Emergency Planning Management,inc. v. United States ( 2019 )

In the United States Court of Federal Claims
No. 19-1024
(Filed: October 2, 2019)
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EMERGENCY PLANNING *
MANAGEMENT INC. *
Pre-award Bid Protest; Rational
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Basis Standard; Competition in
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Contracting Act; Bundling;
Plaintiff, *
Consolidation; Agency Discretion;
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Small Business Act; Motion for
v. *
Permanent Injunction; 28 U.S.C.
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§ 1491(b); Standard for Injunctive
THE UNITED STATES, *
Relief.
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Defendant. *
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Joshua B. Duvall, Matross Edwards, LLC, Washington, D.C., with whom was Matthew R.
Keller, Praemia Law, PLLC, Reston, Virginia, for Plaintiff.
David R. Pehlke, Trial Attorney, with whom were Joseph H. Hunt, Assistant Attorney
General, Robert E. Kirschman, Jr., Director, Patricia M. McCarthy, Assistant Director,
Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington,
D.C., and Tracey Sasser, Assistant General Counsel, U.S. Department of Education,
Washington, D.C., for Defendant.
OPINION AND ORDER
WHEELER, Judge.
In this pre-award bid protest, Plaintiff Emergency Planning Management, Inc.
(“EPM”) challenges the latest student loan servicing procurement by the Department of
Education (“ED”). At issue is the agency’s alleged preference for one small business
program at the expense of others and its decision to consolidate once-separate services into
a single procurement.
EPM is a veteran-owned small business that collects defaulted student debt. EPM
contests ED’s recent student loan servicing solicitation, called “Next Generation
Processing and Servicing Environment” (“Next Gen”), which combines default collection
with other student loan servicing work, so that one entity will oversee the “full life-cycle”
of a student loan from origination to payoff. Because EPM is a small business specializing
in default collection services, it claims that Next Gen’s “full life-cycle” structure unfairly
precludes it from competing for prime contracts.
EPM argues that the Next Gen’s Business Processing Operations (“BPO”)
solicitation is unlawful because: (1) it consolidates loan servicing and default collection
without justification, thereby precluding small business participation; (2) it violates federal
laws and Congressional policies regarding debt collectors; (3) it is arbitrary and capricious;
and (4) ED failed to adhere to the notification requirements regarding the consolidation of
services. The Government responds that the Court recently addressed these exact issues
and determined that Next Gen’s consolidated structure is justified. See FMS Inv. Corp. v.
United States, 144 Fed. Cl. 140, 145–49 (2019).
The parties have filed cross-Motions for Judgment on the Administrative Record,
pursuant to Rule 52.1 of the Court. For the reasons explained below, the Court DENIES
EPM’s motion, and GRANTS the Government’s cross-motion.
Background
This Court previously has provided the detailed history of the solicitation at issue in
this case. On December 11, 2015, ED released its first iteration of the Next Gen
solicitation. See FMS Inv. Corp. v. United States, 139 Fed. Cl. 221, 223 (2018), amended,
139 Fed. Cl. 439 (2018). In May 2018, after various contract awards, protests, and
corrective actions, ED cancelled the solicitation. See id. at 224. A group of Private
Collection Agencies (“PCAs”) challenged the cancellation decision. In September 2018,
this Court ruled that the decision to cancel the solicitation was arbitrary and capricious. Id.
at 227.
The 2019 Appropriations Act directed ED to “award no funding for any solicitation
for a new federal student loan servicing environment . . . ‘unless the environment provides
for the full life-cycle of loans from disbursement to payoff.”’ FMS Inv. Corp, 144 Fed. Cl.
at 145 (citing, and quoting in part, Dep't of Def. and Labor, Health and Hum. Servs., and
Educ. Appropriations Act, 2019 and Continuing Appropriations Act, 2019, Pub. L. No.
115-245, Div. B, Title III, 132 Stat. 2981, 3102 (2018) (“2019 Act”)). ED interpreted “full
life-cycle” and “from disbursement to payoff” to require its new student loan solicitations,
Next Gen, to combine loan servicing and default collection work into one solicitation
where one entity provides “cradle-to-grave” servicing.
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In January 2019, ED reissued three Next Gen solicitations, which added further
requirements for small business participation.1 The new solicitations include a total small-
business subcontracting goal of 32 percent. See Administrative Record (“AR”) 62–63.
