Transcript of Teleconference in Dept. of ED NextGen Case Reveals Maddening Exchange

A scheduling teleconference was held last week in the case of FMS Investment Corp. (FMS) v. The United States (Department of Education, or ED), in what we’ve dubbed Chapter 6 in the years-long quest for a contract for private collection agency (PCA) services for federal student loans in default. The transcript of this 24-minute discussion revealed a head-shakingly unbelievable exchange between the Court and the attorneys for the parties.

This latest action is a pre-award protest challenging ED’s decision to procure default recovery services through a bundled solicitation under its NextGen Procurement (NextGen), rather than a separate Procurement, as has been done in the past.

This article published last week on the heels of the second pre-award protest, filed by Continental Service Group (ConServe), provides detailed context of the plaintiffs’ concerns with the NextGen structure.

The protests filed on February 27, 2019 (by FMS) and March 7, 2019 (by ConServe) argue that ED ignored the September 2018 Court of Federal Claims (COFC) decision that invalidated ED’s May 2018 cancellation of the separate Default Collection Procurement (ED-FSA-16-R-0009), as well as the Court’s order to figure out how to revisit that Procurement in a way that is fair and reasonable. These two new cases were consolidated last week under lead plaintiff, FMS.

Instead of returning with a “fair and reasonable” solution, one day before the March 7th scheduling conference, ED canceled Solicitation No. ED-FSA-16-R-0009 for unrestricted debt collection services, dated 12/11/2015. (Yes, the same one they cancelled last May, and the same one that the Court permanently enjoined them from cancelling last September.)

The PCAs are requesting that the Court permanently enjoin the Department of Education from procuring default recovery services under the New NextGen Solicitations unless they are canceled and amended to unbundle default recovery services, and those services are procured separately.

ED wants to move forward with NextGen, and has set an upcoming deadline of March 27th for submission of proposals for its Enhanced Servicing Solution. ED claims the impact to the plaintiffs will be minimal because the Enhanced Servicing Solution is only temporary, while the permanent solution will be covered by the next RFP round. The PCAs claim that “temporary” is a misnomer because it could literally take years to implement even an interim solution of the scope required. And, if it’s continuously protested, the process could take even longer. The Government's timeframe for "temporary" is a contract award of two base years, followed by two option years.

The PCAs also raised other issues:

One - If they are forced to bid on this Procurement as subcontractors, they will be forced to provide their proprietary information and trade secrets to organizations that may in the future (should the PCAs be successful in their protests) become their competitors.

Two - It would be impossible to meet such a tight deadline, as partnerships of this scope and complexity do not simply come together in a matter of a few weeks.

Mr. Canni, the attorney for ConServe stated,

“Mr. Pehlke (the attorney for ED) might imagine it to be that you sort of walk in somewhere and there’s teaming partners sort of waiting for you to approach them and integrate. It’s an enormous effort to integrate the default recovery services with these other service offerings. And that can’t happen in a few weeks, one. But, two,” he continued, “it’s an enormous investment of time and human resources, as well as money. And our client has been investing millions in the Department of Education procurement model of procuring these services separately for many, many years. And so to try to accelerate an integration where we put forth a viable proposal with other partners that could potentially perform the other services needed isn’t even possible.”

Mr. Johnson, the attorney for FMS, reminded the Court that on February 15th he had requested the record of what efforts ED had been making since the Court’s September 18, 2018 permanent injunction against ED’s May 3, 2018 cancellation of Solicitation No. ED-FSA-16-R-0009. To date, no record has been produced, so providing it now, along with an Adiministrative Record (AR) covering the development of the New NextGen Procurement, would be a sensible next step. Johnson said,

“Mr. Pehlke said they had been dutifully working on it, they had been doing a lot of analysis, they had been looking at it. That record, now with the cancellation yesterday, should be in the can somewhere. And they should also have the record already for how they developed these RFPs and why they think they’re legal, why they think it’s appropriate to bundle an IT platform with loan servicing and debt collection, three things that not -- there’s no IT firm that does servicing or debt collection. There’s no debt collection firm that does IT build-outs and so forth…”

After a brief retort by Pehlke that - quite honestly - sounded like one of those maddeningly unreasonable arguments a clever child might have made (“I know you are but what am I?”) the Court agreed with Johnson’s suggested next step and gave ED until Wednesday to produce an administrative record (AR), after which there will be another teleconference on March 18th.

Pehlke: “My immediate response is I don’t understand why the cancellation AR is bundled into that. There currently isn’t even a protest of the cancellation, and I don’t see what that has to do with the proposal date of March 27th. I mean, if we want to move quickly, why are we combining ARs, including an AR from a procurement that’s actually not under protest right now?”

Johnson: “It’s not under protest right now because the agency decided to issue a cancellation yesterday. I don’t think --”

Pehlke: “Understood. That’s exactly what I’m saying.”

Johnson: “I don’t -- you have to have a justification. We think you did nothing. You say you’ve got a record. It’s -- we’ve been through this. The Court doesn’t need to slow that down and give any other opportunity. Let’s get the complete record out and then we can come back and have a proposal to how we’re going to get this thing to a conclusion, Judge Wheeler. Because when we talked last time, you were saying, why aren’t these parties getting together? We’ve tried in the interim, we’ve asked for meetings. They’ve all been declined. They never took you up on the suggestion to file for a mediation. So we’d like to get the full record, see if they’ve actually done anything and what they’ve done. The Court may have some feedback right away to tell them this is another half-baked opportunity and, you know, they’re going to end up on the losing end. And then we can react to that.”

Finally, Wheeler brought it to conclusion:

“Well, let me provide a few thoughts. First of all, based upon the allegations in the complaint, I think the Protestors, once again, have put together a viable basis for protest. Now, I’m certainly open about looking at the record, the parts that you tell me are relevant, and I’m happy to listen to the Government’s side justifying this. But the way that the default collection work has been bundled into a much larger effort, it just makes very little sense to me. And I don’t know why, you know, the agency can’t proceed in a more typical way with this.

If I were the agency here, I would think about at least an interim bridge-type contract to perform default collection kind of work, which could be for as long as you want to make it...But I’m fearful of us spending a lot of time and effort, and causing more delay and then ending up really in the same spot we are right now... I’m at a loss to understand the rationale behind some of these procurement actions.”

insideARM Perspective

I can't even.