STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
PRISON HEALTH SERVICES, INC., ) WEXFORD HEALTH SOURCES, INC., ) and PHYSICIAN HEALTHCARE )
PLANS, INC., )
)
Petitioners, )
)
vs. )
) DEPARTMENT OF CORRECTIONS, )
)
Respondent, )
)
and )
) CORRECTIONAL MEDICAL SERVICES, ) INC., )
)
Intervenor, )
)
and )
)
FLORIDA DEPARTMENT OF )
INSURANCE, )
)
Amicus Curiae. )
Case Nos. 01-0450BID
01-0452BID
01-0453BID
)
RECOMMENDED ORDER
Pursuant to notice, a final hearing was held in this consolidated bid protest proceeding in Tallahassee, Florida, on March 14, 15, and 16, 2001, before Administrative Law Judge Michael M. Parrish of the Division of Administrative Hearings.
APPEARANCES
For Petitioner Physicians David C.Ashburn, Esquire Healthcare Plans, Inc.: Michael J. Cherniga, Esquire
Greenberg Traurig, P.A.
101 East College Avenue Post Office Box 1838
Tallahassee, Florida 32302-1838
For Petitioner Wexford Kenneth G. Oertel, Esquire Health Sources, Inc.: M. Christopher Bryant, Esquire
Oertel, Hoffman, Fernandez & Cole, P.A.
Post Office Box 1110 Tallahassee, Florida 32302-1110
For Petitioner Prison Jonathan Sjostrom, Esquire Health Services, Inc.: Rex D. Ware, Esquire
Steel, Hector & Davis
215 South Monroe Street Suite 601
Tallahassee, Florida 32301
For Intervenor Paul R. Ezatoff, Esquire Correctional Medical Katz, Kutter, Haigler, Services, Inc.: Alderman, Bryant & Yon
Post Office Box 1877 Tallahassee, Florida 32302-1877
For Respondent Department Anthony Garcia, Esquire of Corrections: Obed Dorceus, Esquire
Department of Corrections 2601 Blairstone Road
Tallahassee, Florida 32399-2500
For Amicus Curiae Donald A. Dowdell, Esquire Department of Insurance Florida Department of Insurance
200 East Gaines Street Tallahassee, Florida 32399-0333
STATEMENT OF THE ISSUES
This consolidated proceeding involves protests by Prison Health Services, Inc. (“PHS”), Physician Healthcare Plans, Inc. (“PHP”), and Wexford Health Sources, Inc. (“Wexford”),
contesting notices of intended decisions to award contracts posted by the Florida Department of Corrections ("Department") following review and evaluation of proposals submitted pursuant to the Department's Request for Proposals No. 00-DC-7342, “Comprehensive Healthcare at Twelve Institutions in Region IV” (“RFP”). Pursuant to Section 120.57(3)(f), Florida Statutes (2000), the Administrative Law Judge is to 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 proposal specifications.
PRELIMINARY STATEMENT
The parties filed a Prehearing Stipulation in which they stipulated to numerous facts and set forth their respective positions on the issues in this proceeding. The parties also submitted thirty-five joint exhibits, which they stipulated should be received in evidence. These stipulated exhibits include transcripts of the depositions of representatives of the Department. In addition to the joint exhibits, PHP offered three exhibits, PHS offered four exhibits, Wexford offered three exhibits, and Intervenor Correctional Medical Services, Inc. ("CMS") offered eight exhibits. All of these additional exhibits were received in evidence.1 The Department did not offer any exhibits in addition to the joint exhibits.
PHS presented the testimony of Richard Prudom and Gerald Boyle. Wexford recalled Richard Prudom and also presented the testimony of Frederick W. Schwartz, Frederick Carroll, III, Robert James Matonte, and Kevin Charles Halloran. The Department presented the testimony of Richard Law, Lisa Bassett, and John Burke. PHP did not present any live testimony.
Judicial notice was taken of Section 945.6033, Florida Statutes, and of excerpts of Chapter 00-166, Laws of Florida (2000), the General Appropriations Act.
A five-volume transcript was prepared and filed on
March 22, 2001. The parties' proposed recommended orders were due on April 2, 2001. All parties filed timely proposed recommended orders containing proposed findings of fact and conclusions of law. The proposals of all parties have been carefully considered during the preparation of this Recommended Order.2
FINDINGS OF FACT
Stipulated facts
In their Prehearing Stipulation filed on March 13, 2001, the parties stipulated that the following facts were admitted to by all parties and were to be taken as true without the need for further proof:
The Department issued request for proposals 00-DC-7342 for Comprehensive Healthcare Services at Twelve Correctional
Institutions in Region IV (the “RFP”) on or about September 1, 2000. The RFP divided Region IV into an East Cluster and a West Cluster and permitted the Department to award separate contracts to separate vendors for each cluster or both clusters to a single vendor.
CMS, PHP, PHS, and Wexford each submitted a timely proposal to the RFP. The proposals submitted by CMS, PHP, PHS, and Wexford are submitted as Joint Exhibits 5-12. The Department concluded that each proposal was responsive to the RFP. Each proposal was scored by the Department’s technical evaluation committee.
The RFP specified separate price and technical proposal scores. The technical evaluation scores were determined by an evaluation team and a certified public accountant retained by the Department to evaluate financial documentation submitted by the proposers (See Joint Exhibit 27 for identity of members of evaluation team). The Department’s evaluation team scored the proposals (except for financial components) and awarded points, for both East and West Clusters, in the areas of Corporate Qualifications, Project Staff, and Service Delivery Approach. A certified public accountant evaluated and scored the financial information submitted by each proposer. The price scores were awarded pursuant to a numerical formula. The RFP specified 1000 points as the highest possible score. The RFP specified 550
possible Cost Proposal Points and 450 possible Project Proposal Points.
The Department evaluators used information set forth on the scoring sheets and the Proposal Evaluation Manual which are Joint Exhibits 4 and 13-19 during their evaluation of the proposals. The Department evaluators assigned scores to each of the questions found on the scoring sheets. The Department then determined the numeric average of the scores assigned by the evaluators. Those average scores for each question were multiplied by weights assigned to each question by the Department to derive a final score for each question. Those scores were summed and then added to scores assigned by Mr. Law [the CPA retained by the Department] based upon his review of Financial Documentation required by Section 5.3.1 of the RFP.
The RFP required the vendors to specify a per inmate per diem cost price.
For the West Cluster, the Final Project Scores are as
follows: | Cost Proposal Points |
Wexford: | 550.00 |
PHP: | 539.65 |
PHS: | 463.09 |
CMS: | 457.29 |
Project Proposal Points | |
Wexford: | 407.97 |
CMS: | 405.29 |
PHS: | 445.1 |
PHP: | 360.84 |
Vendor Total Calculations
Wexford: 957.97
PHS: 908.19
PHP: 900.50
CMS: 862.58
For the East Cluster, the Final Project Scores are as follows:
Cost Proposal Points
Wexford: 529.57
PHP: 550.00
CMS: 521.89
PHS: 483.19
Project Proposal Points
Wexford: 407.97
CMS: 405.29
PHS: 445.1
PHP: 360.84
Vendor Total Calculations
Wexford: 937.54
PHS: 928.29
CMS: 927.18
PHP: 910.85
On or about December 11, 2000, the Department posted a notice of intent to award the West Cluster to Wexford. On the same day, with regard to the East Cluster, the Department posted a notice of intended decision to negotiate with each proposer, in descending rank order, based on each vendor's combined price and technical evaluation scores. The descending order for the East Cluster vendor negotiations was Wexford, PHS, CMS, and PHP.
On January 2, 2001, at 3:15 p.m., the Department posted its notice of intended decision in the East Cluster; the notice provides that CMS is the intended recipient of the East Cluster.
On or about January 23, 2001, the Secretary of the Department executed a document entitled “Agency Statement Supporting Continuation of Bid Solicitation Process or Contract Award Process” (“Agency Statement”).
The geographic service area approved by the Agency for Health Care Administration for PHP does not include Desoto, Hardee, Hendry, Indian River, Martin, or Okeechobee Counties.
From the time PHP submitted its proposal to the present, Bruce L. Carpenter has never been licensed by the Florida Department of Insurance as a health insurance agent.
PHP has not made any filings with the Florida Department of Insurance pursuant to Section 641.31, Florida Statutes, seeking approval of its rates or rating methodologies for the proposed contract with the Department of Corrections.
PHP is the only proposer which holds a valid Certificate of Authority issued by the Florida Department of Insurance for the operation of an HMO.
Facts proved at hearing
The RFP was issued at the express direction of the Florida Legislature to privatize health care services in Region IV. (See Chapter 00-166, Laws of Fla. (2000), proviso
language accompanying specific appropriations 737 through 750.) The Legislature required the Department to retain a contractor to provide such services at a cost savings when compared to the Department's fiscal year 1999-2000 expenditures for providing those services in-house.
