STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CENTRAL ADJUSTMENT BUREAU, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 87-4068BID

)

DEPARTMENT OF EDUCATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Final hearing in the above-styled action was held on September 28, 1987, in Tallahassee, Florida, before Mary Clark, Hearing Officer of the Division of Administrative Hearings.

The parties were represented as follows:

For Petitioner: E. C. Deeno Kitchen, Esquire

Melissa Fletcher Allaman, Esquire Ervin, Varn, Jacobs, Odom & Kitchen Post Office Box 1170

Tallahassee, Florida 32302-1170

For Respondent: Charles S. Ruberg, Esquire

State Board of Education Knott Building

Tallahassee, Florida 32399 BACKGROUND

Sometime prior to July 1987, the Florida Department of Education (DOE) issued Invitation to Bid No. 87-0123, to procure collection services for defaulted student loans under the Florida Guaranteed Student Loan Program, the Florida Auxiliary Loan (PLUS) Program and the State of Florida Student Loan and Scholarship Loan Programs.

Fifteen firms or collection agencies responded. In an initial evaluation stage, eight of the proposals were eliminated for failure to comply with the bid requirements. The remaining seven proposals were evaluated by a review committee and numerical scores were awarded to each proposal.

The results of the Department's evaluation of the proposals were provided in a letter dated July 21, 1987. Petitioner, Central Adjustment Bureau, Inc. (CAB) filed a timely protest. After the parties' unsuccessful attempts to resolve the protest the matter was referred to the Division of Administrative Hearings for a formal hearing.

Another unsuccessful bidder also filed a protest. That case, Bruce Nants

v. Department of Education, DOAH #87-4069BTD, involved a bidder who was eliminated from final consideration. The issues were not similar and the cases were not consolidated.

Notices of the protest were sent to all bidders, as stated in the certification by counsel for DOE dated September 23, 1987. None sought intervention.

At the hearing, CAB presented the testimony of Gary Lyons, Blair Shuford, Rick Wells and Randy Milliken. Its exhibits #1 through #3 were received in evidence.

DOE presented the testimony of Blair Shuford, Walter Bone and Robert Hotaling. Respondent's exhibits #1 through #4 were received in evidence.

Seventeen Joint Exhibits, described in the parties' prehearing stipulation, were also received.

A transcript was not prepared. However, both parties submitted post- hearing proposed recommended orders. These have been carefully considered in the preparation of this recommended order and specific rulings on each proposed finding of fact are found in the attached Appendix.

ISSUE

The issue for determination is whether DOE properly evaluated the proposals in Bid No. 87-0123 and, if not, what corrective action should be taken.

CAB contends that a proper evaluation of the bids would have resulted in a contract award to it. More specifically, CAB claims that it should have received a higher evaluation score in bid items #1 and #4. It also questions the scores received by two other competing firms.

DOE contends that its evaluation was proper, the results should be upheld and the contracts be awarded as proposed.

FINDINGS OF FACT

The Invitation to Bid and Evaluation Process

1. The purpose for Invitation to Bid No. 87-0123 is stated in the Introduction to that document:

   
   

   INTRODUCTION

   
   

   The Florida Department of Education (hereinafter Department) is soliciting proposals from commercial collection agents/law firms (hereinafter Agent) for delinquent account collection services on defaulted Florida Student Loans, Florida Auxiliary Loans (PLUS) and State of Florida Student Loan and Scholarship Loans. Florida Guaranteed Student Loans and Auxiliary Loans are loans made to student and parents of students by

   participating lenders and insured by the Department against default, death, disability and bankruptcy by the borrower.

   
   

   The purpose of the Department in contracting for collection services on seriously delinquent and defaulted loan accounts is to increase collections through the use of professional collection activities beyond the efforts of the loan servicing contractor and the expertise of the Department's staff.

   
   

2. DOE intends to award contracts to four bidders who receive the highest scores in the evaluation process. The top three bidders will receive contracts for "first placement" of accounts for collection; the fourth bidder will receive a contract for "second placement", and if performance warrants, it might subsequently receive "first placements"

   
   

3. "First placement" refers to accounts which have never before been placed with a collection agency; "second placements" are those for which the first collection agency failed to obtain results.

   
   

4. The evaluation of the fifteen proposals DOE received in response to the ITB included an initial review against a checklist to determine if the proposal minimally met the specified requirements. In this process, eight proposals were eliminated.

   
   

5. The remaining seven bidders were evaluated by the agency to ascertain the top four choices. The method of evaluation described in DOE's notification letter dated July 21, 1987, included the following scoring system:

   
   

   METHOD OF EVALUATION

   
   

   ITEM 1. Maximum 40 Points

   
   

   The final seven collection agents were evaluated in this category based on 3 factors.

