Respondent] correctly evaluated and scored the Corporate Experience portions of

. . . [Intervenor's] . . . proposal. . . based upon the financial data required by the RFP, and, if not, whether a proper evaluation and scoring results in [Petitioner's] proposal becoming the lowest cost and highest scoring responsive proposal, and thus entitled to award of the contract.

Whether the evaluation and scoring of the proposals received in response to the RFP by [Respondent] was so flawed as to require rejection of all proposals to maintain the

integrity of the competitive bidding process.

The petition requests a final order awarding the contract to Petitioner or rejecting all offers.

The Prehearing Stipulation contains a statement of Petitioner's position. The statement identifies three reasons why Respondent's proposed decision to award the contract to Intervenor was unlawful: 1) Respondent did not follow the specifications set out in the Request for Proposals, Respondent's rules and policies, and applicable statutes, including Sections 287.057(2) and 120.57(3)(f), Florida Statutes; 2) Respondent's evaluators lacked the necessary skills and experience to evaluate properly the offers according to the evaluation criteria contained in the Request for Proposals; and 3) Respondent did not provide detailed justification of its evaluation decisions, as required by Section 287.001, Florida Statutes. The Administrative Law Judge struck the third reason because it was untimely and did not add additional grounds for overturning the proposed award.

Dropping the claim that Respondent should award

Petitioner the contract, Petitioner's statement of position asserts that Respondent's "evaluation of the proposals was clearly erroneous, contrary to competition, arbitrary, and capricious." In its conclusion, Petitioner's statement of

position limits the scope of the evidence that Petitioner intends to present:

[Petitioner] does not contend and will not present evidence at the hearing regarding what it contends the scores of the proposals should have been or regarding the proposers' financial statements other than testimony regarding what the evaluators considered and did when they evaluated the financial statements.

Intervenor's statement of position in the Prehearing Stipulation asserts that Respondent's evaluation of the offers was not clearly erroneous, contrary to competition, arbitrary, or capricious; Respondent's evaluators had the necessary skills and experience to evaluate properly the proposals according to the RFP; and Respondent's evaluation of the offers complied with the specifications of the RFP and requirements of law.

Intervenor's statement of position responded to Petitioner's statement limiting the evidence:

Based upon Petitioner[']s statement regarding its position, [Intervenor] does not plan to present any additional evidence regarding the financial condition of the parties, or the evaluator's [sic] scores, other than: such evidence as is already contained in the proposals submitted by the parties; testimony explaining the differences between audited, compiled, reviewed, and owner-generated financial statements; or evidence necessary to rebut any presentation by Petitioner.

The Prehearing Stipulation contains a stipulation among the parties that all parties have standing and Petitioner timely filed its notice of intent to protest and formal written protest.

The Prehearing Statement does not contain a stipulated statement of factual issues remaining to be litigated.

Instead, each party presented its own statement.

Petitioner's statement of factual issues states:

1. Whether [Respondent's] evaluation of the proposals was contrary to the RFP specifications and [Respondent's] governing policies, rules and statutes.

   
   

2. Whether [Respondent] has failed to provide detailed justification of its evaluation decisions.

   
   

3. Whether [Respondent's] evaluation team members possessed the necessary skills and experience to properly evaluate the proposals according to the criteria in the RFP.

   
   

4. Whether [Respondent's] evaluation of the proposals was so flawed as to require the rejection of all proposals in order to maintain the integrity of the competitive bidding process.

The Administrative Law Judge struck the second issue.

Intervenor's statement of the factual issues states:

1. Whether [Petitioner] can meet the burden of proof which it bears as Petitioner in a bid protest proceeding;

   
   

2. Whether [Respondent's] evaluation of the proposals was in accordance with the

   RFP's specifications and the governing statutes;

   
   

3. Whether the evidence establishes that [Respondent], in the instant case, acted in a fashion that was clearly erroneous, contrary to competition, arbitrary, or capricious.

At the hearing, the parties failed again to agree explicitly on a statement of the issues. The following discussion at the start of the hearing illustrates the lack of agreement.

Mr. Borgognoni: . . . if you read his protest, . . . you will see that the issue made there, other than the responsiveness issue, is whether the scores were correct, or because of the way that they were evaluated the wrong scores were assigned. That was it, that's what the discovery was about.