The RFP bears out this Legislative instruction in Section 2.2 of the RFP:
Proposals are to be submitted by qualified vendors who will be required to provide services at a cost saving when compared to the Department’s actual FY 1999-2000 healthcare expenditures as shown in Composite Attachment 9.
The referenced Composite Attachment 9 revealed that the Department’s cost of providing health care averaged $8.00 per inmate per day in the West Cluster, and $13.24 per inmate per day in the East Cluster.
The RFP established the qualification of vendors to submit a response based on prior experience. That requirement was that the vendor must have provided comprehensive health services to at least 9500 “clients” for at least three of the last five years. The RFP did not require that any of such services had to have been performed in the State of Florida.
The RFP does not contain any language that would reasonably put a vendor on notice that competition was limited
to licensed HMOs. The RFP does not contain the phrase “Health Maintenance Organization” or the abbreviation “HMO”.
The RFP contains the following statement:
Florida law mandates that all Medicaid recipients, with certain exceptions, be enrolled in a managed care plan. While it is recognized that inmates are not Medicaid recipients, the Department does expect the Contractor(s) to apply the principles of managed care in the treatment of inmates in Region IV. Currently, many aspects of managed care are being utilized in the correctional healthcare delivery system throughout the state including, but not limited to, pre-hospital admission certification, continued stay review, retrospective admissions review, ambulatory surgery and discount contracting for specialty medicine and diagnostic care.
However, the Department is looking to the private sector with its flexibility, purchasing power, business acumen and innovation to apply these principles of managed care in Region IV at a cost saving to the State of Florida while maintaining a minimal constitutionally adequate level of care for the inmates. (Emphasis added.)
No other provision of the RFP addresses managed care.
The RFP also contains the following language: Applicable provisions of all Federal,
State, county and local laws, and of all
ordinances, rules, and regulations shall govern development, submittal and evaluation of all proposals received in response hereto and shall govern any and all claims and disputes which may arise between person(s) submitting a proposal response hereto and the State of Florida, by and through its officers, employees and authorized representatives, or any person, natural or otherwise; lack of knowledge by any proposer
shall not constitute a cognizable defense against the legal effect thereof.
* * *
The Contractor and the Department shall work cooperatively to assure a high standard of service delivery and compliance with all Federal, State of Florida and Department laws, statutes, rules, policies and procedures.
Each of the proposers was afforded the opportunity to submit questions to the Department concerning the RFP requirements prior to submitting a proposal. In that process, CMS posed the following question and received the following response from the Department:
Question: Are there any licensures or certificates that will need to be secured or maintained in order for us to deliver the services during the contract?
Answer: Whatever is required by the State of Florida for health care providers. If any others are required it is the vendor’s responsibility to meet all such requirements.
Pursuant to the RFP, the contractor providing these comprehensive health care services will be paid a fixed monthly sum, and nothing more, regardless of the actual cost incurred by the contractor to render any necessary services for the applicable prison inmate population. In other words, the contractor will be “at risk” with regard to whether or not it
achieves financial profits or losses under the contract. As stated in the RFP:
The Contractor in each cluster will be completely and totally responsible for the cost of all healthcare delivered to inmates in their respective cluster institutions.
There will be no stop/loss provision for hospitalization or any other care.
The RFP at Section 7.4.2 provides: “[t]he contractor agrees to request compensation on a monthly basis through submission to the Department of a properly completed invoice within fifteen (15) days following the end of the month for which payment is being requested. . . .” Payment under the contracts contemplated by the RFP is based on the average daily population (“ADP”) of inmates at an institution for the preceding month times the per diem rate in the contract. In all instances the contractor will be paid for services provided during a specific month at some time after the services have been performed.
Under the prison health services contracts that will result from the RFP, the contractor will not be “prepaid” for the services it performs for the Department.
The Department knew that its current contractors for similar health care services were not licensed as HMOs. The Department has never previously contracted with an HMO for inmate health services. The Department had no intention to
eliminate its current contractors from competition for the subject contracts.
The services contemplated under the RFP, health care services for Department inmates, do not include certain benefits and protection afforded “enrollees” under the State’s Health Maintenance Organization laws.
The "Comprehensive Health Care Services" sought by the instant RFP are described in the RFP as follows: “Provision of medically necessary and appropriate health care to meet the minimal adequate constitutional level established by federal law. This includes physical, dental and mental health care both on site and off site.”
The scope and nature of the health care services described in the RFP is a lesser level of care than that mandated by the Florida HMO Act. As noted in the Department of Insurance Consumers Guide, HMOs must provide a broad range of coverages and HMO subscribers have numerous rights inconsistent with the rights of inmates to receive health care in a prison setting, such as: (1) the right to receive a contract, certificate or member handbook clearly stating services and limitation of membership; (2) the right to convert from a group to an individual contract if the group contract is canceled; (3) the right to fair rates—HMOs are prohibited from charging rates that DOI deems excessive, inadequate or discriminatory; (4) the
right to receive a list of all hospitals and primary care physicians employed by or under contract with the HMO; (5) the right to a second medical opinion; (6) the right to a 45-day notification before a contract is canceled or non-renewed;
the right to appeal to the Statewide Provider and Subscriber Assistance Program Panel; and (8) the right to receive a converted contract if coverage has been continuous for at least three months. These "rights" exceed the minimum constitutionally required standard of care to which prison inmates are entitled, and are not rights otherwise available to prison inmates.
Section 6 of the RFP states, in part: “Selection of the successful proposer will be based on the proposal that is determined to be in the best interest of the Department, taking into consideration the criteria set forth in the RFP.” (Emphasis added.) Section 6 continues: “The Department reserves the right to make an award with or without further negotiations with the highest scoring proposer.”
Section 4.3.11 of the RFP, as revised by Addendum 1, specifically prohibits proposers from communicating with the Department regarding cost at any time prior to the posting of a notice of intended award. “Any discussion by the proposer with any employee or authorized representative of the Department involving cost information, occurring prior to the posting of
the recommended award will result in rejection of said proposer’s proposal.”
And paragraphs 6.4, 6.5, and 6.6 of the RFP add the following provisions regarding the selection of the successful proposer:
Final Proposal Scores/Total Points
Scored
The points awarded for the Business/Corporate Qualifications, Project Staff and Service Delivery Approach categories will be totaled and added to the points awarded for the Cost Proposal to determine the final scores of all proposals.
Identical Tie Proposals
In the event of an identical tie in the evaluation scores of proposals from this RFP, preference will be given to businesses with drug free workplace programs.
Attachment 6 describes such programs and how proposers may obtain this advantage.
Final Determination
In the event that the Department receives identical evaluation scores from two or more responsive proposers with drug-free workplace programs, the final determination of the award shall be decided through the toss of a coin in a public meeting.
The RFP described the evaluation process for the proposals. The evaluation criteria for the proposals included two categories for which no points would be awarded to proposers: Mandatory Responsiveness Requirements, and Transmittal Letter and Executive Summary. The other four review
categories would be scored, resulting in scores being assigned up to a maximum possible score of 1,000 points, as follows:
Category 1 Business/Corporate
Qualification 100 points
Category 2 Project Staff 100 points Category 3 Service Delivery Approach 250 points Category 4 Cost 550 points
The RFP explained that an Evaluation Committee would be established to score the proposals on Categories 1, 2, and 3 above. The scoring system for these three categories was a curved system designed such that the vendor receiving the highest number of points in a given category would be awarded the maximum score (100 or 250) for that category, and the other, lower scoring vendors would receive proportionally fewer points.
Section 5.11.1 of the RFP requires the submission of a sealed cost proposal. That section of the RFP goes on to provide that the cost proposals "should be submitted with the most favorable terms the proposer can offer." The cost proposals were to be separately scored by Department staff, separate and apart from the scoring of the project proposals. The lowest per diem rate offered by any vendor in each of the two clusters would be awarded 550 points, with the other vendors’ higher per diem rates assigned proportionally fewer points based on a formula contained in the RFP.
Section 6 of the RFP further informs the proposers that the “factors to be considered” by the evaluators in scoring
the “Business/Corporate Qualifications, Project Staff and Service Delivery Approach sections” of each proposal “are listed in Attachment 8” to the RFP. Attachment 8 to the RFP is titled: “Evaluation Criteria for Project Proposal.” When the RFP was initially issued on September 1, 2000, Attachment 8 listed evaluation criteria for each of the proposal areas (Corporate Qualifications, Project Staff, and Service Delivery Approach) to be evaluated.
Section 4.3.8.2 of the RFP notified each proposer of its responsibility to assure that the RFP requirements were clearly stated and to request changes if they were not. RFP Section 4.3.8.2 (“The proposer shall examine this RFP to determine if the Department's requirements are clearly stated.”) Unless a proposer requested changes, it was deemed to have accepted the specifications.
