witnesses: Leo Bradman, Psy.D., UniPsych's President and CEO, and Robert W. Murphy, a chartered life underwriter (CLU) who is a senior employee benefits consultant with Arthur J. Gallagher & Co. Additionally, Petitioner also submitted two (2) exhibits into evidence. Respondent called one (1) witness: John Robinson, a certified employee benefits specialist with the Wittner Companies. Respondent also submitted one (1) exhibit into evidence. Additionally, both parties stipulated to the admission of five (5) joint exhibits into evidence.
Petitioner and Respondent filed Proposed Recommended Orders on November 14, 1995 and November 17, 1995, respectively. The parties' proposed findings of fact have been considered and utilized in the preparation of this Recommended Order, except where such findings were not shown by the evidence, or were immaterial, irrelevant, cumulative or subordinate. Specific rulings on the parties' proposed findings of fact are contained in the Appendix to this Recommended Order.
UniPsych is a Florida corporation that provides managed mental health and substance abuse services to Florida residents. The company was founded by Dr. Leo Bradman, a recognized authority in managed mental health care.
UniPsych currently provides mental health and substance abuse services and has been providing mental health services, on a managed care basis to the Lake County School District and its employees for the last five (5) years.
In July 1995, the Board issued Request For Proposals No. 883 (RFP). The RFP sought proposals for a managed behavioral health program that includes an employee
assistance program and a mental health/substance abuse program for the School District employees, their spouses, and their children. The RFP at a minimum requires that each member would be entitled to three visits a year with a counselor. The first visit would be at no charge to the member and a $10.00 charge to the member for visits two and three.
The RFP also states in pertinent part:
Rights are reserved by the School Board of Lake County to reject any and all proposals and to waive all technicalities.
* * *
THE SCHOOL BOARD RESERVES THE RIGHT TO ACCEPT OR REJECT PROPOSALS IN WHOLE OR IN PART; AND TO AWARD A CONTRACT IN THE MANNER IN WHICH THE BOARD DETERMINES TO ITS BEST INTEREST. Award of this proposal is intended to be made by the School Board at its regular meeting on August 8, 1995.
Conformity to specifications, price, quality of network, quality of program, response to worksheet and financial stability will be determining factors in the awarding of the proposal.
All proposals must include the following:
Completed Managed Behavioral Health Program Worksheet signed by an authorized representative.
Completed Statement on Public Entity Crimes.
A copy of your company's Florida Private Review Act Certification.
Sample EAP and Managed MH/SA communi- cations to employees.
A sample contract stating the provisions that would apply if your company is selected.
Any additional information which your company deems pertinent to the proposal.
The RFP does not define the term financial stability. The RFP does state a preferred method of calculating price.
The preferred method of calculating price is the per employee contracts per month model. Total employee contracts is 2855 employees.
Six (6) vendors submitted proposals prior to the submission deadline for RFP 883, including the prior contract holder UniPsych.
The Board's plan for evaluating the six proposals was to submit them to the Board's insurance committee and the Board's expert consultant, John D. Robinson. The Board elected to have Mr. Robinson screen the submitted proposals for responsiveness to the RFP.
Of the six (6) proposals submitted to the School Board, only the proposals of UniPsych, FPM, and Mathar Behavioral Health Systems, Inc. were deemed to satisfy the criteria of the RFP. These three proposals were sent to the Board's insurance committee so that the committee members could review and interview the three remaining proposers. The committee members as well as the Board had each proposers' proposal as well as a spreadsheet prepared by Mr. Robinson during his screening process. However, the evidence was clear that the committee relied on the price representations and guarantees contained in the spreadsheet.
The Committee voted 9-0-1 to recommend the award to FPM. The Petitioner received no votes. The third finalist received one vote.
Around August 10, 1995, UniPsych received written notice that the School District's ten-member district-wide health insurance committee decided to recommend that the School Board award its contract to FPM.
As indicated earlier in screening the proposals, Mr. Robinson prepared a spreadsheet containing comparative data. The spreadsheet was not meant to be a complete listing of all the items in a company's proposal. He obtained the information contained in the spreadsheet mostly from the proposers' proposals.
However, in at least two instances relevant to this case. Mr. Robinson contacted certain proposers over its proposal.
Mr. Robinson felt he could seek corrections or clarifications from FPM, and other proposers because "[t]his is a proposal, not a bid. Proposals have the ability to be questioned and clarified "
One such call was made to FPM. The call to FPM was made regarding at least two portions of FPM's proposal. FPM stated in Part 3 of its proposal that 14 average
employee assistance program (EAP) visits per 1000 members were handled by FPM; and stated in Part 7 of its proposal that it would offer the benefit design outlined in the Board's specifications at $5.00 per employee contract per month. The $5.00 rate would be guaranteed for "two years without significant Consumer Price Index (CPI) increases."
FPM was permitted to change the information contained in Part 3 of its proposal to 80-85 average employee assistance program visits per 1000 members because the original number was an error. The evidence did not demonstrate that this change was significant or material. More importantly however, FPM was allowed to change it price guarantee to three years without the CPI provision. These changes contradicted the plain language of FPM's proposal. Mr. Robinson inserted the newly-provided information in his spreadsheet and reported these changes to FPM's proposal to the committee.
