The Issue The issue in these cases is whether the Department of Juvenile Justice's (Department) proposed award of certain contracts to Bay Area Youth Services, Inc. (BAYS), based on evaluations of proposals submitted in response to a Request for Proposals is clearly erroneous, contrary to competition, arbitrary, or capricious.
Findings Of Fact On July 2, 2003, the Department issued Request for Proposal (RFP) No. V6P01 for operation of IDDS programs in Judicial Circuits 1 through 20. The Department issued a single RFP and anticipated entering into 20 separate contracts, one for each circuit. Each contract was for a three-year period with the possibility of a renewal for an additional three-year period. The RFP was prepared based on a "contract initiation memo" generated within the Department and upon which the scope of services set forth in the RFP was based. The Department assigned one contract administrator to handle the procurement process. An addendum dated July 18, 2003, was issued to the RFP. As amended by the addendum, the RFP required submission of information in a tabbed format of three volumes. Volume I was the technical proposal. Volume II was the financial proposal. Volume III addressed past performance by the vendor. The addendum also allowed providers to submit some information in electronic format. The addendum requested, but did not require, that it be signed and returned with the submission. BAYS did not return a signed copy of the addendum in its proposal. Failure to sign and return the addendum was not fatal to the consideration of a proposal. The RFP set forth only two criteria for which noncompliance would be deemed "fatal" to a proposal. Failure to comply with a fatal criterion would have resulted in automatic elimination of a provider's response; otherwise, all responses submitted were evaluated. The proposals were opened on July 31, 2003. The contract administrator and staff reviewed the bids to ascertain whether required items were included, and noted the proposed costs on bid tabulation sheets. The first fatal criterion was failing to submit a properly executed "Attachment A" form to a submission. Attachment A is a bidder acknowledgment form. Both BAYS and JSP included a completed Attachment A in the responses at issue in this proceeding. The second fatal criterion was exceeding the Maximum Contract Dollar Amount. RFP Attachment B, Section XIII, provides in relevant part as follows: The Maximum Contract Dollar Amount will be the Annual Maximum Contract Dollar Amount multiplied by the number of years in the initial term of the Contract . . . . EXCEEDING THE ANNUAL MAXIMUM CONTRACT DOLLAR AMOUNT IS A FATAL CRITERION. ANY PROPOSAL WITH A COST EXCEEDING THE ANNUAL MAXIMUM CONTRACT DOLLAR AMOUNT WILL BE REJECTED. The information reviewed as to each provider's cost proposal was set forth in Volume II, Tab 1, which included RFP Attachment J. RFP Attachment J is a cost sheet where providers were required to set forth proposal costs identified as the "Maximum Payment" under their proposal. Attachment K to the RFP identifies the counties served in each circuit, number of available slots in each circuit, and the Annual Maximum Contract Dollar Amount for each circuit. JSP appears to have simply copied information from Attachment K onto Attachment J. The Department's contract administrator was the sole person assigned to review Volume II of the responses. Volume II included the cost proposal, the supplier evaluation report (SER), and the certified minority business enterprise (CMBE) subcontracting utilization plan. Neither BAYS nor JSP exceeded the Annual Maximum Contract Dollar Amount applicable to any circuit at issue in this proceeding. Both BAYS and JSP identified a Maximum Payment equal to the Annual Maximum Contract Dollar Amount as their proposal cost. Both BAYS and JSP received scores of 100 points for cost proposals in all responses at issue in this proceeding. JSP asserts that the instructions as to identification of the Annual Maximum Contract Dollar Amount were confusing and that its actual cost proposal was less than that set forth as the "Maximum Payment" on Attachment J. JSP asserts that it actually listed its cost proposal at the section identified on Attachment J as "renewal term dollar amount proposed." JSP asserts that the Department should have reviewed supporting budget information set forth in Attachment H to the RFP to determine JSP's cost proposal, and that the Department should have determined that JSP's actual cost proposal was less than that of BAYS. The Department did not review the budget information in Attachment H, but based its cost evaluation of the proposals on the total figures set forth on Attachment J. Nothing in the RFP suggests that underlying information as to cost proposals would be reviewed or evaluated. The evidence fails to establish that the Department's reliance on the information set forth on Attachment J was unreasonable or erroneous. The evidence fails to establish that the Department's scoring of the cost proposals was contrary to the RFP. The evidence fails to establish that JSP is entitled to have its cost proposal re-scored. One of the requirements of the RFP was submission of a "Supplier Evaluation Report" (SER) from Dunn & Bradstreet. The submission of the SER was worth 90 points. Dunn & Bradstreet transmitted most of the SERs directly to the Department, and the Department properly credited the providers for whom such reports were transmitted. The Department's contract administrator failed to examine BAYS submission for the SER, and BAYS did not receive credit for the SER included within its proposal. The failure to credit BAYS for the SERs was clearly erroneous. BAYS is entitled to additional credit as set forth herein. The RFP sought utilization of a CMBE in a provider's proposal. BAYS proposal included utilization of The Nelco Company, an employee leasing operation. The Nelco Company is a properly credentialed CMBE. Under the BAYS/Nelco arrangement, BAYS would retain responsibility for identification and recruitment of potential employees. BAYS performs the background screening and makes final employment decisions. BAYS retains the right to fire, transfer, and demote employees. The Nelco Company would process payroll and handle other fiscal human resource tasks including insurance matters. The Nelco Company invoices BAYS on a per payroll basis, and BAYS pays based on the Nelco invoice. JSP asserts that under the facts of this case, the participation of The Nelco Company fails to comply with the RFP's requirement for CMBE utilization. BAYS proposals also included utilization of other CMBEs. There is no credible evidence that BAYS utilization of The Nelco Company or of the other CMBEs included within the BAYS proposals fails to comply with the RFP's requirement for CMBE utilization. The Department assigned the responsibility for service proposal evaluation to employees located within each circuit. The contract administrator and staff distributed appropriate portions of Volume I of each proposal to the evaluators. The evidence establishes that the evaluators received the documents and evaluated the materials pursuant to written scoring instructions received from the Department. Some reviewers had more experience than others, but there is no evidence that a lack of experience resulted in an inappropriate review being performed. In two cases, the evaluators worked apart from one another. In one circuit, the evaluators processed the materials in the same room, but did not discuss their reviews with each other at any time. There is no evidence that evaluators were directed to reach any specific result in the evaluative process. JSP asserts that there was bias on the part of one evaluator who had knowledge of some unidentified incident related to JSP. The evidence fails to establish the facts of the incident and fails to establish that the incident, whatever it was, played any role in the evaluator's review of the JSP proposal. JSP also asserts that another evaluator had contact with JSP at some point prior to his evaluation of the RFP responses. There is no evidence that the contact was negative or was a factor either for or against JSP in the evaluation of the RFP responses. The RFP required that each provider's proposal include letters of intent from "local service resources" indicating a willingness to work with the provider and a letter of support from the State Attorney in the judicial circuit where the provider's program would operate. The RFP indicates that Volume I of a provider's response should contain five tabbed sections. The RFP provides that "information submitted in variance with these instructions may not be reviewed or evaluated." The RFP further provides that failure to provide information "shall result in no points being awarded for that element of the evaluation." JSP included letters of support in Tab 5 of Volume I. BAYS included letters of support in a tabbed section identified as Tab 6 of Volume I. JSP asserts that information included in Tab 6 of BAYS proposals should not have been evaluated and that no points should have been awarded based on the information included therein. The evidence fails to support the assertion. Based on the language of the RFP, submission of information in a format other than that prescribed is not fatal to a proposal. The Department reserved the authority to waive such defects and to evaluate the material. Here, the Department waived the variance as the RFP permitted, and reviewed the material submitted by BAYS. JSP asserts that BAYS proposal breached client confidentiality by inclusion of information regarding an individual who has allegedly received services through BAYS. Records regarding assessment or treatment of juveniles through the Department are deemed confidential pursuant Section 985.04, Florida Statutes (2003). The evidence fails to establish that an alleged violation of Section 985.04, Florida Statutes (2003), requires rejection of the BAYS proposals. There is no evidence that the information was released outside of the Department prior to the bid protest forming the basis of this proceeding. The evidence establishes that JSP misidentified the name of its contract manager in its transmittal letter. The evidence establishes that the misidentification was deemed immaterial to the Department, which went on to evaluate the JSP proposals. The results of the evaluations were returned to the contract administrator, who tabulated and posted the results of the process. On August 25, 2003, the Department posted a Notice of Intent to Award contacts based on the proposals submitted in response to the RFP. Insofar as is relevant to this proceeding, the Department proposed to award the contracts for Circuits 5, 6, and 20 to BAYS. The Department received four proposals from IDDS program providers in Circuit 5 (DOAH Case No. 03-3671BID). According to the Notice of Intended Contract Award, BAYS was the highest ranked bidder with 651.8 points. JSP was the second highest bidder with 642.6 points. White Foundation was the third highest bidder at 630.7 points, and MAD DADS was the fourth bidder at 442.8 points. The evidence establishes that BAYS included its SER in its Circuit 5 proposal. The Department neglected to examine BAYS submission for the SER, and BAYS did not receive credit for its SER. BAYS should have received an additional 90 points, bringing its total points to 741.8. The Department received two proposals from IDDS program providers in Circuit 6 (DOAH Case No. 03-3672BID). According to the Notice of Intended Contract Award, BAYS was the highest ranked bidder with 649.0 points. JSP was the second highest bidder with 648.8 points. The evidence establishes that BAYS included its SER in its Circuit 6 proposal. The Department neglected to examine BAYS submission for the SER, and BAYS did not receive credit for its SER. BAYS should have received an additional 90 points, bringing its total points to 739.0. The Department received two proposals from IDDS program providers in Circuit 20 (DOAH Case No. 03-3673BID). According to the Notice of Intended Contract Award, BAYS was the highest ranked bidder with 644.2 points. JSP was the second highest bidder with 620.6 points. The evidence establishes that BAYS included its SER in its Circuit 20 proposal. The Department neglected to examine BAYS submission for the SER, and BAYS did not receive credit for its SER. BAYS should have received an additional 90 points, bringing its total points to 734.2. MOTION TO DISMISS BAYS asserts that the Petitions for Hearing filed by JSP must be dismissed for failure to comply with Section 287.042(2)(c), Florida Statutes (2003), which requires that a protesting bidder post