Submission and Evaluation of Proposals
In response to the RFP, four vendors – Wexford, CMS, PHP, and PHS – submitted proposals. The Department assembled a team of seven Department employees to evaluate and score the project proposals in the areas of Business/Corporate Qualifications (except as to financial statements submitted by the vendors), Project Staff, and Service Delivery Approach.
The evaluators received instructions from the Department’s Bureau of General Services staff on how to evaluate
the proposals and assign scores. The evaluators were given a Proposal Evaluation Manual designed specifically for this solicitation. The Evaluation Manual identified six criteria for each evaluator to assign a score for each vendor’s Business/Corporation Qualifications; eighteen criteria for each evaluator to score for Project Staff; and thirty-four criteria for each evaluator to score for Service Delivery Approach.
A portion of the scoring of the "Business/Corporate Qualifications" section of the proposals was performed by Richard Law, a certified public accountant in private practice retained by the Department to assist with several competitive solicitations that the Department was pursuing. Before the September issuance of the RFP, Mr. Law drafted what he considered fairly "generic" requirements for financial documents to be submitted by vendors with their proposals.
The financial statement evaluation accounted for 40 of the 100 points available for Business/Corporate Qualifications. Mr. Law allocated the 40 points among six review criteria devised by him. A possible 28 of the 40 points were assigned to Mr. Law's review of the auditor’s report on financial statements for an opinion without qualification or adverse comment
(8 points); review of the auditor’s letter to management for no material weaknesses in internal controls (10 points); and review of the audited financial statements for no indication of a
"going concern" problem (10 points). Mr. Law also allocated up to four points each to three "ratios" calculated from information in the vendor’s balance sheet; a current ratio, an acid-test ratio, and a debt-to-equity ratio.
Mr. Law was provided with a copy of each vendor’s entire proposal for scoring. Employing the six criteria devised by Mr. Law, an accountant in Mr. Law’s firm calculated scores for those criteria for the four vendors, which Mr. Law reviewed and adjusted slightly to the following: PHP, 39; CMS, 38; PHS, 37; and Wexford, 32. Mr. Law filled out a single evaluation sheet for each vendor covering all six of his review criteria, and returned them to the Department. At that point, Mr. Law believed his involvement in this RFP was done.
Scores Assigned
Mr. Law’s scores were added to the criteria weighted scores assigned by the Department Evaluation Committee members in the area of Business/Corporate Qualifications. This resulted in a total weighted score for each of the vendors in the area of Business/Corporate Qualifications. Pursuant to Section 6.3.1 of the RFP, the vendor with the highest total weighted score in the Business/Corporate Qualifications received a score of 100, and the other vendors received a proportionally lower score, as follows: CMS, 100.00; PHS, 98.85; Wexford, 92.27; and PHP, 85.94.
Scores were assigned to the vendors for the eighteen criteria for Project Staff in much the same way, except without scores from non-Department employees such as Mr. Law. After determining total weighted scores for each vendor in this area, and assigning 100 points to the highest scoring vendor, the final Project Staff scores were: PHP, 100.00; PHS, 96.25; Wexford, 88.75; and CMS, 85.95.
Similarly, scores were assigned to vendors for the thirty-four criteria for Service Delivery Approach, again without scores from non-Department employees. The total weighted scores for the four vendors in this area were adjusted to give the highest scoring vendor 250 points, with the other vendors receiving proportionately fewer points, as follows: PHS, 250.00; Wexford, 226.95; CMS, 219.34; and PHP, 174.90. Adding the adjusted scores for each of these first three criteria together for each vendor produced a final "project proposal" score, out of a maximum possible 450 points, as follows: PHS, 445.1; Wexford, 407.97; CMS, 405.29; and PHP, 360.84.
The scoring of the vendors’ cost proposals was accomplished as follows: Within each cluster, the vendor offering the lowest per diem rate received the full 550 points, and the vendors offering higher per diem rates received
proportionally lower scores, as described in Section 6.3.4 of the RFP.
In the West Cluster, Wexford offered $7.30; PHP,
$7.44; PHS, $8.67; and CMS, $8.78. These rates translated into adjusted cost proposal scores for the West Cluster as follows: Wexford, 550.00; PHP, 539.65; PHS, 463.09; and CMS, 457.29.
For the East Cluster, the per diem rates proposed were PHP, $12.44; Wexford, $12.92; CMS, $13.11; and PHS, $14.16. [Jt. Exhs. 6, 8, 10, 12] These rates translated into adjusted cost proposal scores for the East Cluster as: PHP, 550.00; Wexford, 529.57; CMS, 521.89; and PHS 483.19.
A total score was arrived at for each vendor in each cluster by adding the vendor’s "project proposal" adjusted score to its "cost proposal" adjusted score for that cluster. The total scores for the West Cluster were: Wexford, 957.97; PHP, 900.50; PHS, 908.19, and CMS, 862.58. For the East Cluster, the final totals were: Wexford, 937.54; PHS, 928.29; CMS, 927.18; and PHP, 910.85.
Notwithstanding the prohibition in Section 4.3.11 of the RFP, PHS faxed a three-page letter to the Secretary of the Department, Michael Moore, six days before the posting of the recommended awards for the East and West Clusters on
December 11, 2000, but after the proposals had been opened. PHS did not give notice of this communication to any other proposer.
The essence of the information in the PHS letter was that PHS had erred in calculating its cost proposal, that PHS had erred by including costs that the RFP did not require, and that PHS wanted an opportunity to lower its price. The obvious purpose of the letter was an effort to affect the Department's decision- making process and to give PHS an advantage not enjoyed by other bidders.
Mr. Law’s Second Review
According to the date Mr. Law signed his scoring sheets, his scoring of the financial statements from the proposals was completed November 22, 2000. The RFP, as revised by the Department’s addendum had established an anticipated date for the "Posting of Recommended Award/Notification to Proposers" of Monday, December 11, 2000. Shortly before the anticipated posting date, however, Richard Prudom, the Department’s Deputy Director of Administration, called Mr. Law and asked him to perform additional analysis regarding the financial capability of the vendors. This was reduced to writing in a letter faxed to Mr. Law on Wednesday, December 6, 2000. Omitting the formal parts, the letter read as follows:
Thank you for your financial evaluation of the bids submitted in response to the Requests for Proposals for the delivery of comprehensive healthcare to inmates in Region IV. The evaluations were an integral part of the corporate qualifications section of the project proposal scoring process.
With the evaluation process now complete the Department is ready to award contracts for the delivery of services of which the anticipated value is approximately $17 million for the West cluster of Region IV and $41 million for the East cluster. Since the Department has an obligation to award contracts that are in the best interests of the State of Florida, what further commentary/analysis could you provide regarding the ability of each proposer to fulfill the obligations of contracts at those anticipated values?
Your assistance in this matter is appreciated.
In response to the request for additional comments and analysis, Mr. Law reviewed the financial materials submitted by each of the proposers in light of the anticipated dollar values of the contracts for each cluster. He then made calculations comparing the 1999 health care revenue for each of the proposers to the anticipated dollar values of the contracts for each cluster. On December 8, 2000, Mr. Law sent a letter by fax to the Department containing a table demonstrating the comparisons he had calculated, as well as some additional comments. The additional comments in Mr. Law's letter of December 8, 2000, included the following:
In my judgment, a proposer in the healthcare industry is more likely to fulfill all of the terms and conditions of the proposed contract if the dollar value of the contract is within a reasonable range of its existing level of operations.
* * *
The burden of fulfilling the terms and conditions of the contract will obviously be much greater for Wexford than the other three vendors because of the relative impact of adding 24.6% (for $17 million) or 59.4% (for $41 million) more in services than they provided in 1999.
* * *
Wexford does not currently perform any services in Florida, whereas the other three providers already provide a substantial amount of services in Florida. Since they have no management or staff in place in Florida, and considering the impact of fulfilling a $17 million or $41 million contract relative to their existing revenue base, the risk of failure is high.
The comments and analysis set forth in Mr. Law's letter of December 8, 2000, do not address any of the criteria in the RFP on which Mr. Law relied when he performed his original scoring of the financial documents of each proposer. Rather, his comments and analysis in the December 8, 2000, letter are predicated on two criteria that do not appear in the RFP. In this regard, it it significant to note that in response to the Department's request for additional comments and analysis, Mr. Law did not suggest that any changes should be made to his earlier assignment of scores to each of the proposers. This is no doubt due to the fact that the criteria upon which Mr. Law based his December 8, 2000, comments are criteria that do not appear in the RFP, and the December 8
comments, even if correct, would have no bearing on the scores assigned to the proposers pursuant to the criteria that are included in the RFP.
Based upon the letter written by Richard Law, the Department decided by December 11, 2000, that Wexford would not be awarded the East Cluster contract. Notably, December 11 was the day on which the Department posted its notice of intent to negotiate for the East Cluster contract, identifying Wexford as the first vendor with whom it would negotiate.
