STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PUBLICIS SANCHEZ & LEVITAN, LLC, )

)

Petitioner, )

)

vs. ) Case No. 02-2659BID

)

DEPARTMENT OF LOTTERY, )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

A formal hearing was held pursuant to notice, on August 13, 2002, in Tallahassee, Florida, before Barbara J.

Staros, assigned Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Chris H. Bentley, Esquire

John L. Wharton, Esquire

Rose, Sundstrom & Bentley, LLP 2548 Blairstone Pines Drive Tallahassee, Florida 32301

For Respondent: Paul J. Martin, Esquire

Office of the Attorney General PL-01, The Capitol

Tallahassee, Florida 32399-1050

Kenneth H. Hart, Jr., General Counsel Department of the Lottery

250 Marriott Drive Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

Whether the proposal Petitioner submitted in response to Respondent's Invitation to Negotiate No. 03-01/02/C was non- responsive.

PRELIMINARY STATEMENT

On March 22, 2002, the Florida Department of the Lottery (Department) posted its "Notice of Responsiveness and Responsibility Notice of Agency Decision" for Invitation to Negotiate (ITN) No. 03-01/02/C, which sought in part for provision of advertising and related services in a category entitled Spanish Language Hispanic Market Advertising. The Notice found Petitioner and several other proposers to be non- responsive. Petitioner, Publicis Sanchez & Levitan, LLC, timely filed a Petition and Formal Written Protest challenging the decision of the Department that its proposal was non- responsive. Petitioner filed an Amended Petition for Formal Written Protest which was forwarded to the Division of Administrative Hearings on or about July 22, 2002. A formal hearing was scheduled for July 31, 2002.

The parties filed a Joint Motion for Continuance which was granted. A formal hearing was rescheduled for August 13, 2002.

The parties filed a Prehearing Stipulation. At hearing, Petitioner did not present any witnesses. Petitioner's

Exhibit numbered 1 was admitted into evidence. Respondent presented the testimony of David Faulkenberry. The parties stipulated to the admission of Joint Exhibits 1 through 4.

A Transcript, consisting of one volume, was filed on August 27, 2002. The parties filed a Joint Motion for Extension of Time in which to file Proposed Recommended Orders. The motion was granted. The parties timely filed Proposed Recommended Orders which have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

Stipulated Facts

1. In December of 2001, Petitioner timely responded to ITN Number 03-01/02/C issued by the Department. The ITN sought in part, proposals for the provision of advertising and related services in a category entitled "Spanish Language Hispanic Market Advertising."

2. On March 21, 2002, Petitioner was notified that its proposal was deemed non-responsive for the following reason: "Financial information for Publicis USA Holdings, Inc. was not provided (SEC 4.9)." In determining Petitioner non-responsive to the ITN for failing to submit financial statements for Publicis USA Holdings, Inc., the Department assumed that Publicis, Sanchez & Levitan, LLC, was the product of a merger between Sanchez & Levitan, Inc., and Publicis USA Holdings,

   Inc., and thus was required under the second paragraph of Section 4.9 of the ITN to submit financial statements or federal income tax returns for pre-merger entities.

3. Petitioner is a Delaware limited liability company authorized to do business in Florida. Petitioner was created on March 14, 2002, under the name Sanchez & Levitan, LLC. At the time of its creation, Petitioner was owned 100% by Sanchez & Levitan, Inc., a Florida corporation. On March 16, 2001, Publicis USA Holdings, Inc., a Delaware corporation, acquired a minority ownership of 49% of Petitioner. The ownership of the controlling majority interest of 51% was retained by Sanchez & Levitan, Inc. On June 18, 2001, Petitioner amended its name from Sanchez & Levitan, LLC, to its current name, Publicis Sanchez & Levitan, LLC. Sanchez & Levitan, Inc., continues to own the controlling majority interest of 51%, while Publicis USA Holdings, Inc., continues to own a minority interest of 49%.

4. For the past several years, Petitioner's parent company, Sanchez & Levitan, Inc., a Florida corporation incorporated on October 10, 1985, was a contractor to the department providing Spanish language Hispanic market advertising and related services.

5. Petitioner is a separate company created in 2001 and is not the product of a merger. Petitioner is a subsidiary of its parent company, Sanchez & Levitan, Inc.

6. Because Petitioner was created in March of 2001, and its response to the ITN was submitted on December 5, 2001, it had neither certified financial statements nor federal income tax returns for the past two years.

7. Similarly, Petitioner's parent company, Sanchez & Levitan, Inc., did not have consolidated financial statements for the past two years because Petitioner, the subsidiary, did not exist for 1999 and 2000.

8. In response to Section 4.9 of the ITN, Petitioner submitted federal income tax returns for calendar years 1999 and 2000 for Petitioner's parent company, Sanchez & Levitan, Inc.

   Findings of Fact Based on the Evidence of the Record

   
   

9. While Petitioner's parent company provided Spanish language Hispanic market advertising to the Department for the past several years, that contract was assigned to Petitioner in August 2001. The Department acknowledged that at the time Petitioner submitted its proposal to the ITN, Petitioner was performing essentially identical services in a successful and financially responsible manner.