And it was their statement to that effect and what we thought we accomplished that, at the end of their statement of position, that they weren't going to present any evidence on that[. T]hat changed my position on the written discovery and interrogatories that they had not responded to. That's why I think I was not properly notified because, in fact, it did impact my discovery in this case.

* * *

The Court: . . . But what I'm getting at is that they raised it [the financial information required under Corporate Experience] in their formal written protest and that you, Mr. Borgognoni, feel that they dropped it during the course of the prehearing preparations and now they seek to raise it again. Is that how you see it?

Mr. Borgognoni: No, I see that they raised one particular issue. This is now on Page

8 of their formal written protest, Paragraph 30, which is whether the score-- the numbers of the scores were properly assigned or they should have been different, thereby changing the result of the evaluation process. They now have raised--and this is the discussions, and I think the pretrial stip is clear, they totally abandoned that issue. They are not today going to argue that the scores were wrong. They are, I guess, conceding for the purposes of this hearing, without conceding ultimately, that there's no challenge to the scores that needs to be indulged in today. They have instead decided to focus--

The Court: Well, let me interrupt. Is that true, are you saying that you don't challenge the scoring anymore?

Mr. Williams: No, sir, that's not what I'm saying, I can clarify.

* * *

Mr. Williams: Okay. First of all, we are not going to put any testimony on that we should have gotten a four instead of a two or a three.

Mr. Borgognoni: That is my point.

Mr. Williams: That is the point. First of all, you don't have the authority to make a determination whether we should get a four or three or two or one, there's ample DOAH case law to the effect that Administrative Law Judges don't substitute their subjective judgment on scoring criteria in RFPs for that of the evaluation committee. What we said, succinctly, in Paragraphs 30 and 31, that the Department improperly scored, and because of their improper scoring they are ignoring the requirements of the RFP in scoring these proposals. The

issue is whether an evaluation, without applying the requirements of the RFP[,] of these proposals, is so fundamentally flawed as to require the rejection of all bids.

That, in a nutshell, is what this case is about in our estimation.

Tr., pp. 35-38.

In its opening statement, Petitioner stated that Respondent violated Section 287.057(2), Florida Statutes, and its own policy manuals by providing the evaluators with an evaluation manual that described as optional considerations the four bulleted items under the scoring criterion of the financial ability of the offeror to perform the required work. After identifying several failures related to the evaluators and the four bullets, Petitioner concluded:

As a result it is our contention that since the Department's evaluation of the proposal violated Chapter 287, was contrary to its own stated policies and did not take into account the specific bulleted items that constituted provisions of the RFP, that the proposed award of the contract to [Intervenor] is clearly erroneous, contrary to competition, arbitrary and capricious, and as a result, the Administrative Law Judge . . . should enter a recommended order recommending that all proposals be rejected because of the Department's evaluation and scoring of the proposals is fundamentally flawed.

Tr., pp. 56-57.

In its proposed recommended order, Petitioner argued for the rejection of the proposed award on two grounds. First, Petitioner contended that the evaluators improperly failed to

apply the bullets in scoring one of the financial criteria. Second, Petitioner contended that the evaluators were unqualified to score the financial criterion.

Clearly, Petitioner is not contending, as a third basis for rejecting the proposed award, that the evaluators' scores are inaccurate. The more difficult question is whether Petitioner has stipulated to the exclusion of evidence concerning the inaccuracy of the scores. Whatever offer Petitioner may have made in its statement of position in the prehearing stipulation, Respondent's response accepts only the offer to exclude "additional evidence" beyond the financial information already contained in the parties' financial statements that are part of their offers, which are already exhibits. The Administrative Law Judge accepts this stipulation, with the limitation added by Respondent.

At the hearing, Petitioner called three witnesses and offered into evidence nine exhibits, which are Petitioner Exhibits 23-31. Two of the witnesses were two of Respondent's five evaluators. After the completion of the testimony of the second evaluator, the parties agreed that it was unnecessary to call the three remaining evaluators because they would testify similarly concerning their understanding and application of the subject financial-qualification criterion

to the various offers. Additionally, the transcripts of the depositions of the five evaluators are also in evidence.

