The Issue The issue is whether Respondent retaliated against Petitioner for signing an affidavit allegedly adverse to Respondent and for testifying on behalf of another employee in a proceeding filed under Section 760.10, Florida Statutes, in violation of the Florida Civil Rights Act of 1992, as amended.
Findings Of Fact The Respondent is an employer as defined in the Florida Civil Rights Act of 1992, as amended. At all times material to this proceeding, Respondent employed Petitioner at Respondent's place of business located in Tallahassee, Florida. On March 29, 1990, Petitioner and Respondent's representative signed an Employment Agreement in which Petitioner agreed, inter alia, that during his employment, he would refrain from: (1) performing services for any person, during business hours, or at any other time, when said services were not authorized by Respondent; (2) soliciting work for or accepting any business from any customer of the company on behalf himself or for any others. On March 30, 1990, Petitioner and Respondent's representative signed a Sales Employee Compensation Plan in which Respondent agreed to pay Petitioner a starting salary of $1,200 per month as a guarantee against commission on sales for the first three months. Thereafter, Respondent's salary of $1,200 per month was to be a draw against commission on sales. Petitioner had to sell a minimum of $8,000 per month to earn his draw. Pursuant to the Sales Employee Compensation Plan, Petitioner earned a percent of sales, ranging from 10 percent to 20 percent, depending on the type of service Petitioner sold. He received commissions after the work was completed and the customer paid for the service. For example, Petitioner earned 15 percent of the annualized value of all pest control work, termite work, or special onetime service that he sold. He earned 20 percent of the initial month's service charge on all annual pest control service that he sold provided that he performed the start-up. Respondent paid Petitioner 20 percent of the total value of all real estate inspections (certification or clearance letter) that Petitioner performed. Under the Sales Employee Compensation Plan, Petitioner elected to receive 2.5 percent of monthly net commissionable sales, or $150, whichever was greater, as a gasoline allowance and to furnish his own transportation. However, Respondent's former branch manager gave Petitioner a gasoline credit card and told Petitioner to put the gasoline allowance in his pocket. The record indicates that the former branch manager acted beyond the scope of his authority in this regard. Upon employment, Respondent's former branch manager gave Petitioner a key to the office. Petitioner also received a pest control kit with which to perform the initial pest control treatment after selling a service contract. Respondent gave Petitioner a voice-pager so that he could stay in touch with the office and respond quickly to "office" leads. No other employee had the benefit of a voice-pager. In May of 1990, Petitioner successfully completed a training course in pest control. That September, he completed a course in termite control. On or about January 14, 1991, Petitioner became qualified to prepare wood infestation reports. At all times material to this proceeding, Petitioner was allowed to sell Respondent's services in north Florida and south Georgia. There were two kinds of sales leads. Petitioner could develop his own "creative" leads and sell anywhere within the sales territory of the Tallahassee branch office. Respondent's office manager logged all incoming "phone" or "office" leads and distributed them to the salesmen based on a geographic division of the sales territory. Petitioner lived in south Georgia; therefore, the office manager gave him all "office" leads originating in Georgia and on the east side of Tallahassee. Contrary to Petitioner's testimony, neither the office manager nor any other supervisor ever discriminated against Petitioner by withholding leads from him or by taking the best leads for themselves or another salesman. On or about September 16, 1991, Petitioner sold a customer a termite protection contract instead of a termite service contract on a very expensive home without Respondent's approval. This incident resulted in the preparation of a written Disciplinary Action Report (DAR) which states that Petitioner would be terminated if he could not follow Respondent's policy governing sales of termite protection and service contracts. Respondent's testimony that he signed this DAR under the threat of violence not credible. On February 26, 1992, Petitioner signed an affidavit relating to the employment relationship between Norm Arrington and Respondent. Mr. Arrington had been a salesman for Respondent and Petitioner's coworker. On March 9, 1992, Petitioner performed a wood-destroying organism inspection on residential property in Tallahassee, Florida. Petitioner issued a Form 1145 (October '89) Wood Destroying Organisms Inspection Report without identifying visible and accessible evidence of and damage caused by subterranean termites on the exterior of the structure. The Florida Department of Agriculture fined Petitioner $300 dollars for failing to report evidence of termite damage. Respondent paid this fine on Petitioner's behalf. Petitioner failed to report to work on September 12, 1992, for a sales meeting. He claimed he had an emergency but did not call in to explain his absence. Respondent wrote a DAR dated September 14, 1992, warning Petitioner that he would be suspended without pay for three days or terminated if he repeated this type of conduct. Petitioner presented contradictory record evidence concerning his reason for missing the sales meeting: (a) family medical emergency; and (b) mechanical problem with vehicle. Until October of 1992, Petitioner was successful in meeting or exceeding his minimum quota of $8,000 in sales revenue on an averaged monthly basis. One month he earned an award for being Respondent's top salesman statewide. However, in November of 1992, Petitioner's monthly sales revenues dropped below an acceptable level for an experienced salesman. Thereafter, Petitioner was in overdraw status, averaging between $3,000 and $4,000 per month in sales. Except for the month of February, 1993, Petitioner never again met his monthly minimum quota. At all times material to this proceeding, Petitioner's father owned a construction company. Respondent occasionally hired Petitioner's father to perform termite repair work. Respondent always hired outside contractors to do repair work for customers because of the liability involved and to prevent giving the impression that Terminix, Inc. was in the construction business. Petitioner was also trained as a carpenter. Petitioner admits that, during the months of his highest sales, he solicited and received "building" leads from Respondent's customers. As a result of these leads, Petitioner performed carpentry work, such as building cabinets or repairing damaged woodwork, for Respondent's customers. Petitioner's testimony that Respondent authorized this outside employment is not persuasive. In February of 1993, Tim Carey was Respondent's sales manager. He attended an out-of-town divisional sales meeting and returned to Tallahassee with motivational material to share with his staff. In the material was a poster which stated, "If you don't know where you going . . . you'll probably end up someplace else." Mr. Carey gave a copy of the poster to all salesmen including Petitioner sometime before Petitioner gave testimony adverse to Respondent. Petitioner's testimony that Mr. Carey gave the poster to Petitioner alone as a means of retaliation is not persuasive. On March 22, 1993, Petitioner testified by deposition on behalf of Norm Arrington in an unrelated age discrimination case. Around the end of March or the first of April, 1993, Tim Carey became Respondent's sales manager-in-charge. Respondent's Tallahassee branch did not have a branch manager at that time. Mr. Carey was responsible for all operations under the direct supervision of Ralph Potter, Respondent's regional manager. Mr. Carey officially became branch manager before Respondent terminated Petitioner on June 30, 1993. One of Mr. Carey's first acts as sales manager-in-charge was to change the locks to the office and the pesticide storage room. Petitioner signed a statement that he received a key to the office on March 31, 1993. However, Mr. Carey did not reissue an office key to Petitioner or any other sales representatives because they, unlike route technicians, did not work after normal business hours. Petitioner's testimony that his key was taken away as a discriminatory act is not persuasive. The undersigned also rejects Petitioner's testimony that the office was locked during office hours so that he was unable to use the phone. Mr. Carey also took Petitioner's company gasoline credit card because Petitioner was not entitled to use the card and receive a gasoline allowance too. This action was to enforce company policy, and not to retaliate against Petitioner. Soon after Mr. Carey became sales manager-in-charge, he and the office manager began receiving calls from customers wanting to know when Petitioner was going to finish their carpentry work. Sales meetings were interrupted at times by calls on Petitioner's voice-pager with inquiries about unfinished jobs. On one occasion, Petitioner came to the office at noon with paint on his hands which had been clean earlier that morning. On another occasion Mr. Carey could hear saws operating in the background when Petitioner called the office during business hours. Mr. Carey gave Petitioner repeated verbal warnings not to solicit outside employment or perform outside work for Respondent's customers. After each verbal reprimand, Petitioner would promise that he would stop and that it would not happen again. Mr. Carey eventually took Petitioner's voice-pager away and replaced it with a tone beeper like the ones used by other employees. The purpose of this action was to reduce overhead expenses and alleviate problems with Petitioner abusing the privilege of having a voice-pager. Petitioner could no longer receive direct messages relating to his construction business. Petitioner's testimony that Respondent discriminated against him by taking his voice-pager is contrary to more persuasive testimony. In April or May of 1993, Petitioner performed unauthorized work for one of Respondent's customers who sent one check to pay for a termite inspection and for Petitioner's carpentry work. In order to balance the office books, Respondent deposited the customer's check and wrote a separate company check made payable to Petitioner. Respondent again warned Petitioner not to perform unauthorized work for the company's customers. On May 17, 1993, Respondent prepared another DAR reprimanding Petitioner for two incidents. The first involved Petitioner's issuance of a clearance letter for Ms. Fortune's residence even though Petitioner had identified wood rot on the premises. Petitioner claimed he knew Ms. Fortune and issued the clearance letter based on her promise that she would repair the damage. A subsequent inspection revealed that the customer had not made the repairs. The second incident covered by the May 17, 1993, DAR involved one of Respondent's national relocation customers, Prudential Relocation. Petitioner prepared a wood destroying organism report for the customer without inspecting the inside of the structure. Respondent was responsible for repairing wood rot damage on the house. Petitioner violated Respondent's policy regardless of whether he wrote "exterior only" on the report. Neither party signed the May 17, 1993, DAR. However, Mr. Carey discussed both incidents with Petitioner and warned him that he would be suspended or discharged if: (a) Petitioner gave a clearance letter without inspecting the interior of the structure; and (b) Petitioner issued a clearance letter on a structure with water damage. On another occasion, Petitioner informed Mr. Carey that someone had stollen his pest control kit out of the back of his truck. Petitioner filed a police report on the missing pesticide kit. Several days later, a lady, who was not Respondent's customer, reported that Petitioner left the service equipment at her home after using it to treat her residence. Respondent recovered the missing equipment and did not return it to Petitioner. From that time on, a service technician performed Petitioner's initial pesticide treatments. Petitioner's testimony that Respondent took his pest control kit as a retaliatory act is rejected. Petitioner was not allowed to use the service equipment again because: (a) He left registered material in an unsupervised location; (b) He used the equipment to service a non-customer's property; and (c) He could schedule the start-ups for his new customers through the office. Petitioner's testimony that Respondent took the pest control equipment away and deliberately delayed the start-up service or failed to service on Petitioner's new accounts is not persuasive. On June 8, 1993, Ralph Potter and Tim Carey had a conference with Petitioner. The result of the meeting was a DAR signed by Mr. Potter and Mr. Carey. During the conference, the parties discussed: (a) Petitioner's poor performance for the first week of June, 1993, in which he created only $90 in revenues; (b) Petitioner's poor attitude; and (c) Petitioner's work ethic. Mr. Potter advised Petitioner that he would thereafter be expected to produce $2,500 per week in sales. Petitioner was counseled not to make negative comments, not to perform outside jobs on company time, and not to solicit from or do any work for Respondent's customers. The DAR listed suspension without pay or termination as future corrective action, if required. Petitioner refused to sign the June 8, 1993, DAR. Petitioner's attitude created problems as follows: (1) Mr. Carey had to ask Petitioner to leave a sales meeting because of his negative comments; (2) Petitioner disagreed with Mr. Carey over the proper way to complete required daily written sales reports; (3) Mr. Carey had to ask Petitioner to leave the office by 9:00 a.m. for his first appointment of the day; and (4) Petitioner resented not being allowed to answer the office phone even though company policy dictated that only the office manager, sales manager, or branch manager could answer the phone. Petitioner's testimony that Respondent offered him a job which would have reduced his income significantly is rejected as contrary to more persuasive evidence. Likewise, the undersigned rejects Petitioner's testimony that Ralph Potter physically attacked Petitioner in the men's room during an out-of-town meeting. Respondent discharged Petitioner on June 30, 1993. Petitioner's termination was the result of his unsatisfactory job performance and his failure to follow his supervisors' instructions. There is no persuasive competent substantial evidence to indicate that Respondent retaliated against Petitioner because he participated in a discrimination suit on behalf of a co-worker. To the contrary, Petitioner's employment record presents a history of problems with his supervisors. When Tim Carey became sales manager-in-charge, he and Ralph Potter warned Petitioner repeatedly that, regardless of his past working conditions, Petitioner would be expected to follow company policies. Petitioner's refusal to heed their advice and to increase his productivity resulted in job separation.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, the undersigned recommends that the Florida Commission on Human Relations enter a Final Order denying Petitioner's Petition for Relief. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 21st day of August, 1995. SUZANNE F. HOOD, Hearing Officer Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of August, 1995. APPENDIX The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Petitioner's Proposed Findings of Fact Petitioner did not file Proposed Findings of Fact. Respondent's Proposed Findings of Fact 1-3 Accepted as modified in Findings of Fact 1-6. 4-5 Accepted as modified in Findings of Fact 9 & 14. Accepted as modified in Findings of Fact 11 & 18. Accepted in Findings of Fact 10, 13, 25, & 30. Accepted in Findings of Fact 12 except the administrative case involved only one incident. Accepted as modified in Findings of Fact 25-27. Accepted in Findings of Fact 10. Accepted in Findings of Fact 9 regarding leads. However, Petitioner never received a new key from Mr. Carey. Accepted in Findings of Fact 28 & 29. 13-14 Accepted but unnecessary to resolution of case. Accepted. See Findings of Fact 11, 33, & 34. Not a finding of fact. More of a conclusion of law. COPIES FURNISHED: Linda G. Miklowitz, Esquire Post Office Box 14922 Tallahassee, Florida 32317-4922 James M. Nicholas, Esquire Post Office Box 814 Melbourne, Florida 32902 Sharon Moultry, Clerk Human Relations Commission 325 John Knox Rd., Bldg. F, Ste. 240 Tallahassee, FL 32303-4149 Dana Baird General Counsel 325 John Knox Rd., Bldg. F, Ste. 240 Tallahassee, FL 32303-4149
The Issue Whether Respondent Department of Revenue’s (Department) January 27, 2020, Notice of Proposed Assessment to Petitioner B Century 21, Inc. (B Century 21) is incorrect.