The change made to FPM's price guarantee was not a mere clarification but a significant change in a material bid term.
The evidence was clear that the information in the spreadsheet was utilized and relied on by the Board and its insurance committee.
The spreadsheet also contained information on each proposer's price. However, the spreadsheet was unduly detrimental to UniPsych because it overstated UniPsych's price.
Health benefit contracts are typically priced under one of two methods: per employee per month (PEPM) or per member per month (PMPM or additive method). Members include the employee as well as any non-employee persons such as children of the employee covered under a health plan. The RFP stated a preference for pricing on a PEPM basis.
UniPsych proposed to charge $4.01 on a PEPM basis. In determining UniPsych's PEPM average, the individual employee price was not added onto the price charged per employee and child(ren), per employee and spouse, or per employee and family.
However, the spreadsheet erroneously stated all prices in the spreadsheet on a PMPM basis and reflected that UniPsych proposed to charge $4.80 PMPM instead of $4.01 PEPM. Moreover, the price was incorrectly based on an
interpretation of documents relating to UniPsych's pricing scheme under its prior contract with the School Board. The erroneous interpretation served to inflate the spreadsheets price calculation for UniPsych.
FPM proposed to charge $5.00 PEPM.
Mr. Robinson recognized that if UniPsych's price was $4.01 PEPM, it would be substantially different from FPM's price, and could be sufficient to justify an award of the contract to UniPsych over FPM. Given the price guarantee change to FPM's proposal and this error in calculating UniPsych's price, these two factors warrant the rejection of all the bids in this case.
As indicated earlier, the financial stability of a proposer was one of the criteria for review of this RFP. Neither the committee nor the RFP members required that any proposer submit financial information with its proposal or in its presentation to the committee. The only information supplied was general company information showing business activity, clients served and providers under contract. The committee members generally only asked the proposers if such information was available and if the proposer was financially stable.
At the hearing, the evidence showed that FPM is the wholly-owned subsidiary of Ramsay Managed Care, Inc. (Ramsay). Ramsay essentially has two operating divisions: a health maintenance organization (HMO) division and a
mental health and substance abuse division. FPM is Ramsay's mental health and substance abuse operating division.
Ramsay's 10Q filing for the quarter ending March 31, 1995, reported that Ramsay had $17,508,893 in assets,
$13,236,246 in liabilities, shareholder's net worth of
$4,272,647, and $87,802 in losses that quarter. Ramsay has current assets of $2,957,912 and current liabilities of
$4,362,714. These two figures give Ramsay a current ratio of 1:1.47. Generally a 1:1 or better ratio is deserved for financially stable companies. However, the ratio by itself does not show financial instability. It is simply a red flag worthy of more scrutiny.
Ramsay's largest asset is "goodwill" totaling
$9,959,745. Ramsay's 10Q explains that it booked most of this goodwill to account for its acquisition of FPM and two other mental health companies at prices exceeding the book values of those companies. Again the amount of goodwill does not demonstrate financial instability of a company.
The 10Q also reflects that FPM proposes to obtain working capital via a line of credit that is collateralized by security interests in FPM's accounts receivable and its stock. The significance of these security interests is magnified by Ramsay's debt service obligations, which (as of March 31, 1995) would require it to pay out $2,211,100 by June 30, 1997, and $2,407,600 by June 30, 1998. Again these figures do not demonstrate financial instability of a company.
To confirm its financial stability, UniPsych offered the Committee audited financial statements that were being prepared on a statutory accounting basis. The statements were never requested by the Committee and the Committee never considered financial statements for any of the proposals. However in this instance, the committee did consider the financial stability of all the proposers to its satisfaction. The evidence did not show that the committee's consideration was unreasonable or unfair to any proposer. In fact, the proposers were treated equally in the quality and quantity of financial information sought by the committee. The fact that more information or better information could have been sought is irrelevant since the committee and Board under the RFP specifications were free to determine the level of inquiry they deemed appropriate. If the specification as used by the Board was unclear or undefined to UniPsych, it should have challenged the specifications within the 72 hour period for such challenges under 120.53, Florida Statutes.
Finally, the evidence was clear that UniPsych's proposal was a superior program to FPM's. In short UniPsych offered more benefits for less money. Indeed UniPsych's experiences during those five (5) years gave it first-hand knowledge of several ways it could improve and enhance the managed care program specified by the Board's RFP. FPM's proposal fails to offer any enhanced benefits.
To enhance and improve the RFP's managed care program, UniPsych offered to provide two (2) additional benefits to the Board: (a) an out-of-network benefit; and
(b) a chronic condition benefit.
The out-of-network benefit gives potential patients complete choice of out-patient providers and increased choice of in-patient (hospital) providers, by allowing those potential patients to select a provider who is outside a designated network of providers.