In effect, based on Richard Law’s letter of December 8, 2000, Wexford was disqualified from being eligible to propose on the East Cluster. This occurred even though
pursuant to the terms of the RFP Wexford was clearly a qualified and responsible bidder for that contract under the terms of the RFP.
Mr. Law acknowledges that he has no understanding of the correctional health care industry, or of what it would take for a vendor to perform a contract for health services in a correctional setting. Rendering an opinion on the impact of a new contract on a company would require an understanding of how the business works, not just the amount of revenue the contract would generate. An analysis of a vendor’s ability to perform this contract which is based on existing and anticipated revenues is not a meaningful or relevant analysis. A more
useful analysis would compare the number of inmates and number of institutions covered by the contract to the vendor’s existing level of service. Such a comparison in Wexford’s case shows that Wexford is already performing contracts in other states that cover a comparable or greater number of inmates and a comparable or greater number of prisons.
Posting of Awards and Decisions
On December 11, 2000, the Department posted a Notice of Intended Award for the West Cluster contract, indicating its intent to award that contract to Wexford. The Department also posted on that date a "Notice of Intended Decision" for the East Cluster, stating its intent to negotiate. The East Cluster Notice identified an order of negotiation that tracked the final scores in the East Cluster: Wexford, then PHS, then CMS, then PHP.
The only written information the Department provided to the vendors concerning the negotiations was contained in its Notice of Intent to Negotiate.
The East Cluster notice contained the following description of the negotiation process:
Pursuant to the provisions of the State Purchasing Rule 60A-1.002, F.A.C., the Department of Corrections announces its intention to negotiate a contract for the East Cluster service area. The Department intends to negotiate with the highest- ranking proposer. If no contract is
successfully negotiated with this proposer, the Department will proceed to the next highest-ranking proposer. If no contract is successfully negotiated with this proposer, negotiation will continue with the third- highest and then fourth-highest ranking proposer, as necessary.
In other words, the negotiations were to be sequential rather than concurrent, and would be exclusively with the highest- ranked vendor until it was determined that a contractual agreement could not be reached.
The Department issued no further written information concerning the negotiation until it issued its notice of intent to award the East Cluster contract to CMS on January 2, 2000.
Prior to commencing the negotiations, the Department instructed one of its employees to contact each of the four proposers and tell them the following.
That negotiations had to be concluded on December 15:
That each vendor had not more than
2 hours to conclude negotiations;
That if negotiations concluded with a vendor without an agreement, such vendor would not be given another chance to negotiate with the Department for the East Cluster.
The greater weight of the evidence is to the effect that the Department's employees failed to advise any of the four proposers of the negotiation rules described immediately above at any time prior to the negotiations. During the negotiations none of the proposers were advised of the negotiation rules.
The Department never provided written notice of the negotiation rules to any of the proposers.
The "negotiations" referenced in the December 11 East Cluster notice were scheduled for Friday, December 15, by telephone. The Department scheduled conference calls with three of the four vendors for December 15, commencing with Wexford at 9:30 a.m. The Department apparently intended to conclude the negotiations in a single day, although this intent was not communicated to the proposers.
Wexford attempted to obtain information from the Department in the days leading up to the December 15 conference call as to an agenda for the call or subjects to be discussed or negotiated, in order to be better situated to promptly respond. The Department provided no information other than the identity of its "negotiation team": Mr. Prudom, Ms. Bassett, and Deputy Secretary Michael Wolfe.
Following introductory comments, the Department’s call to Wexford began with the Department's notifying Wexford that Wexford would not be awarded the East Cluster contract, despite the December 11 East Cluster notice that ranked Wexford first. When pressed for an explanation, the Department responded that a CPA retained by the Department to review the proposals had expressed concern over Wexford’s financial capabilities. This was apparently a reference to the December 8, 2000, letter from
Mr. Law to Mr. Prudom. The Department refused Wexford’s request to submit documentation to respond to those concerns.
At some point during the conference call with Wexford, Deputy Secretary Mike Wolfe requested that Wexford’s representative, Mr. Matonte, engage in a one-on-one telephone conversation with him. Mr. Matonte did so, at which time
Mr. Wolfe made it clear that Wexford was not going to receive the East Cluster contract, and that Wexford needed to stop contesting the Department's position if it wanted to receive the West Cluster contract. This conversation took place at about 10:00 a.m. on Friday, December 15, and Mr. Wolfe gave Wexford until noon to give him a response. If Wexford did not respond, then Wolfe indicated Wexford would end up with nothing.
Following the conference call with Wexford, the Department had conference call sessions with PHS and then with CMS. In both of those sessions, the Department invited those vendors to lower their per diem rates offered for the East Cluster. The negotiations effectively ended on the afternoon of December 15, when Mr. Wolfe, Ms. Bassett, and Mr. Prudom made the decision to award the East Cluster to CMS, but Mr. Wolfe continued to negotiate with PHS for most of the week following December 15, 2000. These negotiations culminated in PHS’s written “best and final offer” on December 21, 2000, at which
time PHS offered a price of $13.17. By then, the Department had already decided to award the East Cluster contract to CMS.
Most of the negotiations between PHS and Mr. Wolfe occurred after the Department commenced negotiations with the third-ranked vendor, CMS, and after the Department had already decided to award the East Cluster contract to CMS. This course of conduct by the Department was inconsistent with the negotiation rules the Department purports to have applied to the negotiation process.
A notice of intent to protest had been filed by PHP, the fourth ranked bidder in the East Cluster, on December 12, 2000. The Department made the determination that the bid procurement should continue and ultimately set forth facts and circumstances in writing to support that determination in an Agency Statement signed by the Secretary.
On January 2, 2001, the Department posted notice of its intent to award the contract for the East Cluster to CMS.
On January 8, 2001, PHP amended its Initial Protest to contest the Department's continuation of the procurement process subsequent to PHP’s initial petition.
Wexford History and Experience
Wexford was founded in 1992 as a service company providing health care in correctional settings. Wexford is one
of the three largest companies nationally performing correctional health care, along with CMS and PHS.
Wexford’s officers and key employees have extensive experience in health care in Florida and in correctional health care in Florida and throughout the nation. Wexford’s CEO, Kevin Halloran, has been with Wexford since its inception, and prior to Wexford’s founding had health care experience in the U.S. Army Medical Corps and, beginning in 1971, the nursing home business in Florida and the hospital rehabilitation business in Florida and nationally, for a total of 36 years in health care.
Wexford’s Vice President of Business Development, Bob Matonte, has over 25 years' experience in health care management and delivery, both clinically and administratively, including
3 years overseeing health care delivery in the Broward County jail immediately before joining Wexford in 1992. Wexford’s Regional Manager for this project, Kathy Harkis, has 30 years' experience in health care, including 19 years (since 1982) in correctional health care, the last 5 of which have been in Florida. Wexford’s Medical Director for this contract, Gary Schecodnic, M.D., served as medical director for state prisons and county jails in Florida for over 12 years, from 1987 to 1999.
Wexford’s first contract for correctional health care was for prisons in the state of Illinois, with a population of
about 7,500 inmates. Wexford grew rapidly after the Illinois contract, picking up contracts for 8 prisons and 13,000 inmates in Pennsylvania, and 17 prisons and 19,000 inmates in New York state.
Wexford currently serves over 70,000 inmates in over
68 facilities in 11 different states; including a contract for about 500 inmates in the Martin County, Florida, jail since October 2000. Wexford’s current contract revenues projected forward for 12 months, are about $95 million, and Wexford expects to break the $100 million barrier soon.
The "staffing up" process in the private correctional health care industry typically involves the vendor interviewing and often hiring the doctors, nurses, and other staff who are already in place at a particular prison providing the health care. This occurs regardless of whether the health care was being provided in-house by the prison system’s own employees, or under contract with a vendor. Wexford’s standard practice is to hire every single person already providing health care in a facility on a 90-day probationary period. Thus, the RFP’s requirement at Section 3.2.3.1, that the contractor interview the Department's existing employees, is consistent with Wexford’s standard practice.
Wexford has not experienced problems in performing contracts where it had no presence prior to the contract award.
The RFP requirement for interviewing current employees, as well as Wexford’s standard staffing practice and the staffing practice standard to the industry, demonstrate that Mr. Law’s statement concerning the "lack of presence in Florida" is not a significant basis for concern.
Wexford anticipated "start-up costs" for the two clusters at between $3 million and $5 million. The single largest element of start-up costs is the employee salaries that Wexford will have to pay before it starts receiving payment from the Department. Wexford assumed 45 to 60 days of incurring salary costs before payments would be received from the Department. Under the terms of this RFP, vendors must submit an invoice for payment by no later than 15 days after the end of the month for which payment is sought. The invoice amount is calculated by multiplying the contract per diem rate by the ADP in the cluster prisons for that month. Obviously, it is in the contractor’s best interest to submit the invoice as soon after the end of a month as the ADP figure is available. It is the Department’s practice to pay invoices as quickly as it can.