Findings Of Fact Parties The Department is the state agency responsible for administering Florida’s sales and use tax laws, pursuant to chapter 212, Florida Statutes. B Century 21 is a Florida S-Corporation that operates two liquor stores (Al’s Liquor and Arlington Liquor), as well as a bar (Overtime Sports Bar), in Jacksonville, Florida. Mr. Altheeb is the sole owner of B Century 21 and testified that he is solely responsible for the operation of it, including the two liquor stores and bar. With respect to the operation of B Century 21, Mr. Altheeb testified, “I do all the paperwork, all the books, all the taxes. I do all the orders.” Matters Deemed Admitted and Conclusively Established2 B Century 21 received correspondence from the Department, dated August 20, 2019. That correspondence, from Ms. Pitre, stated, in part, “I will be conducting an examination of your books and records as authorized under Section 213.34, Florida Statutes.” B Century 21 received the Department’s form DR840, Notice of Intent to Audit Books and Records, dated August 20, 2019, including the Sales and Use Tax Information Checklist. The form DR-840 indicated that the Department intended to audit B Century 21 for a tax compliance audit for the period of July 1, 2016, through June 30, 2019. The Sales and Use Tax Information Checklist listed a number of categories of documents the Department intended to review as part of this audit. B Century 21 (through its accountant, power of attorney, and qualified representative, Mr. Isaac) received the Department’s October 30, 2019, correspondence, which referenced the “Audit Scope and Audit Commencement,” and an attached Records Request list. B Century 21 (through Mr. Isaac) received an email, dated October 30, 2019, from Ms. Pitre. That email references an attached Audit Commencement Letter. B Century 21 (through Mr. Isaac) received an email, dated November 12, 2019, from Ms. Pitre, which inquired of “the status of the records requested during the meeting with you and Mr. Altheeb on October 29, 2019.” B Century 21 (through Mr. Isaac) received the Department’s Notice of Intent to Make Audit Changes, form DR-1215, dated December 16, 2019. The form DR-1215 reflects a total amount of tax of $170,232.93, a penalty of $42,558.24, and interest through December 16, 2019, of $25,461.86, for a total deficiency of $238,253.04. The form DR-1215 also reflects that if B Century 2 See Order Granting Motion Declaring Matters Admitted and Setting Discovery Deadline. Fla. R. Civ. P. 1.370(b). 21 did not agree with these audit changes, or only agreed with a portion, that it had until January 15, 2020, to request a conference or submit a written request for an extension. Further, the form DR-1215 attached a Notice of Taxpayer Rights, which included additional detail on the options available to B Century 21. B Century 21 (through Mr. Isaac) received correspondence from Ms. Pitre, dated December 16, 2019, which stated that as of the date of the correspondence, the Department had not received the information previously requested on October 13, 2019, which it needed to complete the audit. The correspondence stated that B Century 21 had 30 days to review the audit changes, provided contact information to B Century 21 if it wished to discuss the findings in the form DR-1215, and noted that if the Department did not hear from B Century 21 within 30 days, it would send the audit file to the Department’s headquarters in Tallahassee, Florida. B Century 21 (through Mr. Isaac) received the Department’s Notice of Proposed Assessment, form DR-831, dated January 27, 2020. The form DR- 831 reflects a total amount of tax of $170,232.93, a penalty of $42,558.24, and interest through January 27, 2020, of $27,224.82, for a total deficiency of $240,016.00. For the time period between August 20, 2019, and January 7, 2021, B Century 21 did not provide the Department with: (a) any sales records; (b) any purchase records; or (c) any federal tax returns. For the time period between August 20, 2019, and January 7, 2021, B Century 21 did not provide any records to the Department for examination in conducting the audit. Additional Facts In 2011, for the purpose of enforcing the collection of sales tax on retail sales, the Florida Legislature enacted section 212.133, Florida Statutes, which requires every wholesale seller (wholesaler) of alcoholic beverage and tobacco products (ABT) to annually file information reports of its product sales to any retailer in Florida. See § 212.133(1)(a) and (b), Fla. Stat. Once a year, ABT wholesalers report to the State of Florida their name, beverage license or tobacco permit number, along with each Florida retailer with which they do business, the Florida retailer’s name, retailer’s beverage license or tobacco permit number, retailer’s address, the general items sold, and sales per month. See § 212.133(3), Fla. Stat. The information collected captures the 12-month period between July 1 and June 30, and is due annually, on July 1, for the preceding 12-month period. Id. ABT wholesalers file these reports electronically through the Department’s efiling website and secure file transfer protocol established through the Department’s efiling provider. § 212.133(2)(a), Fla. Stat. Ms. Baker explained this statutory process further: [W]e annually, every year in the month of May, my unit reaches out to the Florida Department of Business and Professional Regulations. We compel them to give us a list of all of the active wholesalers who were licensed to sell to retailers in the state of Florida for the prior fiscal year. Once we receive that list, we then mail a notification to all those wholesalers and state the statute and the requirements and give them a user name and a password that will allow them to then log into that portal and submit their retail—their wholesale—or their wholesale sales to retailers in the state of Florida for the prior fiscal year. Those reports are due on July 1st of each year, but they are not considered late until September 30th of that year. So that gives the wholesaler population a couple of months to compile all of their sales for the prior year, fill out their reports and submit them to the Florida Department of Revenue by the end of September. Additionally, each month, and for each retail location, B Century 21 reports gross monthly sales to the Department, and remits sales tax, utilizing the Department’s form DR-15. Ms. Baker further described the process the Department utilizes in identifying an “audit lead,” utilizing the data that ABT wholesales provide: Specifically for ABT, we have a very, actually, kind of simple comparison that we do. . . . [A]s a taxpayer, as a retailer in the state of Florida, you may purchase from multiple wholesalers. So, part of our job is we compile all of the purchases that each beverage license or tobacco license has purchased, and once we compile all the purchases for the fiscal year, then to say, you know, what were the purchases for the fiscal year versus what were the reported sales for the fiscal year. And, again, a pretty simple comparison we really look to see, did you purchase, or . . . did you report enough sales to cover the amount of purchases that we know you made as a – as a retailer. And if the sales amount does not exceed the purchase amount, then we’ll create a lead on it. The Department’s efiling provider exports the ABT wholesalers’ information to SunVisn, the Department’s database. The Department’s analysts review the ABT wholesalers’ reported data, and taxpayer information, to identify audit leads. The Department then assigns these audit leads to its service centers to conduct an audit. A tax audit period is 36 months. In conducting ABT audits, the Department has 24 months of reported data (i.e., the first 24 months of the audit period) for review. This is because the timing of section 212.133(3) requires ABT wholesalers to report annually on July 1, for the preceding 12- month period of July 1 through June 30. For the ABT reporting data examination period of July 1, 2016, through June 30, 2018 (a period of 24 months), B Century 21’s gross sales for its two liquor stores was as follows: Liquor Store Reported Gross Sales Al’s Liquor $1,051,128.56 Arlington Liquor $902,195.49 For the same 24-month time period of July 1, 2016, to June 30, 2018, B Century 21’s wholesalers reported the following ABT inventory purchases to the State, as required under section 212.133: Liquor Store ABT Inventory Purchases Al’s Liquor $1,250,055.79 Arlington Liquor $1,174,877.98 As the ABT wholesalers’ reported ABT inventory purchases by B Century 21’s retail outlets were higher than B Century 21’s reported sales, the Department issued an audit lead, which led to the audit that is at issue in this proceeding. The Audit For the 36-month audit period of July 1, 2016, through June 30, 2019 (audit period), B Century 21’s reported gross sales for each of its locations was: Location Reported Gross Sales Al’s Liquor $1,557,569.74 Arlington Liquor $1,434,551.65 Overtime Sports Bar $968,476.08 On August 20, 2019, Ms. Pitre mailed to B Century 21 (and received by Mr. Altheeb), a Notice of Intent to Audit Books and Records for the audit period. Included with the Notice of Intent to Audit Books and Records was correspondence informing B Century 21 of the audit and requesting records. On August 26, 2019, Ms. Pitre received a telephone call from Mr. Altheeb. Ms. Pitre’s case activity notes for this call state: Received a call from Baligh Altheeb and he said he will be hiring Brett Isaac as his POA [power of attorney]. I informed him to complete the POA form and to give it to Mr. Isaac for signature and send to me. He knows about ABT Data assessments and asked that I note on the case activity that he contacted me regarding the audit. He was worried that his liquor license will be suspended if he does not respond right away. I informed him that once I receive the POA, I will contact Mr. Isaac and discuss the audit. On October 18, 2019, the Department received B Century 21’s executed power of attorney (POA) form naming Mr. Isaac as its POA for the audit. The executed POA form reflects that the Department’s notices and written communications should be sent solely to Mr. Isaac, and not B Century 21. The executed POA form further reflects that “[r]eceipt by either the representative or the taxpayer will be considered receipt by both.” On October 29, 2019, Ms. Pitre met with Mr. Altheeb and Mr. Isaac at Mr. Isaac’s office, for a pre-audit interview. Ms. Pitre’s case activity notes for this meeting state: Met with the taxpayer contact person, POA Brett Isaac and owner Baligh Thaleeb [sic], at the POA’s location to conduct the pre-audit interview. Discussed the scope of the audit, records needed to conduct the audit, availability of electronic records, business organization, nature of the business, internal controls, and the time line of the audit. Discussed sampling for purchases and POA signed sampling agreement. Made appointment to review records on November 12, 2019. Toured one of the location [sic] to observe business operations, Overtime Sports Bar. On October 30, 2019, Ms. Pitre emailed Mr. Isaac a copy of the Notice of Intent to Audit Books and Records, which included a “Sales and Use Tax Information Checklist,” which requested specific taxpayer records. After receiving no response from Mr. Isaac, Ms. Pitre, on November 12, 2019, emailed Mr. Isaac concerning “the status of the records requested during the meeting with you and Mr. Altheeb on October 29, 2019.” Section 212.12(5)(b) provides that when a taxpayer fails to provide records “so that no audit or examination has been made of the books and records of” the taxpayer: [I]t shall be the duty of the department to make an assessment from an estimate based upon the best information then available to it for the taxable period of retail sales of such dealer … or of the sales or cost price of all services the sale or use of which is taxable under this chapter, together with interest, plus penalty, if such have accrued, as the case may be. Then the department shall proceed to collect such taxes, interest, and penalty on the basis of such assessment which shall be considered prima facie correct, and the burden to show the contrary shall rest upon the [taxpayer]. Section 212.12(6)(b) further provides: [I]f a dealer does not have adequate records of his or her retail sales or purchases, the department may, upon the basis of a test or sampling of the dealer’s available records or other information relating to the sales or purchases made by such dealer for a representative period, determine the proportion that taxable retail sales bear to total retail sales or the proportion that taxable purchases bear to total purchases. Mr. Collier testified that, in the absence of adequate records, the Department “estimates using best available information, and for this industry … ABT sales are a higher percentage of their taxable sales.” Because B Century 21 did not provide adequate records to Ms. Pitre, she estimated the total taxable sales for the audit period. For each liquor store that B Century 21 operated, she multiplied its total ABT purchases by average markups to calculate total ABT sales. To derive these average markups, Mr. Collier explained that the Department receives data from wholesalers, and then: [W]e take that purchase information, apply average markup to the different ABT product categories, which include cigarettes, other tobacco, beer, wine, and liquor; and then that gets us to total ABT sales number. And then we derive what we call a percentage of ABT sales, percentage of that number represents. And in this particular model, 95.66 percent represents what we believe in a liquor store industry, that this type of business, that 95.66 percent of their sales are ABT products. We derive the markups, and the percentage of ABT sales from a number of liquor store audits that the Department had performed on liquor stores that provided records. The Department utilized markup data from other ABT audits. The Department applied the following markups to these ABT categories: 6.5 percent for cigarettes; 47.5 percent for other tobacco products; 17.33 percent for beer; 29.84 percent for wine; and 24.5 percent for liquor. Applying the Department’s markup for liquor stores to the wholesalers’ reported ABT data and percentage of taxable sales, Ms. Pitre estimated taxable sales for the ABT reporting data examination period and calculated the under-reported sales error ratio as follows: Location Estimated Taxable Sales Error Ratio Al’s Liquor $1,597.544.01 1.519837 Arlington Liquor $1,516,259.34 1.680633 The Department then divided B Century 21’s estimated taxable sales for the examination period, for each liquor store, by its self-reported tax sales in its DR-15s to arrive at the under-reported rate. The Department then multiplied the under-reported rate by the reported taxable monthly sales in the DR-15s to arrive at the estimated taxable sales for the 36-month audit period. The result of this calculation was: Location Estimated Taxable Sales Al’s Liquor $2,367,252.11 Arlington Liquor $2,410,954.82 The Department then multiplied the estimated taxable sales by an effective estimated tax rate which, after giving credit for B Century 21’s remitted sales tax, resulted in tax due for the Al’s Liquor and Arlington Liquor for the audit period, as follows: Location Sales Tax Owed Al’s Liquor $58,367.01 Arlington Liquor $70,068.44 For Overtime Sports Bar, the Department could not use ABT wholesalers’ data to estimate an assessment because the Department does not have audit data averages for bars and lounges. The Department used the “Tax Due Method” in estimating under-reported taxes and calculating under- reported taxable sales. Mr. Collier explained: The Department does not have average markup and percentage of sales for a bar. Though, you know, obviously, we all know that a bar, their main product that they sell and in most cases is ABT products. So, therefore, typically, an auditor would need to get information about that specific location. Bars can vary so much in their type of business that they do, they can be like nightclubs, or they can be like bar and grill that serves a lot of food. So there’s a lot of variances there for that particular type of industry, so we haven’t really come up with average markups, average percentage of sales for bars, per se. It’s a case-by- case situation, and in this case, the auditor decided that the fair, reasonable way to estimate the bar location would be to just average the error ratios that were derived from the Al’s Liquor and the other liquor store location and apply it to the taxable sales reported for the bar. And I think that’s a very fair and reasonable estimate based on what we all know in a bar situation; their markups are significantly higher. And of course, there can be plenty of other non-ABT taxable sales occurring in a bar setting, such as prepared food, you know, just your regular cokes and drinks. So it’s certainly a fair way to estimate in this particular audit and I believe only benefits the taxpayer. The undersigned credits the Department’s methodology for estimating an assessment for Overtime Sports Bar. Further, Mr. Altheeb testified that Overtime Sports Bar operates as both a sports bar and a liquor/package store, and stated: Most of it—it’s a liquor store. I don’t know if you know the area, it’s a liquor store on the Westside. So most of it—the sport bar doesn’t really do too much business in the Westside, mostly the liquor stores. People coming in and buy package, you know, buy bottles and leave. So, most of the business is the drive-through window. The Department’s decision to average the error ratios for the other two liquor stores to derive the additional tax due average for Overtime Sports Bar is reasonable, particularly in light of Mr. Altheeb’s testimony that Overtime Sports Bar operates primarily as a liquor (package) store. The Department calculated the additional tax due average error ratio for Overtime Sports Bar by averaging the error ratios of Al’s Liquor and Arlington Liquor, and then multiplied it by B Century 21’s reported gross sales to arrive at the additional tax due for Overtime Sports Bar of $41,797.49. Ms. Pitre testified that she determined that, for the audit period, B Century 21 owed additional sales tax of $170,232.93. In addition, the Department imposed a penalty and accrued interest. On December 16, 2019, Ms. Pitre sent correspondence, the preliminary assessment, and a copy of the audit work papers to B Century 21 (through Mr. Isaac), informing B Century 21 that it had 30 days to contact the Department’s tax audit supervisor to request an audit conference or submit a written request for an extension. After receiving no response from B Century 21, Ms. Pitre forwarded the audit workpapers to the Department’s headquarters in Tallahassee, Florida, to process the Notice of Proposed Assessment. B Century 21’s Position As mentioned previously, and after initially meeting with the Department, B Century 21 failed to provide requested financial records or respond to any of the numerous letters and notices received from the Department, despite being given adequate opportunity to do so. And, after filing its Amended Petition, it failed to timely respond to discovery requests from the Department which, inter alia, resulted in numerous matters being conclusively established. Mr. Isaac served as the POA for B Century 21 during the audit, and also appeared in this proceeding as a qualified representative. However, Mr. Isaac did not appear at the final hearing, did not testify as a witness at the final hearing, and does not appear to have done anything for B Century 21 in this proceeding, other than filing the Petition and Amended Petition. After Mr. Heekin appeared in this matter, and well after the time to respond to