Respondent called no witnesses and offered into evidence no exhibits. Intervenor called one witness and offered into evidence no exhibits. The parties offered 22 joint exhibits. All exhibits were admitted.

The court reporter filed the Transcript on July 16, 1999. The Administrative Law Judge granted the joint request of the parties to extend the time for filing proposed recommended orders to August 10, 1999, and then Intervenor's unopposed request to extend the time for filing proposed recommended orders to

August 20, 1999.

FINDINGS OF FACT

1. On November 20, 1998, Respondent issued a Request for Proposals titled "The Maintenance of Network Terminal Equipment" (RFP). The purpose of the RFP is to obtain a

   three-year maintenance service contract for video display terminals, printers, microcomputers, and related components located throughout the State of Florida. The RFP seeks a three-year, labor-intensive contract projected at the hearing to be worth between $3 million and $3.5 million.

2. RFP Section 6.1 promises a "comprehensive, fair, and impartial evaluation" of all timely submitted offers by an

   "Evaluation Committee," which is an undefined term. Nothing in the RFP describes the Evaluation Committee, in terms of number or qualifications, except that repeated references to "each evaluator" imply the existence of more than one member.

3. Section 6.1.A identifies four evaluation categories: Corporate Experience (100 points), Project Staff (200 points), Minimum Maintenance Service Requirements (200 points), and Cost (500 points). The category at issue in this case is Corporate Experience.

4. Section 6.1.B states that the Procurement Officer will evaluate whether each offer meets the "fatal criteria." The only relevant fatal criterion is 10, which states: "Are there three (3) years of financial statements for the proposer and any proposed subcontractors, TAB 6?" RFP, Section

   6.3.A.10. The RFP does not define "financial statements," nor does it require audited financial statements. The Procurement Officer bore the responsibility for determining whether offers complied with the fatal criteria, and he testified that he applied this fatal criterion by checking for a balance sheet, income statement, and statement of changes in financial position. Tr., p. 84. However, the Procurement Officer, acknowledging the absence of any definition of "financial statements," testified that he would accept "even a balance sheet and income statement," which is exactly what he received

   from Intervenor. Tr., p. 99. The Procurement Officer added: "I didn't throw out anyone for lack of submitting any other financial statements that are commonly included in audited financial statements." Id.

5. Section 6.1.B also provides that offers meeting the "fatal criteria" will be scored by the Evaluation Committee, which will score each responsive offer "based on the evaluation criteria provided in Section 6.3 "

6. Regarding Corporate Experience, Section 6.1.C.3 states: "The criteria, which will be used in evaluating Corporate Experience, are listed in the Rating Sheet, see Section 6.3.B."

   Section 6.3 states that the non-fatal criteria for each of the four categories are listed on the Rating Sheet, which is part of the RFP. Each evaluator must assign a score from 0-4 for each of these criteria. The meaning of each point value is as follows:

   0 = no value; proposer has no capability or

   has ignored this area

   
   

   1 = poor; proposer has little or no direct capability or has not covered this area, but there is some indication of marginal capability

   
   

   2 = acceptable; proposer has adequate capability

   
   

   3 = good; proposer has a good approach with above average capability

   4 = superior; proposer has excellent capability and an outstanding approach

   
   

7. Section 6.3.B lists 40 evaluation criteria divided among three categories. (The fourth category is Cost; its scoring methodology is irrelevant to this case.) Project Staff and Minimum Maintenance Service Requirements contain a total of 37 criteria. Corporate Experience contains only three criteria.

   
   

8. The three criteria of Corporate Experience are:

   
   

   1. Does the proposal present financial information that supports the proposer's ability to perform this work required by this Request for Proposal? (RFP section 5.6.B)

      • Is the ratio of current assets to current liabilities at least 2:1?

      • Is the debt to net worth ratio (total liabilities/net worth) equal to or less than 1?

      • Has the cash/operating capital exceeded projected monthly operating expenses over the past three years?

      • Does the proposer have sufficient financial

        resources to complete the project?

        
        

   2. Does the proposal document the proposer's experience, organization, technical qualifications, skills, and facilities? (RFP section 5.6.B)

      • Is the experience supplied (including subcontractor experience) relevant?

      • Has the proposer (including any subcontractors) previously provided the maintenance services required by the department?

      • Have the proposer and any subcontractors

        previously worked together?