The other costs which a vendor will incur during both start-up and the entire period of the contract are primarily medical in nature. These include payment for inmate care at hospitals and doctor’s offices. Such services would not be paid for at the time of delivery, but would typically be paid 45 to
60 days after the contractor received an invoice. Thus, any such costs incurred by Wexford during the start-up period would not be paid by Wexford during the start-up period, but might be paid months later.
As reflected in the notes to the audited financial statements contained in Wexford’s proposal, Wexford maintains a
$10 million line of credit with a financial institution that it can expand if necessary. A line of credit is a borrowing line established with a financial institution on which a company can draw and repay as needed to finance its daily operations. As of the end of 1999, the amount drawn on this line of credit was
$94,223, showing that it had been significantly paid down since the end of 1998. As noted by Wexford’s Chief Financial Officer at the time of final hearing, there were no funds drawn on the line of credit as of the week of final hearing. Wexford’s $10 million line of credit provides an ample resource for Wexford to financially perform this contract even during the start-up period before revenue begins to flow.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sections 120.569 and 120.57(1) and (3), Florida Statutes.
Some basic legal principles
The Department has been granted broad purchasing authority by Section 20.315(13), Florida Statutes, which reads as follows:
(13) PURCHASE OF SERVICES.--Whenever possible, the department, in accordance with the established program objectives and performance criteria, may contract for the provision of services by counties, municipalities, nonprofit corporations, and other entities capable of providing needed services, if services so provided are more cost-efficient, cost-effective, or timely than those provided by the department or available to it under existing law.
The basic statutory provisions regarding the resolution of disputes related to the contract bidding and award process are found at Section 120.57(3), Florida Statutes, which reads as follows, in pertinent part:
3) ADDITIONAL PROCEDURES APPLICABLE TO PROTESTS TO CONTRACT BIDDING OR AWARD.-- Agencies subject to this chapter shall utilize the uniform rules of procedure, which provide procedures for the resolution of protests arising from the contract bidding process. Such rules shall at least provide that:
The agency shall provide notice of its decision or intended decision concerning a bid solicitation or a contract award as follows:
For a bid solicitation, notice of a decision or intended decision shall be given by United States mail or by hand delivery.
For any decision of the Department of Management Services concerning a request by an agency for approval of an exceptional purchase under part I of chapter 287 and the
rules of the Department of Management Services, notice of a decision or intended decision shall be given by posting such notice in the office of the Department of Management Services.
For any other agency decision, notice of a decision or intended decision shall be given either by posting the bid tabulation at the location where the bids were opened or by certified United States mail or other express delivery service, return receipt requested.
The notice required by this paragraph shall contain the following statement: "Failure to file a protest within the time prescribed in s. 120.57(3), Florida Statutes, shall constitute a waiver of proceedings under chapter 120, Florida Statutes."
Any person who is adversely affected by the agency decision or intended decision shall file with the agency a notice of protest in writing within 72 hours after the posting of the bid tabulation or after receipt of the notice of the agency decision or intended decision and shall file a formal written protest within 10 days after filing the notice of protest. With respect to a protest of the specifications contained in an invitation to bid or in a request for proposals, the notice of protest shall be filed in writing within 72 hours after the receipt of notice of the project plans and specifications or intended project plans and specifications in an invitation to bid or request for proposals, and the formal written protest shall be filed within 10 days after the date the notice of protest is filed. Failure to file a notice of protest or failure to file a formal written protest shall constitute a waiver of proceedings under this chapter. The formal written protest shall state with particularity the facts and law upon which the protest is based. Saturdays, Sundays, and legal holidays shall be excluded in the
computation of the 72-hour time periods provided by this paragraph.
Upon receipt of the formal written protest which has been timely filed, the agency shall stop the bid solicitation process or the contract award process until the subject of the protest is resolved by final agency action, unless the agency head sets forth in writing particular facts and circumstances which require the continuance of the bid solicitation process or the contract award process without delay in order to avoid an immediate and serious danger to the public health, safety, or welfare.
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3. If the subject of a protest is not resolved by mutual agreement within 7 days, excluding Saturdays, Sundays, and legal holidays, after receipt of the formal written protest, and if there is a disputed issue of material fact, the agency shall refer the protest to the [D]ivision [of Administrative Hearings] for proceedings under subsection (1).
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(f) In a competitive-procurement protest, no submissions made after the bid or proposal opening amending or supplementing the bid or proposal shall be considered. Unless otherwise provided by statute, the burden of proof shall rest with the party protesting the proposed agency action. In a competitive-procurement protest, other than a rejection of all bids, 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.
Several of the provisions of the Uniform Rules in Chapter 28 of the Florida Administrative Code also provide guidance as to the resolution of protests of the type presented here. Rule 28-110.001, Florida Administrative Code, reads as
follows:
This chapter supplements the statutes on protests that arise from the contract procurement process under Chapters 24, 255, 287, 334 through 349, Sections 282.303 through 282.313, F.S., and other statutes applicable to agencies as defined in Section 120.52(1), F.S.
Policies and procedures are established primarily by Section 120.57(3),
F.S. Interested persons must follow the requirements of those statutes as well as these rules. Other statutes may apply to specific circumstances.
Subsections (1) and (2) of Rule 28-110.003, Florida Administrative Code, read as follows:
For purposes of this subchapter, the following terms mean:
"Contract procurement process" has the same meaning as "contract bidding process" as used in Section 120.57(3), F.S. This phrase includes procurements by invitation to bid (ITB), request for proposal (RFP), single source approval and negotiation approval.
"Decision or intended decision" means:
The contents of an ITB or an RFP or other specifications, including addenda;
A determination that a specified procurement can be made only from a single source;
Approval of procurement by negotiation;
Rejection of a bid or proposal, or all bids or proposals, or a request to approve a single source or negotiation; or
Intention to award a contract as indicated by a posted bid or proposal tabulation or other written notice.
And Subsection (3) of Rule 28-110.003, Florida Administrative Code, reads as follows:
A notice of protest should not be filed before the 72-hour period begins. The 72-hour period begins upon receipt of a copy of the ITB or RFP; when notice of a single source approval or disapproval or negotiation approval or disapproval is posted, or otherwise received if not posted; when a bid or proposal tabulation is posted; or when notice is otherwise received if not posted.
Some of the definitions in Section 287.012, Florida Statutes, are also relevant here. Attention is directed especially to the following provisions:
The following definitions shall apply in this part:
(1) "Agency" means any of the various state officers, departments, boards, commissions, divisions, bureaus, and councils and any other unit of organization, however designated, of the executive branch of state government. "Agency" does not include the Board of Regents or the State University System.
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(5) "Competitive sealed bids" or "competitive sealed proposals" refers to the receipt of two or more sealed bids or proposals submitted by responsive and
qualified bidders or offerors and includes bids or proposals transmitted by electronic means in lieu of or in addition to written bids or proposals.
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(7) "Contractual service" means the rendering by a contractor of its time and effort rather than the furnishing of specific commodities. The term applies only to those services rendered by individuals and firms who are independent contractors, and such services may include, but are not limited to, evaluations; consultations; maintenance; accounting; security; management systems; management consulting; educational training programs; research and development studies or reports on the findings of consultants engaged thereunder; and professional, technical, and social services. "Contractual service" does not include any contract for the furnishing of labor or materials for the construction, renovation, repair, modification, or demolition of any facility, building, portion of building, utility, park, parking lot, or structure or other improvement to real property entered into pursuant to chapter 255 and rules adopted thereunder.
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(13) "Qualified bidder," "responsible bidder," "qualified offeror," or "responsible offeror" means a person who has the capability in all respects to perform fully the contract requirements and has the integrity and reliability which will assure good faith performance.
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"Request for proposals" means a written solicitation for competitive sealed proposals with the title, date, and hour of the public opening designated. A written
solicitation includes a solicitation published or transmitted by electronic means. The request for proposals is used when the agency is incapable of specifically defining the scope of work for which the commodity, group of commodities, or contractual service is required and when the agency is requesting that a qualified offeror propose a commodity, group of commodities, or contractual service to meet the specifications of the solicitation document. A request for proposals includes, but is not limited to, general information, applicable laws and rules, functional or general specifications, statement of work, proposal instructions, and evaluation criteria. Requests for proposals shall state the relative importance of price and any other evaluation criteria.
"Responsive bid" or "responsive proposal" means a bid or proposal submitted by a responsive, and responsible or qualified, bidder or offeror which conforms in all material respects to the invitation to bid or request for proposals.
"Responsive bidder" or "responsive offeror" means a person who has submitted a bid or proposal which conforms in all material respects to the invitation to bid or request for proposals.