discovery, B Century 21 provided 127 pages of documents to the Department. These documents consist of: 18 pages of summaries of daily sales that Mr. Altheeb prepared for the hearing; 41 pages of sales and use tax returns from B Century 21 locations, covering 25 months (DR-15s); 2 pages of Harbortouch’s 2016 1099K, reporting credit card sales; 43 pages of unsigned federal tax returns from 2016, 2017, and 2018, prepared by Mr. Isaac; and 17 pages of B Century 21’s untimely responses to the Department’s discovery requests. Florida Administrative Code Rule 12-3.0012(3) defines “adequate records” to include: (3) “Adequate records” means books, accounts, and other records sufficient to permit a reliable determination of a tax deficiency or overpayment. Incomplete records can be determined to be inadequate. To be sufficient to make a reliable determination, adequate records, including supporting documentation, must be: Accurate, that is, the records must be free from material error; Inclusive, that is, the records must capture transactions that are needed to determine a tax deficiency or overpayment; Authentic, that is, the records must be worthy of acceptance as based on fact; and Systematic, that is, the records must organize transactions in an orderly manner. The nature of the taxpayer’s business, the nature of the industry, materiality, third-party confirmations and other corroborating evidence such as related supporting documentation, and the audit methods that are suitable for use in the audit, will be used to establish that the taxpayer has adequate records. The undersigned finds that the summaries of daily sales are not adequate records because Mr. Altheeb prepared them for use at the final hearing, rather than in the regular course of business. The undersigned finds that the DR-15s provided by Mr. Altheeb, covering 25 months, are not adequate records because they are incomplete and are not inclusive. The audit period encompassed 36 months, for B Century 21’s three retail locations; however, Mr. Altheeb only provided 25 months of DR-15s. The 2016, 2017, and 2018 federal tax returns that B Century 21 provided are not adequate records because they are not authentic. Mr. Altheeb was unable to verify if these tax returns were correct, and they were unsigned. B Century 21 did not provide any evidence that it had filed any of these federal tax returns with the Internal Revenue Service. Ms. Pitre reviewed the 127 pages of documents that B Century 21 provided and testified that the summaries of daily sales did not provide the “source documents” for verification. The unsigned federal tax returns reflect that B Century 21 reported a cost-of-goods-sold (COGS) of $518,606.00 for 2016; $1,246,839.00 for 2017; and $796,968.00 for 2018. Additionally, the unsigned federal tax returns reflect that B Century 21 reported a beginning inventory (BI) for 2016 of $95,847.00, and a year-end inventory (EI) for 2016 of $200,556.00, EI for 2017 of $280,235.00, and EI for 2018 of $295,628.00. When comparing the unsigned federal tax returns with the ABT wholesalers’ data, the federal tax returns reflect, for 2016, total inventory purchases of $623,315.00 (which is derived from $518,606.00 (COGS) + $200,556.00 (EI) - $95,847.00 (BI)). However, the ABT wholesalers’ data for 2016 reflects that B Century 21’s ABT purchases were $1,174,997.34 – a discrepancy of more than $500,000.00. For 2017, the federal tax returns reflect total inventory purchases of $1,326,518.00 (which is derived from $1,246,839.00 (COGS) + $280,235.00 (EI) for 2017 - $200,556.00 (EI) for 2016). However, the ABT wholesalers’ data for 2016 reflects that B Century 21’s ABT purchases were $1,422,854.79 – a discrepancy of over $96,000.00. And for 2018, the unsigned federal tax returns reflect total inventory purchases of $812,361.00 (which is derived from $796,968.00 (COGS) + $295,628.00 (EI) for 2018 - $280,235.00 (BI) for 2017). However, the ABT wholesalers’ data for 2018 reflects that B Century 21’s ABT purchases were $1,335,814.00 – a discrepancy of over $500,000.00. Mr. Altheeb testified that Arlington Liquor and Overtime Sports Bar opened in 2016 – after B Century 21 began ownership and operation of Al’s Liquor. He stated that he did not purchase inventory for the openings of the newer locations, but instead transferred excess inventory from Al’s Liquor, which resulted in lower total inventory purchases for 2016. Mr. Altheeb also testified that B Century 21’s three locations experienced spoiled inventory. However, B Century 21 should include spoiled inventory in COGS reported in its federal tax returns, and further, B Century 21 provided no additional evidence of the cost of spoilage for the audit period. The undersigned finds that the ABT wholesalers’ data for 2016 through 2018 reflects similar amounts for inventory purchases between 2016 through 2018. The undersigned credits the Department’s reliance on the ABT wholesalers’ data, which reflect fairly consistent purchases for each year. The undersigned does not find the unsigned federal tax returns that B Century 21 provided to be persuasive evidence that the Department’s assessment was incorrect. Mr. Altheeb testified that he believed Mr. Isaac, who B Century 21 designated as POA for the audit, and who appears as a qualified representative in this proceeding, was actively handling the audit. Mr. Altheeb stated that the audit, and the final hearing, “kind of came out of nowhere” and that once he learned of it, he retained Mr. Heekin and provided “everything” to him. However, it is conclusively established that the Department provided correspondence and notice to B Century 21 through its designated POA, and that B Century 21 failed to respond to record requests in a timely manner. Mr. Isaac neither testified nor appeared at the final hearing to corroborate Mr. Altheeb’s claims that Mr. Isaac did not keep Mr. Altheeb or B Century 21 apprised of the status of the audit, including the failure to provide requested records or to communicate with the Department. B Century 21 also attempted to challenge the Department’s use of markup data from other ABT audits, in an attempt to argue that the markups were inflated and not representative of B Century 21’s markups. However, and as previously found, B Century 21’s failure to timely provide records—or respond in any meaningful way to the audit—undermines this attempt. The undersigned credits the Department’s methodology in using the best information available to it for the audit period in calculating the assessment. Although it became apparent during the final hearing that Mr. Altheeb did not treat the audit of B Century 21 with appropriate seriousness, and deflected blame to Mr. Isaac, and that his approach resulted in a legally appropriate and sustainable audit and assessment based on the Department’s best information available, the undersigned does not find that B Century 21, Mr. Isaac, or Mr. Heekin knew that the allegations of the Amended Petition were not supported by the material facts necessary to establish the claim or defense, or would not be supported by the application of then-existing law to those material facts. The undersigned finds that the Department made its assessment based on the best information then available, and is thus prima facie correct, pursuant to section 212.12(5)(b). The undersigned further finds that B Century 21 did not prove, by a preponderance of the evidence, that the Department’s assessment is incorrect, pursuant to section 212.12(5)(b).
Conclusions For Petitioner: Robert Andrew Heekin, Esquire The Law Office of Rob Heekin, Jr., P.A. 2223 Atlantic Boulevard Jacksonville, Florida 32207 For Respondent: Randi Ellen Dincher, Esquire Franklin David Sandrea-Rivero, Esquire Office of the Attorney General Revenue Litigation Bureau Plaza Level 1, The Capitol Tallahassee, Florida 32399
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, the undersigned hereby RECOMMENDS that the Department enter a final order sustaining the January 27, 2020, Notice of Proposed Assessment to B Century 21, Inc. DONE AND ENTERED this 21st day of October, 2021, in Tallahassee, Leon County, Florida. S ROBERT J. TELFER III Administrative Law Judge 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 21st day of October, 2021. COPIES FURNISHED: Mark S. Hamilton, General Counsel Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668 Randi Ellen Dincher, Esquire Office of the Attorney General Revenue Litigation Bureau Plaza Level 1, The Capitol Tallahassee, Florida 32399 Robert Andrew Heekin, Esquire The Law Office of Rob Heekin, Jr., P.A. 2223 Atlantic Boulevard Jacksonville, Florida 32207 Franklin David Sandrea-Rivero, Esquire Office of the Attorney General Plaza Level 1, The Capitol Tallahassee, Florida 32399 Brett J. Isaac 2151 University Boulevard South Jacksonville, Florida 32216 James A Zingale, Executive Director Department of Revenue Post Office Box 6668 Tallahassee, Florida 32314-6668
The Issue The issue in these cases is whether the Agency for Health Care Administration's (AHCA) proposed award of a contract to Caremark, Inc., based on evaluations of proposals submitted in response to a Request for Proposals (RFP), is clearly erroneous, contrary to competition, arbitrary, or capricious.
Findings Of Fact AHCA is the single state agency in Florida authorized to make payments for medical assistance and related services under Title XIX of the Social Security Act (the "Medicaid" program). In order to participate in the federal Medicaid program, AHCA is required to maintain a state plan for Medicaid in compliance with Title XIX of the Social Security Act. AHCA is required to operate the Florida Medicaid program in compliance with the state plan. AHCA is apparently concerned by costs associated with the Florida Medicaid program's hemophilia population. Florida's Medicaid hemophilia beneficiaries constitute a relatively small, but costly population to serve. Hemophilia is a bleeding disorder caused by a deficiency in one of numerous "clotting factors," which normally causes a persons' blood to coagulate. Hemophilia is treated by administration of the deficient clotting factor to the person with the disorder. AHCA seeks to control the cost of providing hemophilia-related services to this population through a combination of case management and medication discounts known as the Medicaid Comprehensive Hemophilia Management (MCHM) program. AHCA believes that a single vendor responsible for operation of the MCHM program can provide managed care to the population while achieving significant drug-cost savings. Through a federal requirement referred to as "freedom of choice," Florida's Medicaid program state plan must provide that any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, community pharmacy, or person qualified to perform the service and who undertakes to provide such services. The freedom of choice requirement is subject to being waived in accordance with applicable federal law. Such waiver requires approval by the Centers for Medicare and Medicaid Services (CMS). AHCA began seeking approval from CMS for an amendment to an existing "Managed Care Waiver" to implement the MCHM program in October 2002. By letter dated May 22, 2003, CMS approved AHCA's request to amend the existing waiver to permit implementation of the MCHM program. Subsequent correspondence between the agencies has further established AHCA's authority to implement the MCHM program. AHCA issued the RFP ("RFP AHCA 0403") on October 1, 2003. The RFP seeks to implement the MCHM program. There were no timely challenges filed to the terms and specifications of the RFP. Section 287.057, Florida Statutes (2003), requires that an agency must make a written determination that an invitation to bid is not practicable for procurement of commodities or contractual services prior to issuance of an RFP. AHCA did not make such a written determination prior to issuance of the RFP. Under the terms of the RFP, AHCA will contract with a single provider for a period of two years, with an option to extend the contract for an additional two-year period. RFP Section 10.2 sets out an extensive list of vendor requirements designed to provide care to Medicaid hemophilia beneficiaries and better management of related costs. The RFP provides that the successful vendor will be paid only on the basis of the factor products dispensed to eligible Medicaid beneficiaries. All other services required by the RFP must be delivered within the revenue provided by AHCA's reimbursement for factor product costs. No additional payment beyond payment of factor product costs will be provided. The RFP stated that the successful vendor would be reimbursed for factor product cost based on the average wholesale price (AWP) of the factor product minus a minimum discount of 39 percent. The RFP provided that vendors may offer a greater discount than 39 percent. An Addendum to the RFP indicated that if a vendor proposed a discount greater than 39 percent, the increased discount must apply to all factor products and that vendors could not propose varying discounts for individual factor products. The RFP contains language in the background section referencing budget "proviso" language adopted by the Legislature and referring to the MCHM program as a "revenue enhancement program." HHS asserts that because this RFP does not create a revenue enhancement program, AHCA had no authority to proceed with the RFP. The evidence fails to establish that this program will enhance revenue. The evidence fails to establish that based on the "proviso" language, AHCA is without authority to issue the RFP. RFP Section 20.11 sets forth the "proposal submission requirements." The section included a number of requirements set in capital letters and highlighted in boldface. The terms of each requirement indicated that failure to comply with the requirement was "fatal" and would result in rejection of the proposal submitted. None of the proposals submitted by the parties to this proceeding were rejected pursuant to RFP Section 20.11. The evidence fails to establish that any of the proposals submitted by the parties to this proceeding should have been rejected pursuant to RFP Section 20.11. RFP Section 20.16 provides that AHCA may waive "minor irregularities," which are defined as variations "from the RFP terms and conditions, that [do] not affect the price of the proposal or give one applicant an advantage or benefit not enjoyed by others or adversely affect the state's interest." RFP Section 20.17 provides as follows: Rejection of proposals Proposals that do not conform to all mandatory requirements of this RFP shall be rejected by the Agency. Proposals may be rejected for reasons that include, but are not limited to, the following: The proposal was received after the submission deadline; The proposal was not signed by an authorized representative of the vendor; The proposal was not submitted in accordance with the requirements of Section 20.11 of this RFP; The vendor failed to submit a proposal guarantee in an acceptable form in accordance with the terms identified in Section 20.12 of this RFP or the guarantee was not submitted with the original cost proposal; The proposal contained unauthorized amendments, deletions, or contingencies to the requirements of the RFP; The vendor submitted more than one proposal; and/or The proposal is not deemed to be in the best interest of the state. None of the proposals submitted by the parties to this proceeding were rejected pursuant to RFP Section 20.17. The evidence fails to establish that any of the proposals submitted by the parties to this proceeding should have been rejected pursuant to RFP Section 20.17. RFP Section 30.1 provides that the "total cost of the contract will not exceed $36,000,000 annually." RFP Section 30.2 provides in part that the "total cost for the contract under any renewal will not exceed $36,000,000 per year." The RFP's contract amount apparently was based on historical information and assumed that some level of cost control would occur through case management. The contract amount cannot operate as a "cap" because Medicaid hemophilia beneficiaries are an "entitled" group and services must be provided. If the amount of the contract is exceeded, AHCA is obliged to pay for necessary factor products provided to the beneficiaries; however, in an Addendum to the RFP, AHCA stated that if the contract fails to contain costs "there would be no justification to renew or extend the contract." The RFP required vendors to submit a performance bond based on 20 percent of the $36 million contract amount. The RFP stated that proposals could receive a maximum possible score of 2000 points. The proposal with the highest technical evaluation would receive 1340 weighted points. The proposal with the lowest cost proposal would receive 660 weighted points. The combined technical and cost proposal scores for each vendor determined the ranking for the proposals. The RFP set forth formulas to be used to determine the weighted final score based on raw scores received after evaluation. AHCA conducted a bidder's conference related to the RFP on October 8, 2003. All parties to this proceeding attended the conference. At the conference, AHCA distributed a copy of a spreadsheet chart that listed all factor products provided to Florida's Medicaid hemophilia beneficiaries during the second quarter of 2003. The chart identified the amount of each factor product used and the amount paid by AHCA to vendors for the factor product during the quarter. The chart also showed the amount that would have been paid by AHCA per factor product unit had the vendors been paid at the rate of AWP minus 39 percent. AHCA received six proposals in response to the RFP. The proposals were received from Caremark, HHS, Lynnfield, PDI Pharmacy Services, Inc., Advance PCS/Accordant, and Coram. RFP Section 60 contained the instructions to vendors for preparing their responses to the solicitation. As set forth in RFP Section 60.1, the technical response was identified as "the most important section of the proposal with respect to the organization's ability to perform under the contract." The section requires vendors to include "evidence of the vendor's capability through a detailed response describing its organizational background and experience," which would establish that the vendor was qualified to operate the MCHM program. Vendors were also directed to describe the proposed project staffing and the proposed "technical approach" to accomplish the work required by the RFP. Vendors were encouraged to propose "innovative approaches to the tasks described in the RFP" and to present a detailed implementation plan with a start date of January 10, 2003. The technical responses were opened on October 29, 2003. AHCA deemed all six proposals to be responsive to the technical requirements of the RFP and each technical proposal was evaluated. For purposes of evaluation, AHCA divided the technical requirements of the RFP into 50 separate criteria. AHCA assembled the technical evaluators at an orientation meeting at which time an instruction sheet was issued and verbal instructions for evaluating the technical proposals were delivered. The instruction sheet distributed to the evaluators provided that the evaluators "should" justify their scores in the "comments" section of the score sheets. The five AHCA employees who evaluated the technical proposal were Maresa Corder (Scorer "A"), Bob Brown-Barrios (Scorer "B"), Kay Newman (Scorer "C"), Jerry Wells (Scorer "D"), and Laura Rutledge (Scorer "E"). AHCA employees Dan Gabric and Lawanda Williams performed reference reviews separate from the technical evaluations. Reference review scores were combined with technical evaluation scores resulting in a total technical evaluation score. Reference review scores are not at issue in this proceeding. Kay Newman's review was limited to