      • Does the proposer[-]supplied organization chart demonstrate the capability to

        perform

        well on this project?

      • Have the projects supplied by the proposer

        or for any subcontractors been performed recently enough to be relevant?

      • What percentage of the work is to be done by the proposer and each subcontractor?

        
        

   3. Does the proposal present maintenance projects similar to the requirements of this RFP as references? (RFP section 5.6.B)

      • Is each project described in sufficient detail so that the department is able to judge its complexity and relevance?

      • Are projects similar or greater in scope?

      • How broad is the range of equipment that was serviced?

      • How current is the project?

9. The challenge focuses exclusively on the first criterion under Corporate Experience. On this criterion, the evaluators gave Intervenor an average of 3.0 and Petitioner an average of 2.0.

10. The Procurement Officer prepared an Evaluation Manual for the evaluators. The Evaluation Manual states:

    Scoring should reflect the evaluator's independent evaluation of the proposal's response to each evaluation criterion.

    Following each evaluation criterion are considerations each evaluator may use in determining an evaluation score. These considerations are only suggestions. The considerations provided are not intended to be an all-inclusive list and will not be scored independently for the criterion that they address.

    
    

    Joint Exhibit 8, page 4.

    
    

11. Nothing among the documents given prospective offerors informed them explicitly that the evaluators were not required to consider any of the bulleted items listed under each of the criteria.

12. However, the Procurement Officer conducted a Proposers' Conference, at which he stated that the bullets under all of the criteria were strictly suggestions that the evaluators were free to ignore. Tr., p. 115. The Procurement Officer provided this information in response to a question asked by a representative of Intervenor. Joint Exhibit 23, pp. 63-64. The RFP did not require attendance at the Proposers' Conference, nor did Respondent publish the response following the conference.

13. The three bullets under the first criterion under Corporate Experience appear in Respondent's manual titled "Developing a Request for Proposal (RFP)." The exhibit in evidence is a copy of the manual issued on April 1, 1998, but this manual has been in existence well prior to that. The manual suggests that the RFP include a criterion for evaluating the adequacy of the offeror's financial resources. Under the category of reviewing financial statements, the manual lists the first three bullets, as well as other considerations. However, nothing in the manual requires the

    inclusion of these bulleted items as scoring criteria or the consideration of these bulleted items within one or more scoring criteria.

14. The rating sheets contain a space for comments. The following are the scores and comments from each of the five evaluators for the challenged criterion regarding the financial resources of Petitioner and Intervenor.

15. Evaluator 1 assigned Intervenor a 2, noting "high debt, loss in income 1998." Evaluator 1 assigned Petitioner a 1, noting "financial information limited. Total assets less than value of contract."

16. Evaluators 2 and 4 each assigned Intervenor a 3 and Petitioner a 2 without any comments.

17. Evaluator 3 assigned Intervenor a 3, noting "Exceeds all requirements." Evaluator 3 assigned Petitioner a 3, noting "financials appear to meet this requirement. However, the replacement parts-inventory [sic] dollars seem very low in relations [sic] to the mentioned state contracts that are currently existing [sic]-[.]"

18. Evaluator 5 assigned Intervenor a 4 without any comments, but citing the presence of a 10-K report in response to where he found the financial information. Evaluator 5 assigned Petitioner a 1 originally, noting "asset/liabilities

    1:1." However, he changed his score to a 2 and lined out his comment.

19. In general, the five evaluators have technical backgrounds in telecommunications or information management. They do not have significant backgrounds in business or financial matters.

20. Evaluator 1 has a limited financial background, having taken a couple of accounting courses in college. His testimony during his deposition was evasive. Unwilling or unable at the deposition to discuss substantively the financial statements, Evaluator 1 claimed not to recall nearly all material aspects of the evaluation that had taken place about four months earlier.

21. Evaluators 2 and 3 testified at the hearing.

Evaluator 2 owns a company, although he has never read the financial statements of any company besides his own. However, he believes that he can read financial statements to determine if a corporation is profitable. On the other hand, Evaluator

2 admits that he does not know how to calculate the ratio of current assets to liabilities from the financial statements or the difference between a balance sheet and an income statement. Evaluator 2 also admits that he does not know how the value of determining whether the ratio of debt to net worth is less

than 1. Evaluator 2 concedes that he does not know how to determine if an offeror had sufficient cash to complete the contract.

