Court Speaks for Private Debt Collectors in NextGen Protest Hearing

On December 4, 2018 the Court of Federal Claims held a hearing in the matter of Navient Solutions, LLC vs. The United States of America (Department of Education, or ED) regarding the contested NextGen Financial Services Environment (NextGen or Solicitation). The point of the hearing was to address a motion from Higher Education Loan Authority of Missouri (MOHELA), however Judge Wheeler also made it about the complaints of private debt collectors who have been shut out of the Solicitation.

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For those who need it, here is the brief history that describes how we got to where we are today (which I call “Chapter 5”)

What began in 2009 as a 5-year contract for 17 large (unrestricted) and five small debt collection companies became a contract in 2014 for 11 small companies and a delay for the large firm awards. Eventually, in December 2016 seven large companies received awards, which launched dozens of protests from those who were left out, followed by a re-do, a whittling down to just 2 large companies, then more protests, and then... nothing. No large company awards at all. The whole thing was cancelled. ED’s justification for cancelling was that they have had a substantial change in the requirements to perform collection activities, which will now be performed as part of an “enhanced servicing” strategy. A recap with additional detail on the first four chapters is here.

This is where the current NextGen Solicitation comes in. Those who will be on this contract will be the ones to implement the “enhanced servicing” strategies that are meant to reduce defaults. NextGen was conceived as a two-phase solicitation, with only those selected in Phase I allowed to bid in Phase II.  Protesters in this current situation are saying that ED put out the requirements for Phase I, accepted bids, made awards, and then changed the requirements. So companies that might have bid on the contract did not do so, because the original requirements didn’t fall within the scope of their expertise.

What’s happening now

insideARM last covered this matter just about a month ago, with a summary of protests filed so far, and with some of the detailed claims made by MOHELA.

MOHELA argued at the December 4th hearing that they are likely to win their motion on its merits:

• The Component D contract is a sole source award and in Phase II, ED has moved business process operations -- which had been under Components E&F -- under Component D. In so doing, ED is violating the language in the Appropriation Acts.
• ED is playing a “shell game” with its contractors by moving activities from one component to the other.
• MOHELA "now faces a Hobson’s choice: Either sit this out, betting everything that it’s going to win this protest, or submit its proprietary costs and technical capabilities to one of its competitors (as a potential partner), someone that if it wins this litigation, it’s going to be competing with on a very large contract." This, the company argues, would result in irreparable harm to MOHELA.
• There is minimal harm to ED in extending the deadline for Phase II proposals from December 5th until the outcome of this motion (expected early-mid February).
• If there will be a gap between the expiration of the current servicing contracts (which begin expiring mid-2019), ED could simply issue a bridge contract.

The government, on behalf of ED, argued that:

• MOHELA has not established likelihood of success on the merits.
• There would be material harm in waiting to move forward, because it would delay the efficiencies ED expects to gain with the new system.
• MOHELA could protect itself with a non-disclosure agreement. (MOHELA says this is unrealistic, and would only prevent damage caused by a competitor publicly posting private information -- not caused by a competitor knowing the information and using it for its own purposes. i.e. It would be impractical to expect the competitor to “un-know” its secrets.)
• It’s customary to have to make business decisions without perfect information.
• MOHELA would like the work they’ve been doing as a loan servicer to remain in Components E and F, but that doesn’t fit within the goals of NextGen, which contemplate centralization and further automation.

Although the other plaintiffs in this case -- the private debt collectors -- were not at issue in this particular hearing, the Court brought them into it,

“It appears to me that the former default student loan contractors, who are among the Plaintiffs in this case, seem to have a fairly convincing argument that they have been excluded from the competition in this NextGen procurement now that default student loans have been added to the mix and, yet, they’re not in a position to compete.

I think that’s a pretty blatant violation of whatever competition requirements you say apply...which would lead to corrective action down the road.

If that’s true, it would seem...advantageous...to make that decision now. Let’s just bite the bullet and say we really messed this up and let’s go back to square one and to it all over versus the monumental waste of time that would occur if we go through this protest for two or three months and then that same result applies…”

Judge Wheeler came down squarely in support of the plaintiffs.  He concluded the hearing by urging ED to pursue corrective action that would avoid a repeat of the previous chapters of this saga. He gave the Department until December 14th to consider such action and inform him of its decision. Meanwhile, the deadline to submit Phase II proposals would be postponed.

insideARM Perspective

I read the transcript of the hearing. Quite honestly, I found the government’s arguments to be pretty confusing.