reviewing the financial audit information provided by the vendors. Technical evaluators reviewed each technical response to the RFP and completed evaluation sheets based on the 50 evaluation criteria. Other than Mr. Wells, evaluators included comments on the score sheets. Mr. Wells did not include comments on his score sheet. The technical proposal scoring scale set forth in the RFP provided as follows: Points Vendor has demonstrated 0 No capability to meet the criterion 1-3 Marginal or poor capability to meet the criterion 4-6 Average capability to meet the criterion 7-9 Above average capability to meet the criterion 10 Excellent capability to meet the criterion Each evaluator worked independently, and they did not confer with each other or with anyone else regarding their evaluations of the responses to the RFP. Janis Williamson was the AHCA employee responsible for distribution of the technical proposals to the evaluators. She received the completed score sheets and evaluation forms from each of the technical evaluators. The RFP set forth a process by which point values would be assigned to technical proposals as follows: The total final point scores for proposals will be compared to the maximum achievable score of 1340 points, and the technical proposal with the highest total technical points will be assigned the maximum achievable point score. All other proposals will be assigned a percentage of the maximum achievable points, based on the ratio derived when a proposal's total technical points are divided by the highest total technical points awarded. S = P X 1340 N Where: N = highest number of final points awarded to t technical proposal P = number of final points awarded to a proposal S = final technical score for a proposal According to the "Summary Report and Recommendation" memorandum dated December 4, 2003, after application of the formula, Caremark received the highest number of technical points (1340 points). Of the parties to this proceeding, HHS was ranked second on the technical proposal evaluation (1132.30 points), and Lynnfield was ranked third (1101.48 points). Lynnfield and HHS assert that the scoring of the technical proposals was arbitrary based on the range of scores between the highest scorer and the lowest scorer of the proposals. Review of the score sheets indicates that Scorer "A" graded "harder" than the other evaluators. The scores she assigned to vendor proposals were substantially lower on many of the criteria than the scores assigned by other evaluators. The range between her scores and the highest scores assigned by other evaluators was greater relative to the Lynnfield and the HHS proposals than they were to the Caremark proposal, indicating that she apparently believed the Caremark technical proposal to be substantially better than others she reviewed. There is no evidence that Scorer "A" was biased either for or against any particular vendor. The evidence fails to establish that her evaluation of the proposals was arbitrary or capricious. The evidence fails to establish that AHCA's evaluation of the technical proposals was inappropriate. After the technical evaluation was completed, cost proposals were opened on November 21, 2003. Section 60.3 addressed the cost proposal requirements for the RFP. RFP Section 60.3.1 provides as follows: The cost proposal shall cover all care management services, hemophilia specific pharmaceuticals dispensing and delivery, and pharmacy benefits management activities contemplated by the RFP. The price the vendor submits must include a detailed budget that fully justifies and explains the proposed costs assigned. This includes salaries, expenses, systems costs, report costs, and any other item the vendor uses in arriving at the final price for which it will agree to perform the work described in the RFP. The maximum reimbursement for the delivery of services and factor products used in factor replacement therapy (inclusive of all plasma-derived and recombinant factor concentrates currently in use and any others approved for use during the term of the contract resulting from this RFP) will be at Average Wholesale Price (AWP) minus 39%. Proposals may bid at a lower reimbursement but not higher. All other drugs not otherwise specified in factor replacement therapy will be paid at the normal Medicaid reimbursement. RFP Section 60.3.2 provides as follows: A vendor's cost proposal shall be defined in terms of Average Wholesale Price (AWP) and conform to the following requirements: The first tab of a vendor's original cost proposal shall be labeled "Proposal Guarantee" and shall include the vendor's proposal guarantee, which shall conform to the requirements specified in this RFP, Section 20.12. Copies of the cost proposal are not required to include the proposal guarantee. The second tab of the cost proposal shall be labeled "Project Budget" and shall include the information called for in the RFP, including the total price proposed, a line item budget for each year of the proposal, a budget narrative, and other information required to justify the costs listed. The RFP does not define the "detailed" budget mentioned in RFP Section 60.3.1 and does not define the "line item" budget mentioned in RFP Section 60.3.2. No examples of such budgets were provided. RFP Section 80.1 provides as follows: Evaluation of the Mandatory Requirements of the Cost Proposal Upon completion of the evaluation of all technical proposals, cost proposals will be opened on the date specified in the RFP Timetable. The Agency will determine if a cost proposal is sufficiently responsive to the requirements of the RFP to permit a complete evaluation. In making this determination, the evaluation team will review each cost proposal against the following criteria: Was the cost proposal received by the Agency no later than time specified in the RFP Timetable? Did the vendor submit an original and ten copies of its cost proposal in a separate sealed package? Was the vendor's cost proposal accompanied by a proposal guarantee meeting the requirements of the RFP? Did the cost proposal contain the detailed budget required by the RFP? Does the proposal contain all other mandatory requirements for the cost proposal? The AHCA employee who opened the cost proposals apparently determined that each proposal met the requirements of RFP Section 80.1, including providing a "detailed" budget. The RFP set forth a process by which point values would be assigned to cost proposals as follows: On the basis of 660 total points, the proposal with the lowest total price will receive 660 points. The other proposals will receive a percentage of the maximum achievable points, based on the ratio derived when the total cost points are divided by the highest total cost points awarded. Where: S = L X 660 N N = price in the proposal (for two years) L = lowest price proposed (for two years) S = cost points awarded The cost proposal scoring process clearly required comparison of each vendor's total price for the initial two-year portion of the contract. Caremark's proposal included estimated total costs of $44,797,207 for FY 2002-2003, $43,245,607 for FY 2003-2004, and $44,542,975 for FY 2004-2005. According to RFP Section 30.1, the maximum annual contract was not to exceed $36,000,000. All of Caremark's estimated annual costs exceeded the contract amount set forth in the RFP. Caremark's proposal also provided as follows: The above budget includes all salary expenses for Caremark employees involved in providing services for the program including the Contract Manager, Clinical Pharmacist, Care manager, additional pharmacist(s), Client Service Specialists in Florida for the expanded hemophilia program. Also included are the support staff such as pharmacy technicians, materials management, field service representatives, warehouse, reimbursement, marketing, sales and administrative staff. Also included are all delivery, data and report development, educational and marketing communication expenses. Product costs including medically necessary ancillary supplies, medical waste disposal and removal, protective gear and therapeutic devices. Caremark's proposal did not include information sufficient to assign specific costs to any of the items that Caremark indicated were included in its annual cost estimate. The HHS proposal projected estimated costs identified by month and year. The HHS proposal estimated total first-year costs of $14,261,954 and second-year costs of $27,333,389. HHS did not propose to assume responsibility for serving all Medicaid hemophilia beneficiaries at the start of the contract, but projected costs as if beneficiaries would "migrate to our service at a rate of 20 per month" during the first year and that full service provision would begin by the beginning of year two. RFP Section 10.2 provides as follows: The purpose of this RFP is to receive offers from qualified vendors wishing to provide the services required by the Florida Medicaid Comprehensive Hemophilia Management Program. The contract resulting from this RFP shall be with a single provider for up to two years commencing on the date signed, with an option to renew for two additional years. Otherwise stated, all Medicaid hemophilia beneficiaries would be served though the program's sole provider from the start of the contract period. The RFP provides no option for a vendor to gradually increase service levels through the first half of the two-year contract. The HHS proposal also included a breakdown of costs by factor product unit, identifying the AWP for each listed factor product and applying a discount of between 39 percent and 45 percent to indicate the product cost-per-unit that would be charged to AHCA. In Addendum 2 to the RFP, AHCA stated that it has received a written inquiry as follows: Knowing that the minimum accepted discount is AWP less 39%, can different products have different discounts. AHCA's response to the inquiry was as follows: No. The proposed discount will apply to all factor products. As to the costs included in the proposal annual total, the HHS proposal provided as follows: The product price above will include the following costs incurred in servicing the patients: The cost of the product dispensed to the patient. The cost of freight and other delivery expense of transporting the product to the patient. Pharmacy, warehouse and patient supplies. Cost incurred for patient protective gear and education materials Salary costs for the following: o Project/Contract Manager Clinical Pharmacist Staff Pharmacist Case Management Coordinator Pharmacy Care Coordinators Shipping Clerk Warehouse Coordinator Community Advocates Insurance Reimbursement Specialist The cost of Information Technology support for systems and reporting The cost of rent, office supplies, equipment, postage, printing. The HHS proposal did not include information sufficient to assign specific costs to any of the items that HHS indicated were included in its annual cost estimate. Lynnfield's proposal estimated total costs of $34,000,000 for calendar year 2004 and $36,000,000 for calendar year 2005. Lynnfield's budget proposal included information identifying the specific expense lines which form the basis for the cost estimation, including salary costs by position, travel costs, employee insurance, postage, equipment costs, and various office expenses. Lynnfield's budget proposal included a significantly greater level of detail than did either the Caremark or the HHS proposals. Jerry Wells was assigned the responsibility to evaluate the cost proposals. Mr. Wells failed to review the RFP or the related Addenda prior to evaluating the cost proposals submitted by the vendors. Mr. Wells asserted that it was not possible, based on the information submitted by the vendors, to perform an "apples- to-apples comparison." Each vendor set forth information in its proposal sufficient to calculate a total price for the initial two-year portion of the contract. Mr. Wells testified at the hearing that his cost review was intended to determine what AHCA would be paying for each of the individual factor products that AHCA provides hemophiliacs through Medicaid because the cost of the products was all AHCA would be paying to the vendors. The RFP did not require vendors to include a detailed list of, or unit prices for, factor products. The RFP specified only that factor products be provided at a minimum of AWP minus 39 percent. AHCA employees, under the direction of Mr. Wells, created a cost comparison chart which purported to identify the price proposed by each vendor for certain factor products and which projects an estimated quarterly factor product cost for each vendor. HHS's cost proposal included a listing of specific prices to be charged for factor products. The list was based on products being used by existing HHS patients. Caremark offered to provide all products at the AWP minus 39 percent cost required by the RFP. Caremark also suggested various "innovative cost savings," which specified use of factor products and indicated discounts greater than the 39 percent required by the RFP. Lynnfield did not include a product-specific listing of factor costs in its proposal, but offered to provide all products at the AWP minus 39 percent cost required by the RFP. The AHCA employees used the HHS cost proposal, including the HHS range of discounts, as the basis for preparation of the cost comparison chart that included the other vendors. The factor products listed on the AHCA cost comparison mirror those listed in the HHS cost proposal. AHCA employees apparently applied the factor product usage information from the second quarter of 2003 that was included on the spreadsheet distributed at the bidder's conference to the HHS factor product list. The AHCA spreadsheet distributed at the bidder conference lists 29 factor products by name and dosage. Of the 29 products, 15 are listed in the HHS cost proposal. The AHCA cost comparison created at Mr. Wells' direction includes only the 15 factor products listed on the HHS cost proposal. AHCA's cost comparison assumed no costs would be incurred, where the AHCA spreadsheet information indicated no usage of the factor product that had been included on the HHS cost proposal. AHCA's cost comparison did not include factor products which have been supplied by AHCA to Medicaid beneficiaries, but which do not appear on the HHS list. Mr. Wells relied on this cost comparison to determine that the cost proposal submitted by HHS offered the lowest cost to the agency and was entitled to the 660 points. Lynnfield and Caremark were both ranked according to cost proposals of AWP minus 39 percent, and according to the Summary Report and Recommendation memorandum, were awarded 652.74 points. Calculation of the points awarded to Lynnfield and Caremark in the Summary Report and Recommendation memorandum does not appear to comply with the formula set forth in the RFP. The AHCA cost comparison spreadsheet identifies the HHS proposed cost as $10,706,425.66 and identifies the AWP minus 39 percent cost as $10,795,477.48 (assigned as the Lynnfield and Caremark cost proposal). The Summary Report and Recommendation memorandum states the lowest cost proposal to be $10,706,405.66 (perhaps a typographical error). The methodology applied by AHCA assumed that all vendors would utilize identical quantities of identical factor products (based on historical usage in Quarter 2 of 2003 of those listed in the HHS cost proposal) and that there would be no cost savings related to disease management. The application of methodology to compare vendor cost proposals outside the process established by the RFP is clearly erroneous, arbitrary, and capricious. The vendors who are party to this proceeding assert that each other vendor's budgetary submission is insufficient, flawed, or unreliable for varying reasons. It is unnecessary to determine whether the budgetary information submitted by the vendors meets the requirements of the RFP because, despite having requested the information, AHCA has no interest in the data. There is no evidence that in making an award of points based on the cost proposals, AHCA relied on any of the budgetary information required by the RFP or submitted by the vendors.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a final order rejecting all proposals submitted in response to the RFP AHCA 0403. DONE AND ENTERED this 29th day of April, 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 29th day of April, 2004. COPIES FURNISHED: Anthony L. Conticello, Esquire Thomas Barnhart, Esquire Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Geoffrey D. Smith, Esquire Thomas R. McSwain, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Post Office Box 11068 Tallahassee, Florida 32302-3068 Linda Loomis Shelley, Esquire Karen A. Brodeen, Esquire Fowler, White, Boggs, Banker, P.A. 101 North Monroe Street, Suite 1090 Post Office Box 11240 Tallahassee, Florida 32301 J. Riley Davis, Esquire Martin R. Dix, Esquire Akerman & Senterfitt Law Firm 106 East College Avenue, Suite 1200 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3431 Tallahassee, Florida 32308
Findings Of Fact On April 23, 2013, the undersigned entered an Order on Remand requiring Petitioner to submit any documentation, including supporting affidavits, within 20 days of said Order setting forth the amount of attorney’s fees Petitioner seeks in DCA Case No. 1D12-3557. Petitioner filed two Motions for Extension of Time in which to comply with the Order on Remand. The Motions were granted and on June 12, 2013, Petitioner filed Petitioner’s Request for Appellate Attorney’s Fees and Costs with the Division. The Order on Remand required Respondent to file its response to Petitioner’s Request for Attorney’s Fees and Costs within 20 days of Petitioner’s filing. To date, Respondent has not filed any response and has not requested an extension of time in which to file a response. The parties were further ordered to state whether or not either party believed that an evidentiary hearing was necessary. Petitioner requested an evidentiary hearing only in the event that the undersigned was inclined to reduce or deny Petitioner’s request for attorney’s fees or costs. Accordingly, no evidentiary hearing is necessary. Attorney's Fees and Costs Petitioner/Appellee requests attorney’s fees in the total amount of $47,170. This total includes attorney’s fees in the amount of $42,760 attributable to Proctor Appellate Law, PA, and attorney’s fees in the amount of $4,410 attributable to Avera & Smith, LLP. The hourly rate for Sharon H. Proctor of Proctor Appellate Law, PA, is $400 per hour; the hourly rate for Jennifer C. Biewend of Avera & Smith, LLP, is $350 per hour. Detailed billing records are attached to the attorneys’ affidavits as exhibits to the Motion for Attorney’s Fees and Costs. Ms. Proctor, who was retained to represent Petitioner/Appellee in the appeal of this case, served as primary counsel in all matters pertaining to the appeal and incurred 106.9 attorney hours. Ms. Biewend served as counsel of record in the underlying merits case and as co-counsel of record before the First District Court of Appeal and incurred 12.6 attorney hours on the appeal. Petitioner submitted the affidavit of attorney Paul Donnelly, Esquire, as an expert in support of Petitioner’s request for attorney’s fees and costs. The undersigned has read Mr. Donnelly’s affidavit and finds that it supports the number of hours expended and hourly rates charged. The undersigned reviewed the affidavits of the attorneys of record and the billing records, and finds Petitioner/Appellee's requests for attorney's fees to be reasonable. Petitioner requests appellate costs in the amount of $764.36. The undersigned reviewed the cost ledger submitted by Petitioner’s counsel. The appellate costs reflect travel expenses of counsel to attend the oral argument. The amount of costs is reasonable.