Under the new solicitation, offerors were required to submit Small Business Participation
Plans (“SBPP”). See AR 534–50 (communications with the Small Business
Administration (“SBA”) regarding the BPO’s SBPP). The Next Gen solicitation also
increased the objectives for Historically Underutilized Business Zone (“HUBZone”) small
business concerns. See id. Congress created the HUBZone program to “provide Federal
contracting assistance for qualified small business concerns located in historically
underutilized business zones, in an effort to increase employment opportunities,
investment, and economic development in those areas.” 48 C.F.R. § 19.1301(b) (2000).
The BPO solicitation requires utilization of HUBZone businesses to increase from 19 to
30 percent within two years. See AR 540.
Shortly thereafter, in February 2019, FMS Investment Corporation, a PCA, filed a
complaint with this Court alleging in part that the BPO solicitation inappropriately bundled
services. See FMS Inv. Corp., 144 Fed. Cl. at 143–44. Over the next six weeks, six more
PCAs filed protests. See id. at 143. Five PCAs filed a motion for a preliminary
injunction—all of which were denied. See id. In July 2019, after two PCAs withdrew their
protests, this Court held that ED’s Next Gen solicitations, including the BPO solicitation
at issue here, were not arbitrary and capricious and declined to issue injunctive relief. See
id. at 145 (“ED is clearly complying with the 2019 [Appropriations] Act…”).
On July 16, 2019, EPM filed its Complaint and motions for a temporary restraining
order and a preliminary injunction. Dkt. Nos. 1, 5, 6, 7. On July 23, 2019, the Court heard
arguments on the motions and issued an Order denying EPM’s request for a temporary
restraining order and a preliminary injunction. Dkt. Nos. 11, 12. The parties completed
briefing on September 19, 2019, and the Court heard oral arguments on September 26,
2019. Dkt. Nos. 21–29.
Analysis
I. Standard of Review
The Tucker Act grants this Court subject-matter jurisdiction over bid protests. 28
U.S.C. § 1491(b)(1) (2012). In a bid protest, the Court reviews an agency’s decision
pursuant to the standards set out in the Administrative Procedure Act (“APA”). 28 U.S.C.
§ 1491(b)(4); 5 U.S.C. § 706 (2012). The APA provides that “a reviewing court shall set
aside the agency action if it is arbitrary, capricious, an abuse of discretion, or otherwise not
1
The revised solicitations included three requests for proposals (“RFPs”): (1) the Business Process Operations
(“BPO”) RFP, (2) the Enhanced Processing Solution (“EPS”) RFP, and (3) the Optimal Processing Solution (“OPS”)
RFP.
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in accordance with law.” 5 U.S.C. § 706(2)(A); Banknote Corp. of Am., Inc. v. United
States, 365 F.3d 1345, 1350–51 (Fed. Cir. 2004) (citation omitted).
Under the APA, a court may set aside a corrective action if it “lack[s] a rational
basis.” Dell Fed. Sys., L.P. v. United States, 906 F.3d 982, 990 (Fed. Cir. 2018) (citations
omitted). The rational basis standard is highly deferential; “a court is not to substitute its
judgment for that of the agency.” F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502,
514 (2009) (citations omitted); see also Dell Fed. Sys. L.P., 906 F.3d at 992. An agency
need only provide a “coherent and reasonable explanation” for its action. Impresa
Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1333 (Fed. Cir.
2001) (citation omitted). A court will uphold even an agency “decision of less than ideal
clarity if the agency’s path may reasonably be discerned.” Balestra v. United States, 803
F.3d 1363, 1373 (Fed. Cir. 2015) (internal quotation and citations omitted).
II. The BPO Solicitation
An agency “bundles” or “consolidates” when it combines “two or more procurement
requirements that were previously solicited as separate, smaller contracts.” Feldman, S.,
Bundling, Gov’t Cont. Guidebook § 4:6 (4th ed. 2018); see also 15 U.S.C. § 632(o)(2).
Not all bundling, however, is prohibited. EPM argues that the BPO solicitation’s
“combination of loan servicing and debt collection[] services are likely to be unsuitable for
award to a small-business concern.” Dkt. No. 21 at 21.
The Small Business Act (“the Act”) provisions relating to bundling state that
agencies must “avoid unnecessary and unjustified bundling of contract requirements that
precludes small business participation in procurements as prime contractors.” 15 U.S.C.
§ 631(j)(3). Under the Act, agencies that wish to consolidate a solicitation must (1) conduct
market research to determine whether consolidation is necessary and justified and (2)
notify the SBA with its findings. See 15 U.S.C. § 644(e)(2)(A); FAR § 10.001(c)(2). In
addition, the Federal Acquisition Regulation (the “FAR”) requires contracting officers to
notify incumbent contractors 30 days prior to issuing a bundled solicitation. See FAR
§§ 7.107-5, 10.001(c)(2).