a bond or cash in an amount equal to one percent of the estimated contract amount by the time a formal written bid protest is filed. Item 8 of the RFP indicated that the bond or cash amount required was one percent of the total contract amount or $5,000, whichever was less. However, RFP Attachment "B," Section IX, indicates that it replaces RFP Item 8, and provides that the required bond or cash amount is one percent of the estimated contract amount. Pursuant to Section 120.57(3)(b), Florida Statutes (2003), JSP had 72 hours from the announcement of the bid award to file a Notice of Protest and an additional ten days to file a Formal Written Protest. The notice of intended bid award was posted on August 25, 2003. Accordingly, the written protest and appropriate deposits were due by September 8, 2003. The Department's Notice of Intended Award referenced the bond requirement and stated that failure to post the bond would constitute a waiver of proceedings. On September 8, 2003, JSP provided to the Department a cashier's check for $2,159.70 in relation to its protest of the award for Circuit 5. The contract amount was $647,910. One percent of the contract amount is $6,479.10. On September 8, 2003, JSP provided to the Department a cashier's check for $3,414.52 in relation to its protest of the award for Circuit 6. The contract amount was $1,025,857.50. One percent of the contract amount is $10,258.57. On September 8, 2003, JSP provided to the Department a cashier's check for $2,231.69 in relation to its protest of the award for Circuit 20. The contract amount was $669,507. One percent of the contract amount is $6,695.07. In response to JSP's insufficient cashier's checks, the Department, by letter of September 12, 2003, advised JSP of the underpayment and permitted JSP an additional ten days to provide additional funds sufficient to meet the requirements of the statute. JSP, apparently still relying on the superceded language in the RFP, forwarded only an amount sufficient to bring the deposited funds to $5,000 in each case. By letter dated September 25, 2003, the Department again advised JSP that the deposited funds were insufficient and provided yet another opportunity to JSP to deposit additional funds. On September 29, 2003, JSP forwarded additional funds to provide the appropriate deposits.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Juvenile Justice enter a Final Order as follows: Dismissing the Petition for Hearing filed by MAD DADS of Greater Ocala, Inc., in Case No. 03-3670BID based on the withdrawal of the Petition for Hearing. Dismissing the Petitions for Hearing filed by JSP for failure to comply with Section 287.042(2)(c), Florida Statutes (2003), and for the other reasons set forth herein. DONE AND ENTERED this 16th day of January, 2004, in Tallahassee, Leon County, Florida. S WILLIAM F. QUATTLEBAUM 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 16th day of January, 2004. COPIES FURNISHED: James M. Barclay, Esquire Ruden, McClosky, Smith, Schuster & Russell, P.A. 215 South Monroe Street, Suite 815 Tallahassee, Florida 32301 Brian Berkowitz, Esquire Kimberly Sisko Ward, Esquire Department of Juvenile Justice Knight Building, Room 312V 2737 Centerview Drive Tallahassee, Florida 32399-3100 Larry K. Brown, Executive Director MAD DADS of Greater Ocala, Inc. 210 Northwest 12th Avenue Post Office Box 3704 Ocala, Florida 34478-3704 Andrea V. Nelson, Esquire The Nelson Law Firm, P.A. Post Office Box 6677 Tallahassee, Florida 32314 William G. Bankhead, Secretary Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-3100 Robert N. Sechen, General Counsel Department of Juvenile Justice Knight Building 2737 Centerview Drive Tallahassee, Florida 32399-3100
The Issue Whether Petitioner is owed $545,124.00 after Respondent required Petitioner to return that amount originally paid under two separate contracts.
Findings Of Fact On April 3, 2000, OAOC contracted with Able Trust, Inc. to conduct procurement activities for privatized vocational rehabilitation services in Florida. (Stipulated Fact No. 1.) OAOC, itself, was a privatized commission created by statute and subsequently repealed. The predecessor in interest of OAOC was the Florida Department of Labor, Division of Vocational Rehabilitation Services. The successor in interest of OAOC is the Florida Department of Education (FDOE), Division of Vocational Rehabilitative Services. (Stipulated Fact No. 2.) At all times material, OAOC was responsible for developing policy governing vocational rehabilitative services, while VRS was responsible for administratively supporting OAOC's efforts. Hereafter, unless the individual entity is indicated, the designation "VRS" will be used to mean OAOC and the Division of Vocational Rehabilitation/Rehabilitative Services, wherever located and however named. (Stipulated Fact No. 2, amplified.) At the time VRS was attempting to privatize vocational rehabilitative services, it was under scrutiny from the Rehabilitation Services Administration of the United States Department of Education (RSA). Following a privatization project in Monroe County, Florida was deemed a "high risk" state by RSA. Able Trust, Inc., prepared and published a request for proposals (RFP). (Stipulated Fact No. 3.) According to the RFP, OAOC sought to enter into contracts with private providers for the delivery of vocational rehabilitation services in each of 24 regions of the state. The RFP stated that any transition period and/or transition expenses would be negotiated separately from the award of the contract and the cost for service delivery. (Stipulated Fact No. 3.) Petitioner Abilities is a private, non-profit corporation, not a state or local government, nor a federally- recognized Indian tribe. Abilities submitted proposals to provide services in Regions Seven and Twenty. Florida Institute for WorkForce Innovation (FIWI) submitted a proposal for Region Nine. (Stipulated Fact No. 4.) Abilities' proposals indicated that Abilities would "partner" or "team" with Lockheed Martin IMS n/k/a ACS State and Local Solutions, Inc., (ACS). (Stipulated Fact No. 5.) ACS is a private sector, for-profit corporation. Abilities, with other proposers, attended a bidders' conference on or about April 24, 2000. (Stipulated Fact No. 6.) At the bidders' conference, VRS stated that the time period needed for transition and any required start-up funds (hereinafter "transition expenses") would be negotiated separately from the award of the contract and the cost for service delivery. (Stipulated Fact No. 7.) Proposers were instructed that transition expenses were not to be included as part of their RFP response. Due to concerns raised by RSA, only three of the twenty-four regions of Florida were awarded contracts from the proposals. (Stipulated Fact No. 8.) The contracts were also re-designed to cover only one year with possible renewals for two years. Two of these contracts were awarded to Abilities for Regions Seven and Twenty. A third contract was awarded to FIWI for Region Nine. (Stipulated Fact No. 9.) Region Seven includes Columbia, Union, Gilchrist, and Dixie Counties. Region Twenty includes Indian River, St. Lucie, Martin, and Okeechobee Counties. Funding for these contracts was provided through a federal grant from a Vocational Rehabilitation Title I, Section 110, Innovation and Expansion Program grant. (Stipulated Fact No. 10.) There was testimony that the "spread," as it were, was that the federal government put up four dollars (80%) for every dollar (20%) contributed by the State, but the contracts show that no state funds were used. Therefore, it is found that only federal funds were used for the prime contracts with Abilities. OAOC was both the "designated state agency" (DSA) for receipt of federal funds and the "designated state unit" (DSU) for expenditures of federal and state funds under the State Plan for Vocational Rehabilitative Services. FDOE was never so- designated. The contracts were initially intended to fund services for a twelve-month period from October 1, 2000 through September 30, 2001. (Stipulated Fact No. 11.) VRS ultimately awarded fixed rate contracts to Abilities and FIWI only for the six-month period from April 1, 2001 through September 30, 2001. (Stipulated Fact No. 12, amplified.) After notifying Abilities that it had been awarded the contracts for core services for Regions Seven and Twenty, OAOC delayed the contracts implementation date to April 1, 2001. Award of a bid is not a guarantee that a contract will be awarded or executed with the successful proposer/bidder. Many unforecast events can intervene.2/ Section 287.058(2), Florida Statutes, recognizes this concept, and provides, in part, that "the written agreement shall be signed by the agency head and the contractor prior to the rendering of any contractual service. . . ." Moreover, in the prime contracts finally signed between the parties, Attachment G.III.A. (page 31) states ". . . Except as may otherwise be expressly stated in this Agreement, OAOC/VRS shall not be obligated to pay any amount for expenses, services rendered, or goods provided prior to the effective date of this Agreement." Although 12 months of funding had been allocated for the provision, throughout 12 months, of core vocational rehabilitative services, the delay in contract implementation meant that only six months' worth of funding would be consumed for the provision of the core vocational rehabilitative services over a time-span of six months, to begin on April 1, 2001. On February 15 and 16, 2001, the parties held a meeting in Lake City, Florida, to discuss the transitional procedures and expenses in accordance with the terms of the RFP. (Stipulated Fact No. 13.) As of the February 2001, meeting, the contracts had not been signed and Abilities had assumed none of the duties of the contract. At that point, VRS employees were actually "doing the job." VRS's Bureau Chief of Field Services, Linda Parnell, was responsible for the management and supervision of state employee-VRS counselors and the program of service delivery to Florida's disabled citizens. She anticipated from the official discussions and written agreements reached in the main February 2001, meeting that once the contracts were signed, current State employees would be co-workers with the out-sourced providers for a transitional period of time and that the transitional period would start at the beginning of the contract period and continue for a minimum of one month (all of April 2001). The topics at the meeting between Bureau personnel and the successful bidders were aspects of service delivery; how the providers would receive clients from the State; how the providers would be housed in existing Division offices; and what duties the providers would assume. At the same date and location, in a "side-meeting" with William Sandonato of Abilities and Dr. Bruce Waite of FIWI, Carl Miller, then-Director of VRS, offered to use the remaining six months' worth of unencumbered contract funds, which funds otherwise would not have been spent on core services, due to the shortened span of the contract, to pay the successful proposers'/providers' transition expenses. (Stipulated Fact No. 14, with additional clarifying language.) The remaining funds on Abilities' proposed contracts totaled $545,124.00. William Sandonato previously had been a member of OAOC. At that time, he simultaneously had been president of Abilities. Like Mr. Sandonato, more than one-third of OAOC commissioners also were vocational rehabilitation providers. Mr. Sandonato testified that he played no part in the selection of Abilities pursuant to the RFP. The RFP was not drafted by OAOC, but by Able Trust, Inc., as an agent for OAOC. Mr. Sandonato recused himself from the RFP selection process. When Abilities had become the apparent successful bidder on the RFP, Mr. Sandonato resigned from OAOC. He later signed the VRS- Abilities contracts and two contract extensions as president of Abilities. Mr. Sandonato's paid employment with Abilities ended on January 31, 2001, but he continued to represent Abilities, as its unpaid president, for an indeterminate period thereafter. Also, between January 31, 2001 and July 1, 2002, he was a paid employee of ACS, the for-profit subcontractor to Abilities for Abilities' two contracts with VRS. At the February meeting, Mr. Miller was told that Abilities had hired staff, which already had been interacting with existing VRS state employees, regarding case loads during the period from July 1, 2000, to April 1, 2001. Mr. Miller believed that Abilities was "working" before the contracts were even executed. Mr. Miller erroneously concluded that the "transition" period under the VRS contracts with Abilities ran