Court Denies Protest of Procurement, Holds Dept. of Education Had Rational Basis

The Court of Federal Claims recently wrote that “[t]here is no such thing as a perfect procurement.” To anyone familiar with federal government contracts, this commentary states the obvious. But springing from the Court’s observation is another important reality: “a flawed procurement is not necessarily an illegal one.”

The setting for the quotes above is a recent bid protest before the Court of Federal Claims: FMS Inv. Corp v. United States, No. 19-308C, et al. (July 31, 2019). This decision relates to a previous COFC decision that my colleague, Matt Schoonover, blogged on last year.

The details of the procurement’s history are complex. Suffice it to say that, in this most recent protest, a group of private collection agencies challenged the Department of Education’s “Next Generation Financial Services Environment” solicitations, which combined default debt collection with other debt servicing work. In short, the solicitations sought to consolidate the “full life-cycle” of student loans–from origination to payoff–with a single debt servicing entity. The protesting collection agencies, whose services are limited to default collection services, generally contended that imposing this structure unfairly excluded them from competing for contracts. They also challenged the cancellation of pre-Next Generation solicitations for debt collection services.

Challenge to the Next Generation Solicitations

The protesters attacked the Next Generation solicitations in two principal ways. First, they alleged that the solicitations violated the Competition in Contracting Act because they bundled distinct services without justification. In other words, the agency consolidated multiple procurement requirements even though it was not “rationally related” to the agency’s needs. And second, they argued that the solicitations violated consumer protection laws relative to debt collection.

In finding that the protesters’ first principal argument failed, the Court held that the agency had a rational basis for its “cradle-to-grave” approach to student loan servicing because an appropriations law restricted the agency from awarding “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.” And in the Court’s view, default collection clearly fell within the law’s “full life-cycle” language. Interestingly, the Court also noted that the agency had a rational basis for consolidation because, among other things, it responded to criticism (related to the agency’s apparent prioritization of collecting debts over borrowers’ long-term success) leveled by twelve U.S. senators.

With respect to the protesters’ second principal argument, the Court found that the agency’s plan did not intrinsically violate the Fair Debt Collection Practices Act, which requires debt collectors to identity themselves when interacting with borrowers. Nor could the Court conclude that the procurement would violate applicable state laws.

Challenge to the Cancellation of the Pre-Next Generation Solicitations

The Court then addressed the agency’s cancellation of the pre-Next Generation solicitations that focused exclusively on debt collection. The agency justified the cancellation of these solicitations in several ways. For one, it argued that debt collectors were under contract until 2024 and could handle all accounts until the Next Generation contracts were up and running. The Court held that the agency reasonably relied on data provided by the existing contractors, which showed their capacity to handle collections until Next Generation contractors could take over.

Also, the Court rejected protesters’ arguments that small contractors, who were already contracted to perform debt collection until 2024, do not perform as well as large debt collectors. The Court noted that even if this were true, if the agency rationally decides that the pre-Next Generation solicitations are incompatible with its needs, it does not have to continue with them just because they might generate more money.

In the end, the Court found that Department of Education’s procurement was not arbitrary and capricious. Its decision to dump previously-issued solicitations in favor of a more robust series of new solicitations was rationally related to its needs and complied with the governing statutes.