An agency, however, enjoys broad discretion to determine its own needs. See
Savantage Fin. Servs., Inc. v. United States, 595 F.3d 1282, 1286 (Fed. Cir. 2010);
Totolo/King v. United States, 87 Fed. Cl. 680, 695–96 (2009) (“[W]ide discretion is
afforded to contracting officers in making responsibility determinations and in determining
the amount of information that is required to make a responsibility determination.” (internal
quotation and citations omitted)). Therefore, a successful protest to an agency’s
combination of multiple procurement requirements must demonstrate that the
consolidation is not rationally related to the agency’s needs. See CHE Consulting, Inc. v.
United States, 552 F.3d 1351, 1354 (Fed. Cir. 2008); K-Lak Corp. v. United States, 98 Fed.
Cl. 1, 5 (2011) (“To show a violation of a regulation or procedure, a claimant must show a
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clear and prejudicial violation of applicable statutes or regulations.” (internal quotation and
citations omitted)).
A. Support for Consolidation
This Court previously determined that ED has a rational basis for consolidating the
student loan servicing and collection processes. See FMS Inv. Corp., 144 Fed. Cl. at 144.
Although the contractors in FMS Investment Corporation were not small businesses, the
analysis of ED’s justification for its actions remains unchanged. ED conducted market
research and consulted subject matter experts, which included hiring McKinsey &
Company, Inc., to identify the “best-in-class collections practices.” Dkt. No. 25 at 6
(quoting FMS AR 4–5); see also AR 525–30. ED points out that it also relied on “responses
submitted through Phase I” of the Next Gen solicitation to “improve [Next Gen’s]
delinquency management practices and bring them closer to commercial practice
standards.” Dkt. No. 25 at 6 (quoting FMS AR 4).
In fact, EPM concedes that not all bundling is prohibited. See Dkt. No. 21 at 28.
The Federal Circuit has noted that regardless of whether anti-bundling provisions apply, a
procurement may be valid when the agency “conducted extensive market research before
determining that consolidation of the procurement requirements was necessary and
justified.” Tyler Constr. Grp. v. United States, 570 F.3d 1329, 1335 (Fed. Cir. 2009)
(internal quotation and citations omitted). Here, as in Tyler, the contracting officer
documented the rationale behind seeking a procurement to cover the “full life-cycle” of the
loan, which included decreasing borrower’s confusion, standardizing systems, ensuring
debt collection was not prioritized over borrowers’ long-term success, and adhering to
congressional directives set forth in the 2019 Appropriations Act.2 See FMS AR 2–3,
2507–13, 14382–89; Dkt. No. 22 at 6.
EPM largely relies on the same arguments raised in FMS Investment Corporation
while hoping for a different outcome. The Court sees no justification for reversing its
previous determination that ED provided a “coherent and reasonable explanation” for Next
Gen’s consolidation. See FMS Inv. Corp., 144 Fed. Cl. at 146 (internal quotation and
citations omitted). The Court will not infringe on ED’s wide discretion to determine its
own needs.
B. Notification Requirements
Next, EPM argues that ED did not provide the proper 30-day notice of its intent to
bundle the contracts. See Compl. ¶¶ 62, 64, 65, 69; Dkt. No. 23 at 17; see also FAR
2
A more in-depth analysis of why ED’s consolidation of the Next Gen solicitation is rational can be found
in this Court’s July 31, 2019 opinion in FMS Investment Corporation, 144 Fed. Cl. at 145–47.
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§ 7.107-5(a)(1); 13 C.F.R. § 125.2(d)(5). However, ED maintains that any failure to fully
comply with the notification requirements did not harm EPM. See Dkt. No. 22 at 10–11.
To support its contentions, EPM relies on Sigmatech, Inc., B-296401, Aug. 10,
2005, 2005 CPD ¶ 156. In Sigmatech, the Government Accountability Office (“GAO”)
held that the Army improperly bundled a solicitation when it failed to comply with the
FAR’s notification requirements. See id. (citing FAR §§ 7.107(a), (b), 10.001(c)(2),
19.202-1). Rather than denying its noncompliance, the Army argued that the FAR
provisions were not applicable to it. The GAO sustained the protest because the Army did
not: (1) notify the incumbent small business contractor of its intent to bundle, (2) provide
a bundling analysis, or (3) notify the SBA of its acquisition strategy. See id.