1. However, during his deposition, Evaluator 2 testified that he checked the financial statements for cash on hand and monthly income, although he admitted that he did not know how much cash a company would need to perform the contract. Evaluator 2 also admitted in his deposition that, in giving Intervenor a 3 and Petitioner a 2, he did not compare the net worth or ratio of cash to operating expenses of the two offerors.

2. Evaluator 3 testified that he has some relevant education in college, but he has not previously examined financial statements for Respondent. Like Evaluator 2, Evaluator 3 testified that he did not compute any of the bulleted ratios and was incapable of calculating the current ratio described in the first bullet or the other ratios described in the second and third bullets. Evaluator 3 conceded that he did not determine whether the offerors had sufficient resources to complete the project.

3. In his deposition, Evaluator 3 admitted that his review of the financial criterion was largely confined to checking to see if an offeror's assets exceeded its

   liabilities. Evaluator 3 conceded that he did not compare debt loads.

4. In two respects, Evaluator 3 approached the evaluation differently from his counterparts. First, he assumed that someone had already determined that the offerors were financially able to service the contract. Second, evidently relying on information not contained in the offers or RFP, Evaluator 3 determined that Petitioner's parts inventory was too low.

5. In his deposition, Evaluator 4 stated that he felt that it was optional whether he had to consider whether the financial information supported an offeror's ability to perform the contract. In rating Intervenor, Evaluator 4 admitted that he was unaware of its debt load. Evaluator 4 testified in his deposition that he did not feel qualified to decide whether an offeror could perform financially under the RFP.

6. In his deposition, Evaluator 5 testified that he did

   
   

   not know what financial resources an offeror must possess to be able to complete the contract. He also admitted that he never determined if Intervenor had operated at a loss for the past two years.

7. In addressing the qualifications of the evaluators to score the financial criterion, it is useful to compare

   their evaluations to what was being evaluated. The Administrative Law Judge rejects Petitioner's implicit invitation to assess the qualifications of the evaluators without regard to the extent to which their evaluations corresponded with, or failed to correspond with, that which they were evaluating.

8. It is impossible to perform much of a comparative analysis of the financial resources of Petitioner and Intervenor because of the paucity of financial information supplied by Petitioner. Petitioner did not submit audited, reviewed, or even compiled financial statements, so that a credibility issue attaches to its owner-generated statements.

9. Also, Petitioner did not submit a statement of changes in financial position, which is the first financial document that the Procurement Officer testified that he would consult in assessing a corporation's financial resources. Tr., p. 88. Absent this data concerning cash flow, it is not possible to identify reliably the information necessary to

   consider the third bullet, which asks the evaluator to compare historic cash flow from operations (which is derived from the statement of changes in financial position) with the "projected monthly operating expenses" (which is derived from the income statement).

10. Subject to these important qualifications concerning Petitioner's financial statements, Petitioner's balance sheet reveals a current ratio of 5:1 and a ratio of total liabilities to net worth of well under 1.

11. By contrast, Intervenor's audited financial statements (for DecisionOne Corporation and Subsidiaries) reveal a current ratio of barely 1:1, total liabilities in excess of total assets, and a negative shareholder's equity of

    $204,468,000. Intervenor's income statement discloses a net loss of $171,641,000 in fiscal year ending 1998 with a note suggesting that $69,000,000 of this loss is attributable to nonrecurring merger expenses. If interest is included, as it should be (given its impact on real-world cash flow), Intervenor's statement of changes in financial position reports negative cash flows for the past three years.

    Counting interest and taxes, the negative cash flow in 1998 is

    
    

    $37,298,000. This negative cash flow is attributable to the payment of a $244,000,000 to Intervenor's parent, but negative cash flows of $13,144,000 and $11,961,000 in 1997 and 1996, respectively, do not include any dividend payments.

12. Perhaps partly due to the already-discussed problems in ascertaining the role, at hearing, of the accuracy of the scoring, Intervenor did not elicit explanatory testimony concerning its relatively complicated financial statements,

    although Intervenor's forbearance seems directed more to not developing the evidentiary record concerning the formal and substantive deficiencies of Petitioner's financial statements. However, it is clear that, except for Evaluator 1, Respondent's evaluators could not and did not understand much more of Intervenor's financial statements than that they were professionally prepared and contain large numbers.