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original Notice of Appeal with the agency Clerk of the Division of Administrative Hearings and a copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the Appellate District where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.
Findings Of Fact The American Health and Rehabilitation Center, Inc., is a nursing home located in Plantation, Florida. The subject administrative hearing was requested by Petitioner in order to settle a dispute as to $17,356 disallowed by the Respondent, Department of Health and Rehabilitative Services, under Medicaid guidelines. The disputed disallowed costs were as follows: $6,855 - Lawn Maintenance; $1,975 - Telephone Advertising and long distance calls; $6,470 - Owner/Administrator auto rental; and $2,056 - Auto Expense for the year ending June 30, 1976. (a) Yellow Pages Advertising Petitioner contends: that the yellow pages advertising had never been disallowed before and having been paid under HIM 15 should now be paid. Respondent contends: that only a telephone listing in the yellow pages is allowable; that a display advertisement is not compensable, and that even though such display advertising might have been paid in the past, it should not have been paid and should not be allowed as a result of this hearing. Lawn/Landscape Maintenance Petitioner contends: that there was a "bookkeeping error" in the amount of $2,853 charged for additional trees and plants and agrees that amount should not have been charged to "maintenance" expense; that the maintenance service that was utilized was less expensive for the services they required and gave better protection against loss of trees and other lawn and landscaping materials; that the equipment needed to service the lawn would not be supplied by the men they could hire. Respondent contends: that a fee of $12,000 for lawn and landscape maintenance is not supportable and that the occupancy of the home had always been full and therefore did not improve with the tripling of annual landscaping expenses; that there is a poor cost-benefit ratio with such charges and that a full time maintenance man could have been employed at near minimum wage to care for the lawn. Undocumented Use of Automobile Petitioner contends: that they had been previously allowed such costs and were audited each year and they had no way of knowing that they would be disallowed for the subject cost period; that they had some staff who used the cars for errands; that automobile expense is an acceptable business expense. Respondent contends: that transportation of Medicaid patients to physicians was arranged by direct payment to third party transportation providers or by having the physicians see the patients at the nursing home; that because of the lack of documentation by Petitioner there was no way to determine the business and non-business endeavors which included the use of the automobile and therefore the full amount should have been disallowed.. The yellow page display was designed primarily to advertise the nursing home to those seeking nursing home care. Evidence presented showed that Petitioner was charged a sum of $700 per month or $8,400 per year. Whereon Petitioner claimed $12,000. The lawn covers approximately 1-1/2 acres. No documentation was presented or testimony established as to the portion of the disallowed automobile use attributable to business use, the Mercedes used by the Petitioner and the complete lack of documentation as to its business use was not substantiated.
Recommendation Allow telephone listing expense only and $700 per month for lawn maintenance. Disallow the undocumented automobile use. Unwarranted payments for advertisements, excessive lawn care and undocumented automobile expenses that have been made in the past is no reason that such undue payments should be continued. DONE AND ENTERED this 2nd day of August 1978 in Tallahassee, Florida. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of August 1978. COPIES FURNISHED: James Mahorner, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Miss Patricia E. Hintz Administrator American Health and Rehabilitation Center 7751 West Broward Boulevard Plantation, Florida 33324
Findings Of Fact K & B Enterprises, Respondent, purchased plants from Roy Amerson, Inc., Petitioner, and they were delivered to Respondent on February 19, 1980. Respondent had ordered Bottlebrush and Cuban laurel (Ficus Nitida) packaged in wire baskets to protect root ball in shipment. Upon arrival Respondent noted that the wires were mangled and some root balls appeared separated from the roots. Before the trees were unloaded Mrs. Benway telephoned the salesman for Petitioner and told him about the condition of the trees. The salesman advised her to accept the trees, water them, and they (Amerson) would make an allowance for the damage. This, he said, would be better and cause less damage to the trees than if they were sent back on the truck that brought them. The driver was requested by Mr. Benway to note the condition of the trees on the invoice accompanying the shipment (Exhibit 1). No such notation was made. The driver did note the date of delivery. Respondent Benway acknowledged receipt of the merchandise by signing Exhibit 1 below the following statement printed near the bottom of Exhibit 1: STOCK MAY BE REFUSED AT TIME OF DELIVERY FOR A DEFINITE REASON, BUT ONCE SIGNED FOR CUSTOMER ASSUMES RESPONSIBILITY FOR TOTAL AMOUNT OF INVOICE. OPEN ACCOUNTS PAYABLE BY THE 10TH OF THE MONTH. 1 1/2 PERCENT CHARGE ADDED IF NOT PAID BY THE 25TH WHICH IS ANNUAL RATE OF 18 PERCENT. Respondent is a plant retailer and landscape contractor. After accepting the February 19, 1980 delivery the Cuban laurel was planted as were the other plants. Attempts to settle the dispute with Petitioner's salesman were unsuccessful. Nine of the Bottlebrush died but all of the Cuban laurel have survived. At the instruction of the salesman these plants were watered but not trimmed or fertilized. Respondent paid for the other plants received on this invoice and for the damaged plants as they have been sold. As of the date of the hearing the balance owed on the stock delivered on Exhibit 1 was $1,494.90.
Findings Of Fact Petitioner, Greynolds Park Manor, Inc. (Greynolds), operates a skilled nursing home facility at 17400 West Dixie Highway, North Miami Beach, Florida. The facility was constructed in 1968 and has been certified in the Medicaid Program since 1971. It is licensed by Respondent, Department of Health and Rehabilitative Services (HRS), to operate 324 beds. However, its average patient census in 1979 through 1981 was between 220 and 225 patients. It is the largest nursing home in Dade and Broward Counties. HRS is the state agency designated to administer Florida's Medical Assistance (Medicaid) Program pursuant to Section 409.266, et seq., Fla. Stat. HRS and Greynolds have entered into a written agreement, "Agreement for Participation in Florida's Medical Assistance Program," for each fiscal year that Greynolds has participated in the program. Greynolds' fiscal year runs from June 1 through May 31. Effective October 1, 1977, HRS adopted the "Florida Title XIX Long Term Care Reimbursement Plan" (Plan). The Plan is a prospective reimbursement plan, designed to aid the State in containing health care costs for Medicaid recipients. The prospective reimbursement rate for a provider is based on the actual allowable costs of a provider for the previous fiscal year, to which an inflationary factor is added. The mechanics utilized to establish the prospective reimbursement rate under the Plan are clear. The provider is required to submit a uniform cost report within 90 days after the conclusion of its fiscal year. HRS audits the uniform cost report, determines allowable costs, adds an inflationary factor, and thereby sets the provider's prospective reimbursement rate. This rate is effective the first day of the month following receipt of the uniform cost report by HRS, and remains in effect until a new cost report is filed by the provider. Under the provisions of the Plan, all cost reports are desk reviewed within six months after their submission to HRS. HRS, under the terms of the Plan, may perform an audit on the cost report. An on-site audit is a more extensive review of the cost report than desk review. During an on-site audit the financial and statistical records of the provider are examined to ensure that only allowable costs were included in the cost report. The audit findings prevail over those made at desk review. Greynolds submitted its cost report for fiscal year 1979 on September 27, 1979. Previously, by letter dated September 10, 1979, Greynolds had been advised by HRS that an on-site audit was to be done of its ficsal year 1979 cost report, and that Greynolds' Medicare cost report would be a subject of inquiry. The cost report Greynolds submitted to HRS on September 27, 1979, did not make a Medicare cost adjustment, and none was made at desk review. 1/ A rather anomalous situation existed in 1979 through 1980 which lent itself to potential abuse. The Medicare cost adjustment was never made at desk review. It was only made if there was an audit. Yet only one in three providers were designated for audit each year, and even if designated the audit could be terminated at any time. Consequently, if no audit were made, or if terminated prematurely, the provider would not be required to make a Medicare adjustment and would reap a substantial windfall. Greynolds was fully aware of HRS' practice. In 1981 HRS altered its practice and began to make the Medicare adjustment at desk review. The audit of Greynolds' cost report for fiscal year 1979 was actually begun in October 1979 by the Fort Lauderdale Office of HRS. At the same time, the desk review of the cost report was undertaken by HRS' Jacksonville Office and was ultimately finalized on February 29, 1980. The desk review findings contained adjustments to expenditures totaling $46,592, but made no Medicare adjustment, consistent with HRS policy at that time. Based upon these adjustments, HRS' desk review established prospective reimbursement rates effective October 1, 1979. However, HRS advised Greynolds that these rates were "subject to change by any on-site audit." Greynolds used these rates for the period October 1, 1979 through August 31, 1980. In June 1980, HRS' Supervisor of Audit Services requested additional information before the field audit of the 1979 cost report could be completed. Greynolds presumably furnished this information because the field work was completed in September 1980. On June 24, 1981, Greynolds was notified by letter that the audit had been completed and was pending final review. The letter further advised Greynolds that "since this audit will supersede the desk review, the adjustments we made in our desk review letter of February 29, 1980, must stand until the on- site audit results are released." On June 9, 1982, HRS' Fort Lauderdale Office advised Greynolds that its on-site audit of the 1979 cost report had been completed. The audit adjustments to the cost report had been increased from $46,592 to $803,592. Most of this was due to a Medicare adjustment in the amount of $654,282. An exit conference was held by HRS' field representatives and Greynolds on June 21, 1982. None of the adjustments were changed as a result of this meeting. At that time, Greynolds first requested that it be allowed to file an interim rate change. Greynolds was advised, however, that the Office of Audit Services had no authority to approve such a request. On September 23, 1982, the final audit report of Greynolds' 1979 cost report was issued. The audit concluded that the reported allowable expenses of Greynolds would be reduced by $725,953, resulting in an overpayment of $288,024. Most of this was, again, the result of the Medicare adjustment of $654,282. The report further advised Greynolds of the right to request that any audit adjustment in dispute be addressed in a hearing pursuant to Section 120.57, Fla. Stat. Greynolds duly petitioned for a Section 120.57 hearing on the audit adjustments of September 23, 1982. This matter was forwarded to the Division of Administrative Hearings and docketed as Case No. 82-3208. At the outset of the hearing in that case, Greynolds withdrew its challenge to the Medicare adjustment of $654,282. Following receipt of the final audit report of September 23, 1982, Greynolds requested, by letter dated November 2, 1982, an interim rate change for its fiscal year 1980, "in accordance with the Florida Title XIX Long Term Care Reimbursement Plan IVA-10." The reasons assigned by Greynolds for making the request were: A substantial decrease in Medicare patient days in the fiscal year ended May 31, 1980 and the corresponding decrease in the Medicare adjustment; and A change in the percentage of skilled and intermediate Medicaid patients. The request was denied by HRS on January 12, 1983, on the ground that "interim rates will not be granted for a closed cost reporting period." HRS' denial failed, however, to inform Greynolds of its right to request a hearing. On June 7, 1983, Greynolds renewed its request for an interim rate change for its fiscal year ended May 31, 1980. This request was denied October 12, 1983, on the ground that: To grant an interim rate for a closed cost reporting period would be the same as making a retroactive payment to a nursing home whose costs exceed annual payment. Retroactive payments such as this are specifically prohibited by Section 10C-7.48(6)(1), Florida Administrative Code, which was in effect during the cost reporting period in question. Greynolds filed a timely request for a Section 120.57(1), Fla. Stat., hearing. The circumstances relied on by Greynolds to justify an interim rate request were primarily the result of a substantial decline in its Medicare patient census resulting from a staphytococcus bacterial infection among its patients. The bacterial infection arose in February 1979 and continued through May 31, 1980 (the end of Greynolds' 1980 fiscal year). Greynolds is a dual provider facility, treating both Medicare and Medicaid eligible patients. The bacterial infection, which was contained within the Medicare section of the facility, resulted in a 45 percent decline in Medicare admissions during the period. Under the Medicare and Medicaid reimbursement systems, a provider is required to first request payment from Medicare if the patient is Medicare eligible. Medicare reimburses at a higher rate than does Medicaid. Consequently, a substantial decrease in the number of Medicare patient days would result in a substantial decrease in the revenue received by the provider. Greynolds was fully aware of the change in the patient mix, as it occurred, during fiscal year 1980. Greynolds opined that it did not apply for an interim rate request at that time because the prospective reimbursement rate which had been set October 1, 1980, based on its cost report for fiscal year 1979, was "adequate" until the Medicare adjustment was finally made. The facts, however, reveal a different motivation. Under the Plan, whether on desk review or on audit, a Medicare adjustment is made to a provider's uniform cost report when developing a prospective reimbursement rate. The Medicare adjustment is made by excluding the Medicare patient days and Medicare costs from the provider's cost report, since these items are reimbursed by Medicare. The reimbursement rate is then established by adding an inflationary factor to the remaining patient days and costs. This reimbursement rate remains in effect until the provider files its next cost report. If the provider maintains its costs under the reimbursement rate, it may retain the difference; if the provider's costs exceed the reimbursement rate, it will not be reimbursed for its inefficiency. The Plan is predicated on a cost containment methodology. It is designed to encourage efficient administration by nursing home providers when providing services to Medicaid recipients. The Plan does, however, permit an adjustment to a provider's prospective reimbursement rate ("an interim rate") when unforeseen events during that fiscal year occur which were not contemplated in setting the provider's prospective reimbursement rate predicated on the previous year's costs. Greynolds was aware of the change, as it occurred, in its 1980 patient mix. Therefore, it could have applied for an interim rate adjustment at that time. To have done so, however, would have required it to make the Medicare cost adjustment to its 1979 cost report since its justification for an increase was the substantial decrease in Medicare patients and the corresponding decrease in the Medicare adjustment it was currently experiencing. To raise the Medicare adjustment issue was not, however, to its financial advantage. If it "escaped" the Medicare adjustment to its 1979 cost report, it would profit by the amount of that adjustment ($288,024). Greynolds' request for an increase in its reimbursement rate for 1980, after the 1980 cost reporting period was closed, also raises the disquieting specter that Greynolds will be reimbursed for the same costs twice. Since each year's reimbursement rate is based on the previous year's cost report, to retrospectively pick one reimbursement period from the series of years is disruptive of all the rates which were subsequently established. Under the Plan, if a provider experiences a substantial decrease in Medicare patient days and costs for a cost reporting period, the Medicaid reimbursement rate for the next period, based on that cost report, would substantially increase. Accordingly, Greynolds' 1981 reimbursement rate would be reflective of the loss of Medicare patient days in 1980. To now ignore the effect 1980 costs had in establishing 