from July 1, 2000, the date the contracts were initially scheduled to be effective, to April 1, 2001, the actual start date of the contracts. In fact, Mr. Miller did not sign the prime contracts for VRS with Mr. Sandonato, signing for Abilities, until March 29, 2001 (see infra.), and Abilities did not sign its subcontracts with ACS until May 2, 2001, with those subcontracts being retroactively effective from April 2, 2001 forward. Mr. Sandonato signed for Abilities on the subcontracts. After the February 2001 meeting, Mr. Miller requested submission of proposed amounts of expected transition expenses. (Stipulated Fact No. 15.) Abilities and FIWI submitted correspondence to VRS outlining the total proposed transition expenses. (Stipulated Fact No. 16.) Mr. Sandonato testified that he had recognized that the sum Mr. Miller had offered, during their February 2001, meeting, for transitional expenses, would not cover the transitional expenses of Abilities/ACS, but would cover a significant portion thereof. He considered the six months' funds amount to be a cap on what Abilities could request from VRS for transition expenses. He further testified that for that reason, Abilities just took the money amount that was available and "indicated [to VRS] that's the number we [Abilities] would like to have." Further documentation of the expected transition expenses was requested by VRS from both Abilities and FIWI. (Stipulated Fact No. 17.) Abilities and FIWI each submitted budgets to justify their respective projected transition expenses. (Stipulated Fact No. 18, amplified for clarity.) In Abilities' case, this amounted to exactly $545,124.00. The proposed transition expenses were incorporated into the contract amounts for the fixed amount contracts for Regions Seven, Nine, and Twenty. (Stipulated Fact No. 19.) Draft contracts for services were prepared by VRS staff and reviewed by various divisions, including legal, financial, and contract management. All VRS reviewers approved the final form and content of the contracts. (Stipulated Fact No. 20.) VRS approved the final versions of these contracts, which were executed by VRS and Abilities. (Stipulated Fact No. 21.) Abilities' contracts with VRS were numbered VH521 and VH531. (Stipulated Fact No. 22.) Mr. Miller, for VRS, executed them on March 29 and 30, 2001. Mr. Miller had both apparent and actual authority from OAOC to enter into the contracts and subsequent extensions. Mr. Sandonato signed for Abilities. Abilities was acknowledged as a "vendor" of vocational rehabilitation services, as opposed to a "sub-recipient," within each of its contracts with VRS. At the end of the initial contract period, VRS, FDOE, and Abilities entered into two 30-day extensions of contracts VH521 and VH531. (Stipulated Fact No. 23.) The extensions for October 2001, and November 2001, expressly incorporated the terms of the original contracts. Mr. Miller signed the contract extensions for VRS, and Mr. Sandonato signed for Abilities. Abilities, and ACS through Abilities, was also paid separately for the two contract extensions at a rate of $30,626.00 per month for Region Seven and $70,485.00 per month for Region Twenty. These additional payments represented one- sixth of each contract amount, less the transition expenses. ACS's subcontracts with Abilities essentially imposed the same duties upon ACS as the VRS contracts imposed upon Abilities. See infra. Every dollar received by Abilities from VRS under the contracts was paid directly to ACS, under the subcontracts. It is noted that, pursuant to Section 216.181 (16) (a) and (b), Florida Statutes, advance payments may only be paid by a state agency to other governmental agencies or to not-for-profit corporations. As a for-profit corporation, ACS could not have received advance payments directly from VRS, but nothing precluded ACS being paid by Abilities as a subcontractor, or precluded ACS from making a profit, provided all other legal requirements were met. Abilities submitted monthly invoices to VRS for payment. (Stipulated Fact No. 24.) The invoices were submitted and paid at the front of the month in which the services were to be incurred, for each of the six months. Each invoice amounted to a calculated one-sixth of the total contract amount. According to Mr. Sandonato, Abilities' process of billing VRS for transitional expenses was "passing everything right through, . . . one-invoice-in [from ACS to Abilities] and one-invoice-out [from Abilities to VRS]," without Abilities going behind any ACS invoice to verify how expenses were incurred or monies disbursed. At hearing, Mr. Sandonato's personal knowledge of what constituted the transition expenses incurred by ACS was largely limited to the payment of his ACS salary, but he also vaguely knew something about office space and equipment either being moved or purchased. VRS employees reviewed each monthly Abilities' invoice to determine if payment was proper and allowable, then forwarded the invoice, with additional supporting documentation, to DFS for processing and payment. (Stipulated Fact No. 25.) Although in hindsight certain VRS and FDOE witnesses disavowed specific VRS and DOE signature and approval stamps as being affixed by themselves personally, the invoices/payment processing documents show on their face that DOE and VRS personnel affirmatively signed-off, for each Abilities' invoice, that the transactions were "in accordance with the Florida Statutes and all applicable laws and rules of the State of Florida," and that these costs "were allowable costs and in compliance with the grant budget." After receiving the documents from VRS, DFS also reviewed each invoice to determine if the payments were allowable and if sufficient funds existed for payment. (Stipulated Fact No. 26.) DFS approved the invoices and paid Abilities each of the invoiced amounts. (Stipulated Fact No. 27.) Each invoice submitted by Abilities and each payment by VRS was in the amount set forth in contracts VH521 and VH531. (Stipulated Fact No. 28.) In turn, Abilities paid the whole of the disputed transition expense funds to ACS, in the amount of $545,124.00. Abilities did not retain any of the transition expense money itself. Abilities acted only as a "pass-through" conduit to its subcontractor. Abilities relied on VRS's and DFS's approval of the invoices Abilities submitted to those agencies as constituting the agencies' determination of "reasonable and necessary expenses" and "allowable" expenses for Abilities, in turn, to pay ACS, pursuant to the subcontracts. After all payments under the contracts and sub- contracts had been made, the Office of Program Policy and Government Accountability (OPPAGA) questioned VRS's methods of doing business on these contracts. In 2002, the Auditor General of the State of Florida, an officer associated with the Legislature, issued a report on the federal award program for the fiscal year ending June 30, 2001. This report questioned in excess of $1,000,000 of the costs charged under the three VRS contracts assigned to Abilities and FIWI. On January 24, 2002, the Inspector General of the FDOE issued Final Report No. 01-130, detailing an investigation of Abilities' contracts VH521 and VH531, as well as the contract awarded to FIWI. (Stipulated Fact No. 29.) The FDOE Inspector General (IG) concluded that VRS had violated federal and state regulations by not conducting an analysis to verify if an additional award of $545,124.00, to Abilities was reasonable or necessary, or more cost effective than services provided by the State. (Stipulated Fact No. 30.) FDOE's IG also concluded that VRS' payment of the additional funds invalidated the bid process. (Stipulated Fact No. 31.) This determination rested on defining differences between "start up costs" and "ramp-up costs"; not allowing negotiation of the proposers' terms and conditions; and not resubmitting proposals for the transition expenses to OAOC. VRS published a response to the DOE IG's report, objecting to the IG's findings. Apparently, the overriding concern of OPAGGA, FDOE, and DFS was that VRS's failure to conduct an analysis to verify if an additional award was reasonable or necessary, or more cost-effective than services provided by state employees was "because it places the state at a substantial risk of the disallowance of all, or a portion, of the [total amount VRS paid to both Abilities and FIWI] which may have to be repaid from non-federal funds to the grantee." (See IG Report, page 5 of 16; bracketed material substituted for clarity.) Regardless of the foregoing pronouncements within Florida's state government, neither the United States Department of Education, RSA, nor any other federal authority has ever disallowed any payments to VRS, to the "prime" (Abilities), or to the "sub" (ACS), or issued any written request to FDOE or VRS for return of federal grant money in connection with any of the funds involved with these contracts. The IG Report contained a series of recommendations, including but not limited to the recommendation that VRS seek an appropriate legal remedy to address the costs awarded to the vendors outside of the RFP process, i.e. the transition expenses. In March 2002, FDOE assigned Joe Knicely, C. P. A., one of its educational finance specialists, to check into the perceived problem. He requested access to Abilities' records so that he could select a sample of disbursements to determine if they were allowable under the program and to determine if they seemed reasonable and necessary to the program. He received from Abilities a general ledger with many entries. This material was insufficient for him to conduct his review, because it did not contain the detailed disbursements for the Program. It only showed a transfer of funds from Abilities to ACS. He then sought out receipt and disbursement information from ACS, which ACS supplied, pursuant to the express terms of its subcontract with Abilities. Ultimately, he only got sketchy material with quite a lot of salary information on employees. Mr. Knicely was able to determine that if all of ACS's records (mostly profit and loss statements) which he saw were correct, then ACS did not expend $459,644.00 on its sub- contracts with Abilities. However, he was unable to complete an audit to determine whether ACS's records were accurate; whether the costs ACS listed on paper had actually been expended for the purposes listed; or whether the $459,644.00 figure could be accounted for as "profit". Before Mr. Knicely could form any other conclusions, the FDOE IG asked him to stop his audit. He believes that this request came in July or August of 2002, but he was not certain of the date. Obtaining the necessary information to commence an audit was a preliminary step to doing an audit. Because he was ordered to stand down, Mr. Knicely did not continue to request backup material from ACS or Abilities so that an audit could be performed. He also did not perform an audit within the parameters of "generally accepted accounting principles and standards," because at the time he was ordered to stop pursuing the information to conduct an audit, he did not have enough information to perform such an audit. Mr. Knicely therefore formed no conclusions concerning the reasonableness, necessity, or allowability of the costs incurred by ACS in performing its subcontracts. The total recorded expenses by ACS for Region Seven (contract VH531) for the period April 1, through September 2001, which were placed in evidence at hearing, were $185,260. For Region Twenty (contract VH521), the total recorded expenses for the period April 1, through September 2001, which were placed in evidence, were $507,086.00. These amounts together total $692,346.00. Abilities had received $1,151,806.00, through its two VRS contracts for that period, which it passed through to ACS. There appears to be $459,460.00 paid by VRS to Abilities, which is unsupported by ACS's expense records in evidence. Abilities now claims this amount was a legally permissible "profit" to ACS. At hearing, Mr. Knicely testified that the recorded $692,346.00 also is not backed up with other records of sufficient detail which would permit him to determine their appropriateness under the program. Mr. Knicely was called off the audit when the DOE IG informed DFS of the IG's findings and the DOE IG coordinated activities with DFS to seek the return of the money from Abilities. DFS also performed no audit on the situation, but assigned investigators. On October 14, 2003, representatives of Abilities met with representatives of DFS, concerning the funds identified by the IG's Report. (Stipulated Fact No. 32.) Peter Dunbar, attorney for Abilities October 2003- January 2004, was serving as General