   1. Recovery rate

   2. Overall qualification [corrected to read "Agent" qualification]

   3. Level of services

      Above average in each category was assigned 13.33 points, average was assigned 6.66 points and poor was assigned

      0 points. The information used to award points was from the references provided and/or our experience.

      
      

      ITEM 2. Maximum 35 Points

      
      

      Low bid for first placements was given

      35 points and all other bids were given points based on the ratio of each bidders average commission to low

      bidders average commission, multiplied by the maximum of (35) points.

      
      

      ITEM 3. Maximum 5 Points

      
      

      Reports were evaluated in this area as above average 5 points, average 3 points, poor 1 point, and non-existent

      0 points.

      
      

      ITEM 4. Maximum 5 Points

      
      

      Collection letters we evaluated as above average 5 points, average 3 points, poor 1 point and non-existent 0 points.

      
      

      ITEM 5. Maximum 10 Points

      
      

      Agencies were given a maximum of 10 points on financial stability.

      
      

      ITEM 6. Maximum 5 Points

      
      

      Office location was evaluation [sic] by awarding 5 points if the agent had an office in Florida, 3 points if an agent has an office in the Southeast and 1 point if the office is outside the Southeast.

      
      

6. The Agency's evaluation was conducted by three DOE employees: Blair Shuford, the administrator for DOE's claims and collections; his subordinate, Rick Wells, collection manager for the office of student financial assistance; and Larry Arnold, the immediate supervisor of Blair Shuford.

   
   

7. Blair Shuford collected information from the references provided by the bidders in response to Section 4.4 of the ITB. Using a form designed for this purpose, he telephoned each reference and asked questions regarding rates of recovery and levels of service. The references were educational agencies who had used the services of collection agencies for their defaulted guaranteed student loans.

   
   

8. In some cases, the references had utilized the services of other bidders who had not listed them as a reference. In those cases the references were asked about those bidders as well. As a result, the reference data ranged from two to ten per bidder.

   
   

9. Certain references had to be eliminated since their experience with the bidder was unrelated to the guaranteed student loan programs.

   
   

10. Blair Shuford knew many of the references, as they were his counterparts in other states. He considered the information they gave to be valid.

    
    

11. DOE used itself as a reference for those collection agencies which had performed services for it. After all the reference data was collected, the

    proposals were scored by Shuford and Larry Arnold. The two then met with Larry Wells, and the three reached a consensus on the scores.

12. The Committee's scores for each of the seven responsive bidders are: Payco General American Credits 87.40

    Hayt, Hayt and Landau 83.43 Diversified Collection Services 78.45 CBI /Equifax 73.00

    CENTRAL ADJUSTMENT BUREAU 63.77

    Van Ru Credit Corporation Calif. 61.23 Financial Collection Agencies 50.00

    
    

13. CAB, in fifth place, was not recommended for a first or second placement contract.

    
    

    The CAB Proposal

    
    

14. CAB is the largest privately owned collection agency in the country. It has twenty seven offices throughout twenty states, with a home office in Dallas Texas. Its Florida office, in Tampa, is one of the company's largest and most effective.

    
    

15. CAB has worked under previous agency contracts for the collection of defaulted student loans for approximately ten years. When CAB's contract with DOE for first placement services expired in June 1986, the services were continued under an emergency contract for the duration of the new procurement process. The contract does not require DOE to place accounts for collection but only obliges the Department with regard to those accounts it does place. DOE has continued to place accounts with CAB throughout its contract terms and beyond, in emergency extensions to the contract.

    
    

    Evaluating CAB

    
    

16. Under the evaluation process described above, CAB received the following item-by-item scores:

    
    

    Item 1. Agency Qualifications (maximum 40 points): Recovery Rate 6.66 (average)

    Agents Qualifications 6.66 (average) Level of Services 6.66 (average)

    Total 20 points

    
    

    Item 2. Fees (Maximum 35 points):

    22.77 points

    
    

    Item 3. Reports (Maximum 5 points):

    5 points

    
    

    Item 4. Letters (Maximum 5 points):

    1 point (poor)

    
    

    Item 5. Financial Soundness (maximum 10 points):

    10 points

    
    

    Item 6. Office location (maximum 5 points):

    5 points

17. CAB contests its score for Items #1 and #4. The other item for which it received less than the maximum was #2, but this was an objective score, based on a formula applying the commission rates quoted in the competing proposals.

    
    

18. Rick Wells initially disagreed with his fellow committee members with regard to the score for Item #1. He felt that, as an existing contractor, CAB should be entitled to a "weighting" in their score. He could not say exactly how that weighting would effect the outcome, and did not specifically disagree with the fact that CAB was not among the top four. After he suggested his idea to the others, he was reminded that weighting was not included in the ITB. He found this persuasive and agreed with the final recommendation of the Committee.