1981 reimbursement rates, and to reimburse Greynolds for 1980 without regard to the reimbursement rate for the subsequent year, ignores reality. Greynolds has on one other occasion availed itself of an interim rate request. On June 17, 1981, Greynolds applied for an interim rate for its fiscal year 1981. Greynolds' request was based on the fact that it had negotiated a union contract effective April 1, 1981, which resulted in a substantial increase in salaries for its employees. Since this factor was not reflected in its cost report for fiscal year 1980, upon which its current reimbursement rate was predicated, HRS, by letter dated July 29, 1981, granted Greynolds' request. Greynolds asserts that the granting of its 1981 interim rate request occurred after the close of its 1981 cost reporting period and is, therefore, evidence that the denial by HRS of its interim rate request in this case is inconsistent and improper. HRS asserts that the granting of Greynolds' interim rate request in 1981 was proper, and that it was not granted outside a closed cost reporting period. HRS interprets "cost reporting period" to be that period within which the provider must file its cost report for the previous fiscal year ("the cost report period"). Rule 10C-7.48(5)(c), F.A.C., in effect at the time, provided A cost report will be submitted as prescribed by the Department to cover the facility's fiscal year, along with the facility's usual and customary charges to private patients receiving comparable medicaid service, within 90 days after the end of the cost report period. According to HRS, the "cost reporting period" would be closed when the provider submits its cost report, which could be as much as 90 days after the "cost report period" had ended. HRS' interpretation is certainly reasonable, within the range of possible interpretations, and is therefore adopted. The interim rate request, granted Greynolds in 1981, was not granted after a closed cost reporting period. The reimbursement rate in effect on June 17, 1981, had commenced September 1, 1980. This rate remained in effect until the interim rate was granted, which interim rate remained in effect until Greynolds submitted its cost report for fiscal year 1981. Greynolds' 1981 cost report was submitted August 31, 1981, and its new reimbursement rate was therefore effective September 1, 1981. Accordingly, the grant of Greynolds' 1981 interim rate request was not inconsistent with the position it has adopted in this case. Had Greynolds "timely filed" its interim rate request in this case, HRS concedes the circumstances which gave rise to the request would have entitled the request to consideration under the provisions of Florida Title XIX Long Term Care Reimbursement Plan, paragraph IVA-10. However, since HRS rejected Greynolds' interim rate request as untimely, it never addressed, by review or audit, the accuracy or prospective impact of Greynolds' request.
The Issue Whether the decision of Respondent, the Florida Department of Financial Services (“DFS”), to award the contract contemplated in its Invitation to Negotiate No. 1819-01 ITN TR, e-Payment Collection and Processing Services, to Intervenor, NIC Services, LLC (“NIC”), is contrary to governing statutes, rules, or policies, or the solicitation specifications; if so, whether that decision was clearly erroneous, contrary to competition, arbitrary, or capricious; and whether Petitioner, PayIt, LLC (“PayIt”), has standing to protest DFS’s decision.
Findings Of Fact The Parties and Claims at Issue DFS, through Florida’s Chief Financial Officer (“CFO”), is authorized to contract with vendors that process and collect electronic payments by credit card, charge card, debit card, and funds transfer (“e-Payment services”). § 215.322(4), Fla. Stat. DFS issued Invitation to Negotiate No. 1819-01 ITN TR (“ITN”) to procure a new contract for those services. NIC, headquartered in Olathe, Kansas, is an e-Payment services company focusing exclusively on government procurements. NIC is the intended recipient of the e-Payment services contract. PayIt, headquartered in Kansas City, Missouri, is also an e-Payment services company focusing exclusively on government procurements. DFS eliminated PayIt from negotiations after the first round. PayIt timely protested the intended award after receiving DFS’s notice of intent to award the contract to NIC. PayIt raises the following four claims: DFS did not make an appropriate best value determination by failing to: (A) consider vendor pricing before eliminating seven vendors during negotiations; (B) understand the pricing of the five remaining vendors before determining that NIC provided the best value to the State; and (C) consider whether making multiple awards would result in the best value to the State; DFS made the following material changes to the ITN during negotiations that improperly gave NIC a competitive advantage: allowing NIC to propose different pricing structures for individual agencies; (B) allowing NIC to waive the limitation of liability and parent company guarantee terms; and (C) allowing NIC to propose pricing based on a promise of exclusivity; DFS violated Florida law and the ITN by awarding the contract to NIC, a non-responsive vendor; and DFS violated Florida law and the ITN by failing to conduct the procurement in a transparent manner by: (A) holding a public meeting where no meaningful discussion occurred as to the reasons the negotiation team members voted in favor of an award to NIC; and (B) failing to prepare a short plain statement detailing the basis of its decision prior to awarding the contract to NIC. E-Payment Services and the ITN DFS is the state agency in charge of procuring contracts for and managing the processing and collection of e-Payment services, which include credit card, debit card, e-Check, and ACH transfer payments made in person via a point-of-sale device (“POS”), over the phone, or online. All state agencies and the judicial branch are required to use the e-Payment services vendor(s) with whom DFS has contracted unless otherwise approved. Local governments may choose to use the vendor(s), too. Approximately 20 state agencies and 95 other government entities use the e-Payment services contract. Each agency has unique needs depending on the type and number of transactions. The Department of Transportation (“DOT”) processes about 80 percent of the State’s e-Payment transactions per year, whereas the Department of Revenue (“DOR”) processes the largest dollar amounts per transaction. Some agencies have more web-based transactions while others have more POS transactions. In 2019, the State processed 1.7 billion transactions in e-Payments totaling about $52 billion. Bank of America (“BOA”) is DFS’s current e-Payment services vendor and its contract expires in 2021. BOA generally provides the services needed, but it uses subcontractors to manage different platforms utilized by the government entities, which has created continuity and reliability issues. BOA also replaced its dedicated team in Tallahassee with employees in Tampa and Orlando, which DFS believes has reduced the level of service it expected. DFS began the competitive procurement process in early 2018 to ensure a smooth implementation of a new e-Payment services contract. In March 2018, DFS conducted a business needs analysis and chose to use an ITN so it could negotiate with multiple vendors to meet the goals of the e-Payments program and provide the best value to the State. DFS wanted the best solution, not the lowest price. That is why it decided against an invitation to bid (“ITB”), as an award would have to go to the lowest bidder rather than the one with the best solution. DFS also decided against a request for proposals (“RFP”), as it could not define the specific services needed. DFS drafted the ITN over three to five months. DFS relied on its own experience, but also received input from DOT, DOR, and other agencies that utilize the contract so it could accommodate their needs and preferences. Based on that process, DFS finalized its primary needs and desires. Specifically, it wanted a single company that would: (1) perform all of the required services, in part to avoid difficulties it experienced by the current vendor’s use of subcontractors and multiple platforms; (2) provide customization to individual agencies and meet their customer service needs, including a year’s worth of data migration to the new platform, at least 15 participant-defined fields, and a dedicated team in Tallahassee; (3) provide contactless-capable POS devices, of which there are currently 600-800 in use; provide interactive voice response software (“IVR”) in at least English and Spanish so that individuals could make payments over the phone, which is consistently used; (5) have experience implementing a contract of this magnitude, given the billions of transactions and dollars processed each year; and (6) ensure the best value to the State. In November 2018, DFS issued the ITN. The ITN specifications detailed the procurement process, the selection methodology, and the award. Numerous sections of the ITN reflected the preferences just discussed, including 1.2 – Solicitation Objective, 1.3 – Background, 1.4 – Questions Being Explored, 1.5 – Goals of the ITN, 3.5.2 – Mandatory Criteria, 3.5.4 – Business References, 3.6.1 – Narrative on Experience and Ability, 3.6.2 – Respondent’s Proposed Solution, and 4.6 – Selection Criteria. The Solicitation Objective stated that DFS intended to make a single award using the Standard Contract, though it reserved the right to make multiple awards or no award at all. The ITN attached the Standard Contract, including a Statement of Work and Standard Terms and Conditions with several provisions of particular relevance: (1) Guarantee of Parent Corporation - requiring the vendor’s parent company (if any) to guarantee the vendor’s obligations under the contract; (2) Limitation of Liability – limiting DFS’s liability for any claim arising under the contract to the lesser of $100,000 or the unpaid balance of any compensation due for the services rendered to DFS under the contract; and (3) Nonexclusive Contract – providing that the contract would not be an exclusive license to provide e- Payment services, as DFS could contract with other vendors to provide similar or the same services. The ITN made clear that vendors had to notify DFS in their responses of any exceptions they had to the Standard Contract or its attachments. The ITN noted that the terms of the Statement of Work, the conditions, costs, different price adjustments, and related services may be negotiated, and required vendors who successfully negotiated such terms and conditions to submit a revised Statement of Work and attach it to their best and final offer (“BAFO”). The ITN also gave DFS discretion to negotiate and finalize terms with the vendor to whom it decided to award the contract. The ITN process involved three phases: solicitation, evaluation, and negotiation. DFS assigned Amy Jones as the procurement officer. She became the sole point of contact during the procurement process. The Solicitation Phase During the solicitation phase and prior to submitting responses, potential vendors could submit questions about the ITN. In response to 90- plus questions, many of which concerned pricing, DFS published answers to the following questions, among others, in a written document (“Q&A”): In response to a question as to whether DFS was open to a more simplified transaction pricing approach that provided a standard/blended rate across all card types and authorization levels, it clarified that it was interested in potential options that may exist and expected responses to propose the solution/approach the vendor believed provided the greatest value to the State. DFS confirmed that if the vendor did not charge a per transaction fee, it should enter a “0” on the spreadsheet but include the cost in the Total Fees. In response to questions concerning the ability to negotiate the terms of the Statement of Work, the contractual documents, or the Guarantee of Parent Corporation, DFS again confirmed that it reserved the right to negotiate the Standard Contract and that vendors had to fully describe any exceptions to such terms in their responses. In response to a question concerning the effective date, DFS indicated that it would be the date of contract execution, which should be in June 2019, but depended on the length of the ITN process. In response to a question as to the start date, DFS stated that the Project, defined in the Standard Terms and Conditions as the activities required to transition all agencies from the current vendor’s platforms to the new vendor’s platforms, should begin immediately upon contract execution. The Evaluation Phase DFS set the deadline for responses and the evaluation stage ensued. The ITN required each response to include three volumes: (1) Response Qualification Documents; (2) Technical Response; and (3) Price Response. The Response Qualification Documents had to contain financial documentation, including three years of audited financial statements, a completed business reference form, and a signed mandatory criteria certification, among others. The Technical Response had to include a narrative on the vendor’s experience, ability, proposed solution, any value-added services offered, any proposed exceptions to the terms and conditions in the Standard Contract, the requisite bond, and a security audit. The ITN stated that a vendor may be rejected if its “past performance, current status, or [r]esponse do not reflect the capability, integrity, or reliability to fully and in good faith perform the requirements of a contract.” The ITN, thus, gave DFS authority to reject a vendor regardless of its price if it could not fully perform the contract. The Price Response detailed the pricing requirements and confirmed that vendors had to complete an Excel spreadsheet provided by DFS. The spreadsheet had sheets for POS pricing, tiered pricing, non-tiered pricing, additional tiered pricing, and additional non-tiered pricing. All fees and pricing for each category, including credit card usage fees, had to be listed and additional rows had to be added if necessary. Tiered pricing represented the transaction-based services whereas non-tiered pricing represented the unit-based services. Pricing had to reflect the cost of the services as described in the Statement of Work. Any additional services had to be included in either the tiered or non-tiered pricing sheets depending on how they would be charged. The tiered and non-tiered sheets automatically populated a summary sheet based on a flat fee-per-transaction model, which would be used to compare the vendors’ pricing. Although the spreadsheet had to be completed as directed, the ITN did not prohibit more detailed explanations as to pricing elsewhere in the response. The Q&A also made clear that DFS encouraged alternative pricing arrangements. DFS received responses from 13 vendors, including BOA, Govolution, Alacriti Payments, NIC, PayIt, Fidelity Information Services (“FIS”), JetPay, JP Morgan, Official Payments, Point & Pay, Suntrust, Hancock Whitney, and Wells Fargo. As the ITN required, many of the vendors listed exceptions to the Standard Terms and Conditions and Statement of Work in their responses. NIC noted that it wanted to revise the language of the limitation of liability term and strike the parent guarantee term in its entirety, among other exceptions. PayIt chose not to list any exceptions in its response. Ms. Jones conducted an administrative review and identified deficiencies with ten of the responses, including PayIt’s. Ms. Jones did not deem NIC’s response deficient. Of particular relevance here, NIC listed four states and two federal agencies as business references to highlight its experience with payment processing services. NIC noted that these partners represented a small sample of the more than 50 governmental agencies that use its payment processing platform. NIC is a wholly-owned subsidiary of NIC, Inc., which has a number of other subsidiaries. Of the agencies listed in its response, NIC has contracts with only two of them. Although the other agencies listed have entered into contracts with NIC-related entities, NIC owns the payment-processing platform and provides e-Payment services to all of the agencies through those related entities. Based on the weight of the credible evidence, NIC accurately listed its experience providing the same e- Payment services at issue here in the states listed in its response. Ms. Jones notified the deficient vendors and gave them an opportunity to cure.1 At the end of the cure period, Ms. Jones deemed all but one vendor (Alacriti Payments) responsive, though the ITN authorized DFS to reconsider responsiveness and responsibility at any time during the procurement. Ms. Jones also reviewed the Price Responses and realized that the spreadsheet formulas had issues that could render the pricing information inaccurate. Several vendors utilized percentage-based pricing per transaction while others put text in the fields. Because the tiered pricing sheet formula only could use fees expressed in dollars and cents, the use of percentages or other text resulted in inaccurate pricing information and rendered the spreadsheet practically meaningless for scoring the Price Responses. 