Counsel of DFS at the time of the disputed-fact hearing in November 2004. He did not accept the position with DFS until July 1, 2004. Mr. Dunbar and Abilities' then-president, Janet Samuelson, testified credibly that they understood at the October 14, 2003, meeting with DFS personnel that if Abilities did not return all the money which VRS had paid Abilities for transition expenses, DFS would continue to investigate, not just the transition expenses, but all aspects of the two contracts in dispute; would delay other funds due on these contracts; and, possibly, would withhold funds on other VRS-Abilities contracts, pending the investigations. At the October 14, 2003, meeting, Abilities' president and its legal counsel admitted no wrong-doing and disagreed with DFS's legal position that return of the funds was appropriate, required, or owed. The meeting concluded without a resolution of the dispute. Abilities had received from VRS only the amount of payment authorized in the fixed price contracts, which it had already passed through to ACS. At no time has Abilities or ACS ever refused the FDOE IG, VRS, or DFS access to its books or accounts, but Mr. Sandonato testified that since Abilities never verified any of ACS's charges (one-sixth of the total amount per month for six months), there was nothing from Abilities for any reviewing authority to audit. Apparently, there are no further records to be obtained from ACS, either. A demand for the return of the $545,124.00, which had been paid to Abilities as transition expenses under its two contracts, was made to Abilities in November 2003. (Stipulated Fact No. 33.) Mr. Dunbar, on behalf of Abilities, and Richard E. Speer, DFS Law Enforcement Investigator II, negotiated the language in a demand letter sent by Mr. Speer on December 18, 2003, to Mr. Dunbar. That letter read, in pertinent part, as follows: This is to confirm that our investigation has determined that the Florida Department of Education, Division of Vocational and Rehabilitation Services has made unallowable payments in the amount of $545,124 to your client, Abilities, Inc. Said payments were inconsistent with procurement documents and with state and federal guidelines, and there was no documentation to justify the expenses as reasonable and necessary. We anticipate that the good faith evidenced by Abilities, Inc. at the October 14, 2003 meeting will result in the repayment of this sum by Abilities, Inc. This will resolve all of the remaining issues concerning the demonstration projects for region 7 and region 20. Please confirm your client's intention concerning this matter at your earliest convenience. If the matter cannot be successfully concluded as anticipated above by 1/12/04, it will be necessary for the State of Florida to consider the alternative action we have previously discussed. The parties stipulated that Abilities returned the funds ($545,124.00) in December 2003, and the funds were ultimately delivered to VRS. (Stipulated Fact No. 34, modified.) In fact, Abilities' check for $545,124.00 was sent to Mr. Speer, accompanied by a January 12, 2004, letter from Mr. Dunbar, Abilities' attorney, which stated, only: In accordance with your letter of December 18, 2003, enclosed is check #029022 in the amount of $545,124.00 payable to the State of Florida. I would appreciate you acknowledging receipt of the check in the signature block noted below. . . . The check was dated January 9, 2004, and did not specify on its face the purpose of the payment. Upon receiving the foregoing check from Abilities, DFS closed its case. On January 15, 2004, Mr. Speer forwarded the check to FDOE/VRS. It cannot be ascertained from this record when or how FDOE/VRS handled return to RSA of the federal grant monies. The best the undersigned can glean from the record and Mr. Knicely's depositions is that, despite RSA making no demand or disallowance related to these contracts and subcontracts, FDOE/VRS at some point informally credited the funds back to the United States Department of Education by not "drawing down" as much as the state Agency would otherwise have been entitled to "draw down" from "the feds" from other grants or monies. This credit/debit system could have occurred before or after Abilities paid back the money to VRS via DFS. Mr. Dunbar testified that at the time Abilities' check was tendered, he thought that all state agencies concerned had appreciated that Abilities was returning the money with the option to file the instant action. Mr. Speer testified that he understood that the return of the money was in exchange for the State ceasing its investigation of the transition expenses on Abilities' specific two contracts. The parties stipulated that Abilities filed this administrative action pursuant to the dispute resolution provision of Contract Numbers VH521 and VH531, to contest the final agency action in demanding return of the contract payments. (Stipulated Fact No. 35. modified.) The Division's file reveals that the date of the mailed service of the Petition was February 4, 2004, and that it was filed at FDOE that day. The Petition recited that "All conditions precedent to filing this petition have occurred, been waived, or are now futile." An Amended Petition was served by mail on May 12, 2004. FDOE referred the matter to the Division of Administrative Hearings on May 24, 2004. The dispute resolution language of the contracts relied on by the parties, provides, at Attachment E, SPECIAL PROVISIONS, 3. (pages 15-16), for a series of informal and formal negotiation stages, totaling 81 days, and ends with: c. The action of the OAOC/VRS Director is final and binding unless one party wants to seek remedy through the Administrative hearing system. There also is language at Attachment G.IV.G. (pages 34-35) of the prime contracts that provides: Remedies of OAOC/VRS Cumulative. In addition to all remedies available to OAOC/VRS, hereunder, in the event Provider breaches its obligation under this Agreement, OAOC/VRS shall be entitled to exercise any remedy available or provided under Florida law (all rights and remedies granted in this Agreement to OAOC/VRS available at law or equity shall be cumulative and not mutually exclusive). Both prime contracts VH521 and VH531 are termed "AGREEMENTS," within themselves. Both require, at Attachment (pages 21-22), that the provider (Abilities) will: . . . maintain (in accordance with generally accepted accounting procedures) and retain, during and for three (3) years after termination of this Agreement, books, records and all other documents relating to this Agreement which sufficiently and properly reflect all expenditures of funds provided by OAOC/VRS under this Agreement (collectively, the "Records"). If an audit has been initiated and audit findings have not been resolved at the end of such three (3) year period, provider shall retain the Records until resolution of the audit findings. * * * 6. To submit all invoices for payment for services or expenses in form acceptable to the OAOC/VRS and in detail sufficient for proper pre-audit and post-audit thereof. Attachment G.II.C. 7-12 (pages 22-23) of the prime contracts specifies that some types of audits in compliance with OMB Circular A-133 may be ordered by the provider at the provider's expense and submitted by the provider, or the provider may pay the expenses of some audits if they are done by the Auditor General. Because of the limited nature of this case, and a pre-trial ruling eliminating OMB Circular A-133 as a federal requirement that Abilities may have been bound by for purposes of this case (See Preliminary Statement supra. and Endnote 1.), whatever OMB Circular A-133 required or did not require by way of audits may not be pursued here. However, the language employed at G.II. 7-12 of the prime contract is nonetheless significant, because it requires delivery of such reports and audits to OAOC/VRS by the "provider." Then, at Attachment A.III 1-2 (pages 4-5) the prime contracts provide for audits and reporting packages by or on behalf of the "recipients" to be submitted to, among others, OAOC. It also is specifically stated, at A.III.5 (page 5), that delivery is to be by the "recipients" to OAOC, as follows: 5. Recipients, when submitting audit reports to Occupational Access and Opportunity Commission/Vocational Rehabilitation Services for audits done in accordance with OMB Circular A-133, Florida Statutes, and Chapter 10.600, Rules of the Auditor General, should indicate the date that the audit report was delivered to the recipient in correspondence accompanying the audit report. In this context, because OAOC cannot deliver an audit or report to itself, Abilities must also qualify under these contracts as both a "provider" and a "recipient," although "sub- recipient" might, to a layman, be more descriptive of the relationship. These common words, "provider," "recipient," and "sub-recipient," become "words of art" pursuant to law, and the parties disagree as to the effect of those legal definitions. (See Conclusions of Law)) The prime contracts between VRS and Abilities clearly provide, at Attachment D.1. (page 14), that they are "fixed rate" contracts, and neither party disputes that Abilities is both a "vendor" and a "provider" under express language throughout the contracts. The parties disagree as to what is meant by the term, a "fixed rate contract". Petitioner's concept is that it means that the vendor/provider, Abilities, shall get paid by the State, regardless of whether the work is justified by the vendor's/provider's expense itemization, provided the total amount of money fixed in the contract is never exceeded by the invoicing. VRS contends that Abilities' view is wholly inconsistent with the actions of the parties; the terms and express intent of the federal grant; the prime contracts; and the sub-contracts. In fact, what constitute the instant fixed rate prime contracts in this case is specified within the terms of the contracts themselves. The AUTHORITY is found on page 1, thereof, and states: This contract is entered pursuant to the Rehabilitation Act of 1973 as amended [referred hereinafter as the "Act"] Florida Statutes, Chapter 413 (Part II), Public Law 93-112 as amended by Public Laws 93-516, 98- 221, 99-506, 100-630-102-569,103-073, and 105, 220. Other applicable regulations include the Education Department of General Administrative Regulations (EDGAR),3/ the State Plan and the State OAOC/VRS Program Regulations in 34 CFR Part 361. See, also, Attachment G. (page 20) of the prime contract: II. The Provider Agrees: Contractual Services: To provide all the services it is obligated to provide as specified in the Agreement. Federal and State Laws and Regulations: 1. If this Agreement provides for payment, in whole or in part, with federal funds, to comply with the applicable provisions of 34 CFR, Parts 74 and 80, all applicable OMB Circulars, and other applicable regulations specified in this Agreement. * * * Both contracts VH521 and VH531 provide, at Attachment E.9. (pages 17-18), for the return of overpayments by the provider, Abilities, for unearned funds,: 9. Return of Funds (Overpayments and interest penalty ) (Provider agrees) to return to OAOC/VRS any overpayments due to unearned funds or funds disallowed pursuant to the terms of this contract that were disbursed to the provider by OAOC/VRS. In the event that the provider or its independent auditor discovers that an overpayment has been made, the provider shall repay said overpayment within forty (40) calendar days without prior notification from OAOC/VRS. In the event that OAOC/VRS first discovers an overpayment has been made, OAOC/VRS will notify the provider by letter of such a finding. Should repayment not be made in a timely manner, OAOC/VRS will charge interest of one (1) percent per month compounded on the outstanding balance after forty (40) calendar days after the date of notification. (Emphasis supplied) Moreover, contracts VH521 and VH531 provide, at Attachment G.II.S.(page 28), that "program income" shall be used by OAOC/VRS to either reduce the contract award or fund additional services eligible for Federal funding. . . . Program income shall be used, at the direction of the OAOC/VRS, to either reduce the contract award or fund additional services eligible for State and Federal funding. For purposes of this Agreement, "program income" shall mean gross income received by Provider directly generated by a grant supported activity, or earned as a result of this Agreement during the term of this Agreement. If any payment due under this Agreement results directly from a budget line item submitted by Provider and Provider's actual costs/expenditures during the Agreement term are less than the amount budgeted, the resulting excess payment shall be deemed, for the purposes of this Agreement, "program income." * * * Attachment G.II.J. (pages 24-25) also contains a provider agreement: . . . To return to OAOC/VRS any overpayment of funds disallowed pursuant to the terms of this Agreement that were disbursed to the Provider by OAOC/VRS. . . . 