Trailblazer Health Enterprises, LLC

DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release.

Decision

Matter of: Trailblazer Health Enterprises, LLC

File: B-407486.2; B-407486.3

Date: April 16, 2013

DIGEST

1. Protest challenging a determination that the protester was not responsible is denied where the contracting officer’s judgment was reasonably based.

2. A nonresponsible protester is not an interested party under Government Accountability Office Bid Protest Regulations to challenge the evaluation of the awardee’s proposal, where the protester would not be in line for award if the protest were sustained.

TrailBlazer Health Enterprises, LLC, of Dallas, Texas, protests the award of a contract to Novitas Solutions, Inc., of Camp Hill, Pennsylvania, under request for proposals (RFP) No. RFP-CMS-2012-0003, issued by the Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), to obtain a Medicare Administrative Contractor (MAC) to provide services for the administration of Medicare Part A and Medicare Part B (A/B) fee-for-service benefit claims. TrailBlazer challenges CMS’s evaluation of proposals and selection decision. The protester also contends that the contracting officer’s determination that TrailBlazer was not a responsible offeror was unreasonable.

We deny the protest in part and dismiss it in part.

BACKGROUND

The RFP, issued on January 5, 2012, provided for award without discussions of a cost-plus-award-fee contract for a 5-month implementation period, a 7-month base period, four 1-year options, and an optional outgoing contractor transition period of up to 6 months,[1] for A/B MAC services in Jurisdiction L.[2] Jurisdiction L consists of Delaware, Maryland, New Jersey, Pennsylvania, and the District of Columbia.[3] In general terms the RFP’s statement of work (SOW) requires the contractor to provide all the necessary personnel, material, equipment, and facilities to perform specified MAC services.[4]

Offerors were informed that award would be made on a best value basis, considering past performance, technical understanding, and cost. Id. at 148-54. The noncost factors were of equal importance to each other and, when combined, were significantly more important than cost. Id.

Two offerors, TrailBlazer and Novitas, submitted proposals by the February 23 closing date. The agency’s business evaluation panel (BEP) evaluated offerors’ cost proposals for both reasonableness and realism. Technical proposals were evaluated by the technical evaluation panel (TEP), using the following adjectival rating scheme that was set forth in the solicitation: green (high expectation of successful performance); yellow (medium expectation of successful performance); and red (low expectation of successful performance). The firms’ proposals were evaluated as follows:

Agency Report (AR), Tab 13, TEP Report, at 6, 27; Tab 14, BEP Report on TrailBlazer, at 7; Tab 15, BEP Report on Novitas, at 7. The TEP’s adjectival ratings were supported by narrative discussions identifying strengths and weaknesses in each firm’s technical proposal. Id., Tab 13, TEP Report, at 1-54. The BEP Report documented the cost evaluators’ realism analysis and adjustments. See AR, Tab 14, BEP Report on TrailBlazer, at 1-28; Tab 15, BEP Report on Novitas, at 1-30.

On September 14, the contracting officer, who served as the agency’s source selection authority, concluded that the evaluated superiority of Novitas’s proposal under both the past performance and technical understanding factors outweighed TrailBlazer’s cost advantage and, on that basis, selected Novitas for award. Contracting Officer’s Statement at 5.

The contract was awarded to Novitas on September 17, and TrailBlazer protested to our Office on October 2, challenging the agency’s evaluation and best value tradeoff decision. By letter of October 22, CMS notified our Office that it would take corrective action by reevaluating the offerors’ proposals and making a new source selection decision. Letter from HHS to GAO, Oct. 22, 2012. We dismissed TrailBlazer’s protest as academic. TrailBlazer Health Enters., LLC, B-407486, Oct. 24, 2012.

Additional past performance information was considered for both firms, and the contracting officer reconsidered his selection decision. Contracting Officer’s Statement at 5. The contracting officer again determined that Novitas’s proposal represented the best value to the government.[5] Id. at 6; AR, Tab 16, Source Selection Decision, at 35. Specifically, the contracting officer found Novitas’s proposal possessed qualitative advantages over TrailBlazer’s under both the past performance and technical understanding factors, and that these advantages outweighed the associated $13 million (or 3.32%) cost premium. Id. at 22-30. Additionally, for both organizational and financial reasons, the contracting officer determined that TrailBlazer was ineligible for contract award because it was not a responsible offeror. Id. at 32-34.

Following notification of the agency’s selection decision on December 12, and a debriefing, TrailBlazer protested to our Office on January 8, 2013.

