The Last Week Brought Uncertainty - Again - to ED Debt Collection Contract

What’s been going on with the Department of Education (ED) private collection agency (PCA) contract since our last update? A lot of confidential filings. And… the prospect of yet another do-over. Or maybe something else entirely.

Background

insideARM has reported extensively on this matter; you can see all of our coverage here. Briefly:

There were seventeen collection agencies on the 2009 five-year unrestricted (large company) federal student loan contract (there were five firms on the small business contract). In 2014, eleven firms won new small business contract awards. The unrestricted awards were delayed until December 2016, when seven firms received contracts. During that delay, five firms received Award Term Extensions (ATEs) in order to continue to service accounts in repayment (meaning the borrower is actively making payments and has not re-defaulted). Those ATEs expire in April 2019.  

The awards were protested and lawsuits were filed. In May 2017 ED promised a do-over, or “corrective action.” Bidders re-submitted offers and everything was re-evaluated.

Thanks to an order from the judge, ED completed the corrective action on January 11, 2018 and awarded contracts to just two companies: Windham Professionals (Windham), which was one of the seven that had been selected in December 2016; and Performant Recovery, Inc. (Performant), which was not one of the seven. The other six contract awards were rescinded, and ED also issued a notice of recall for those in repayment accounts from four of the five companies that had received ATEs (the 5th is Windham, which did not have its accounts recalled).

This marked the end of round one of litigation under the consolidated case of Continental Service Group Inc. et al. v. The United States.

The second round of litigation officially began just about four weeks later, on February 9, 2018, when six firms filed suit; they would be followed by 11 more in the next week. This insideARM article published February 21, 2018 lists 17 the companies involved. Two additional firms -- Williams & Fudge and Value Recovery Holdings -- have since joined the case. The 19 cases are consolidated under FMS Investment Corp. (FMS) v. The United States and Performant Recovery, Inc. et al.

Now what…

In the first round of litigation over ED’s unrestricted PCA contract there was no administrative record. This means the court did not have access to the information the companies or ED had regarding the details of how contract award decisions had been made. This time, the judge required such a record. And it has been growing since round two of litigation began on February 9, 2018.

The parties requested that the details of the administrative record be protected, so while there has been a great deal of activity on the docket, little of it has been available for public review.

On March 6 we got our first glimpse into the record.

Judge Wheeler issued a preliminary injunction in favor of the plaintiffs and said,

"While a full administrative record has not yet been filed in this case, the Court has before it a set of core documents from ED that include, among other things, ED’s Past Performance, Technical Evaluation, and Small Business Evaluation Committees’ Consensus Reports, the Source Selection Decision Memorandum, and the Contracting Officer’s Responsibility Determination. After reviewing this documentation and considering Plaintiffs’ arguments both in their motions and in open court, the Court has serious questions over ED’s evaluation of proposals in this procurement. The evidence currently before the Court points to inconsistencies, omissions, unequal treatment of offerors, and cherry-picked data that the Court finds to be rather problematic. Based on these initial observations, the Court finds that Plaintiffs have demonstrated a likelihood of success on the merits in their bid protests."

On March 19 ED submitted a notice to the court.

From that notice,

“It appears likely that a course of action other than continued litigation of the pending protests will be pursued. ED has not completed the analysis yet and has not made a final decision as to a course of action. All options remain on the table.”

The Government suggested a stay of proceedings to allow ED to finish its assessment.

On March 20 several plaintiffs responded to this notice.

From that response,

“…Now, on the eve of a hearing focused on the Government’s failure once again to produce documents explicitly referenced in the Source Selection Decision, the Government asks this Court to take some undefined action to delay the current proceedings for some undetermined period of time so the Agency can take some unspecified corrective action. While Plaintiffs have no desire to waste further time, resources, and money fighting over an issue that could become moot if the Agency intends to take prompt and meaningful corrective action, we have been down this road before.”

The plaintiffs requested the following commitments from ED in order to warrant a delay in proceedings:

• It will announce the specific terms of its proposed corrective action by a certain, specified date and those terms will be shared with the Court and the parties;
• A firm deadline will be agreed upon for the completion of the announced corrective action;
• The Agency will designate a responsible Department of Education official to be present at a near-term status hearing to ensure the corrective action stays on track and to ensure Agency accountability if it does not; and
• The current Preliminary Injunction will stay in place through the entirety of the corrective action and any subsequent protests.

On March 21 ED submitted a response to the court.

From that response,

“It is important to state that our intent with our March 19 notice was not to foster delay or to avoid anything in this litigation – indeed, as it stated, we are open to continuing with the litigation. However, once it became clear that this litigation was likely to end in the near future, the Court and the other parties deserved to know that fact. Plaintiffs complain that our confirmation that “[a]ll options remain on the table” is a sign that ED has not done any work on this issue. To the contrary, the fact that a full range of options is under consideration, which necessitates a review of the procurement, the solicitation, and the program, means that a great deal more work is required than if only a corrective action defined by elements of the complaints was under consideration.” (emphasis added)

Admitting to the frustration of an open-ended timeline, ED committed to updating the court again by April 11, at which time they would provide a firm date for when they would announce a final decision on how ED intends to proceed. ED offered to proceed with litigation in the interim, or to continue its voluntary stay of the current award decisions in the event the parties prefer a stay of litigation.

On March 23 the court held a status conference

As a result of this conference, the court ordered ED to file a notice by March 28 committing to a date when it will be able to produce the following to plaintiffs:

• Full evaluation records underlying the December 2016 award decision for all current protestors and awardees;
• All documents related to the 2015 Focused Review of all current protestors and the two awardees;
• All documents related to monthly call monitoring reviews for all ATE contractors since 2015;
• All documents (including non-privileged agency communications) related to the appearance of a conflict of interest between Secretary of Education Betsy Devos and Performant;
• All documents (including non-privileged agency communications) related to ED officials attempting to influence the award decision; and
• All documentation of communications between ED evaluators, “points of contact,” and “clients” identified in the past performance evaluation documents.

These documents will not be filed with the Court and will not be added to the Administrative Record (AR), but plaintiffs are free to utilize and attach any relevant documents to future briefs. All other requests to supplement the AR (which were not available to the public) were denied.

Finally, the court addressed a sub-plot to the case and granted a motion filed by Performant to disqualify Pillsbury Winthrop Shaw Pittman as counsel for Plaintiff ConServe.

insideARM Perspective

ED stated in its March 21 response that it is undergoing a review of the procurement, the solicitation, and the program. And the program? Like, the whole entire thing? It’s unclear. This word has caught many off guard.

If ED cancels the whole program, what would that mean?

One option is yet another “do-over.” There has been a lot of leadership change at Ed over the past year. A new team may decide to put its own stamp on the process, starting over rather than trying to fix the current mess.

Also, would the whole program include the small business contract? If not, how would these companies handle such significant volume? And, what would happen during the upcoming renewal of that contract -- when it's likely that most, if not all of the small contractors, will have become big contractors. Will they be ineligible? Will ED have created a system where their most experienced collectors can no longer service their accounts?

Another option is that federal student loan collections could move back under the purview of the Debt Collection Improvement Act of 1996, which requires any non-tax debt owed to the United States to be turned over to the Department of Treasury for appropriate action. The Department of Education had received an exemption to this Act; perhaps that would come to an end. We would then have a different conversation about how such a large portfolio would be transferred from ED to Treasury. Would Treasury have the capacity? Who would they outsource to? Likely it would be many of the same contractors that ED uses/has used, given that federal student loan collections requires specialized capabilities.

To be continued.