1 As explained later, PayIt’s responsiveness and responsibility (or alleged lack thereof) are not relevant considerations because it challenges the fundamental fairness of the process and seeks a re-bidding. However, for purposes of a complete record, PayIt’s deficiency concerned its failure to include three years of audited financial statements. Upon receipt of the deficiency notice, PayIt timely submitted audited financial statements for 2016 and 2017 (2016 was its first year being audited) and an unaudited financial statement for 2018. PayIt informed DFS that it would submit the audited 2018 statement in April 2019 once the auditors were finished. DFS waived this deficiency as a minor irregularity and moved PayIt on to negotiations. Although PayIt never ultimately submitted the 2018 audited financial statement, DFS ended negotiations with it on other grounds, as detailed below. For instance, PayIt utilized a percentage fee per credit card transaction. When it included the percentage in the tiered pricing spreadsheet, the spreadsheet automatically converted the percentage to pennies and inaccurately reduced its pricing for credit card transactions. NIC also utilized a percentage fee per credit card transaction. Instead of including the percentage in the spreadsheet, it included an “N/A” notation in the description column, which resulted in $0 being calculated for credit card fees in the spreadsheet. Although the Q&A instructed vendors to use $0 if they “would not charge a per-transaction fee for different card types and authorization levels,” it required them to provide “instead a total cost for Total Fees.” NIC failed to include the total fees that it would charge for credit card transactions elsewhere in the spreadsheet, resulting in a tiered pricing sheet that included fees only for ACH transactions and inaccurately reduced its total pricing. That said, NIC explained elsewhere in its response that it charged percentage fees for credit card transactions and described generally how those fees would apply. DFS did not issue deficiency notices to PayIt, NIC, or any other vendor as to the Price Response. However, because the spreadsheet could not accurately depict pricing for many of the vendors, making it impossible to accurately score this component during the evaluation phase, DFS had to make a decision. It could reject all bids and start over, create a revised spreadsheet that could suffer from similar formulaic errors, or issue an addendum that removed consideration of pricing from the evaluation phase. DFS chose the latter because it would allow for and encourage vendors to use creative pricing without having to start the procurement process over. It issued Addendum 4, which confirmed that pricing would not be scored or considered during the evaluation phase. Instead, technical scores would be utilized to establish a competitive range and pricing would be addressed in the negotiation phase. Although Addendum 4 noted that the Price Response would be used, it deleted the form’s instructions and confirmed that vendors did not need to resubmit it. The weight of the credible evidence showed that this decision was reasonable; it ensured that all vendors were treated fairly and equally when it came to pricing, were not excluded from negotiations simply because the spreadsheet was too rigid to accurately score their pricing, and it allowed all vendors to address and answer questions about their specific pricing during negotiations. Addendum 4 provided the requisite notice about filing a specifications challenge within 72 hours. No vendor filed such a protest. Ms. Jones sent the remaining 12 responses to the evaluation team for a qualitative review. The evaluation team reviewed the responses against the evaluation criteria and completed score sheets for each vendor. The scores ranged from 66 to 99 out of 141 possible points. Ms. Jones reviewed the scores to establish a competitive range of vendors that appeared reasonably susceptible to an award. Because there was no natural break in the scoring, Ms. Jones included all 12 vendors within the competitive range and DFS commenced negotiations with all of them. The Negotiation Phase The negotiation team included Jennifer Pelham, Teresa Bach, Tanya McCarty, and Rick Wiseman, who collectively have substantial experience in negotiating contracts, procurement, and e-Payment services. The team also invited subject matter experts, including individuals from the three largest users, DOT, DOR, and the Department of Highway Safety and Motor Vehicles (“DHSMV”), to participate in the negotiation and strategy sessions and provide their input. The ITN required the team to conduct the negotiations and make an award recommendation after determining which vendor presented the best value to the State in accordance with the following Selection Criteria: The Respondent’s articulation, innovation, and demonstrated ability of the proposed solution to meet the Department’s Solution goals and the requirements of this ITN; Experience and skills of the Respondent’s proposed staff relative to the proposed solution; and The Respondent’s pricing and overall cost to the State. The ITN gave DFS substantial discretion. It could eliminate vendors from further consideration, end negotiations at any time and proceed to a contract award, or reject all responses and start the process over. It could request clarifications and revisions to any vendor’s response (including BAFOs) until it believed it had achieved the best value. It could negotiate different terms and related price adjustments if it believed such changes provided the best value. And, it could arrive at an agreement with a vendor and finalize principal terms of the contract. The team conducted its first round of negotiations with the 12 vendors. Prior to the meetings, the negotiation team closely reviewed the vendors’ responses and prepared agendas with questions as to their ability to fully perform the required services, their proposed solutions, and their pricing models, among other things. The agendas asked the vendors to explain their pricing and each had that opportunity during their presentations. The team met immediately after each presentation to discuss the vendor, its ability to meet the Statement of Work and provide all of the required services, its experience, and any other issues that arose during the presentation. The team conducted a strategy session after the first seven presentations to discuss the same issues and tentatively decided with which vendors to move forward. The team conducted a similar strategy session after the final five presentations. Despite responses indicating otherwise, it became clear that several vendors did not fully understand or appreciate the scope of the required services. Several vendors also lacked the capability or demonstrated ability to perform all of the required services. Based on the presentations and strategy discussions, the team ended negotiations with seven vendors—i.e., BOA, JP Morgan, Govolution, Point & Pay, Suntrust, Hancock Whitney, and PayIt—for the following reasons: PayIt – did not offer IVR in Spanish, as required; claimed experience with POS devices, but failed to answer questions about that experience or about the specific types of equipment it could offer; failed to follow the agenda and answer specific questions/concerns raised by the team; experience limited to web and mobile, rather than POS or IVR; limited experience with individual agencies in states, but not an entire state contract, and only had been in business for a few years; lacked adequate resources and staff to handle the contract at the time, with only a promise to hire more staff later. BOA – did not offer IVR; could not provide all requested services, so BOA proposed two contracts with other entities, which would cause additional administrative difficulty. JP Morgan – lacked an understanding of the Statement of Work or the ITN; lacked a detailed implementation plan; could not offer participant defined fields for agencies to customize the platform or the required data migration; offered only a piecemeal solution relying on the current vendor to continue providing services. Govolution – lacked an understanding of the Statement of Work or the ITN; only offered payment technology, but lacked the ability to provide the processing component; lacked a detailed implementation plan; could not offer the required data migration. Point & Pay – lacked experience with both government contracts and contracts of the scope, complexity, and scale of this contract; focused more heavily on payment technology, rather than processing. Suntrust - lacked an understanding of the Statement of Work or the ITN; offered only a piecemeal solution relying on the current vendor to continue to provide services; could not provide data migration for the 15 participant fields needed for agency customization; lacked a plan to replace POS devices. Hancock Whitney - lacked an understanding of the Statement of Work or the ITN, including that the contract included SunPass or that local governments had to be converted during the implementation period; could not provide required data migration or 15 participant fields needed for agency customization. Based on the weight of the credible evidence, the team asked the vendors to discuss their pricing and considered it, but reasonably decided to end negotiations with these seven vendors—who could not offer all of the required services, lacked an understanding of the required services or a solid plan for providing them, failed to follow the agenda and provide the specific information requested, or lacked sufficient experience—consistent with the ITN and Florida law. The team continued negotiations with NIC, FIS, Official Payments, JetPay, and Wells Fargo. The team created agendas for the second round of negotiation sessions so that it could delve deeper into the vendors’ ability to perform all of the required services, their unique solutions for doing so, and their pricing. The team created a chart to conduct a side-by-side comparison of the vendors’ experience, their individual solutions, and their ability to provide the requisite services and value-added services. Although not required by the ITN, the team also created a chart listing the five vendors’ prices for the required services to try to do an apples- to-apples comparison. However, doing such a comparison remained a challenge because of the vendors’ different pricing structures. But, the team generally understood what the vendors charged for the services, including that Wells Fargo and FIS had cheaper transaction fees than NIC. After the second round, the team ended negotiations with JetPay and Wells Fargo for the following reasons: JetPay – Did not meet the information transfer requirements, forcing agencies to undergo extensive programming efforts to switch over; lacked experience with contracts of this size and scope; would not commit to a dedicated staff in Tallahassee. Wells Fargo – Did not use a single platform and had a multi-vendor solution; lacked a plan for replacing POS devices; could not meet the requirements for data migration or copies of batch files for processing payments that agencies requested; elaborate and extensive pricing. Based on the weight of the credible evidence, the team understood and considered the vendors’ pricing, but reasonably decided to end negotiations with JetPay and Wells Fargo—two vendors who lacked the demonstrated ability and experience to perform all of the required services of the ITN— consistent with the ITN and Florida law. The third round of negotiations continued with FIS, Official Payments, and NIC. The team met with each vendor again to obtain additional information about their ability to provide all of the required services, their solutions, and their pricing. In order to focus more closely on pricing, the team provided the vendors with past monthly invoices for DOT, DOR, and DHSMV and each completed the invoices based on their own pricing. This exercise allowed the team to understand the total cost to the State that each vendor would charge based on the services currently provided by BOA and compare those total costs both amongst each other and with BOA. Based on the weight of the credible evidence, the team reasonably decided to do this pricing exercise only with these three vendors because they were the only ones that it believed at the time were reasonably susceptible to an award. Nothing in the ITN required the team to conduct this pricing exercise with all vendors, much less those who already had been reasonably eliminated for failing the other two selection criteria. After the third round, the team ended negotiations with Official Payments for several reasons. First, it could not commit to a deliverable for next-day settlement of transactions, which BOA currently provided to agencies. Second, some of its references confirmed that it had not implemented the number, level, and complexity of services required by the ITN. Third, it offered to provide only one representative in Tallahassee who only had one year of experience with e-Payments. Based on the weight of the credible evidence, the team reasonably decided to end negotiations with Official Payments consistent with the ITN and Florida law. The team continued negotiations with FIS and NIC. It met with both vendors, checked their references, and reviewed their pricing exercises. The team understood that FIS offered lower prices than NIC, but decided to end negotiations with FIS for the following reasons distinct from price: FIS had no contactless payments or IVR services currently available and the team remained concerned that it had never implemented these services before. Although FIS promised to make those services available later in 2020, the team preferred (and, based on the language of the ITN and its answers in the Q&A, believed that the ITN required) that vendors be able to provide the services on the date they signed the contract to ensure implementation could begin immediately and the transition run smoothly. The team had concerns about FIS’s ability to live up to its promises, as it twice delayed meetings during negotiations and its references noted a lack of responsiveness to issues and implementing new services. FIS only offered one representative in Tallahassee and, at that, only during the implementation period. PayIt argues that the team misunderstood how much cheaper FIS was than NIC and ignored merchant fees during the pricing exercise. The weight of the credible evidence showed otherwise. PayIt contends that the team misunderstood FIS’s price because a spreadsheet it utilized contained an error as to FIS’s fee per transaction, which rendered FIS’s costs lower than the team realized. However, the team already knew that FIS’s prices were generally lower than NIC’s and the testimony confirmed that the error had no effect on their decision. Indeed, the team utilized the spreadsheet merely as a tool. It also cannot be ignored that, although NIC charged higher fees per transaction, FIS charged fees for monthly maintenance and equipment replacement, and charged hourly fees for customization development, which NIC offered for free. More importantly, based on the weight of the credible evidence, the team reasonably chose to eliminate FIS from negotiations despite its lower price because it fell short on the other two selection criteria—demonstrated ability and experience to meet the requirements of the ITN—and the team acted within its discretion under the ITN and Florida law in doing so. The team continued negotiations with NIC and solicited a BAFO only from it because no other vendor was reasonably susceptible to an award. NIC submitted its BAFO in December 2019. Consistent with its initial response, NIC proposed adjustments to the limitation of liability term and removed the parent guarantee term, and it attached those changes in its proposed Standard Terms and Conditions, as the ITN required. Although NIC understood that it would be the single awardee, its proposed Standard Terms and Conditions included the original non-exclusivity provision, making it clear that DFS was not granting NIC an exclusive license to provide the e-Payment services at issue. The BAFO also included a pass-through plus pricing model, which NIC proposed back in July 2019 during the pricing exercise. This pricing model passed through banking and merchant fees, reduced its fees per transaction from its original proposal, and included a discounted fee for DOT transactions. These adjustments generated significant savings to the State as compared to what the State currently pays BOA, which is exactly why DFS encouraged vendors to propose creative pricing in the ITN and the Q&A. PayIt argues that the team irrationally ignored merchant fees associated with credit card transactions during the pricing exercise, which would be a pass-through cost to the State. However, the weight of the credible evidence showed otherwise. Unlike processing fees (charged by NIC) and interchange fees (charged by the credit card company), merchant fees are charged by the intermediary that provides security and tokenization for the credit card transaction. Although the sample invoices submitted by FIS, Official Payments, and NIC during the pricing exercise did not itemize merchant fees, the total cost shown on the invoices included those fees. Thus, the team understood how the merchant fees would impact the total cost to the State, even if they did not understand exactly what those fees were. More importantly, agencies have the option to pass through merchant fees to the customer through a convenience fee and many of them do just that. In fact, agencies charged approximately $8.3 million in convenience fees in 2017-2018. By passing those fees through to the customer, they are not costs borne by the State. Because it is up to the agency to choose whether to pass through such fees, it is impossible to determine whether and to what extent the State will be responsible for those fees and how much they would cost the State. The Best Value Determination The team reviewed NIC’s BAFO and determined that it represented the best value to the State. The weight of the credible evidence established