34 CFR § 74.2, defines "award," for purposes of that federal regulation, dealing with what the federal government pays out in grants, as: Award means financial assistance that provides support or stimulation to accomplish a public purpose. Awards include grants and other agreements in the form of money or property, in lieu of money, by the Federal Government to an eligible recipient. The term does not include-- Technical assistance, which provides services instead of money; Other assistance in the form of loans, loan guarantees, interest subsidies, or insurance; Direct payments of any kind to individuals; and Contracts which are required to be entered into and administered under procurement laws and regulations. (Emphasis supplied) 34 CFR § 74.24(b), provides that program income earned during the project period must be retained by the program recipient (VRS) in this situation, (VRS) and, in accordance with United States Department of Education regulations or the terms or conditions of the award, must be used in one or more of the following ways: * * * (3) Deducted from the total project or program allowable cost in determining the net allowable costs on which the Federal share of costs is based. Abilities subcontracted with ACS after appropriate notice to VRS. Both contracts VH521 and VH531, at Attachment E.5.(page 16) permitted Abilities to subcontract with another party as follows: Subcontracts: The Provider may assign or delegate obligations under this Agreement to another party and may subcontract for any work contemplated under this Agreement with an OAOC/VRS approved vendor or, with the written approval of OAOC/VRS. The Provider is solely liable for the performance of all obligations outlined in this Agreement which are not the exclusive responsibility of the OAOC/VRS. . . . In the event the Provider subcontracts all or any portion of its obligations under this Agreement, the subcontractor is bound by the terms of the Agreement and all applicable laws and regulations. After the execution of the contract, if a subcontract is found to be in violation of federal/state rules and regulations, the Provider will be considered to be in breach of contract. Abilities expected that its subcontractor ACS would be bound by the same agreements by which Abilities was bound. On or about May 2, 2001, Abilities and ACS, using some new words of art, entered into subcontracts providing that Abilities would pass through the federal grant funds to ACS for performing the services and obligations under State VRS contracts VH521 and VH531, by the following sub-contract language: PRIME CONTRACT Notwithstanding any other provision of this Agreement, this Agreement is a subcontract under the Prime Contract [VRS and Abilities] and each and every provision of the Prime Contract, as may be tailored herein, and any amendments thereto, as added to this Subcontract, shall extend to and be binding upon SUBCONTRACTOR [ACS]as part of this Agreement. With respect to any references in the Prime Contract to CONTRACTOR and CUSTOMER for purposes and applicability to this Subcontract, CONTRACTOR shall mean and include SUBCONTRACTOR and CUSTOMER shall mean and include CONTRACTOR. (Bracketed material added for clarity.) Every dollar received by Abilities under the contracts was paid directly to its subcontractor ACS. The subcontracts between Abilities and ACS also specifically provided at pages 4 and 5 of the subcontracts that Attachment E and Attachment G of prime contracts VH521 and VH531 apply to the subcontractor. Once again, different words of art were employed for the same entities. See the subcontracts: 7.0 SPECIAL PROVISIONS Attachment E, Special Provisions, of the Prime Contract shall apply to this Subcontract. 12.0 OAOC/VRS STANDARD TERMS AND CONDITIONS Attachment G of the Prime Contract, OAOC/VRS Standard Terms and Conditions Attachment shall apply to this Agreement, except that the following shall apply to SUBCONTRACTOR under the identified sections of the Standard Terms and Conditions: Federal and State Laws and Regulations SUBCONTRACTOR shall be subject to applicable OMB circulars for For-Profit organizations. Audits and Records Access to records for SUBCONTRACTOR shall be accommodated at Subcontractor's facility in Austin, Texas. Such access shall exclude information related to profit or business proprietary information. E. Indemnification Relative to indemnification to CUSTOMER, CONTRACTOR and SUBCONTRACTOR agree to cross indemnify each other relative to any cause of action brought by the CUSTOMER under this Agreement. The expenditures claimed by Abilities and ACS would have to be examined in accordance with 34 CFR § 74.27, which provides, in part: (a) For each kind of recipient, there is a set of cost principles for determining allowable costs. Allowability of costs are determined in accordance with the cost principles applicable to the entity incurring the costs, as specified in the following chart. For the cost of a- Use the principle in- Private nonprofit organization OMB Circular A-122 other than An institution of higher education; a hospital; or (3) an organization named in OMB Circular A-122 as not subject to that circular OMB Circular A-122. Educational Institution OMB Circular A-21 Hospital Appendix E to 45 CFR part 74 Commercial for-profit organization other than a hospital and an educational institution 48 CFR part 31 Contract Costs Principles and Procedures or institution. Uniform and accounting standards that comply with cost principles acceptable to ED. OMB Circular A-122 states that in order for costs to be allowable under an award, they must be "reasonable for the performance of the award and be allocable thereto under these principles." ACS was a commercial for-profit organization, and pursuant to its subcontract with Abilities, ACS had to comply with 48 C.F.R. Part 31. Those provisions state, in part: 31.102 Fixed-price contracts. The applicable subparts of part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or (b) a fixed- price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered. 48 CFR 31.201-2 provides: 31.201-2 Determining allowability. (a) A cost is allowable only when the cost complies with all of the following requirements: Reasonableness Allocability Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances. Terms of the contract. Any limitations set forth in this subpart . . . * * * (d) A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported. (Emphasis supplied) In the prime contract, at Attachment G.II.B., the provider, Abilities, agreed: 4. To comply with all applicable laws, statutes an regulations of the State of Florida and the United States, and to complete any forms required under such law, statutes, and regulations, whether or not such forms are referenced in this Agreement.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is RECOMMENDED that the Florida Department of Education, Division of Vocational Rehabilitative Services enter a final order dismissing the Petition and Amended Petition herein. DONE AND ENTERED this 9th day of May, 2005, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 9th day of May, 2005.
Findings Of Fact The Respondent, Charles H. Butler, Jr., was for all periods relevant to this case a certified building contractor with the State of Florida, holding license number CB CA13872. It is officially recognized that on September 17, 1987, the administrative complaint that is the subject of this case was filed against Charles H. Butler, Jr. It is further officially recognized that the administrative complaint charges the Respondent with only two violations: Exhibiting "financial mismanagement, misconduct, or diversion, in violation of 489.129(1)(h) and (m)." Failing "to properly supervise the finances on said job, in violation of 489.129(1)(m), (j); 489.119; 489.105(4)." In April, 1986, Charles H. Butler, Jr., entered into a contract with Albert R. Harrelson to construct a commercial building for $144,000. R. Ex. 20, P. Ex. 6. Article 1 of the contract provides that "this contract includes by reference the following: 1) contract agreement form, 2) specifications, 3) material lists, and 4) approved plans." (E.S.) Article 3 of the contract stated that the "required plans and engineering to obtain a building permit are provided by the owner at his cost." The specifications, material lists, and approved plans are not in evidence. Pursuant to Article 7 of the contract, there was to have been a draw schedule for payments. The parties never agreed to a draw schedule as a part of their contract. A large portion of the loan for the construction was provided by Sun Bank of Tampa Bay. Sun Bank established a draw schedule for disbursement of the loan to the contractor, Mr. Butler, as progress was made in construction. Mr. Butler was not consulted regarding this draw schedule, and had not agreed to it. Mr. Harrelson apparently did not either since he testified that he got a copy of the Bank's draw schedule several months after entering into the contract with Mr. Butler. It is concluded that the draw schedule used by the Bank was imposed by the Bank, and was not a part of the contract between Mr. Butler and Mr. Harrelson. Sun Bank hired Inspection Service, Inc., to conduct inspections of the progress of the construction and in that manner to verify that construction had been completed, stage by stage, to justify disbursement of installments under the draw schedule. Sun Bank required Mr. Harrelson to approve loan disbursements as disbursements were made. In reliance upon progress reports of its inspector and Mr. Harrelson, Sun Bank made a total of $107,000 in disbursements under the loan. P. Ex. 9. Sun Bank had disbursed about $88,000 of this amount by February or March, 1987. P. Ex. 9. The amount disbursed by Sun Bank was never intended to cover the entire cost of construction. Mr. Harrelson was required to come up with his own funds to meet the total contract price. Mr. Harrelson refused to make payments to Mr. Butler outside the draw schedule imposed by the Bank. Mr. Harrelson discharged Mr. Butler for alleged breach of contract in March, 1987. Mr. Harrelson testified at length concerning defects that he perceived in the construction of the project and resultant extra financial cost to himself. While Mr. Harrelson testified as to his perception of mistakes made by Mr. Butler, Mr. Harrelson's testimony did not clearly explain the exact scope of the contract. There is no evidence that Mr. Harrelson has any training in the construction of commercial buildings. Mr. Butler testified at length about the delays and inadequacies in receipt of payments under the draw schedule, as well as disagreements he had with Mr. Harrelson concerning what was required by the contract. From the testimony of Mr. Harrelson and Mr. Butler it is concluded that there were changes made in the original plans, changes made in the scope of the work, changes made during the construction due to problems encountered, and that these changes were by attempted oral agreement. For example, neither party could agree as to who was to submit plans, although the written contract clearly says that the owner is responsible. The plans were never placed in evidence. Mr. Butler insists that the contract had an addendum. R. Ex. 20. Mr. Harrelson was not recalled to confirm or deny this testimony, but the contract submitted by the Petitioner, P. Ex. 6, has no addendum. There was to have been a draw schedule, but none was ever agreed to by the parties. Thus, the testimony is too fragmented, confused, and unclear to make a finding as to the exact scope and schedule of the contract. There was no testimony by the person who made the progress inspections for Sun Bank. There was no testimony from any expert in the field of contracting. During the formal administrative hearing, the Petitioner sought to voluntarily dismiss the charge of diversion of funds. The dismissal was sought without prejudice to refiling that charge at another date. The basis of the motion was that the witness from Sun Bank of Tampa did not bring files to answer questions from counsel, and was unprepared to answer from memory. It appeared during the course of the examination of the witness that counsel was not familiar with the documents in the possession of the witness, and that the witness was not prepared to present evidence. The motion was denied.