    
    

19. CAB claims that its recovery rate should have been scored "above average", based among other reasons, on Blair Shuford's comment on the evaluation form: "Weaker company, but good collectors in Florida. Our best for many years."

    
    

20. Shuford still stands by that comment, but also concedes that the relevant recovery rate data leaves CAB in third place among those collection agencies which have provided services for DOE.

    
    

21. The relevant data period selected for consideration was January 1984 through January 1987, because that period reflected overall constant placements for the competing collection agencies. More recent data, in the opinion of the committee, would have "skewed" the results as the placements were uneven. Had more recent data been utilized, CAB would have placed second, instead of third place among collection agencies with DOE experience.

    
    

22. This would not have necessarily resulted in a higher score for CAB, since not all bidders had DOE experience. In those cases DOE relied on the only data available the data provided by other state references. Although there was no way to assure that the other reference data was not "skewed", DOE had no reason to doubt the validity of the recovery rates provided to it. CAB did not produce evidence that the data was invalid. After the reference data was received, the relative rankings of each collection agency by the references became more significant to the committee than the recovery rates. In that regard, the performance of two bidders, Payco and Diversified Collection Services (DCS) stood out as superior to all the others. DOS had the best recovery rate for eight reference organizations and the second best rate for the two remaining references. Payco had the best recovery rate for five reference organizations and the second best recovery rate for five references. These two bidders were scored "above average" for recovery rate.

    
    

23. No bidders stood out with poor recovery rates and the remaining five were given "average" scores. CAB's references, Missouri, Massachusetts and DOE, ranked that agency first, third and third respectively.

    
    

24. CAB also claims that in computing their recovery rate for DOE's placements, DOE omitted approximately $25,000.00 of recovery on approximately

    $120,000.00 of placement contracts. When $120,000.00 is added to the total placements of $19,114,901.00, and when $25,000.00 is added to the total collections of $1,742,738.00, CAB's gross recovery rate is increased from 9.12 percent to 9.19 percent. This does not increase its third place position in recovery rates for DOE, as Hayt, Hayt and Landau is at 10.09 percent for the same period, and Payco is at 10.73 percent.

25. The remaining two sub-categories under Item #1, "Agents' qualifications" and "Level of Services" were scored by a subjective review of the contents of the proposals, the references' responses to the telephone questionnaire, and DOE's experience with the collection agency, where relevant.

    
    

26. CAB disputes its "average" score of 6.66 in these sub- categories based, again, on Blair Shuford's statement, "...Our best for many years", and on CAB's sales representative's own analysis of the top ranked proposals. CAB concedes that its competitors presented nice, detailed proposals. CAB did not feel that it had to describe its staff and collection procedures in great detail to a client with whom it had been working for the past eight years.

    
    

27. Although the "Method of Evaluation" provided in the notification of intended award packets states that the points were awarded based on references and DOE's experience (See paragraph #4 above), the evidence presented at the hearing clearly established that a thorough analysis was also made of the contents of the proposals. (See Joint Exhibit 11). CAB had no basis to rely on the "Method of Evaluation" in preparing its proposal, it was only provided after the proposals had been submitted. The agent selection criteria described in the ITB in no way would mislead a bidder regarding the importance of a complete detailed proposal. (Joint Exhibit #1, pp. 23-24)

    
    

28. Item #4 required an evaluation of the contents of the collection letters and forms used by the agent.

    
    

29. Because of practices by CAB's offices outside Florida, CAB was sued in a Federal Trade Commission action. After protracted litigation, the case was settled and CAB was required to place the following notice in its collection letters:

    
    

    We are attempting to collect a debt, any information obtained will be used for that purpose.

    
    

    Unless you notify this office within 30 days after receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice, this office will obtain verification of the debt or obtain a copy of the judgment and mail you a copy of such judgment or verification. If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.

    
    

    The law gives you the right to stop us from communicating with you about this debt, if you request us to do so in writing. If you asked us to stop we will. But if you owe the debt, you will still owe it, and your creditor may continue to collect it.

    The collection of debts must comply with the Fair Debt Collection Practices Art, which is enforced by the Division of Credit Practices, Federal Trade Commission, Washington, D.C. 20580.

    
    

    If you prefer, you may contact Central Adjustment Bureau, Inc., office of the President, 1111 Empire Central Place, Dallas, Texas 75247. Please include your return address and telephone number. (Joint Exhibit #6, pp. 30-35)

    
    

    DOE rated CAB's collection letters as "poor".

    
    

30. CAB disputes this rating as its recovery rate has actually increased since January 1987, when the above notice was initiated.