the following justifications for that decision: NIC was the only vendor that could provide all of the required services and exceed them, including contactless payments, POS devices, IVR in 21 languages, and next-day settlement with midnight cut-off so payments would be disbursed to the agency within one business day. NIC had over 25 years of government experience with states as large as Florida and had the demonstrated ability to perform all services effectively and immediately. NIC owned a single proprietary platform designed specifically for government entities with over 200 configurable elements that agencies could tailor to their own individual needs. NIC proposed a dedicated four-person team in Tallahassee for the duration of the contract, which was important due to the number of agencies utilizing the contract and the number of moving parts. NIC had a detailed project management plan for implementing the services to the agencies and local governments. NIC offered value-added services exceeding those required by the ITN, such as free replacement of all POS devices, a yearly device allowance, a mobile platform, and payment through text messages, among others. Although the team understood that choosing NIC may be more expensive than FIS, it determined that it was willing to pay more for a better solution that exceeded all of the ITN’s requirements from a more established vendor. The team did not want Florida to be a test case and it had confidence that NIC was battle-ready on day one. Given the importance of this billion- dollar contract and the number of agencies involved, the weight of the credible evidence showed that the team reasonably made this determination. The team’s almost year-long effort culminated in a public meeting on January 3, 2020. At that point, the team had conducted over 30 negotiation sessions with vendors, many of which spanned an entire day, and held over 100 strategy sessions averaging around four to six hours each. At the meeting, Ms. Pelham reviewed the selection criteria and each team member voted in favor of NIC. Although the team members did not detail the reasons for their vote at the meeting, they had spent hundreds of hours meeting with vendors and strategizing about their capabilities, solutions, and pricing, and discussing these issues at length during the strategy sessions. It is true that the team was to arrive at its recommendation by “discussion” during a public meeting, but the ITN did not define that term or require a specific level of detail. In any event, the failure to provide such details during the meeting resulted in no prejudice to any other vendors, all of whom already had been reasonably eliminated from negotiations. After the meeting, Ms. Pelham drafted a memorandum recommending the award to NIC. The memorandum confirmed that NIC provided the best value to the State based on its price and the selection criteria. Although the memorandum did not provide a more detailed explanation, the ITN contained no such requirement. Instead, the ITN stated that the negotiation team would make an award recommendation after determining which vendor presented the best value in accordance with the selection criteria and that the CFO or his designee will make the final determination based on that recommendation. Mr. Fennell, the deputy CFO, was tasked with making the final decision. As the deputy CFO of a large agency, he must rely on the advice of the division directors, deputies, and bureau chiefs who oversee the day-to-day operations of the divisions within his purview; this procurement was no different. Based on his confidence in the team and Mr. Collins, who had been involved throughout the ITN process, participated in some of the strategy sessions, and provided high-level updates to Mr. Fennell about the progress of the procurement, Mr. Fennell approved the team’s recommendation. Based on the weight of the credible evidence, DFS did not contravene the ITN, let alone in a material or prejudicial way, through the process by which it recommended the award. The negotiation team followed the dictates of the ITN by holding the public meeting, at which the selection criteria were reviewed and the team voted for the recommended action, which was then set forth in the team’s memorandum. Mr. Fennell complied with the ITN by making a final decision based on the memorandum and the confidence he had in the negotiation team’s recommendation. On January 13, 2020, DFS issued its notice of intent to award the contract to NIC. Upon receipt thereof, PayIt timely filed its bid protest. Assuming that DFS and NIC are successful in this protest, they will execute the contract. Thereafter, DFS will create a contract file, place the contract in it, and confirm that it contains a short plain statement explaining the basis for the award, as required by section 287.057(1)(c)5., Florida Statutes. The contract itself is often sufficient to meet this requirement. Based on the weight of the credible evidence and the language of the statute, the undersigned finds that DFS has no obligation to create such a file or prepare the statutory statement until the contract is signed, which cannot occur until this protest is finally resolved.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services issue a final order dismissing PayIt, LLC’s Amended Formal Written Protest Petition. DONE AND ENTERED this 6th day of August, 2020, in Tallahassee, Leon County, Florida. S ANDREW D. MANKO 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 6th day of August, 2020. COPIES FURNISHED: Brittany B. Griffith, Esquire Department of Financial Services Office of the General Counsel 200 East Gaines Street, Room 612B Tallahassee, Florida 32399-0950 (eServed) James A. McKee, Esquire Foley & Lardner LLP 106 East College Avenue, Suite 900 Tallahassee, Florida 32301 (eServed) Eduardo S. Lombard, Esquire Radey Law Firm, P.A. 301 South Bronough Street, Suite 200 Tallahassee, Florida 32301 (eServed) Alexandra Akre, Esquire Ausley & McMullen, P.A. 123 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 (eServed) Eugene Dylan Rivers, Esquire Ausley & McMullen, P.A. 123 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32301 (eServed) Erik Matthew Figlio, Esquire Ausley & McMullen, P.A. 123 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32301 (eServed) Mallory Neumann, Esquire Foley & Lardner LLP 106 East College Avenue, Suite 900 Tallahassee, Florida 32301 (eServed) Marion Drew Parker, Esquire Radey Law Firm, P.A. 301 South Bronough Street, Suite 200 Tallahassee, Florida 32301 (eServed) John A. Tucker, Esquire Foley & Lardner, LLP One Independent Drive, Suite 1300 Jacksonville, Florida 32202 (eServed) Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)
The Issue Whether Saxon Business Products, Inc.'s ("Saxon") response to the Department of General Services' invitation to bid for walk-up convenience copiers should be disqualified on grounds that: Saxon's omission of a supply price list was a material deviation from the bid specifications and conditions; and Saxon's walk-up convenience copier, model "Saxon 300," failed to prove two-sided copy capability.
Findings Of Fact I. Invitation to Bid On June 10, 1981, DGS issued invitation to Bid No. 544-600-38-B ("ITB") entitled, "Walk-Up Convenience Copiers; Bond Paper and Magazine Finish Bond Paper." The ITB proposes an annual contract under which state agencies and institutions can purchase copying machines. It contains general and special conditions and specifications, and warns vendors that bids that do not comply with such conditions "are subject to rejection." (Testimony of Celnik) The ITB specifications divide copiers into two groups: Group I, plain bond copiers, Group II, magazine finish copiers. The copiers are further categorized by type: Type I indicates minimum features; Type II indicates two- sided copying capability; Type III indicates one reduction capability; and Type IV indicates two or more reduction capabilities. These types are further separated into 12 classes on the basis of speed and volume (P-1.) The ITB special conditions instruct bidders to submit bid sheets 2/ breaking down all copying costs to a per-copy basis. Bids are to be evaluated and contracts awarded to bidders submitting the, lowest cost per copy in each category of copier. Cost per copy is calculated by using a specific cost formula. (P-1.) The ITB cost formula contains three components: machine cost, labor cost, and supply cost. DGS proposes to disqualify Saxon's bid in several categories of copiers for failure to supply a supply price list required by the supply cost component. This component provides, in relevant part: C) SUPPLY COST - The bidder shall compute supply costs on the Manufacturer's Brand. If there is an existing state con- tract for supplies for the manufacturer's brand equipment, the state contract price may be substituted. Supply costs will be rounded to six (6) decimal points. All other costs will also be rounded off to six (6) decimal points. The volume price used by the vendor to compute supply cost shall be based on the monthly median vol- ume of the type and class being bid. Supply cost submitted shall be firm for the contract period, except for paper, and all supply costs shall be current market price, verifiable. Vendor must submit supply price lists with his bid to substantiate that correct price vol- umes were used, unless state contract prices were used. A contract award may include supplies if deemed in the best interest of the State. By electing to substitute state contract supplies, the vendor is certifying that his equipment, using said supplies, will meet all per- formance requirements of this bid and of the equipment manufacturer. NOTE - All cost formulas will be verified by the Division of Purchasing and errors in extension will be corrected. In the event incorrect supply cost volumes are used by a bidder, the Division of Purchas- ing will adjust these costs to the median volume range. (e.s.)(P-1.) The purpose of the supply price list requirement, included in DGS's 1980 and 1981 ITB for convenience copiers, is to enable DGS to verify the supply cost figures shown on a vendor's bid sheets; in this way, DGS can insure that all vendors are using correct quantity pricing on their bid sheets. 3/ (In the past, some bidders had used lower supply prices, which were tied to high volume purchases; but those volumes frequently exceeded the state's needs and the median volumes specified by the ITB for each category of copier.) The verification procedure followed by DGS in both 1980 and 1981 involves checking the vendor's bid sheets against the prices shown on the supply price list. 4/ If DGS finds an inconsistency between the two, it "corrects" the bid sheet supply cost upward or downward to reflect the price shown on the supply price list. 5/ Such a bid sheet correction would also change the total median cost per copy, the factor used to evaluate competing bids. DGS also checks the supply list to determine whether it contains current market prices. (Testimony of Hittinger, Eberhard.) If a vendor fails to submit a supply price list, DGS cannot verify that the supply prices used on the bid sheet (to compute total median cost per copy) accurately reflect the median volumes specified in the ITB. Neither can DGS determine whether the supply prices used on the bid sheet are set prices, which do not vary with volume, or volume prices, which do; the bid sheets, on their face, do not reveal which type of pricing is being used. (Testimony of Eberhard; P-1.) After sealed bids are publicly opened, DGS has an established practice of not allowing any bidder to submit additional material which could alter price or other information previously submitted on bid sheets. DGS does, however, accept late information if it can be corroborated by an independent source. For example, a bidder might -- after bid opening -- supply its corporate charter number, which can be easily verified by contacting the Department of State. (Testimony of Hittinger, Eberhard.) The ITB special conditions also require DGS to test and approve copiers prior to bid opening. Copiers which are not tested and accepted by DGS are ineligible for a contract award: EQUIPMENT APPROVAL - Each item of equipment bid shall have been tested by the Division of Purchasing prior to the bid opening time and date for performance and reliability under normal working con- ditions. Any bidder whose equipment has not been tested shall provide a model of the equipment on which he intends to bid to a specified testing station, complete with all supplies, at no expense to the State. Testing will extend for a period of twenty (20) working days. In the event evaluation and acceptance of untested ma- chines has not been accomplished prior to the bid opening date and time, such machine shall not be eligible for an award. (P-1.) II. Bid Opening: Saxon's Failure to Submit Supply Price List Prior to the 1981 bid opening, Saxon failed to submit a supply price list in connection with its bid. This was apparently an oversight on its part; a year earlier, it had furnished a supply price list in response to a similar ITB for convenience copiers. Because of Saxon's omission, DGS was unable to verify the supply prices used by Saxon on its bid sheets or determine whether Saxon was utilizing set or volume prices. (Testimony of Eberhard, Celnik, Hittinger.) After bid opening, Saxon notified DGS that the supply prices shown on its bid sheets were set supply prices -- unit prices which do not vary with volume -- and confirmed that they are the supply prices which it now offers to the state. (Testimony of Celnik.) In its evaluation of the bids, DGS applied the requirement of a supply price list equally to all bidders. All bidders who omitted a supply price list were informed that they were disqualified. Saxon's bid was disqualified in five copier categories: Group I, Type I, Class I; Group I, Type I, Class II; Group I, Type I, Class IV; Group I, Type II, Class I; and Group I, Type II, Class II. At least 11 vendors, however, did submit supply price lists with their bid sheets; approximately one-third were set price lists, the remaining were volume price lists. (Testimony of Eberhard; P-3.) If a vendor could submit a supply price list after the bid opening, it could effectively decrease or increase its bid. (This is so because, in case of a conflict between the bid sheet supply price and the supply price list, the price list value will prevail. A change in the bid sheet supply price will change the cost per copy figure the determining factor in awarding contracts.) A vendor submitting a late supply price list would have an unfair advantage since it could change its bid after bid opening while its competitors could not. The competitive nature of the bidding process would be impaired. (Testimony of Hittinger, Eberhard.) Furthermore, if late submittal of a supply price list was allowed, a bidder could disqualify itself by refusing to provide it; the bidder would then have the advantage of revisiting its bid and -- if it chose -- withdrawing it after bid opening. The opportunity to withdraw a bid -- after bid opening -- would be an advantage not enjoyed by those who timely submitted supply price lists with their bids. (Testimony of Hittinger, Eberhard.) In some copier categories, the vendors who omitted supply price lists were the low bidders. If DGS disqualifies them for their omission, it must award the contract to the next highest bidder. The difference between those low bids and the next higher bid is substantial -- in some cases exceeding 23 percent. 6/ (Testimony of Celnik, Eberhard, Nee, Reinhart.) III. Failure of "Saxon 300" to Demonstrate Two-Sided Copying Capability In accordance with the ITB, Saxon submitted its "Saxon 300" copier to DGS for evaluation and testing. Prior to bid opening, DGS conducted a 20-day test of the machine. The "Saxon 300" machine which DGS tested lacked two-sided copying capability. It could reproduce clearly on one side, but not on the other. The "Saxon 300" sales literature and instruction manual submitted with the machine did not represent that the machine had two-sided copying capability. (Testimony of Nee; 1-5, 1-6, 1-7, R-2.) The "Saxon 300" may have two-sided copying capability, but only after special modifications are made to the copier. These modifications include removal of a roller device, replacement of the heating element, and replacement of the blower system. Saxon did not indicate at the time of testing, or in its bid, that the "Saxon 300" required such modification for two-sided copying capability. Neither did it indicate what, if any, additional costs would be charged for such modifications. (Testimony of Nee, Wallace; R-3.) After DGS tested the "Saxon 300," it sent Saxon a form letter indicating that the copier met minimum operating requirements. The letter did not inform Saxon that the machine lacked two-sided copying capability because DGS did not consider the lack of such capability a major malfunction in the equipment. (Testimony of Nee.) If a machine malfunctions, DGS has -- in the past -- allowed vendors to correct the deficiency or substitute another machine. (Testimony of Nee.) The Group I, Type II, Class I category of copiers, requires two-sided copying capability. Saxon bid its "Saxon 300" as a copier which meets this requirement. (Testimony of Celnik, Nee; P-1.)
Recommendation Based on the foregoing, it is RECOMMENDED: That Saxon's bids in Group I, Type I, Class I; Group I, Type I, Class II; Group I, Type I, Class IV; Group I, Type II, Class I; and Group I, Type II, Class II be disqualified; and That Saxon's bid in Group I, Type II, Class I be disqualified. DONE AND RECOMMENDED this 26th day of February, 1982, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of February, 1982.