Recommendation It is therefore recommended that the Department of professional Regulation, Construction Industry Licensing Board, enter its final order dismissing the administrative complaint against Charles H. Butler, Jr. DONE and RECOMMENDED this 23rd day of March, 1988, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. 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 23rd day of March, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-5041 The following are rulings upon proposed findings of fact which have either been rejected or which have been adopted by reference. The numbers used are the numbers used correspond to the numbered and unnumbered paragraphs and sentences in the findings of fact proposed by the Petitioner. (All paragraphs after paragraph 3 have been deemed to be numbered sequentially thereafter.) Findings of fact proposed by the Petitioner: 3. The first sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. Since the entire contract was never proven by clear and convincing evidence, the relevance of this proposed finding of fact is unknown. It is impossible to conclude that the Respondent caused a "self made deficit of $25,000" since the contract itself was never proven by clear and convincing evidence. The administrative complaint did not charge Mr. Butler with failure to supervise the construction of the building. It charged him with financial mismanagement and failure to supervise finances. Moreover, the relevance of evidence concerning Mr. Butler's presence on the job site was never tied into the charge of financial mismanagement. No finding can be made on this record as to the percentage of completion on any date since the contract was never proven. With respect to the remainder of this proposed finding (the list of construction defects), the administrative complaint did not charge Mr. Butler with incompetence in the construction of the building. It charged him with financial mismanagement and failure to supervise finances. Since the entire contract, including changes and alleged defects, was never proven by clear and convincing evidence, it is impossible to conclude that Mr. Harrelson paid more than the contract price. The last two sentences are not relevant to the charge of financial mismanagement. The first sentence is not supported by the evidence. With respect to the next sentence of this proposed finding (the list of construction defects), the administrative complaint did not charge Mr. Butler with incompetence in the construction of the building. It charged him with financial mismanagement and failure to supervise finances. The last sentence is true, and adopted by reference. Since the entire contract was never proven by clear and convincing evidence, the relevance of this proposed finding of fact is unknown. No finding can be made on this record as to the percentage of completion on any date since the contract was never proven. Findings of fact proposed by the Respondent: None. COPIES FURNISHED: Lee Sims, Esquire Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750 Charles H. Butler, Jr., Pro Se 8917 Maislin Drive Tampa, Florida 33610 Fred Seely, Executive Director Construction Industry Licensing Board Post Office Box 2 Jacksonville, Florida 32201 Tom GallagherSecretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750 William O'Neil, General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750
The Issue Whether all or part of two statements challenged in the petition of Security Mutual Life Insurance Company violate Section 120.56(4)(d), Florida Statutes, requiring the agency to immediately discontinue all reliance on the statements as a basis for agency action.
Findings Of Fact On March 11, 1997, Petitioner filed a Petition seeking an administrative determination of whether certain agency statements constitute rules. Specifically, Petitioner listed three agency statements and alleged that each constituted a rule pursuant to Section 120.52(15), Florida Statutes, which had not been adopted by the rulemaking procedures provided by Section 120.54, Florida Statutes. The challenged statements which remain at issue in this proceeding are: (a) The Department disapproves contract forms labeled as "single premium annuity" contracts which permit additional contributions after the initial contribution is made; and (b) The Department requires that annuity contracts include a demonstration of compliance with Actuarial Guideline 33 to avoid forms/rates denial. The Department, through its Bureau of Life and Health Forms and Rates (Bureau), has been delegated the task of reviewing annuity forms (contracts) and rendering approval or disapproval of such forms prior to their being sold in Florida. As part of its actuarial review of a company's initial product filing in Florida, the Bureau is concerned with (1) whether the policy form title misrepresents the true nature of the policy and (2) whether the form is in compliance with the standard valuation law (CARVM). SINGLE PREMIUM STATEMENT A single premium fixed annuity policy" is an annuity policy that requires one single premium payment. If an annuity policy has contract provisions which allow for additional contributions, it is not a single premium contract." "Single premium contract" is a common generic name in the insurance industry. However, there is no insurance term of art that would allow the word "single," as used in reference to the number of premium payments in such annuity contracts, to mean more than one. This is consistent with the common usage of that term. In common usage, the term “single” is inconsistent with “multiple”. Since at least December 1993, the Department has disapproved all contract forms entitled or labeled "Single Premium Annuity" which contain provisions permitting additional contributions after the initial contribution is made. These forms are not approved unless the policy title is modified to accurately reflect the nature and terms of the policy or the provision allowing additional contributions is deleted. It is misleading to present to an annuity purchaser a policy labeled "single premium annuity," which requires only one premium payment but permits discretionary contributions during the first six months of the policy term. The potential harm is that the consumer reviewing a policy labeled as a "single premium annuity" might reasonably believe that the contract requires and allows him to make only one premium payment. Thus, the consumer may be encouraged to make a larger contribution than he might otherwise have made if the payments were made over time. Notwithstanding the fact that the consumer is allowed to withdraw his investment, the potential problem is not cured because of the penalty surrender charge imposed on the consumer. The Bureau has not adopted or published as proposed, a rule which specifically prohibits the inclusion of additional subsequent contributions after an initial contribution is made as to any annuity contract entitled "single premium" or requiring a contract title modification where the additional contributions provision is not deleted in order to avoid form/rate review disapproval. However, on May 15, 1996, the Department adopted a rule which provides that filing will be disapproved for inconsistencies or ambiguities which are misleading. Rule 4- 149.023(1), Florida Administrative Code. The provisions of Rule Chapter 4-149, Florida Administrative Code, sets out the filing procedures to be followed for a complete filing. These requirements are delineated in great detail in Rule 4-149.023 (1), Florida Administrative Code. The Petitioner was denied rates and forms approval by the Department's Bureau on a single premium annuity contract because the form was misleading. Although the form submitted by Petitioner was titled or labeled as a single premium annuity policy, the contract language allowed policyholders to make additional discretionary contributions after the first contribution. In denying Petitioner rate and form approval, the Department's decision was based on the misleading nature of its document title, not whether the option provided in the contract, though not included in the title, was a contract benefit or restriction to the policy holder. GUIDELINE 33 STATEMENT From the first quarter of 1996 to the present, the Department has routinely and consistently required that annuity contracts include a demonstration of compliance with Actuarial Guideline 33 to avoid forms denial. Actuarial Guideline 33, adopted by the National Association of Insurance Commissioners (NAIC) in March 1995, is published in the 1996 Financial Examiners Handbook, and provides guidance for complying the standard valuation law, commonly referred to as CARVM. By letter dated February 13, 1997, the Department advised Petitioner that actuarial information previously submitted as to its form filing, did not comply "with the Standard Valuation Law as described in Actuarial Guideline." The letter further advised Petitioner that the contract had not been amended and the description thereof was misleading and in contravention of Section 626.9541, Florida Statutes. The Department determined that the policy provisions were inconsistent with the policy title. In a letter dated February 20, 1996, the Department advised Petitioner that actuarial information previously submitted as to its Form Number 1807-5/95-FL "did not disclose the assumptions to be used in establishing reserves" and that the "reserve statement did not appear to address testing of the annuitization options." The letter requested that Petitioner verify compliance with Actuarial Guideline 33. The Petitioner was denied rates and forms approval by the Bureau a single premium annuity contract filing for failure to provide a demonstration of compliance with the Standard Valuation Law as described in Actuarial Guideline 33. Without rates and forms approval, the Petitioner may not market or sell its single premium annuity contract in Florida. On March 20, 1997, between the filing of the Petition and the date of the formal hearing in this matter, the Department amended Rule 4-138.001, Florida Administrative Code. The rule amendment essentially incorporated by reference the 1996 Financial Examiners Handbook by reference into the rule. The amended version of the rule became effective April 9, 1997, five days before the final hearing. Department actuaries who wrote the February 13 and 20, 1996 letters to Petitioner were unaware of the Department's proposed amendment of Rule 4-138.001, Florida Administrative Code, at the time the disapproval letters were written. These actuaries work in the Bureau of Life and Health Forms and Rates and that bureau has not adopted or proposed such a rule.
The Issue At issue in this proceeding is whether Respondent failed to abide by the coverage requirements of the Workers' Compensation Law, Chapter 440, Florida Statutes (2002), by not obtaining workers' compensation insurance for her employees; and whether Petitioner properly assessed a penalty against Respondent pursuant to Section 440.107, Florida Statutes (2002).