13. Turning to the extent to which the scores correspond to what the evaluators were scoring, Petitioner's financial statements are incomplete and owner-generated. Given these facts, the evaluators could legitimately give Petitioner a 2, which is an "acceptable" score, reflective of "adequate capability." The evaluators could also have legitimately given Petitioner a 1, indicative of a "poor" score with "some indication of marginal capability." The evaluators could not have given Petitioner a 0 because its financial statements are at least partly present in the offer and reflect some financial capability.

14. By contrast, Intervenor's financial statements are completed and audited. However, they portray a company that is in financial distress with substantial losses, a negative shareholder's equity, and ongoing negative cash flows. Although much better in form than the financial statements of Petitioner, Intervenor's financial statements raise at least

    one question as to form because, although disclosing interest and tax payments, they attempt to stress a modified cash flow without regard to these substantial cost items. Given the sizeable losses suffered recently by Intervenor, the evaluators could not rationally assign Intervenor a 3, which is "good" and reflective of "above average capability." Without dealing with Intervenor's losses and specifically identifying cash flow that would be available, after debt service and other expenditures, to service the contract, the evaluators could not rationally assign Intervenor even a 2.

15. Except for Evaluator 1, the evaluators never identified the financial condition of Intervenor and thus never considered it in their scoring. Undermined from the start by a lack of knowledge of roughly how much financial capacity would be necessary to service the three-year contract, the scoring process, as applied to Intervenor, is further undermined by the near-total absence in the record of any informed reason for the scoring of Intervenor's offer.

16. Evaluator 3 erroneously believed that someone not on the evaluation team had already determined that the offerors were financially capable of performing the contract.

    Evaluator 4 erroneously believed that evaluating the financial condition of the offerors was optional, and admitted that he was unqualified to perform this task in any event.

17. Evaluator 2 claimed to be able to identify losses on a financial statement, but, if he did so as to Intervenor's statements, there is no evidence in the record that he gave the matter any thought. Evaluator 5 expressly admitted that he never made this determination.

18. The only informed bases in the record, either contemporaneous with the scoring process or at any later time through the hearing, for the scoring of the subject criterion in the offers of Petitioner and Intervenor are the evaluation forms of Evaluator 1. In these forms, Evaluator 1 correctly noted the loss suffered by Intervenor in 1998 and the already- mentioned formal deficiencies of Petitioner's financial statements.

19. However, the sole contribution of Evaluator 1 to this case is in the comments on his forms. He was unwilling and unable to discuss any aspect of his scoring when questioned at his deposition.

20. The case of the financial qualifications of the evaluators thus comes down to four evaluators who had no idea what they were doing and one evaluator who offers only two spare, handwritten notes suggestive of a rational basis for distinguishing between the financial capabilities of the two offerors.

21. This is insufficient. The RFP promised an informed evaluation by more than one evaluator. Even if the RFP did not so promise, the promising comments of Evaluator 1 are not indicative of his qualifications when, for no good reason, he could not recall the recently completed evaluation process or could not or would not respond meaningfully to questions concerning the financial materials that he was evaluating.

22. For the purpose of assessing the qualifications of Evaluation 1, the hint of rationality present in his two comments is overwhelmingly offset by the actual financial condition of Intervenor. Rejecting a chance to discuss his evaluation, Evaluator 1 has chosen to let his evaluation be judged on the strength of its correspondence to the subject matter of the evaluation, Intervenor's financial statements.

23. Under all of the circumstances, Evaluator 1's evaluation of the subject criterion in Intervenor's offer was clearly erroneous and contrary to competition. The remaining evaluators' evaluations of this criterion were clearly erroneous, contrary to competition, arbitrary, and capricious.

24. However, Petitioner has elected not to make a direct issue of the accuracy of the scores. Addressing the qualifications of the evaluators, then, their evident lack of qualifications, coupled with the already-described grave deficiencies in the results of their scoring the first

criterion of Intervenor's offer and the material impact on the outcome of the relative scoring of the offers of Intervenor and Petitioner, has rendered the evaluation process clearly erroneous, contrary to competition, arbitrary, and capricious.

