Why ED’s NextGen Debt Collection Servicing Plan May Be a House of Cards

This Amendment of Solicitation, dated March 6, 2019, makes a number of updates to the Department of Education’s (ED or FSA) Enhanced Servicing Solution RFP, including setting a March 27th deadline to sumbit bids. The previous deadline was "TBD." insideARM described FSA's three new NextGen solicitations (R0005, R0007 and R0008) here on January 16, 2019. This Amendment concerns R0005.

The revised Solicitation refines the requirements for post default collection activities, including the addition of references to skip tracing. Under the heading “Digital engagement layer,” the following was added: “Solution shall provide Skip Tracing tools to identify updated contact information for bad postal mail and bad phone numbers until another solution is capable of such needs.”

Under the heading “Business process operations,” the sentence “This is an optional task” has been added, along with other changes (noted in bold):

Business process operations: This is an optional task. Solution may serve as the sole business process operations (both contact center support and back-office processing) provider for all customer accounts as they are migrated onto the new servicing platform until the multiple vendors to be awarded under the separate Business Process Operations solicitation are fully operational. Once the Business Process Operations vendors are fully operational, no less than 80% of customer accounts will be re-assigned to the separate Business Process Operations vendors. The percentage allocated to this Solution may increase, at the discretion of ED, in the public’s interest. The solution will cease providing Business Process Operations no more than 12 months after the separate Business Process Operations vendors are fully operational. 

TransitionalServicing-related contact center support: Solution shall be equipped to provide world-class customer experience in responding and resolving servicing-related inbound customer inquiries across multiple channels (e.g., phone, email, chat, social media, SMS/text, fax) across the entire financing lifecycle, and executing outbound outreach as directed. This includes servicing-related support currently provided by multiple current FSA call centers, including but not limited to, FSA Information Center (FSAIC), Default Resolution Group, Borrower Defense Customer Support, servicers, and private collection agencies (PCAs). Refer to Attachment “13 – Existing FSA Contact Centers (Not Exhaustive)” and https://studentaid.ed.gov/sa/contact for a broader list of current contact centers.

There are numerous references to “servicing related” that have been changed to “transitional.” This means the bidder chosen for the Enhanced Servicing Solution will provide BPO services while FSA issues an RFP and hires multiple BPO vendors which may take up to twelve months to four years because the term of this “transitional” contract is two base years plus an additional two option years.

Under the Milestones section the Amendment clarifies,

“Solution shall begin migrating all existing customer accounts, except for DMCS and Perkins, to the Enhanced Processing Solution no later than six months after award”…and “shall complete migration of all existing customer accounts, except for DMCS and Perkins, by no later than ten (10) months after the start of the migration.” (The migration timing for DMCS and Perkins was updated to be completed no later than 16 months after award.)

The Amendment also clarifies,

“If optional task is exercised, establish transitional business process operations no later than six (6) months after award.”

Under the Expected Volumes section:

Customer outreach and communications – inclusive, though not comprehensive, of servicer, private collection agencies, and most other FSA contact center (e.g., FSAIC, Ombudsman, DRG, Student Loan Support) volumes:

Inbound debt collection communications

• 3148 million inbound calls received annually, with an average handle time of 7 minutes

Outbound communications

• 309 million outbound calls initiated annually, 282 million are collections-related

On Page 65 the Amendment adds the requirement of a Staffing Plan:

Offeror shall submit a Staffing Plan that explains their execution strategy and details their support for the EPS system and any transitional tasks, including:

• Personnel hiring, management, and retention plan, and
• Employee training and coaching approach.

There is an un-mentioned hurdle to accomplishing the staffing plan; security clearance. It’s unclear how any servicer will be capable of meeting the staffing requirements in the timeframe expected.

insideARM Perspective

According to my math, the call volumes contemplated in this RFP require approximately 12,000 FTEs for debt collection alone. (Note: While the RFP estimates 48 million inbound calls to average 7 minutes, no estimated call time is provided for outbound. I used 3 minutes. Also, I’ve added 25% to the required FTEs in order to account for management and supervision.)

Here’s the thing. All contractor staff, in order to work on the federal student loan contracts, require security clearance. Sources tell me that this clearance goes through the Office of Personnel Management (OPM), that there is currently a backlog of over 600,000 applications, and it currently takes, on average, 4 – 6 weeks to receive a security clearance for one collector. (Note: While the RFP does not breakout the number of inbound debt collection calls vs. servicing calls, as it does for outbound, I've kept the full amount for this calculation because all employees require security clearance.)

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Also, the rule used to be that an employee could work while waiting for the clearance to process. This rule was updated in July 2018, so that the work-while-waiting ability has been eliminated. While one can imagine the rationale for this change, one could also conclude that meeting the needs of this contract in the timeframe required will be virtually impossible.

Across all PCAs there had previously been a total of approximately 18,000 FTEs. Sources estimate the number is now closer to 3,000 because of the loss of contracts and work delays while this matter has spent several years in litigation). Security clearance was an issue as collectors needed to be replaced, but an entire workforce of clearances was not required at once, as will will be the case to stand up this new contract.

In order to estimate how many months (years?) it might realistically take to process all of the required clearances, I reached out to OPM to ask:

a) Can you confirm this backlog number?

b) Can you estimate how long you expect it will take to clear the backlog -- or do you expect this to be a perpetual queue? 

c) Can you estimate the number of hours required to complete one clearance for a debt collector? 

As of the time of publication, OPM has not responded.

UPDATE: Friday March 15 at 3:30pm. Per an OPM spokesperson, "The backlog you refer to, as of Monday (3/11), was 542,000 and dropping. The goal of ‘Steady State’ we are trying to reach is between 220,000 and 250,000, and at the rate we are going we project to be at ‘Steady State’ in June of 2020. As far as the number of hours required to complete one clearance for a debt collector, we do not have that data because every case is unique."

Meanwhile, on a related note: As ordered last week by Judge Thomas Wheeler at the Court of Federal Claims, on Wednesday the Department of Education submitted the Administrative Record (AR) related to the cancellation of Solicitation No. ED-FSA-16-R-0009. That AR, however, has been sealed at ED's request. ED was also supposed to submit the AR regarding its Next Generation Solicitation on Wednesday but requested an extension to yesterday. That request was granted. I suspect that too will be sealed. So we won't know for some time the details behind ED's justification for 1) cancelling the procurement it was prohibited from canceling and 2) bundling debt collection servicing with other student loan servicing activities in NextGen. I wonder why it's such a secret.

UPDATE: Monday March 18 at 8:30am.

On Friday afternoon March 15th FSA published the following update regarding NextGen Solicitation R0007, dubbed the 'Optimal Processing Solution': "The March 25, 2019 due date for proposals has been postponed and will be changed to a future date, to be determined via a forth coming solicitation amendment." 

On Saturday March 16th the plaintiffs filed a motion to postpone the March 18, 2019 status conference "until later in the week after [ED] has decided which portions of the record do not merit protection and filing under seal, which will enable protesters’ clients to see the unprotected version of the record, evaluate ED’s representations and share their views with their counsel... At present time, undersigned is optimistic that the Government will file public versions of the administrative record on Monday and, if that occurs, a continuance until Wednesday afternoon would be welcome. If the Government is unable to file the public version of the record until Tuesday, we would request until Thursday afternoon for the hearing."