    
    

31. Recovery rates are not determined solely by collection letters. Telephone contacts with the debtor have at least an equal impact on recovery by the agent. The evaluation committee felt that CAB's disclaimer gave debtors the message that the letters could be effectively ignored. The experience and background of the committee members in administering loan programs and engaging in collections are amply sufficient to support the committee's judgment as to the merits of the collection letter.

    
    

32. CAB's remaining contentions relate to evaluations of competing proposals. It claims that Diversified Collection Services (DCS) 5 point score (maximum) in item #3, relative to reports, was improper, as CAB, who also received the maximum, included a report that DCS does not use a Recovery Placement Analysis Report. CAB never established, however, how that report could be so overwhelmingly significant. And, if it had, a reduction in score on this item would not effect the rankings of the competing bidders. (See paragraph 6, above.)

    
    

33. CAB also claimed that CBI/Equifax, the fourth ranked bidder, did not meet ITB's minimum requirement of five years' experience in student loan collections and did not submit financial statements for the last three fiscal years. This latter assertion was not made in the formal protest and neither contention is addressed in CAB's proposed recommended order. Competent evidence nevertheless established that both requirements were met by this bidder.

    
    

    CONCLUSIONS OF LAW

    
    

34. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this proceeding. Section 120.53(5) and 120.57(1), F.S.

    
    

35. Petitioner has the burden of proof in this proceeding.

    
    

36. Petitioner failed to meet that burden with competent substantial evidence that its proposal was better than the four competitors ranked above it, or that it was more capable of providing the services being sought.

    
    

37. The evaluation of proposals was, for the most part, a subjective process, leaving room for reasonable men to differ. The method applied by DOE

    was shown to be fair and appropriate. The technical competency and good faith of the evaluation committee were uncontroverted.

    
    

38. There is, therefore, no basis to disturb the agency's intended award of contracts to firms other than CAB.

Recommendation

Based on the foregoing, it is hereby, RECOMMENDED:

That the formal protest of Petitioner, Central Adjustment Bureau, Inc. be denied and dismissed.

DONE and RECOMMENDED this 26th day of October, 1987 in Tallahassee, Florida.

MARY CLARK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 26th day of October, 1987.

APPENDIX TO RECOMMENDED ORDER

The following are my specific rulings on the parties proposed Findings of Fact.

Petitioner

1. Adopted in substance in "Background and Procedural Matters" and in paragraph #2.

2. Adopted in paragraph #1.

3. Adopted in paragraphs #7 and #8.

4. Incorporated in paragraphs #2 and #8.

5. Adopted in part in paragraph #8. The presumption is irrelevant. Mere capacity to perform is not at issue; what competitor is more capable is at issue.

6. Adopted in substance in paragraph 6.

7. Adopted in Background and Procedural Matters.

8. Adopted in paragraphs #5 and #10.

9. As this paragraph includes seven pages of unnumbered paragraphs, it is impossible to address each proposed finding separately. In general, the descriptions of the evaluation items and statements of CAB's position are adopted. The argument and conclusions that CAB was inappropriately scored are rejected.

10. Rejected as contrary to the weight of the evidence.

11. Rejected as unsupported by competent evidence. The statement of ranking is adopted in paragraph 13.

12. Rejected as unsupported by competent evidence, except as to the fact that collections have remained stable or improved. This fact is immaterial. (See paragraph 13.)

13. Rejected as unsupported by competent evidence. If CAB did rely on its prior experience with DOE in failing to put together detailed written proposal, the weight of evidence established that reliance was misplaced and unjustified.

Respondent

1. Adopted in paragraph #1.

2. Adopted in paragraph #2.

3-4. Adopted in Background and Procedural Matters.

1. Adopted in paragraph #6.

2. Adopted in paragraph #5.

3. Adopted in paragraph #4.

8-9. Adopted in paragraph #5.

10. (No paragraph of this number) 11-12. Adopted in paragraph #5.

13-21. Adopted in paragraph #11, in substance. 22-25. Rejected as cumulative and unnecessary.

1. Adopted in substance in paragraph #11.

2. Rejected as unnecessary argument.

28-35. Adopted in substance in paragraph #12. 36-46. Rejected as cumulative and unnecessary. 47-54. Adopted in substance in paragraph #13. 55-57. Adopted in paragraph #14.

COPIES FURNISHED:

E. C. Deeno Kitchen, Esquire Melissa Fletcher Allaman, Esquire Ervin, Varn, Jacobs, Odom & Kitchen Post Office Box 1170

Tallahassee, Florida 32302-1170

Charles S. Ruberg, Esquire State Board of Education Knott Building

Tallahassee, Florida 32399

Honorable Betty Castor Commissioner of Education The Capitol

Tallahassee, Florida 32399

Sydney H. McKenzie, Esquire General Counsel

Department of Education Knott Building Tallahassee, Florida 32399

Docket for Case No: 87-004068BID

Orders for Case No: 87-004068BID