DISCUSSION

TrailBlazer’s protest raises numerous challenges to the agency’s evaluation and selection decision. The protester argues that CMS’s evaluation of the firms’ proposals was flawed under every evaluation factor. Among other things, the protester contends that its proposal should have received higher adjectival ratings, and that the awardee’s proposal should have received lower ratings. TrailBlazer also complains that the agency did not reasonably assess the fact that, after contract award and during the agency’s corrective action, the awardee’s proposed executive contractor medical director, a key person, became unavailable. TrailBlazer further challenges the contracting officer’s determination that it was not a responsible offeror. Protest at 1-78; Supp. Protest at 7-11.

As detailed below, we find reasonable the contracting officer’s determination that TrailBlazer was not responsible, and, on that basis, conclude that TrailBlazer is not an interested party with respect to its remaining protest grounds.

TrailBlazer’s Nonresponsibility

The RFP informed offerors that the contracting officer would make a responsibility determination in accordance with FAR Subpart 9.1, and required offerors to demonstrate the degree to which they met each area of responsibility. RFP at 143. In this regard, the solicitation expressly required offerors (i.e., the “proposal submitter”) to demonstrate adequate financial capability to perform the contract, including having a net worth in excess of 10% of the annual total cost-plus-fee amount. Id. at 143-44. As relevant here, offerors were to submit a staffing plan with their proposals that presented the firm’s strategy for providing and retaining qualified personnel for the life of the contract.[6] Id. at 125.

In its business proposal, TrailBlazer stated it was a wholly-owned subsidiary of BlueCross BlueShield of South Carolina, a company with 2010 annual revenues of $2 billion and capital/surplus of $1.7 billion. AR, Tab 7, TrailBlazer Proposal, Vol. IIB, Narrative Business Proposal, at 827. TrailBlazer also provided its own audited financial statement for 2010, which indicated that the firm had assets of $49.2 million, total liabilities of $16.5 million, equity of $32.7 million, and revenue of approximately $120.5 million. Id., TrailBlazer Financial Statements, Feb. 23, 2011, at 2.

TrailBlazer also provided its staffing plan. At the time it submitted its proposal here, TrailBlazer had recently lost the competition for the MAC work it had been performing for Jurisdiction 4.[7] TrailBlazer based its staffing plan upon the assumption that the Jurisdiction 4 work would transition to the new Jurisdiction H MAC contractor before the implementation cutover date for Jurisdiction L, and that TrailBlazer would essentially staff the Jurisdiction L operations with its experienced, Jurisdiction 4 MAC contract workforce.[8] See AR, Tab 5, TrailBlazer Proposal, Vol. I, Technical Proposal, at 30. TrailBlazer anticipated that, given its existing and available workforce, the firm would only have to hire 3 full-time equivalent (FTE) employees--of a total proposed staff of 732.6 direct FTEs--to perform the Jurisdiction L work.[9] Id. at 31, 34. TrailBlazer’s staffing plan also included a description of various risk mitigation and contingency planning measures (e.g., temporary staffing, registered nurse staffing firms, potential subcontractors) the offeror would use if the Jurisdiction L transition did not occur as planned, necessitating the need to hire additional personnel to achieve the required staffing. Id. at 42-43.

After its protest of the Jurisdiction H contract was denied by our Office on March 1, 2012, TrailBlazer began to transition its Jurisdiction 4 work to the new MAC contractor. Simultaneously, TrailBlazer began to close out its Jurisdiction 4 contract with the agency’s assigned administrative contracting officer (ACO). The ACO learned that on April 20 TrailBlazer notified its landlord of TrailBlazer’s intent to terminate the firm’s lease for its Dallas facility (effective April 30, 2013).[10] AR, Tab 47, ACO’s Statement, at 1. In this regard, TrailBlazer informed the ACO that “[a]s a result of not being awarded the contract for MAC Jurisdiction H award, TrailBlazer no longer needs the Dallas facility . . . .” Id. at 2.

On July 24, TrailBlazer submitted its closeout proposal for the Jurisdiction 4 contract to CMS. That proposal requested costs for the disposition of nearly all the assets it held to conduct business as a MAC contractor, including desks, chairs, work stations, telephones, and computers. Id. TrailBlazer stated that, “[t]his consists of asset disposal costs, which, due to a fundamental economic change, are considered by TrailBlazer to be beyond expected business occurrence.” Id. TrailBlazer also detailed the costs associated with its “reduction-in-force” (RIF) of its Jurisdiction 4 MAC contract workforce (e.g., severance costs, temporary retention costs), as this contract had represented 95% of TrailBlazer’s existing business. Id. TrailBlazer’s closeout proposal for the Jurisdiction 4 contract also represented that, “[d]ue to the significant reduction in business base, TrailBlazer has planned to discontinue the business operation as of April 30, 2013.” Id.