Findings Of Fact Based upon observation of the witnesses and their demeanor while testifying; documentary materials received in evidence; stipulations by the parties; evidentiary rulings made pursuant to Section 120.57, Florida Statutes (2003); and the record evidence submitted, the following relevant and material finding of facts are made: The Department is the state agency responsible for enforcing the requirement of the Workers' Compensation Law that employers secure the payment of workers' compensation for their employees. § 440.107, Fla. Stat. (2002).1 On August 8, 2003, Respondent was a sole proprietor in the construction industry by framing single-family homes. On that day, Respondent was the sub-contractor under contract with Marco Raffaele, general contractor, providing workers on a single-family home(s) located on Navigation Drive in the Panther Trace subdivision, Riverview, Florida. It is the responsibility of the Respondent/employer to secure and maintain workers' compensation coverage for each employee. During the early morning hours of August 8, 2003, Donald Lott, the Department's workers' compensation compliance investigator, was in the Panther Trace subdivision checking on site workers for potential violations of the workers' compensation statute. While driving down Navigation Drive in the Panther Trace subdivision, Mr. Lott approached two houses under construction. There he checked the construction workers on site and found them in compliance with the workers' compensation statute. Mr. Lott recognized several of the six men working on the third house under construction next door and went over to investigate workers' compensation coverage for the workers.2 At the third house Mr. Lott interviewed Darren McCarty, Henry Keithler, and Mike Sabin, all of whom acknowledged that they worked for Respondent, d/b/a Riopelle Construction. Mr. Lott ascertained through Southeast Leasing Company (Southeast Leasing) that three of the six workers, Messrs. Keithler, Sabin, and McCarthy were listed on Southeast Leasing Company's payroll through a valid employee lease agreement with Respondent as of August 8, 2003. The completed employee lease agreement provided for Southeast Leasing Company to provide workers' compensation coverage for only those employees whose names, dates of birth, and social security numbers are contained in the contractual agreement by which Southeast Leasing leased those named employees to the employing entity, Respondent, d/b/a Riopelle Construction. Mr. Lott talked with the other three workers on site, Ramos Artistes, Ryan Willis, and Robert Stinchcomb. Each worker acknowledged working for (as an employee) Respondent on August 8, 2003, in the Panther Trace subdivision. In reply to his faxed inquiry to Southeast Leasing regarding the workers' compensation coverage status for Messrs. Artistes, Willis, and Stinchcomb, Southeast Leasing confirmed to Mr. Lott that on August 8, 2003, Southeast Leasing did not have a completed employee leasing contractual agreement with Respondent for Messrs. Artistes, Willis or Stinchcomb. Southeast Leasing did not provide workers' compensation coverage for Messrs. Artistes, Willis or Stinchcomb on August 8, 2003.3 Southeast Leasing is an "employee" leasing company and is the "employer" of "leased employees." As such, Southeast Leasing is responsible for providing workers' compensation coverage for its "leased employees" only. Southeast Leasing, through its account representative, Dianne Dunphy, input employment applications into their system on the day such application(s) are received from employers seeking to lease employees. Southeast Leasing did not have employment applications in their system nor did they have a completed contractual employment leasing agreement and, therefore, did not have workers' compensation coverage for Messrs. Artistes and Willis at or before 12:08 p.m. on August 8, 2003. After obtaining his supervisor's authorization, Mr. Lott served a Stop Work and Penalty Assessment Order against Respondent on August 8, 2003, at 12:08 p.m., requiring the cessation of all business activities and assessing a penalty of $100, required by Subsection 440.107(5), Florida Statutes, and a penalty of $1,000, as required by Subsection 440.107(7), Florida Statutes, the minimum penalty under the statute. On August 12, 2003, the Department served a Corrected Stop Work and Penalty Assessment Order containing one change, corrected federal identification number for Respondent's business, Riopelle Construction. Mr. Stinchcomb, the third worker on the construction job site when Mr. Lott made his initial inquiry, was cutting wood. On August 8, 2003, at or before 12:00 p.m., Mr. Stinchcomb was not on the Southeast Leasing payroll as a leased employee covered for workers' compensation; he did not have individual workers' compensation coverage; and he did not have a workers' compensation exemption. On that day and at that time, Mr. Stinchcomb worked as an employee of Riopelle Construction and was paid hourly by Riopelle Construction payroll check(s). Respondent's contention that Mr. Stinchcomb, when he was working on the construction job site between the hours of 8:00 a.m. and 1:00 p.m. on August 8, 2003, was an independent contractor fails for the lack of substantial and competent evidence in support thereof. On August 8, 2003, the Department, through Mr. Lott, served an administrative request for business records on Respondent. Respondent failed and refused to respond to the business record request. An Order requiring Respondent to respond to Petitioner's discovery demands was entered on December 1, 2003, and Respondent failed to comply with the order. On December 8, 2003, Respondent responded that "every effort would be made to provide the requested documents by the end of the day" to Petitioner. Respondent provided no reliable evidence and Mr. Stinchcomb was not called to testify in support of Respondent's contention that Mr. Stinchcomb was an independent contractor as he worked on the site on August 8, 2003. Respondent's evidence, both testamentary and documentary, offered to prove that Mr. Stinchcomb was an independent contractor on the date in question failed to satisfy the elements required in Subsection 440.02(15)(d)1, Florida Statutes. Subsection 440.02(15)(c), Florida Statutes, in pertinent part provides that: "[f]or purposes of this chapter, an independent contractor is an employee unless he or she meets all of the conditions set forth in subparagraph(d)(1)." Subsection 440.02(15)(d)(1) provides that an "employee" does not include an independent contractor if: The independent contractor maintains a separate business with his or her own work facility, truck, equipment, materials, or similar accommodations; The independent contractor holds or has applied for a federal employer identification number, unless the independent contractor is a sole proprietor who is not required to obtain a federal employer identification number under state or federal requirements; The independent contractor performs or agrees to perform specific services or work for specific amounts of money and controls the means of performing the services or work; The independent contractor incurs the principal expenses related to the service or work that he or she performs or agrees to perform; The independent contractor is responsible for the satisfactory completion of work or services that he or she performs or agrees to perform and is or could be held liable for a failure to complete the work or services; The independent contractor receives compensation for work or services performed for a commission or on a per-job or competitive-bid basis and not on any other basis; The independent contractor may realize a profit or suffer a loss in connection with performing work or services; The independent contractor has continuing or recurring business liabilities or obligations; and The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures. The testimony of Respondent and the testimony of her husband, Edward Riopelle, was riddled with inconsistencies, contradictions, and incorrect dates and was so confusing as to render such testimony unreliable. Based upon this finding, Respondent failed to present evidence sufficient to satisfy the requirement of Subsection 440.02(15)(d)1, Florida Statutes, and failed to demonstrate that on August 8, 2003, Mr. Stinchcomb was an independent contractor. Petitioner proved by a preponderance of the evidence that on August 8, 2003, Mr. Stinchcomb, while working on the single-family construction site on Navigation Drive in the Panther Trace subdivision was an employee of Respondent and was not an independent contractor. Petitioner proved by a preponderance of the evidence that Mr. Stinchcomb did not have workers' compensation coverage on August 8, 2003. On August 8, 2003, Mr. Willis was a laborer on the single-family construction site on Navigation Drive in the Panther Trace subdivision as an employee of Respondent, who paid him $7.00 per hour. Mr. Willis was not listed on the employee list maintained by Southeast Leasing, recording those employees leased to Respondent. Mr. Willis did not have independent workers' compensation coverage on August 8, 2003. Mr. Willis had neither workers' compensation coverage nor a workers' compensation exemption on August 8, 2003. Petitioner proved by a preponderance of the evidence that Mr. Willis did not have workers' compensation coverage on August 8, 2003. On August 8, 2003, Mr. Artises was a laborer on the single-family construction site on Navigation Drive in the Panther Trace subdivision and was an employee of Respondent. Mr. Artises had been in the employment of Respondent for approximately one week before the stop work order. Mr. Artises did not have independent workers' compensation coverage on August 8, 2003. Mr. Artises did not have a workers' compensation coverage exemption on August 8, 2003. Petitioner proved by a preponderance of the evidence that Mr. Aristes did not have workers' compensation coverage on August 8, 2003.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleading and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, affirming and adopting the Corrected Stop Work and Penalty Assessment Order dated August 12, 2003. DONE AND ENTERED this 29th day of March, 2004, in Tallahassee, Leon County, Florida. S FRED L. BUCKINE 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 29th day of March, 2004.
The Issue Whether Respondents violated the provisions of chapter 440, Florida Statutes, by failing to secure the payment of workers' compensation coverage, as alleged in the Stop-Work Orders, and, if so, what penalty is appropriate.
Findings Of Fact The Department is the state agency charged with enforcing the requirement of chapter 440, Florida Statutes, that employers in Florida secure workers' compensation coverage for their employees. § 440.107(3), Fla. Stat. Respondents are gas station/convenience stores located in South Florida. Northlake was created by Nazma Akter on May 6, 2014. MB was created by Ms. Akter on March 23, 2010. Congress Valero was created by Muhammad Saadat on July 21, 2011. Hena was created by Ms. Akter and Abu Ahsan on December 14, 2011. Hayma was created by Ms. Akter on December 14, 2011. Blue Heron was created by Ms. Akter on August 4, 2009. At all times relevant hereto, Respondents were duly-licensed to conduct business in the state of Florida. On February 2, 2015, the Department's Compliance Investigator Robert Feehrer, began a workers' compensation compliance investigation of Gardenia, LLC. Investigator Feehrer called the number listed for Gardenia, LLC, and was provided with a corporate office address. On February 10, 2015, upon arrival at Gardenia, LLC's, corporate office located at 165 US Highway 1, North Palm Beach, Florida, 33408, Investigator Feehrer spoke with Operations Manager Mohammad Hossain. Mr. Hossain stated that Gardenia, LLC, was a paper corporation and existed only for the purpose of paying unemployment taxes on the "six stores." Mr. Hossain went on to provide Investigator Feehrer with a list of Respondents and names of the employees that worked at each store. As an employee of Gardenia, LLC, and Respondents, Mr. Hossain's statements are party opponent admissions and bind Respondents. Lee v. Dep't of Health & Rehab. Servs., 698 So. 2d 1194, 1200 (Fla. 1997). With Mr. Hossain's statements and the list of Respondents' employees, Investigator Feehrer then consulted the Division of Corporations website, www.sunbiz.org, and confirmed that Respondents were current, active Florida companies. Investigator Feehrer then consulted the Department's Coverage and Compliance Automated System ("CCAS") for proof of workers' compensation coverage and exemptions associated with Respondents. Investigator Feehrer's CCAS search revealed that Respondents had no workers' compensation policies and no exemptions. On February 24, 2015, Investigator Feehrer conducted site visits at each of the six stores. Ms. Akter and Mr. Hossain accompanied Investigator Feehrer during these site visits. At all times material hereto, Ms. Akter was a corporate officer or managing member of each of the six Respondents. Muhammed Saadat and Abu Ahsan were corporate officers or managing members of Congress Valero, Hena, and Blue Heron. Kazi Ahamed was a corporate officer or managing member of Congress Valero and Hayma. Kazi Haider and Mohammed Haque were managing members of Hayma. All received compensation from the companies with which they were involved. Although Investigator Feehrer only personally observed one employee working at each location during his site visits, the payroll records revealed that at least four employees (including corporate officers or managing members without exemptions) received compensation for work at each location during the relevant period. Investigator Feehrer required additional information to determine compliance, and with Respondents' permission, contacted Respondents' accountant. Investigator Feehrer met with the accountant at least two times to obtain relevant information prior to March 30, 2015. Upon Ms. Akter's authorization, the accountant provided tax returns and payroll information for Respondents' employees. Information from Ms. Akter and Mr. Hossain also confirmed the specific employees at each of the six stores during the period of March 30, 2013, through March 30, 2015. On March 30, 2015, based on his findings, Investigator Feehrer served six Stop-Work Orders and Orders of Penalty Assessment. The Stop-Work Orders were personally served on Ms. Akter. Mr. Hossain was present as well and confirmed the lists of employees for each of the six stores were accurate. In April 2015, the Department assigned Penalty Auditor Christopher Richardson to calculate the six penalties assessed against Respondents. Respondent provided tax returns for the audit period and payroll transaction details were provided, as well as general ledgers/breakdowns, noting the employees for each Respondent company. Based on Investigator Feehrer's observations of the six stores on February 24, 2015, Auditor Richardson used the classification code 8061 listed in the Scopes® Manual, which has been adopted by the Department through Florida Administrative Code Rule 69L-6.021(1). Classification code 8061 applies to employees of gasoline stations with convenience stores. Classification codes are four-digit codes assigned to various occupations by the National Council on Compensation Insurance to assist in the calculation of workers' compensation insurance premiums. In the penalty assessment, Auditor Richardson applied the corresponding approved manual rate for classification code 8061 for the related periods of non-compliance. The corresponding approved manual rate was correctly utilized using the methodology specified in section 440.107(7)(d)1. and rule 69L-6.027 to determine the final penalties. The Department correctly determined Respondents' gross payroll pursuant to the procedures required by section 440.107(7)(d) and rule 69L-6.027. On January 14, 2016, the Department served the six Amended Orders of Penalty Assessment on Respondents, assessing penalties of $1,367.06 for Northlake, $9,687.00 for MB, $12,651.42 for Congress Valero, $18,508.88 for Hena, $7,257.48 for Hayma, and $4,031.60 for Blue Heron. The Department has demonstrated by clear and convincing evidence that Respondents were engaged in the gasoline station, self-service/convenience store industry in Florida during the periods of noncompliance; that Respondents failed to secure the payment of workers' compensation for their employees, as required by Florida's Workers' Compensation Law; and that the Department correctly utilized the methodology specified in section 440.107(7)(d)1. to determine the appropriate penalties.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a consolidated final order upholding the Stop-Work Orders and the Amended Orders of Penalty Assessment in the amounts of $1,367.06 for Northlake Mobile Enterprises, Inc.; $9,687.00 for MB Food and Beverage, Inc.; $12,651.42 for Congress Valero, Inc.; $18,508.88 for Hena Enterprises, Inc.; $7,257.48 for Hayma Enterprises, Inc.; and $4,031.60 for Blue Heron BP, Inc. DONE AND ENTERED this 16th day of June, 2016, in Tallahassee, Leon County, Florida. S MARY LI CREASY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of June, 2016.