EPM’s reliance on Sigmatech is misplaced. Even if ED failed to notify “each small
business performing a contract,” the fact that EPM—unlike Sigmatech—is not an
incumbent contractor severely undercuts its argument. See FAR §§ 7.107-5(a)(1),
10.001(c)(2) (requiring notification to any “incumbent small business concerns”);
Sigmatech, B-296401, Aug. 10, 2005, 2005 CPD ¶ 156 (citing failure to notify incumbent
contractor as a factor in granting the protest).
EPM also accuses ED of not consulting with the appropriate Small Business
Specialist in violation of FAR § 7.104(d). See Compl. at ¶¶ 69, 84, 89–91; Dkt. No. 23 at
18. Once again, the facts of Sigmatech, and this case diverge. Unlike in Sigmatech, the
administrative record here indicates that ED not only notified the SBA of the BPO
solicitation but also provided the SBA with drafts of the small business participation plan.
See Dkt. No. 22 at 11; AR 534–50 (email chain with Martina Williams, SBA Procurement
Center Representative).
EPM further claims that ED’s failure to adhere to the notification requirements
prevented it from proposing alternative procurement structures. See Dkt. No. 23 at 18.
This argument also fails. This is not the first iteration of the Next Gen solicitation. The
prior solicitations also consolidated loan and default services. In any event, EPM was
aware of the solicitation, as it timely filed this protest.
C. Small Business Commitment
In an effort to distinguish its case from FMS Investment Corporation, EPM
challenges the consolidation of these services, based on the requirements of the Small
Business Act, the Competition in Contracting Act (“CICA”), and the FAR.
During the contracting officer’s research, the agency identified approximately sixty
entities that were interested in ED’s solicitation. See AR 533. The Phase I solicitation
resulted in 40 entities responding, four of which were small businesses. See id. After the
contracting officer analyzed their capabilities, none of the four small businesses advanced
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to Phase 2. See id. Based on the solicitation and research, the contracting officer concluded
that “there was not a reasonable expectation of obtaining offers from two or more
responsible small business concerns that are competitive in terms of market prices, quality,
and delivery,” and therefore the agency was not obligated to set the procurement aside for
small businesses. Id.
Given the detail and reasoning contained in the AR, EPM’s claim that ED’s
handling of the BPO solicitation was contrary to the statutory and regulatory provisions
supporting small business participation must fail. ED was conscious of the potential effects
on small businesses and endeavored to promote their participation. For example, the BPO
solicitation is explicitly “open to all entities…including small businesses” and permits
entities to associate together as teams or joint ventures when submitting proposals. See
AR 533, 540. ED also requires offerors to submit a detailed Small Business Participation
Plan which includes a goal that small businesses perform 32 percent of the subcontracted
work. See AR 62–63; FAR 7.107-4(b)(4). Even if the Court were to disagree with the
contracting officer’s determination, the market research establishes, at a minimum, a
rational basis for its conclusion.
The Court’s prior finding that ED appropriately exercised its discretion in
structuring its Next Gen solicitations remains unchanged. EPM, like FMS, challenges Next
Gen’s consolidation of loan and default services. In this case, the fact that EPM is a small
business does not affect ED’s justification for its structuring of the BPO solicitation.
EPM’s notification arguments are also unpersuasive. EPM fails to demonstrate how any
defect in ED’s compliance with FAR Part 7’s procedural requirements prejudiced it.
Therefore, the Court sees no reason to substitute its judgment for that of the agency.
III. Small Business Participation Plan
EPM also accuses ED of unreasonably favoring HUBZone businesses at the expense
of other small businesses. See Dkt. No. 21 at 30. ED counters that a contracting officer’s
decision is a matter of business judgment entitled to a “presumption of regularity.” Dkt.
No. 22 at 7 (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415
(1971)).
Congress enacted the Small Business Act in 1953 to protect the interests of small
business. 15 U.S.C. § 631(a). The purpose of the Act is to ensure the attainment of a
“Government-wide goal for participation by small business concerns [in government
contracts] ... [of] not less than 23 percent of the total value of all prime contracts for each
fiscal year.” Id. § 644(g). In addition to aiding small businesses in general, the Act
contains programs that favor certain categories of small business. One such program is the
HUBZone program which encourages participation of small businesses located in
economically disadvantaged or distressed areas. See id. § 657(a). Under the HUBZone
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program, three percent of the total value of federal contract awards should be set aside for
HUBZone businesses. See id. § 644(g).