The chronic condition benefit addresses another restriction that is prevalent in most managed mental health care programs. As is the case with the RFP in issue, most managed mental health care programs routinely fail to require the plan provider to contract for coverage of chronic, recurrent or long-term mental health conditions (chronic conditions). This omission forces chronic condition patients to look to publicly funded community agencies for mental health care. Publicly funded facilities in Lake County have not produced patient satisfaction, partly because they are too few in number or they offer too few services.
In addition to these two (2) major benefits, UniPsych's proposal also offered several other valuable benefit enhancements that improved upon the RFP's minimum requirements:
10 additional out-patient visits (above the 20 required by the RFP); and
5 free visits (i.e., no co-payment for members) under UniPsych's Employee Assistance Program, instead of the RFP's requirement of three visits, only the first of which is not subject to co-payment.
The evidence did not demonstrate any reason with a basis in fact which would have caused the School Board to reject UniPsych's proposal in favor of FPM. The evidence only hinted at a general dissatisfaction with UniPsych. No basis for this dissatisfaction was shown. Since no basis was given for the Board's decision to reject a proposal which offers more benefits for less money the only conclusion is that the Board acted arbitrarily in awarding the contract to FPM. Therefore, all the proposals should be rejected and the process begun anew.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and subject matter of this proceeding. Sections 120.53(5) and 120.57(1), Florida Statutes.
The system of competitive bidding protects against collusion, favoritism and fraud in the award of public contracts. Liberty County v. Baxter's Ashpalt and Concrete, Inc., 421 So. 2d 505 (Fla. 1982). A public body has wide discretion in soliciting and accepting bids for public improvements and its decision, when based on an honest
exercise of its discretion, will not be overturned by a Court even if it may appear erroneous and even if reasonable persons do not agree. Id.
The scope of the administrative hearing, in a challenge to the Agency's decision to award or reject bids, is limited to whether the purpose of competitive bidding has been subverted. The Hearing Officer's responsibility is to ascertain whether the Agency acted fraudulently, arbitrarily, illegally, or dishonestly. Department of Transportation v. Groves-Watkins Constructors, 530 So. 2d 912 (Fla. 1988). The burden is on the Petitioner to show by a preponderance of the evidence that the action of the Lake County School Board was the lowest responsible proposer, was fraudulent, arbitrary, illegal or dishonest.
"The hearing officer's sole responsibility is to ascertain whether the agency acted fraudulently, arbitrarily, illegally, or dishonestly." State, Department of Transportation v. Groves-Watkins Constructions, 530 So. 2d 912, 914 (Fla. 1988). The agency is obligated to ensure that the integrity of the competitive bidding process was maintained. See, e.g., Procacci v. State, Department of Health and Rehabilitative Services, 603 So. 2d 1299, 1301 (Fla. 1st DCA 1992). The scope of inquiry is limited to whether the purpose of competitive bidding has been subverted. Groves-Watkins, 530 So. 2d at 913.
UniPsych has the burden of establishing, by a preponderance of the evidence, that the Department's award to FPM must be overturned. State, Department of Transportation v. J.W.C. Co., Inc., 396 So. 2d 778 (Fla. 1st DCA 1981). UniPsych has met its burden in this case.
UniPsych submitted the lowest-priced proposal. UniPsych's proposal would cost just $4.01 per employee per month; FPM's proposal would cost $5.00 per employee per month, or nearly twenty-five (25) percent more than UniPsych's.
The consultant proofread FPM's proposal and contacted FPM about potential errors and ambiguities that he spotted. After speaking with FPM representatives, the consultant allowed FPM to amend its proposal. Committee members were informed that FPM guaranteed its price proposal for three years, instead of the guarantee stated in FPM's proposal. Amendments after proposals are opened relating to price are material and impermissible. See Tropabest Foods, Inc. v. State, Department of General Services, 493 So. 2d
50, 52 (Fla. 1st DCA 1986). For this reason alone all the proposals should be rejected and a new process begun.
Additionally, the committee was given incorrect price information on UniPsych's proposed price. The price of $4.80 was substantially higher than the correct price per employee of $4.01. Moreover, the committee was informed that UniPsych's price quotes were additive as opposed to individual prices for certain contracts. This information was wrong and supports the rejection of all the proposals in this case.
Finally, it is a long-standing principle of Florida public contract law that "consideration of an offer to an RFP is controlled by technical excellence as well as costs." System Development Corporation v. State, Department of Health and Rehabilitative Services, 423 So. 2d 433, 434 (Fla. 1st DCA 1982).
In this case, the evidence was clear that UniPsych offered more services for less money. The evidence did not demonstrate any reason for the rejection of UniPsych's proposal over FPM's other than a general unhappiness with UniPsych. UniPsych offered sufficient evidence to demonstrate that it was significantly lower than FPM and offered a better program. This evidence was essentially unchallenged by Respondent. The evidence was sufficient to shift the burden of going forward with the evidence to Petitioner to demonstrate a reasonable basis for its action. No such showing was made. Given the fact that UniPsych's proposal offered more for less and the lack of any reason for rejection in the evidence the only conclusion is that the rejection was for an arbitrary (albeit unknown or vague) reason. Therefore, all proposals should be rejected.