The Issue Whether Petitioner is entitled to the amounts claimed in the challenges to the IRR determinations as set forth in the cost settlement documents.
Findings Of Fact Petitioner, Sunrise Community, Inc., is a non-profit organization that offers assistance and support to people with developmental disabilities. It specializes in residential services but also provides day programs, supported living services, and other programs to assist people in the lower functioning ranges of mental retardation. Respondent, Agency for Health Care Administration, is the state agency charged with the responsibility of administering and supervising Medicaid reimbursements. At all times material to this cause, Petitioner was an authorized Medicaid provider. The quality of care provided by Petitioner and its facilities has never been disputed in this cause. The disputes in this matter arose due to challenges to the rates of reimbursement to Petitioner and its facilities. In Florida, Medicaid providers such as Petitioner are reimbursed on a prospective basis. Each provider gets a rate for reimbursement that is established based upon the actual allowable costs from a prior, fixed period of time which is then utilized to pay for a subsequent time period. For convenience of review this rate is sometimes thought of as the "budgeted rate" in this record. It assumes costs from past experience will be incurred in the future and provides for a known, fixed amount of compensation to hopefully cover such expenses. All Medicaid providers are required to disclose their actual costs for an entire reporting period. A cost report must be prepared using the accrual basis of accounting in accordance with generally accepted accounting principles as set forth in the rules governing Medicare reimbursement. After the fact, providers then "settle up" with the Agency by comparing the actual allowable costs incurred in the rate period with the rate. Providers cannot make a profit or excess revenue on the rate. Where a rate for a given period proves to be too low or inadequate, the cost settlement procedure is designed to adjust the amounts owed to cover the deficit funding. Thus each Medicaid facility receives a rate which must be "cost settled" separately based upon its actual allowable expenses. Petitioner and its related facilities are entitled to rates that will cover the actual allowable costs of doing business. Petitioner is not entitled to a profit nor is it required to operate at a loss. Should a provider be overpaid, that is, if it is established during cost settlement that the rate received by the provider was more than the actual allowable costs incurred for the rate period, then the provider "repays" the overage to the Agency. Otherwise, the rate is fixed for the time period it relates to unless an IRR is approved to increase the rate. IRRs are submitted to the Agency when a provider’s rate does not provide adequate compensation. An approved interim rate is to give assurance that the original rate can be adjusted to accommodate the new costs incurred by the provider. Approved interim rates are also cost settled after the rate period as with budgeted rates. In 1995 Petitioner sought approval of interim rate increases from the Agency. Such requests were denied by the Agency but successfully appealed by Petitioner. Thereafter, because the period governed by the rates had passed, the Agency sought to cost settle the amounts owed to Petitioner. When the Agency refused to remit the court-ordered interim rate Petitioner lost the amount of the rate increase as well as an opportunity for use of those funds during the pending cases. The parties attempted to resolve the amounts claimed by Petitioner through the cost settlement process. As to each denied claim, Petitioner sought an administrative review and the matter was forwarded to the Division of Administrative Hearings. IRRs are designed to give providers relief so that unanticipated costs can be reimbursed. This is important since laws may change which require providers to offer additional programs or services the costs of which are not encompassed in the budgeted rate in effect at the time of the change in law. At the time of settlement, if there is an overpayment of the difference between the approved interim rate and the actual allowable costs, the provider refunds the overpayment. Similarly, if there is an underpayment as a result of the actual allowable cost being greater than the interim rate, the provider is entitled to receive additional payment. Petitioner is entitled to additional payments. The amount of the payments is the center of the disputes in this cause. First, the Agency has refused to remit monies associated with interest payments on a bond issue. The Agency refused to include payment for the bond interest because it maintains that, while bond interest expense is an actual allowable cost incurred by Petitioner, it was reported twice in the cost reports. The bond interest disallowed is itemized in Petitioner's Exhibit 17. Such exhibit accurately lists the amounts that the Agency should have approved for the IRR cost settlements for the facilities listed. The bond interest is appropriately allocated to the facilities listed and was not claimed or duplicated by another entity for the periods noted. Thus each of the listed facilities should have received an adjusted rate with the bond interest cost included in the calculation. Secondly, Petitioner claims that had the Agency timely remitted the funds associated with the IRR, it would have had the benefit of those monies for the interim period of time. As such, it maintains it should be paid interest on the monies not paid. The basis for the lost interest claim arguably stems from the Medicare rule that allows interest in some situations. Florida historically has not remitted interest on underpayment amounts. In calculating the amounts owed to Petitioner, interest lost on the IRR was therefore disallowed. There is no provision governing the Florida Medicaid plan that specifies the payment of interest on a rate. A provider’s rate can be broken down into four cost components: operating, resident care, property, and return on equity. Had Petitioner received the full IRR it might have been given a "return of equity" or "use allowance." It might have resulted in a positive average equity. Petitioner has not established through credible evidence that factually this "return of equity" would have been applicable to the situations of the facilities affected by the IRRs. Speculation as to the financial posture of the facilities has not been deemed persuasive. The third dispute in this cause relates to the computation of the amounts owed for the Pablo facility. The Pablo facility incurred expenses over a 140-day period which were annualized over a 366-day period to compute the interim rate amount. In so doing, the Agency abandoned the methodology previously utilized to compute the rate owed and determined that the actual allowable costs in the subsequent period (which were known) had to be considered. Had the Agency used the established methodology it claims it would have overpaid the provider in the subsequent period. While mathematically accurate in this single example, such methodology has not been used except in this instance (when it benefited the Agency). The abandonment of the methodology also ignores the cost settlement process that is designed to reconcile amounts after the fact. The plan used by these parties recognizes the settlement process as the procedure by which all actual allowable costs are reconciled. If after having received an inflated rate the Pablo facility had owed monies back, such funds would have been remitted through the cost settlement process. Of course in this case, the Agency did not remit an increased rate so the crux of the problem is to resolve the dispute artificially as if from one point in time to another the rate had been appropriately increased. The settlement should have utilized the 140-day period to calculate the rate. That is, the per diem should have used the expense amount divided by 140 not 366 to compute the daily expense. The fourth disputed amount is the IRR for Country Meadows. The Agency has conceded that this IRR could have been granted with an accounting clarification. The final disputed amount relates to attorney's fees. Petitioner maintains it is entitled to include an amount of attorney's fees that is based upon a contingency fee agreement. Although the Agency does not dispute that providers may include attorney's fees as an allowable cost, it argues that such costs are not reported until incurred. Moreover, such costs must be what a prudent buyer would pay and relate to the IRR. In this instance the plan provides that: Implicit in any definition of allowable costs is that those costs do not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII principles of reimbursement, HCFA PUB 15-1 (1993), and this plan to exceed what a prudent buyer would pay, then the excess costs shall not be reimbursable under this plan. Attorney's fees are considered part of the operating component of the rate calculation. It is an administrative cost and is reported on a provider’s cost report as such. In selecting the attorneys to represent it, Petitioner did not interview applicants, solicit proposals, or inquire of other attorneys as to a reasonable fee for this type of representation. Petitioner presented no credible evidence of the reasonable fee for representation in this type of proceeding. Petitioner’s lead counsel served on its Board of Directors at the time the contingency fee agreement was entered into. The contingency fee agreement provided for an alternative method of payment in the amount of $250.00 per hour. The attorney's fee agreement provided, in pertinent part: The attorney’s fee shall be 40% of the total of all funds received as a result of the reversal of the wrongful denial of the interim rate request covering the period from the date of filing the interim rate request through the date of final settlement. The lawyer shall have no claim on the future value of the interim rate request past the date of settlement. If an appeal is required the fee shall be 50% instead of 40%. If, due to circumstances beyond the control of the parties to this fee agreement, such as changes in law, or constructions of law inconsistent with this agreement, including constructions of law that would not permit the reimbursement of attorney's fees to Sunrise Community, Inc., the parties agree that in no event shall the fee be less than a reasonable fee based on the hours of work multiplied by the rate of $250.00 per hour. The attorney's fee agreement was executed on October 25, 1995 on behalf of Sunrise Community, Inc. Such agreement did not name the facilities whose IRRs were governed by the agreement. The agreement did not specify how the attorney fee would be allocated among the providers who would be affected by the successful challenge to the IRR denials. The opinion of the First District Court of Appeal that upheld the IRRs and directed the Agency to grant them was entered on January 27, 1998.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a Final Order that grants the bond interest as claimed by Petitioner; denies the interest on unpaid IRR amounts; grants the amounts claimed by Petitioner for Pablo; grants the Country Meadows IRR; and denies the attorney's fees. DONE AND ENTERED this 30th day of December, 1999, in Tallahassee, Leon County, Florida. J. D. 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 30th day of December, 1999. COPIES FURNISHED: Steven M. Weinger, Esquire Kurzban, Kurzban, Weinger & Tetzeli, P.A. 2650 Southwest 27th Avenue Second Floor Miami, Florida 33133 Steven A. Grigas, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Ruben J. King-Shaw, Director Agency for Health Care Administration 2727 Mahan Drive, Suite 3116 Tallahassee, Florida 32308 Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308