CONCLUSIONS OF LAW

1. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1) and (3), Florida Statutes. (All references to Sections are to the Florida Statutes in effect following the 1996 revisions to Section 120.57.)

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

   
   

   . . . Unless otherwise provided by statute, the burden of proof shall rest with the party protesting the proposed agency action. In a competitive- procurement protest, other than a rejection of all bids, the administrative law judge shall conduct a de novo proceeding to determine whether the agency's proposed action is contrary to the agency's governing statutes, the agency's rules or policies, or the bid or proposal specifications. The standard of proof for such proceedings shall be whether the proposed agency action was clearly erroneous, contrary to competition, arbitrary, or capricious. In any bid- protest proceeding contesting an intended agency action to reject all bids, the standard of review by an administrative law judge shall be whether the agency's intended action is illegal, arbitrary, dishonest, or fraudulent.

3. The presence in the statute of two standards of proof or review means that the standard of proof applied in

   cases in which an agency selects one bid or offer is less deferential than the standard of review applied in cases in which an agency rejects all bids or offers.

4. However, the de novo hearing devised by the Legislature to apply to cases in which an agency selects one bid or offer is not necessarily as comprehensive as the de novo hearing applied to other administrative hearings. Even prior to the 1996 revisions, a de novo hearing typically has meant less in bid hearings than it means in other areas of administrative law. See, e.g., Intercontinental Properties, Inc. v. Department of Health and Rehabilitative Services, 606 So. 2d 380, 386 (Fla. 3d DCA 1992), in which the court stated:

   Although the hearing before the hearing officer was a de novo proceeding, that simply means that there was an evidentiary hearing during which each party had a full and fair opportunity to develop an evidentiary record for administrative review purposes. It does not mean, as the hearing officer apparently thought, that the hearing officer sits as a substitute for the Department and makes a determination whether to award the bid de novo. Instead, the hearing officer sits in a review capacity, and must determine whether the bid review criteria set forth in Baxter's Asphalt [i.e., agency has wide discretion to waive minor irregularity] have been satisfied.

   
   

5. Section 120.57(3)(f) states that the standard of proof in this case is whether the proposed agency action is

   clearly erroneous, contrary to competition, arbitrary, or capricious (Clearly Erroneous Standard).

6. Typically, a standard of proof governs the determination of the basic facts that underlie the determination of the ultimate facts, and the determination of the ultimate facts underlie the determination of the legal issues. However, the language of Section 120.57(3)(f) applies the Clearly Erroneous Standard only to the proposed agency action. Requiring the protestor to prove by the Clearly Erroneous Standard the ultimate issue--i.e., that the proposed award is contrary to statutes, rules, policies, or the RFP-- may, with difficulty, be harmonized with the notion of a de novo hearing. However, requiring the protestor to prove by the Clearly Erroneous Standard the basic facts of the case-- e.g., what the Procurement Officer said at the Proposers' Conference or the contents of financial statements--is inconsistent with the notion of a de novo hearing. The law does not contemplate that the finding of basic facts will be governed by the review-like Clearly Erroneous Standard; instead, the law contemplates that the finding of basic facts will be governed by the residual administrative standard of proof, a preponderance of the evidence.

7. There are ultimate questions of fact to which the

   
   

   Clearly Erroneous Standard may be applied. Ultimate questions

   of fact--express and implied--link the basic facts to the final legal conclusion, which is whether the proposed decision to award is contrary to statute, rule, policy, or the RFP. In some bid cases, the question arises whether a deviation in a bid is a material variance or a minor irregularity or whether a bid is responsive. These are ultimate questions of fact, and the Clearly Erroneous Standard defers to these policy- influenced determinations. However, the underlying factual determinations, such as how the deviation may or may not yield a financial advantage or the interpretation of the contents of a bid, are governed by the less deferential preponderance standard of proof.

8. The Clearly Erroneous Standard also applies to subordinate questions of law and mixed questions of fact and law, such as interpretations of an agency rule or RFP, and questions of fact requiring the application of technical expertise, such as whether a specific product offered qualitatively complies with the specifications.