10. Section 5.2 of the ITN specifies that the evaluation of responses for each category of the ITN will be conducted in two phases. All responsive proposals will be reviewed in Phase I by an evaluation committee. Those proposers scoring 90% or more of the total possible points for Phase I will be invited to participate in Phase II as a finalist. Thus, this case only involves whether or not Petitioner's proposal should be evaluated in Phase I.

11. Section 2.1 of the ITN specifies that the Department has established certain mandatory requirements which must be included as part of any proposal and that the use of the words "shall", "must", or "will" in the ITN indicates a mandatory requirement.

12. The language of the ITN is clear in informing potential proposers that non-compliance with material requirements will have harsh consequences. Section 2.2 of the ITN provides in pertinent part:

    2.2 NON-RESPONSIVE PROPOSALS, NON- RESPONSIBLE RESPONDENTS

    
    

    Proposals which do not meet all material requirements of this ITN or which fail to provide all required information, documents, or materials, or are conditional will be rejected as non-responsive.

    Material requirements of the ITN are those set forth as mandatory, or without which an adequate analysis and comparison of proposals is impossible, or those which affect the competitiveness of proposals or the cost to the State. The Lottery

    reserves the right to determine which proposals meet the material requirements of the ITN.

    
    

13. The section of the ITN which is at issue in this controversy is Section 4.9 and is a material requirement. As amended,1/ it reads in pertinent part as follows:

    4.9 Financial Statements

    
    

    Respondents and substantial subcontractors in all categories will be required to submit certified financial statements in conformity with generally accepted accounting principles for the last two years including an auditor's report for both years and any management letters that have been received, or Federal Income tax returns for the past two years if certified financial statements are unavailable. If financial statements are not yet completed for the most recently completed fiscal year, the entity must submit statements for the two (2) prior years and subsequently submit the most recently completed fiscal year statement immediately upon its issuance.

    
    

    If a Respondent does not have certified financial statements, or if applicable, Federal Income tax returns, as a result of a merger of other entities, each pre-merger entity must submit certified financial statements, or if applicable, Federal Income tax returns, for the two most recent years. Certified financial statements or, if applicable, Federal Income Tax returns for the Respondent that are available must be submitted with its proposal, and any that become available during the procurement process must be submitted immediately upon issuance.

    
    

    Certified financial statements must be the result of an audit of the entity's records in accordance with generally accepted

    auditing standards by a certified public accountant (CPA). The financial statements must include balance sheets, income statements, statements of cash flows, statements of retained earnings, and notes to the financial statements for both years.

    
    

    Respondents or substantial subcontractors who are CMBE's may provide for the two (2) years most recently completed, the information provided to become a certified minority

    business enterprise (CMBE) including the supporting documentation used to arrive at the financial information. If the CMBE has not been a CMBE for two (2) years, it must provide the information submitted with its current CMBE application and similar information for the preceding year, as well as any other documentation which may substantiate the CMBE's financial responsibility.

    
    

    If a Respondent submits a consolidated financial statement of its parent corporation, the parent corporation must serve as financial guarantor of Respondent. Parent corporations that serve as financial guarantors of the subsidiary firms shall be held accountable for all terms and conditions of the ITN and resulting Contract and shall execute the Contract as guarantor.

    
    

    The Lottery shall hold all firms jointly and severally responsible for carrying out all activities required by the Contract.

    
    

    * * *

    
    

    Financial statements must be submitted with Respondents' proposals.

    
    

14. There is nothing in the record to indicate that Petitioner challenged the terms of Section 4.9 of the ITN as being too restrictive at a time it could have done so.

15. David Faulkenberry, Director of Finance and Budget for the Department, was responsible for determining whether or not proposals were in compliance with Section 4.9 of the ITN. He analyzed each submittal received to determine whether the proposer achieved compliance through any of the methods set forth in Section 4.9 of the ITN.

16. When initially reviewing Petitioner's proposal, he assumed that Petitioner had been the product of a merger and applied the language of the second paragraph of Section 4.9. Petitioner was found to be non-responsive because neither the certified financial statements or federal income tax returns of pre-merger entities had been submitted. This conclusion resulted in the Department's posting of the Notice of Responsiveness and Responsibility that Petitioner was non- responsive because, "financial information for Publicis USA Holdings, Inc. was not provided (Sec.4.9)".

17. After the posting of the Notice of Responsiveness and Responsibility, Mr. Faulkenberry became aware that Petitioner was not the product of a merger. As a result, Mr. Faulkenberry then reviewed the financial information submitted by Petitioner to determine whether it was responsive to Section 4.9. He reviewed the submission of Petitioner in light of each avenue of compliance provided in Section 4.9 of the ITN and determined that the proposal was non-responsive:

    Q As a result of that understanding, did you go back and review the financial information submitted by Publicis to determine whether indeed it was responsive to Section 4.9?

    
    

    A Yes. I looked at what they submitted and examined each of the avenues in Section

    4.9 that a respondent could take. And, again, they did not submit--if you look at route 1, the respondent could submit certified financial statements, or, if they--those aren't available, federal income tax returns. They did not do that. So they were not--they did not pass that test.