On September 19,[11] in response to questions from CMS regarding TrailBlazer’s closeout proposal, TrailBlazer informed the agency as follows:

The reduction-in-force (RIF) of the J4 staff . . . will significantly reduce the overhead labor base for CY 2012. TrailBlazer will also experience non-recurring expenses as it closes three facilities utilized for the Medicare operations and disengages from related equipment, software leases and services.

* * * * *

As explained in the Asset Disposal Narrative included in . . . TrailBlazer’s Closeout proposal, TrailBlazer will initiate disposal activities related to the closeout of the J4 contract . . . . TrailBlazer was notified by the J4 contracting officer that the incoming MAC . . . is not interested in acquiring any of the related asset inventory. . . . TrailBlazer believes that if any proceeds from liquidating the assets are received, they will be very minimal and immaterial. Per CMS Information Security Acceptable Risk Safeguards . . . all computers and servers that are disposed of must have their hard drives removed and destroyed, in addition, there is no current market for aged workstations and office furniture and software is generally licensed and non-transferrable. . . . As stated above, TrailBlazer will work diligently to minimize the disposal cost of Medicare Assets.

* * * * *

As stated in the [closeout] proposal, due to the significance of the RIF, which affects over 95% of TrailBlazer’s workforce, the payout would be classified as abnormal or mass severance, and is included in the proposal as other direct costs . . . .

* * * * *

[CMS Question]: Please explain to us why [TrailBlazer] believes it is facing a mass severance event and that it will, in fact, be closing its doors upon close-out of J-4 operations in-light-of the fact that the organization continues to bid on CMS contracts, MAC or otherwise?

[TrailBlazer] Response: The J4 contract represents approximately 95% of TrailBlazer’s yearly revenue. TrailBlazer has made attempts at replacing this business by responding to other CMS MAC solicitations. The award of Jurisdiction L, which represents the last competitive MAC solicitation that TrailBlazer responded to, signals the end of TrailBlazer’s attempt at supplanting the J4 workload. RIF notices have been issued to over 95% of the employees and the mass severance event is a fait accompli.

* * * * *

The close out of the J4 contract required the initiation of plans to discontinue the TrailBlazer Medicare operations, infrastructure and closure of existing facilities. Management recognized that this environment would provide TrailBlazer employees with no future employment or growth opportunities and would make the task of maintaining the required level of experienced workforce through the cutover periods extremely “challenging”.

* * * * *

With the J4 contract comprising over 95% of TrailBlazer’s business base, the workload cutovers will significantly reduce the G&A base for CY 2012. TrailBlazer will also experience non-recurring expenses for severance related to the RIF and closeout activities of the G&A staff supporting the overall TrailBlazer and Medicare operation.

AR, Tab 46, Questions/Answers Regarding TrailBlazer J4 Closeout Extension Proposal, Sept. 19, 2012, at 1-7.

Shortly thereafter, TrailBlazer submitted to CMS an updated RIF plan for its workforce as follows:

AR, Tab 45, TrailBlazer RIF Plan, Sept. 27, 2012; Tab 16, Source Selection Decision, Dec. 11, 2012, at 33.

The ACO shared TrailBlazer’s closeout proposal responses and RIF plan with the Jurisdiction L contracting officer here. AR, Tab 47, ACO’s Statement, at 3. The ACO also advised the procuring contracting officer of TrailBlazer’s plans to terminate the lease of its Dallas facility and to dispose of all its non-real property (in fact, the contractor had already begun doing so and was scheduled to have a majority of property disposed of by December 2012). Id.

As part of his revised source selection decision, the contracting officer determined that TrailBlazer was not responsible. AR, Tab 16, Source Selection Decision, at 32-34. Specifically, the contracting officer found that, although TrailBlazer’s proposal showed that the firm’s financial net worth in 2010 substantially exceeded the RFP’s requirements, TrailBlazer’s loss of the Jurisdiction 4 contract had resulted in a 95% reduction of its business. Id. at 32. As a result, the contracting officer concluded, since the time of proposal submission TrailBlazer’s “financial circumstances may have changed dramatically as a result of a diminishing business base.” Id. The contracting officer also concluded that TrailBlazer no longer had the organizational ability to perform the Jurisdiction L contract. Id. at 33. Specifically, the contracting officer noted that TrailBlazer was eliminating its entire workforce as part of its close out of the Jurisdiction 4 contract, and the RIF plan submitted by TrailBlazer indicated that by December 7 TrailBlazer would have only 21 employees (3%) of its 817 pre-RIF staffing. Id. The contracting officer concluded:

This RIF plan indicates that at the time of the writing of this memorandum, it is likely that [TrailBlazer] no longer possesses the qualified and MAC-experienced workforce it proposed to staff the [Jurisdiction] L contract. If [TrailBlazer] were to staff the [Jurisdiction] L contract with a workforce without MAC experience, especially in a new and unfamiliar jurisdiction, this would place the Medicare program at an unacceptable level of risk. . . . Performance of an A/B MAC contract with staff with no or a reduced level of experience would increase the risk of unsuccessful contract performance.

Id. at 33-34.

At the hearing conducted by our Office, the contracting officer provided additional details regarding his determination that TrailBlazer was not responsible. Specifically, the contracting officer found that TrailBlazer’s RIF plan was ‘in direct conflict” with the offeror’s proposal, given that TrailBlazer’s staffing plan for Jurisdiction L relied primarily on its use of the firm’s Jurisdiction 4 staff. Tr. at 30, 34-35. The contracting officer testified that “as of December 7, only 21 employees, or 3 percent of TrailBlazer’s staff, remains,” and that “[y]ou’re proposing over 800 FTEs to perform this work, and you’re down to 21.” Id. at 30, 56. The contracting officer stated that he found this conflict to be of great concern.[13] Id. at 30. The contracting officer also testified that he expected TrailBlazer’s RIF would have a significant impact on the company’s ability to meet the contract schedule, as “it would be very difficult to get that experienced staff back and up to speed in order to process and complete the work as required.” Id. at 53.

The contracting officer also questioned whether TrailBlazer had the ability to obtain the necessary staffing in light of its RIF. Id. at 56. He explained that he was aware of the various contingencies measures in TrailBlazer’s proposal, but considered these measures to be uncertain, “very risky,” and not designed to deal with the need to fill 97 percent of the offeror’s total staff. Id. at 55-59, 146-47. The contracting officer concluded that TrailBlazer’s ability to obtain sufficient qualified personnel within the required schedule was such a “huge undertaking” that the risk to the agency was unacceptable.[14] Id. at 34, 55-57, 147-48. Further, the contracting officer concluded that TrailBlazer’s RIF plan was part of a larger scheme to end its business operations. Id. at 38-40. Finally, the contracting officer concluded that his assumption here was buttressed by TrailBlazer’s decision to terminate its Dallas facility lease and sell off the building’s contents.[15] Id. at 60-63.

As set forth below, the facts surrounding the significant changes in TrailBlazer’s operating status raise questions about its ability to perform the work at issue here. As an initial matter, it is an axiom of federal contracting law that an offeror is ineligible for the award of a contract unless the contracting officer makes an affirmative determination of responsibility. FAR § 9.103(b). In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer must find that the firm is not responsible. Id. To be determined responsible, a prospective contractor must, among other things: “[h]ave adequate financial resources to perform the contract, or ability to obtain them;” “[b]e able to comply with the required delivery or performance schedule;” and “[h]ave the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them.” FAR § 9.104-1(a), (b), (e).

The determination of a prospective contractor’s responsibility rests within the broad discretion of the contracting officer who, in making that decision, must necessarily rely on his or her business judgment. We therefore will not question a negative determination of responsibility unless the determination lacks a reasonable basis. KMS Solutions, LLC, B-405323.2, B-405323.3, Oct. 6, 2011, 2011 CPD ¶ 209 at 12; Colonial Press Int’l, Inc., B-403632, Oct. 18, 2010, 2010 CPD ¶ 247 at 2. An offeror’s responsibility is to be determined based on any information received by the agency up to the time award is proposed to be made. FAR § 9.105-1(b)(3); Sygnetics, Inc., B-404535.5, Aug. 25, 2011, 2011 CPD ¶ 164 at 4. In addition, contracting officers are “generally given wide discretion” in determining the amount of information that is required to make a responsibility determination. See Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1334-35 (Fed. Cir. 2001). While the contracting officer may elect to open a dialogue with an offeror to address responsibility concerns, such a dialogue is not required where an agency has an otherwise reasonable basis for assessing the firm’s responsibility. KMS Solutions, LLC, supra, at 12-13.