A contracting officer’s decision invokes a “highly deferential rational basis review.”
See Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1368–69 (Fed. Cir. 2009). As
ED pointed out, “it is well established that procurement officials are entitled to a strong
presumption of regularity and good faith.” Dkt. No. 22 at 20 (quoting Am-Pro Protective
Agency, Inc. v. United States, 281 F.3d 1234, 1239–41 (Fed. Cir. 2002)).
Next Gen’s HUBZone set asides do not thwart the overarching goals of the Act.
First, the Act’s target of 23 percent for small business participation in federal contract
awards incorporates several types of small businesses programs, including the HUBZone
program. Moreover, HUBZone’s three percent target is a minimum—not a cap. Next
Gen’s SBPP explicitly states that the HUBZone requirements “may result in total small
business subcontracting exceeding 32%.” AR at 63.
Despite EPM’s contention, the HUBZone goals are not anti-competitive. Compl.
¶ 52. No statutes or regulations expressly prohibit ED from establishing larger HUBZone
participation goals. Rather, the HUBZone goals create an additional basis on which
potential offerors must now compete. That is, potential offerors will also be evaluated on
their ability to find and partner with HUBZone companies.
Finally, EPM maintains that the HUBZone goals are irrational, prejudicial, and
without support. Compl. ¶¶ 82–102. ED rebuts this argument and points to the AR to
support its claim that the SBA reviewed and endorsed ED’s SBPP, including its HUBZone
goals. AR 345, 534–50. The Court also rejects EPM’s contention that the HUBZone goals
are prejudicial and prevent small businesses from competing as a prime contractor. Compl.
¶ 96. EPM fails to establish how these goals cause it to suffer a redressable competitive
harm distinct from other entities. In fact, EPM concedes that “possibly [no] large business
offerors” could meet the HUBZone goals. Dkt. No. 23 at 20.
IV. Permanent Injunction
Under its bid protest jurisdiction, the Court has the power to issue an injunction
pursuant to 28 U.S.C. § 1491(b). See PGBA, LLC v. United States, 389 F.3d 1219, 1223
(Fed. Cir. 2004) (“We give deference to the Court of Federal Claims’ decision to grant or
deny injunctive relief, only disturbing the court’s decision if it abused its discretion.”). In
deciding whether a permanent injunction is proper, a court considers (1) whether the
plaintiff has succeeded on the merits; (2) whether the plaintiff will suffer irreparable harm
without an injunction; (3) whether the balance of the hardships favors an injunction; and
(4) whether an injunction is in the public interest. See PGBA, LLC, 389 F.3d at 1228–29;
Dyonyx, L.P. v. United States, 83 Fed. Cl. 460, 467 (2008) (noting that injunctive relief is
an “extraordinary” remedy).
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First, as explained above, EPM has not succeeded on the merits. Second, EPM’s
irreparable harm is unclear. EPM contends that the BPO solicitation prohibits it from
acting as a prime contractor. See Dkt. No. 7 at 29. As a result, EPM proffers that it will
lose the opportunity to make a profit and will have to make “significant” employee layoffs.
Dkt. No. 7 at 35. EPM’s arguments, however, ignore that it may still compete through a
teaming arrangement or as a subcontractor. Moreover, this Court cannot order ED to assign
EPM the accounts to service. Even if ED restructured the Next Gen solicitations to
incorporate EPM’s objections, EPM would not be entitled to some minimum amount of
business.
EPM has failed to prove that ED’s actions were arbitrary, capricious, or otherwise
not in accordance with the law. In this bid protest, ED’s actions were rationally related to
the risks identified throughout the prior solicitation and related bid protest lawsuits. An
injunction would delay Next Gen and ED’s cradle-to-grave servicing goal, forcing ED to
commit resources to a PCA solicitation that it no longer needs. Finally, EPM failed to
establish that ED’s actions were based on clear and prejudicial violations of an applicable
procurement statute or regulation. In the Court’s view, refraining from interfering in a
procurement can also serve the public interest. The Court, therefore, finds no legally
compelling reason to issue an injunction.
Conclusion
For the reasons set forth above, the Court DENIES EPM’s motion for judgment on
the administrative record and DENIES EPM’s motion to permanently enjoin the
Department of Education from proceeding with the Next Gen solicitations. The Court
GRANTS the Government’s motion for judgment on the administrative record. The Clerk
of the Court is directed to enter judgment for the Government. No costs.
IT IS SO ORDERED.
s/Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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