    
    

    The next test was the merger outlet. We now understand that it was not a merger, so that outlet was closed. We knew they weren't a CMBE contractor respondent, so that paragraph did not apply.

    And then the last outlet was a respondent could have their parent submit consolidated financial statements. We did not receive consolidated financial statements of the parent, so that outlet or avenue was not met.

    
    

    And based on those outlets they, again, were found non-responsive.

    
    

18. The information submitted by Petitioner in response to Section 4.9 of the ITN did not meet any of the avenues specified in that section.

19. The Department applied Section 4.9 of the ITN to all proposers in the same manner as it did to Petitioner.

    CONCLUSIONS OF LAW

    
    

20. The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this case

    pursuant to Sections 120.569, 120.57(1), and 120.57(3), Florida Statutes.

21. Petitioner has challenged the Department's proposed agency action of determining that Petitioner's proposal is non-responsive.

22. The burden of proof resides with the Petitioner.

    
    

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

    
    

23. The underlying findings of fact in this case are based on a preponderance of the evidence. Section 120.57(1)(j), Florida Statutes.

24. Section 24.105(16), Florida Statutes (2001) authorizes the Department to "enter into contracts for the purchase, lease, or lease-purchase of such goods and services as are necessary for the operation and promotion of the state lottery . . ."

25. Petitioner argues that the only proposed agency action subject to review in this proceeding is that which was posted in the Department's Notice of Responsiveness and Responsibility, i.e., that the basis for the Department's decision that Petitioner was non-responsive was that financial information for Publicis USA Holdings, Inc., was not provided.

26. However, this proceeding is de novo and was conducted for the purpose of evaluating the action that was taken by the agency in an attempt to determine whether that

    action is contrary to the agency's governing statutes, the agency's rules or policies, or the ITN specifications. See Section 120.57(3)(f), Florida Statutes, and State Contracting and Engineering Corporation v. Department of Transportation, 709 So. 2d 607 (Fla. 1st DCA 1998). From the time the Department posted its Notice of Responsiveness and Responsibility and Petitioner's protest, the Department had the opportunity to further review the proposal in light of the claims raised by Petitioner. Accordingly, this de novo proceeding encompasses a review of all of the Department's actions leading up to this proceeding.

27. The standard of proof is whether the proposed agency action was clearly erroneous, contrary to competition, arbitrary or capricious. Section 120.57(3)(f), Florida Statutes.

28. An agency action is capricious if the agency takes the action without thought or reason or irrationality. An agency decision is arbitrary if it is not supported by facts or logic. Agrico Chemical Co. v. State Department of Environmental Regulation, 365 So. 2d 759, 763 (Fla. 1st DCA 1978).

29. Section 4.9 of the ITN specified various methods of compliance to that requirement of the ITN. Mr. Faulkenberry reviewed Petitioner's submission with regard to each avenue of

    compliance enumerated in Section 4.9 in the same manner as he reviewed the submissions of the other proposers, thus not giving one proposer a competitive advantage over another. See Harry Pepper & Associates v. City of Cape Coral, 352 So. 2d 1190, 1193 (Fla. 2nd DCA 1977). By this process Mr.

    Faulkenberry acceptably concluded that Petitioner failed to comply with a material requirement.2/

30. Petitioner failed to prove that the Department's actions were clearly erroneous, contrary to competition, arbitrary or capricious.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is

RECOMMENDED:

That the Department of the Lottery enter a final order dismissing Petitioner's protest.

DONE AND ENTERED this 18th day of October, 2002, in Tallahassee, Leon County, Florida.

BARBARA J. STAROS

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 18th day of October, 2002.

ENDNOTES

1/ On or about October 26, 2001, the Department issued ITN 03- 01/02/C. On November 15, 2001, the Department issued an addendum to the ITN, thereby completing the specifications and requirements necessary for all proposals.

2/ Petitioner argues that the language of Section 4.9 of the ITN is too restrictive in that Petitioner, a company in existence less than one year, under no circumstances could meet the various avenues of compliance. However, Petitioner's opportunity to challenge the ITN's specifications has past.

See Capeletti Brothers, Inc. v. Department of Transportation,

499 So. 2d 855 (Fla. 1st DCA 1986); and Optiplan, Inc. v. School Board of Broward County, 710 So. 2d 569 (Fla. 4th DCA 1998).

COPIES FURNISHED:

Chris H. Bentley, Esquire John L. Wharton, Esquire

Rose, Sundstrom & Bentley, LLP 2548 Blairstone Pines Drive Tallahassee, Florida 32301

Paul J. Martin, Esquire

Office of the Attorney General PL-01, The Capitol

Tallahassee, Florida 32399-1050

Kenneth H. Hart, General Counsel Department of the Lottery

250 Marriott Drive Tallahassee, Florida 32301

David Griffin, Secretary Department of the Lottery

250 Marriott Drive Tallahassee, Florida 32301

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.

Docket for Case No: 02-002659BID

Orders for Case No: 02-002659BID