Here, the record supports the reasonableness of the contracting officer’s judgment that TrailBlazer was not responsible. In this regard, the record shows that the contracting officer reasonably concluded that TrailBlazer did not have the necessary organization (i.e., staffing) to perform the Jurisdiction L MAC contract, or the ability to obtain that staffing--at least not within the time required to comply with the contract schedule. As discussed above, TrailBlazer’s February 2012 proposal anticipated using its existing workforce and hiring only 3 FTEs, but, by December 2012, TrailBlazer had only 21 FTEs (or 3%) of its workforce remaining. This meant that TrailBlazer would have been required to hire, or otherwise obtain, almost the entire workforce necessary to perform the Jurisdiction L contract. The contracting officer specifically considered the magnitude of this endeavor, as well as TrailBlazer’s various risk mitigation strategies, which the contracting officer found to be unproven and risky.[16] Tr. at 55-59.

TrailBlazer does not dispute that it informed CMS, as part of the Jurisdiction 4 contract closeout process, that it was terminating its existing workforce, closing its headquarters facility, and discontinuing Medicare operations. Rather, TrailBlazer maintains that the contracting officer could not reasonably conclude that the company would fail to have an experienced workforce available to successfully perform the Jurisdiction L contract in light of its proposed contingency measures. Moreover, TrailBlazer states that it had surveyed all its RIF-affected employees and the majority expressed an interest in returning, which TrailBlazer states is a fact that the contracting officer did not know.[17] Protest, Jan. 8, 2013, at 28-32.

Although TrailBlazer characterizes the contracting officer’s responsibility determination as being based upon “ill-informed” speculation, and contends that the contracting officer accorded insufficient weight to the protester’s generalized risk mitigation strategies in its proposal, this disagreement with the contracting officer’s decision does not show it to be unreasonable. Here, the contracting officer relied upon TrailBlazer’s repeated and more recent communications with CMS about the actual loss of its entire experienced workforce. Notwithstanding the fact that TrailBlazer was also disposing of its facilities and all its equipment, and had made statements about ending its Medicare operations completely, the contracting officer reasonably focused on whether the company had, or could successfully obtain, the necessary workforce. Quite simply, the only information that TrailBlazer claims the contracting officer did not consider when making his responsibility determination are the results of an alleged employee survey, which TrailBlazer has never provided to the agency or to our Office. We do not agree that the information considered by the contracting officer (most of which was provided by TrailBlazer) in concluding that the company lacked the requisite responsibility to perform this contract was either inadequate or outdated.

In short, the record shows that the contracting officer reasonably considered TrailBlazer’s ability to perform the contract and found that TrailBlazer’s organization (i.e., staffing) was inadequate. Accordingly, we see no basis to disagree with the contracting officer’s conclusion that TrailBlazer could not be considered a responsible offeror.

Evaluation of Novitas’s Proposal

TrailBlazer also protests CMS’s evaluation of Novitas’s proposal under the past performance, technical understanding, and cost evaluation factors, arguing generally that the agency’s determinations were too favorable.[18] The protester also argues that Novitas should have been found ineligible for award, because the individual that Novitas proposed as its executive contract medical director (CMD)--a key personnel position--was no longer available at the time of contract award.[19] With respect to TrailBlazer’s challenges to the evaluation of the Novitas proposal, both the agency and intervenor argue that TrailBlazer is not an interested party to pursue the remaining contentions in light of the nonresponsibility determination.

In order for a protest to be considered by our Office, a protester must be an interested party, that is, an actual or prospective offeror whose direct economic interest would be affected by the award or failure to award a contract. 4 C.F.R. §§ 21.0(a)(1), 21.1(a) (2012); Cattlemen's Meat Co., B-296616, Aug. 30, 2005, 2005 CPD ¶ 167 at 2 n.1. A firm is not an interested party if it is ineligible to receive award under the protested solicitation, Acquest Dev. LLC, B-287439, June 6, 2001, 2001 CPD ¶ 101 at 6, The Swanson Group, Inc., B-249631, Aug, 10, 1992, 92-2 CPD ¶ 93 at 2, or if it would not be in line for award if the protest were sustained. RCI Mgmt., Inc., B-239938, Oct. 12, 1990, 90-2 CPD ¶ 283 at 4. TrailBlazer is ineligible for award because, as discussed above, the contracting officer reasonably determined the firm to be nonresponsible. The firm therefore lacks the direct economic interest necessary to be an interested party to protest the evaluation of proposals and Novitas’s technical eligibility; even if the protest were sustained there is no requirement that the agency hold discussions with a nonresponsible offeror.[20]

The protest is denied in part and dismissed in part.

Susan A. Poling
General Counsel