Section 287.057, Florida Statutes, reads as follows, in pertinent part:
(2) When an agency determines in writing that the use of competitive sealed bidding is not practicable, commodities or contractual services shall be procured by competitive sealed proposals. A request for proposals which includes a statement of the commodities or contractual services sought and all contractual terms and conditions applicable to the procurement of commodities or contractual services, including the criteria, which shall include, but need not be limited to, price, to be used in
determining acceptability of the proposal shall be issued. If the agency contemplates renewal of the commodities or contractual services contract, it shall be so 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 quoted by the offeror. To assure full understanding of and responsiveness to the solicitation requirements, discussions may be conducted with qualified offerors.
The offerors shall be accorded fair and equal treatment prior to the submittal date specified in the request for proposals with respect to any opportunity for discussion and revision of proposals. The award shall be made to the responsible offeror whose proposal is determined in writing to be the most advantageous to the state, taking into consideration the price and the other criteria set forth in the request for proposals. The contract file shall contain the basis on which the award is made.
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(4) If less than two responsive bids or proposals for commodity or contractual services purchases are received, the department or the agency may negotiate on the best terms and conditions. The agency shall document the reasons that such action is in the best interest of the state in lieu of resoliciting competitive sealed bids or proposals. The agency shall report all such actions to the department on a quarterly basis, in a manner and form prescribed by the department.
Rule 60A-1.002(5), Florida Administrative Code, reads as follows:
When no competitive sealed bids or proposals or offers to negotiate are received for the
purchase of a commodity or group of commodities or contractual services in response to the sealed bid or proposal or negotiation solicitation, the agency shall review the situation in order to determine the reasons, if any, why none was received before issuing a second invitation; provided, however, if the agency determines that commodities or contractual services are available only from a single source, or that conditions and circumstances warrant negotiation on the best terms and conditions, the agency's intended decision shall be posted in accordance with Section 120.57(3), Florida Statutes, before the agency may proceed with procurement. The agency shall document the agency file as to the conditions and circumstances used to determine the decision to proceed without a second call for competition.
The focus in a bid protest proceeding is on the agency action. Motorola, Inc. v. Department of Management Services, DOAH Case No. 00-2921BID at paragraph 66, 2000 WL 1481452 (October 3, 2000). “The judge may receive evidence, as with any formal hearing under Section 120.57(1), Florida Statutes, but the object of the proceeding is to evaluate the action taken by the agency.” State Contracting and Engineering Corp. v.
Department of Transportation, 709 So. 2d 607, 609 (Fla. 1st DCA 1998).
The hallmark of procurement of business services by state agencies in Florida is the concept of fair competition among bidders. Since as far back as 1931, when the Florida Supreme Court decided the case of Webster v. Belote, 138 So. 721
(Fla. 1931), the rule of competitive bidding in Florida has been
to:
at 724.
prevent favoritism toward contractors by public officials, tend to secure fair competition upon equal terms to all bidders, remove temptation on the part of public officials to seek private gain at the taxpayer's expense, and should receive a construction always, which will fully effectuate in advance their true intent and purpose and which will avoid a likelihood of same being circumvented, evaded, or defeated.
Further, the Webster Court determined that it was the duty of public officers who were responsible for letting contracts to require definite plans or specifications as a basis for receiving bids, and not to allow the officers letting the contract to make exceptions, releases, or modifications after it is let which would afford opportunities for favoritism "whether any favoritism is actually practiced or not." Id. at 724. The letting of a contract must be predicated upon adequate specifications which afford "some reasonable basis for a comparison of bids, in order that bids, when received, might be truly competitive in character by having them applied to the same things." (Emphasis added.)
“A capricious action is one taken without thought or reason or irrationality. An arbitrary decision is one not supported by facts or logic." See Board of Clinical Laboratory
Personnel v. Florida Association of Blood Banks, 721 So. 2d 317
(Fla. 1st DCA 1998); Board of Trustees, Internal Improvement Trust Fund v. Levy, 656 So. 2d 1359 (Fla. 1st DCA 1995); Dravo Basic Materials Co. v. State Department of Transportation, 602 So. 2d 632 (Fla. 2d DCA 1992); Agrico Chemical Co. v.
Department of Environmental Regulation, 365 So. 2d 759, 763 (Fla. 1st DCA 1978), cert. denied sub nom., Askew v. Agrico Chemical Co., 376 So. 2d 74 (Fla. 1979).
In determining whether an agency has acted arbitrarily or capriciously the inquiry should be “whether the agency:
(1) has considered all relevant factors; (2) has given actual, good faith consideration to those factors; and (3) has used reason rather than whim to progress from consideration of those factors to its final decision.” Adam Smith Enterprises, Inc. v. State Department of Environmental Regulation, 553 So. 2d 1260, 1273 (Fla. 1st DCA 1989); Santa Fe Technologies, Inc. v. Department of Transportation, 1998 WL 930111 (Florida Division
of Administrative Hearings) (Final Order entered January 5, 1999). “If an administrative decision is justifiable under any analysis that a reasonable person would use to reach a decision of similar importance, then it would seem that the decision is neither arbitrary nor capricious.” Canakaris v. Canakaris, 382 So. 2d 1197, 1203 (Fla. 1980); Dravo v. Department of Transportation, 602 So. 2d at 635.
A decision is “clearly erroneous” when it is unsupported by substantial evidence, or contrary to the clear weight of the evidence, or induced by an erroneous view of the law. See Assessments Systems, Inc. v. Department of Business and Professional Regulation, 1998 WL 866224 (Florida Division of
Administrative Hearings)(pertinent part adopted in Final Order entered August 17, 1998). An act is “contrary to competition” when it offends or subverts the fundamental policies underlying competitive procurement. Id. Those policies include securing
fair competition on equal terms for all proposers and securing the best value for the public at the lowest possible expense. Webster v. Belote, 103 Fla. 976, 138 So. 721 (1931).
Standing and Responsiveness
Generally, as vendors who submitted proposals to the Department in response to the instant RFP, each vendor – PHS, PHP, CMS, and Wexford – has standing to participate in this proceeding. However, this solicitation involves two contracts (one for the East Cluster and one for the West Cluster), and not all parties timely challenged the award of each Cluster.
In the West Cluster, the only parties who are substantially affected are Wexford (the intended contract awardee) and PHP (the only party to timely challenge the December 11, 2000, Notice of Intended Award for the West Cluster).
In the East Cluster, all vendors have timely asserted their right to participate in this proceeding. As the intended contract awardee under the January 2, 2001, Notice of Intended Decision for the East Cluster, CMS is substantially affected, and timely asserted its right by Petition to Intervene. Wexford and PHS timely filed Notices of Protest and Formal Written Protests challenging the proposed award to CMS. PHP, which had earlier filed a challenge to the December 11, 2000, Notice of Intended Decision for the East Cluster (establishing an order at negotiation), timely amended its earlier protest to incorporate a challenge to the award of the East Cluster to CMS.
Standing to participate in this proceeding is subject to a vendor establishing the responsiveness of its proposal. With few exceptions, only responsive vendors who are in a position to be awarded the contract are truly substantially affected by the proceedings. Brasfield & Gorrie General Contractor v. Ajax Construction Co. Inc., 627 So. 2d 1200 (Fla.
1st DCA), review denied 639 So. 2d 975 (Fla. 1993) (nonbidder is not entitled to relief of either award of contract or rebid); Preston Carroll Company, Inc. v. Florida Keys Aqueduct Authority, 400 So. 2d 524 (Fla. 3d DCA 1981) (second low bidder
had standing to protest award as it stood to receive the contract if successful, but third low bidder lacked standing).
An offered price which violated the very purpose of the RFP (to secure one or more vendors to provide health care "at a cost savings" when compared to the Department’s prior year expenditures) is not responsive to the RFP’s requirements. Such a deviation cannot be waived. PHS, then, was non-responsive for the East Cluster contract because its offered price of $14.16 per inmate per day exceeded the Department’s prior year East Cluster expenditure of $13.24 per inmate per day.
The Department's failure to exclude PHS from the evaluation process based upon PHS’ cost proposal was clearly erroneous. It would be arbitrary, capricious, and contrary to competition for the Department to do anything other than to reject the PHS proposal on the grounds that it is non- responsive.
The PHS proposal also should have been rejected because Section 4.3.11 of the RFP, as revised by Addendum 1, expressly prohibited proposers from having discussions with the Department regarding cost issues at any time before the posting of the intended awards. Section 4.3.11 of the RFP mandates the rejection of any proposer that violates the prohibition of that section. PHS violated this prohibition by sending a letter directly to the Secretary of the Department before any notice of intended award was posted in which PHS discussed cost and other material issues, and, among other things, sought an opportunity
to lower its price. The letter was a material deviation within the meaning of Section 1, paragraph 14, of the RFP. Accordingly, for this additional reason, it would be arbitrary,
capricious, and contrary to competition for the Department to do anything other than to reject the PHS proposal.