9. This approach is consistent with State Contracting and Engineering Corporation v. Department of Transportation, 709 So. 2d 607 (Fla. 1st DCA 1998). In State Contracting, the court affirmed the agency's final order that rejected the recommendation of the administrative law judge to reject a bid on the ground that it was nonresponsive. The bid included the

   required disadvantaged business enterprise form, but, after hearing, the administrative law judge determined that the bidder could not meet the required level of participation by disadvantaged business enterprises. The agency believed that responsiveness demanded only that the form be facially sufficient and compliance would be a matter of enforcement.

   Rejecting the recommendation of the administrative law judge, the agency reasoned that the administrative law judge had failed to determine that the agency's interpretation of its rule was clearly erroneous.

10. In affirming the agency's final order, the State Contracting court quoted the provisions of Section 120.57(3)(f) for evaluating the proposed agency action against the four criteria and Clearly Erroneous Standard. Addressing the meaning of a de novo hearing in an award case, the court stated, at page 609:

    In this context, the phrase "de novo hearing" is used to describe a form of intra-agency review. The [administrative law judge] may receive evidence, as with any formal hearing under section 120.57(1), but the object of the proceeding is to evaluate the action taken by the agency.

    
    

11. Significantly, the State Contracting court did not apply the Clearly Erroneous Standard merely to the agency decision to award. The court concluded that the agency's

    interpretation of one of its rules and determination that the bid was responsive were not "clearly erroneous."

12. In the subject case, then, the Administrative Law Judge has applied the preponderance standard to all basic facts and the Clearly Erroneous Standard to the ultimate questions of fact, mixed questions of fact and law, subordinate questions of law, and questions of fact involving agency expertise. In the Conclusions of Law, the Administrative Law Judge takes the resulting findings and determines whether the proposed agency decision to award the contract to Intervenor is consistent with the statutes, rules, policies, and RFP. This three-step process effectuates the Legislative intent that the Administrative Law Judge defer less to the agency decision in an award case than in a case in which the agency rejects all bids or offers.

13. In this case, Petitioner has failed to prove that the evaluators erred in any respect by not applying the bullets under the first criterion. To the contrary, as apparent from a thoughtful reading of the other criteria and the subject criterion, as well as stated at the Proposers' Conference, these bullets were clearly suggestions.

14. However, Petitioner has proved that the evaluators were so unqualified to score the subject criterion that the scoring process and, given its materiality to the final

    result, the proposed award are contrary to statute, rule, policy, and the RFP.

15. Among the authority violated by the proposed award is Section 287.057(15), which requires that at least three employees with "experience and knowledge in the program areas and service requirements for which contractual services are sought" assist in the selection of an offer in response to an RFP.

16. However, even absent this particular requirement, the evident purpose of applicable statutes, rules, policies, and the RFP is to enable Respondent to make an informed selection of an offer based on the rating criteria. Just as the relevant authority would not permit an arbitrary or capricious selection by a team of experts in financial matters who were incompetent to assess the offers in terms of the technical telecommunications and computer components, so the relevant authority does not permit an arbitrary or capricious selection by a team of telecommunications and computer experts who are incompetent to assess the offers in terms of financial matters. As is implicit in Respondent's decision to include the subject criterion in the RFP, superior technical ability unsupported by the financial ability to perform this three- year contract is as likely to result in problems during the contract term as is inferior technical ability.

RECOMMENDATION

It is

RECOMMENDED that the Department of Children and Family Services enter a final order rejecting all offers.

DONE AND ENTERED this 3rd day of September, 1999, in Tallahassee, Leon County, Florida.

___________________________________ ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of September, 1999.

COPIES FURNISHED:

Gregory D. Venz, Agency Clerk Department of Children and

Family Services Building 2, Room 204B 1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

John S. Slye, General Counsel Department of Children and

Family Services Building 2, Room 204

1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

William E. Williams Andrew Berton, Jr. Huey Guilday

Post Office Box 1794 Tallahassee, Florida 32302-1794

R. Beth Atchison Assistant General Counsel

Department of Children and Family Services

Building 2, Room 204

1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

Gregory P. Borgognoni Kluger Peretz

17th Floor, Miami Center

201 South Biscayne Boulevard Miami, Florida 33131

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

10 days from the date of this recommended order. Any exceptions to this recommended order must be filed with the agency that will issue the final order in this case.

Docket for Case No: 99-001230BID

Orders for Case No: 99-001230BID