Waiver of the HMO issue
PHP contends that it is the only responsive proposer because it is the only proposer licensed as an HMO in Florida. In support of its contention, PHP argues that performance of the contracts at issue here would require certification as an HMO or authorization to act as an insurer. Some of the parties argue that PHP has waived its right to raise the HMO issue. The waiver argument is predicated on the notion that PHP is attempting to challenge the language of the specifications long after the deadline for such challenges has passed. However, such is not the case. The HMO argument advanced by PHP is not a challenge to the language of the specifications. Rather, PHP's argument is an argument based on PHP's interpretation of the legal requirements of the existing language of the specifications. In this regard, PHP is not suggesting that there is any error in the specifications; only that the Department and the other parties have erroneously interpreted the requirements of the RFP specifications. Such being the
case, there has been no waiver of PHP's right to raise the HMO issue.
The substance of the HMO issue
Health maintenance organizations are governed by the provisions of Chapter 641, Part I, Florida Statutes (“the HMO Act”). Section 641.201, Florida Statutes. “Health maintenance organization” is defined in Section 641.19(13) as any organization authorized under the HMO Act that, among other things, “[p]rovides, either directly or through arrangements with other persons, health care services to persons enrolled with such organization, on a prepaid per capita or prepaid aggregate fixed-sum basis . . . .” Section 641.19(13)(b), Florida Statutes. "Health maintenance contract" means any contract entered into by a health maintenance organization with a subscriber or group of subscribers to provide comprehensive health care services in exchange for a prepaid per capita or prepaid aggregate fixed sum.” Section 641.19(12), Florida
Statutes. Even Section 641.18, which sets forth the declaration of legislative intent, findings, and purposes, repeatedly emphasizes that HMO regulation applies only to prepaid plans.
The RFP at Section 7.4.2 provides: “The contractor agrees to request compensation on a monthly basis through submission to the Department of a properly completed invoice within fifteen (15) days following the end of the month for
which payment is being requested.” Under the contractual arrangement contemplated by the RFP, the contractor will not be paid on a prepaid per capita or prepaid aggregate fixed-sum basis as described in Section 641.19(13)(b), Florida Statutes. Rather, the contractor will be compensated after submission of an invoice for services provided during the proceeding month.
Therefore, the prepayment requirement of Section 641.19(13) is not satisfied.
Section 641.19(13)(b), Florida Statutes, requires the enrollment of HMO subscribers, and Section 641.19(13)(e), Florida Statutes, references the utilization of primary physicians of HMO subscribers in receiving medical treatment. The RFP does not contemplate inmates enrolling with the contractor for health services nor the use of primary physicians in providing health care services to inmates. Rather, inmates housed by the Department are provided treatment in accord with the Department's constitutional duty to provide adequate health care to inmates.
Inmates have no financial interest at stake and their rights to medical care differ substantially from those of the general public. Therefore, requiring licensure of any entity that may contract with the Department for the provision of health care services to inmates would not further the general purpose of HMO and insurer regulation, that is, protection of
subscribers and policyholders. See Section 641.18, Florida
Statutes (Declaration of legislative intent, findings, and purposes).
The Legislature has authorized the Department to enter into HMO contracts for inmate care. Section 945.6033 of the Florida Statutes provides:
Continuing contracts with health care providers.--The Department of Corrections may enter into continuing contracts with licensed health care providers, including hospitals and health maintenance organizations, for the provision of inmate health care services which the department is unable to provide in its facilities.
Section 945.6033 permits, but does not require, the Department to award a prison health services contract to an HMO. The Department has never done so.
PHP argues that anyone who undertakes to provide the services which are the subject of the instant RFP is subject to regulation by the Department of Insurance either as a health maintenance organization or as an insurer, and must be appropriately certified or licensed by the Department of Insurance. Noting that it is the only proposer licensed to operate as an HMO in Florida, PHP argues that all three of the other proposers are non-responsive because all of them lack legal authorization to operate as an HMO or as an insurer in the State of Florida. The Department of Insurance enthusiastically
endorses PHP's position in this regard and, in its role as amicus curiae, has filed a lengthy memorandum setting forth its reasons for agreeing with PHP's position. The Department and all three of the other proposers strongly disagree with PHP's position in this regard.
Directing attention first to the HMO issue, the Department and the non-HMO proposers have identified numerous differences between the contractual arrangements conteplated by this RFP and the contractual arrangements in the typical HMO agreement with regard to such matters as (a) the scope and nature of the services to be provided, (b) the nature of the relationship between the health care provider and the health care recipients, and (c) the nature of the financial arrangements between the entity paying for the services and the entity receiving payment. These many differences lend persuasive weight to the conclusion that the contractual arrangements contemplated by the instant RFP do not come within the statutory definition of health maintenance organization. Although the differences are many, an especially significant difference is the absence of any "prepaid" or "prepayment" feature in the contractual arrangements contemplated by the instant RFP. Prepayment is a feature that is of the essence of the typical HMO arrangement and prepayment is one of the elements of the statutory definition of a health maintenance
organization. The prepayment element is what causes the typical HMO arrangement to resemble an insurance agreement; which resemblance led to the need for HMO regulation similar to the regulation applicable to insurance companies. The contractual arrangement contemplated by the instant RFP lacks the element of prepayment and, for that reason and several others, does not come within the statutory definition of a health maintenance organization, nor is it subject to the HMO regulatory provisions.
Turning now to the related issue of whether the contract contemplated by the instant RFP is a contract of insurance, it is instructive to take note of the following language from Boyle v. Orkin Exterminating Co., Inc., 578 So. 2d
786 (Fla 4th DCA 1991), at 787-88:
Whether or not a contract is one of insurance depends on its purpose, effect, contents and import, and is not determined merely by the terminology used. State ex rel. Landis v. DeWitt C. Jones Co., 108 Fla. 613, 147 So. 230 (1933). In the instant case the overall purpose of the guarantee was to add service to the "sale" of appellee's termite treatment program.
Appellee was not in the business of providing guarantees but in providing pest control service. Thus, we agree with the Texas appellate court in Rayos v. Chrysler Credit Corp., 683 S.W.2d 546 (Tex.App.1985), when it noted that in deciding whether a contract is one providing for insurance the true inquiry is "whether looking at the plan of operation as a whole, 'service' rather than 'indemnity' is the principal object and
purpose of the agreement. . . ." 683 S.W.2d at 548. Likewise, in Transportation Guarantee Co. v. Jellins, 29 Cal.2d 242, 174 P.2d 625, 629 (Cal.1946), the court stated:
[A] sound jurisprudence does not suggest the extension, by judicial construction, *788 of the insurance laws to govern every contract involving an assumption of risk or indemnification of loss; that when the question arises each contract must be tested by its own terms as they are written, as they are understood by the parties, and as they are applied under the particular circumstances involved.
On the record in this case, it is clear that the Department, by means of the RFP in the instant case, is seeking to obtain services (specifically health care services); and it is not seeking to buy insurance. Consistent with the decision in Orkin, supra, the contracts the Department seeks to enter into are not insurance contracts.
Failure to disclose criteria
PHP contends that the evaluation process at issue here was flawed by reason of the Department's alleged failure to disclose all evaluation criteria, as well as by the Department's alleged failure to disclose "the relative importance of price and of any other evaluation criteria," as required by the last sentence of Section 287.012(15), Florida Statutes. The alleged flaws identified by PHP were apparent on the face of the RFP. Accordingly, if PHP believed that the RFP should have explained the evaluation and scoring process in greater detail, or if it
objected to the use of evaluation criteria specified in the RFP, it was obligated to timely protest those provisions of the RFP in accordance with Section 120.57(3), Florida Statutes. Having failed to protest, PHP has waived its right to challenge or object to the evaluation process and criteria the Department used. Section 120.57(3), Florida Statutes. See Optiplan, Inc. v. School Bd. of Broward County, 1995 WL 1053236 (Fla. DOAH 1995) (adopted in toto 1996), aff’d in part, rev’d in part,
710 So. 2d 569 (Fla. 4th DCA 1998) (affirming on the issue of waiver)(where RFP identified certain “primary factors” that “may” be used in evaluating proposals, proposer who did not protest RFP waived right to challenge agency’s use of criteria not identified in RFP); Mims Gardens, Inc. v. Department of
Transportation, 1991 WL 833652 (Fla. DOAH 1991)(holding that, where the protester claimed it should be awarded the contract because of the “failure of the Department to include [certain pricing] instructions within the bid package itself,” the petitioner “has waived its right to challenge the bid solicitation by failing to file a notice of protest within 72 hours of the receipt of the bid documents. ”).
Even if not waived, PHP's arguments about failure to disclose evaluation criteria would not provide a basis for relief, because, with one possible exception not relevant here, there is no persuasive evidence sufficient to show that PHP was
affected by the use of the undisclosed criteria to such an extent as to have made a difference in the final ranking of the proposals.3 Accordingly, if there was any error with regard to failure to disclose evaluation criteria, on the record in this case it would be, at most, harmless error.
With regard to PHP's "relative importance" argument, it is worth noting that, even if not waived, the argument would lack merit. Section 6 of the RFP stated clearly the relative point value of price cost and the other evaluation criteria: Price was worth 550 points, Business/Corporate Qualifications was worth 100 points, Project Staff was worth 100 points, and Service Delivery Approach was worth 250 points. This satisfies the statute’s requirements. If PHP believed the point breakdown was inadequate to comply with the statute, it was obligated to bring that challenge within 72 hours of receipt of the RFP; having failed to do so, it waived that claim. See Winchester Props. v. Department of Transportation, 1990 WL 749626 (Fla.
DOAH 1990)(challenge to point allocation in RFP waived when not made within 72 hours of receipt of RFP).
The "disqualification" of Wexford
Although the Department chooses to describe the incident in other terms, the manner in which it treated Wexford following Mr. Law's December 8, 2000, letter was nothing more or less than a disqualification of Wexford as a proposer for the
East Cluster contract. The net effect of the Department's actions towards Wexford following Mr. Law's December 8, 2000, letter was to treat Wexford as though it's proposal for the East Cluster contract was non-responsive.
The Department's act of excluding Wexford from competition for the East Cluster contract is totally without any legal, factual, or logical basis. There is no statutory or rule provision that supports the exclusion of Wexford, nor is there any provision in the RFP to support such an exclusion. Similarly, there is no factual or logical basis for such an exclusion. There is simply no support of any kind for the exclusion of Wexford and the exclusion must be set aside.
In this regard it is important to note that the only mandatory eligibility requirement related to business experience and business size is the mandatory requirement at Section
5.1.4.1 of the RFP, which requires the proposer to provide under oath:
A statement certifying that the Contractor shall have business/corporate experience for a minimum of three (3) years within the last five (5) years relevant to the provision of comprehensive health care services to a total daily capacity of at least 9500 clients. (This experience requirement applies if bidding on one or both clusters.) (Emphasis added.)
The Department recognizes that Wexford meets the above-quoted manadatory business experience and size requirement, because the
Department awarded the West Cluster contract to Wexford. Inasmuch as the above-quoted requirement is the same regardless of whether a proposal is made for one contract, the other contract, or for both contracts, it follows logically that if Wexford sufficiently meets all of the business experience and size requirements to be awarded one contract, Wexford has also sufficiently met those requirements so as to be eligible for an award of the other contract, or an award of both contracts. To conclude otherwise, the Department would have to add additional mandatory eligibility requirements to Section 5.1.4.1 of the RFP after the proposals were opened. Such a modification of the RFP is impermissible because it would be contrary to competition.
The evidence in this case also establishes that, even if the Department had the authority to exclude Wexford from competing for the East Cluster contract, there would be no factual basis for such an exclusion. The evidence establishes that Wexford is a financially and operationally sound company with more than enough resources and experience to fulfill its obligations under both of the subject contracts. The evidence also establishes that at the time Mr. Law prepared the comments in his December 8, 2000, letter, Mr. Law did not have enough information about the operations of Wexford or enough information about the manner in which prison health care is
typically provided, upon which to formulate a meaningful opinion.
For all of the foregoing reasons, it was clearly erroneous, contrary to competition, arbitrary, and capricious for the Department to exclude Wexford from competing for the East Cluster contract.
The decision to negotiate
Much like the decision to exclude Wexford from competition for the East Cluster contract, the Department's decision to negotiate the award of the East Cluster contract is totally without any legal or logical basis. There is no statutory or rule provision that authorizes the Department to resort to negotiations under the circumstances presented here. The Department purports to have relied on Rule 60A-1.002, Florida Administrative Code, for its authority to negotiate. The only language in that rule provision that addresses the subject of awarding contracts in an RFP by resort to negotiations is Rule 60A-1.002(5), Florida Administrative Code. That rule provision, consistent with the provisions of Section 287.057(4), Florida Statutes, authorizes resort to negotiations in the context of an RFP only when there are less than two
responsive proposals. (Emphasis added.)
In its proposed recommended order the Department also argues that "under the terms of the RFP and the governing rules,
the Department reserved the discretion to select the company it believed subjectively best, despite the rankings resulting from the evaluation process." (Emphasis added.) The Department is mistaken. Such an exercise of unfettered discretion is in conflict with several of the applicable statutory and rule provisions, and is, without doubt, inconsistent with all of the purposes for which the competitive bidding process is used. The Department's resort to negotiations in this case was contrary to applicable statutes and rules and was clearly erroneous and contrary to competition.
CMS argues that Wexford has waived its right to protest the decision to negotiate because Wexford did not file a timely notice of intent to protest the December 11, 2000, notice of the Department's intent to resort to negotiations. The argument fails because the Department's notice of its intent to negotiate, whether authorized or not, is not a "decision or intended decision" of the type which must be promptly protested to avoid a waiver of rights. See definition of "decision or intended decision" at Rule 28-110.003(2), Florida Administrative Code.
The negotiation process
There is no need to devote much discussion to the manner in which the Department conducted the negotiations regarding the East Cluster contract because, as discussed above,
the Department had no authority to engage in negotiations. Accordingly, it is irrelevant how the negotiations were conducted because, even if conducted in a faultless manner, the results of the negotiations must be set aside because the negotiations were not authorized. It is sufficient to note that the Department's negotiation process was full of irregularities which should be avoided if the Department should ever be involved in future authorized negotiations.
The intended award to CMS
The Department's intended award of the East Cluster contract to CMS is the product of an unauthorized negotiation process which was conducted in an unfair and otherwise improper manner. It would be clearly erroneous, contrary to competition, arbitrary, and capricious to award a contract on the basis of such an unauthorized and flawed process.
In view of the fact that Wexford submitted the highest ranked proposal for the East Cluster contract, and that Wexford is a responsive and responsible proposer, under the applicable statutes, rules, case law, and RFP provisions, Wexford should be awarded the East Cluster contract. To do otherwise would be clearly erroneous, contrary to competition, arbitrary, and capricious.
The intended award to Wexford
Inasmuch as Wexford submitted the highest ranked proposal for the West Cluster contract, and Wexford is a responsive and responsible proposer, the Department should go forward with its intended action to award the West Cluster contract to Wexford. To do otherwise would be clearly erroneous, contrary to competition, arbitrary, and capricious.
On the basis of all of the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department issue a Final Order in this case awarding to Wexford contracts for both the West Cluster and the East Cluster, and denying all relief sought by all other proposers.
DONE AND ENTERED this 4th day of May, 2001, in Tallahassee, Leon County, Florida.
MICHAEL M. PARRISH
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 4th day of May, 2001.
ENDNOTES
1/ PHP's exhibits were designated as PHP Exhibits 1 through 3, PHS's exhibits were designated as PHS Exhibits 1 through 4, Wexford's exhibits were designated as Wexford Exhibits 1 through 3, and CMS's exhibits were designated as CMS Exhibits 1 and 3 through 9.
2/ Careful consideration has also been given to the Supplemental Memorandum of Law filed on April 2, 2001, by the Department of Insurance in its role as amicus curiae.
3/ The one possible exception is the possibility that the manner in which the financial documents were evaluated and scored might have provided a basis for a change in the ranking of the proposers. However, the merits of that possibility are beyond the proper scope of this proceeding, because PHP's issue regarding the evaluation of the financial documents was not timely raised.
COPIES FURNISHED:
David C. Ashburn, Esquire Michael J. Cherniga, Esquire Greenberg Traurig, P.A.
101 East College Avenue Post Office Box 1838
Tallahassee, Florida 32302-1838
Anthony Garcia, Esquire Obed Dorceus, Esquire Department of Corrections 2601 Blairstone Road
Tallahassee, Florida 32399-2500
Kenneth G. Oertel, Esquire
M. Christopher Bryant, Esquire
Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 1110
Tallahassee, Florida 32302-1110
Jonathan Sjostrom, Esquire Rex D. Ware, Esquire Steel, Hector & Davis
215 South Monroe Street, Suite 601 Tallahassee, Florida 32301
Paul R. Ezatoff, Esquire
Katz, Kutter, Haigler, Alderman, Bryant & Yon
Post Office Box 1877 Tallahassee, Florida 32302-1877
Donald A. Dowdell, Esquire Florida Department of Insurance
200 East Gaines Street Tallahassee, Florida 32399-0333
Louis A. Vargas, General Counsel Department of Corrections
2601 Blairstone Road
Tallahassee, Florida 32399-6563
Michael W. Moore, Secretary Department of Corrections 2601 Blairstone Road
Tallahassee, Florida 32399-2500
Honorable Tom Gallagher
State Treasurer/Insurance Commissioner Department of Insurance
The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300
Mark Casteel, General Counsel Department of Insurance
The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
10 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| May 19, 2002 | Agency Final Order | |
| May 04, 2001 | Recommended Order | Agency`s proposed award of contract by negotiation was clearly erroneous, contrary to competition, arbitrary, and capricious. |
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