TITLE: B-297915.2, CIGNA Government Services, LLC, May 4, 2006
BNUMBER: B-297915.2
DATE: May 4, 2006
*******************************************************
B-297915.2, CIGNA Government Services, LLC, May 4, 2006

   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: CIGNA Government Services, LLC

   File: B-297915.2

   Date: May 4, 2006

   Craig A. Holman, Esq., Kara L. Daniels, Esq., and David J. Craig, Esq.,
   Holland & Knight LLP, for the protester.

   Kathleen E. Karelis, Esq., W. Jay DeVecchio, Esq., Kevin Dwyer, Esq., and
   Richard Arnholt, Esq., Jenner & Block LLP, for Palmetto GBA, LLC, an
   intervenor.

   Jeffri Pierre, Esq., Anthony E. Marrone, Esq., and Christine Simpson,
   Esq., Department of Health & Human Services, for the agency.

   Glenn G. Wolcott, Esq., and Michael R. Golden, Esq., Office of the General
   Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Agency's communications with awardee following submission of final revised
   proposals, during which awardee made various changes to its final proposal
   submission, including changes to the total level of effort awardee
   represented it would provide under the contract, constituted discussions
   and required that the agency similarly conduct discussions with the
   protester.

   DECISION

   CIGNA Government Services, LLC protests the award of a contract by the
   Department of Health & Human Services, Centers for Medicare and Medicaid
   Services (CMS), to Palmetto GBA, LLC pursuant to request for proposals
   (RFP) No. CMS-2005-0012 for Medicare claims processing services related to
   claims from suppliers and beneficiaries of durable medical equipment.[1]
   CIGNA protests, among other things, that the agency failed to conduct
   meaningful discussions with CIGNA and permitted Palmetto to materially
   revise its proposal after final proposal revisions had been submitted.

   We sustain the protest.

   BACKGROUND

   In December 2003, Congress enacted the Medicare Prescription Drug
   Improvement and Modernization Act of 2003 (MMA). Among other things, this
   legislation requires that CMS use competitive procurement procedures,
   pursuant to the Federal Acquisition Regulation (FAR), to replace the
   fiscal intermediaries and carriers on whom CMS has historically relied for
   claims processing services,[2] and who have been selected under other than
   competitive procedures. The replacement contractors under the MMA are
   referred to as "Medicare Administrative Contractors" (MACs). Pursuant to
   the transition, and in contrast to past practice, MACs are also required
   to comply with the Cost Accounting Standards (CAS).

   In April 2005, CMS issued RFP No. CMS-2005-0012, seeking proposals, for
   each of four geographic jurisdictions,[3] to provide specified health
   insurance benefit administration services, including Medicare claims
   processing and payment services related to durable medical equipment,
   prosthetics, orthotics and supplies (DMEPOS). [4] RFP sect. B.1. The
   procurements for each jurisdiction were conducted as separate
   competitions, but offerors were permitted to submit proposals for any or
   all of the jurisdictions. The solicitation provided that the source
   selection decision for each jurisdiction would be made on the basis of the
   proposal offering the best overall value to the government, considering
   cost/price and the following non-cost/price factors, listed in descending
   order of importance: offeror capability,[5] implementation,[6] quality
   control plan, corporate experience, past performance, and small
   disadvantaged business utilization plan. RFP sect. M.4. The solicitation
   provided that non-cost/price factors, when combined, were significantly
   more important than cost/price, and that cost/price would not be point
   scored but would be evaluated for cost realism. RFP sections M.2, M.7.

   On or before the specified closing date, Palmetto and CIGNA submitted
   initial proposals for the jurisdiction C contract. Thereafter, technical
   proposals were evaluated by a technical evaluation board (TEB)[7] and
   cost/price proposals were evaluated by a business evaluation panel
   (BEP).[8]

   Upon completing the evaluation of initial proposals, the evaluation panels
   provided a summary of the evaluation results to the contracting officer.
   AR, Tab 24. With regard to the non-cost/price evaluation factors,
   Palmetto's proposal received a total score of [deleted] points (out of a
   maximum 1,000 points); CIGNA's proposal received a score of [deleted]
   points. AR, Tab 24, at 2, 14. Palmetto's proposed cost/price was [deleted]
   million; CIGNA's proposed cost/price was [deleted] million.[9] AR, Tab 41,
   at 9.

   In reviewing the initial proposals for all jurisdictions, the agency found
   that, because of the new requirement that contractors comply with the CAS,
   the offerors' identified the levels of effort being proposed in differing
   ways; due to this, the agency found it difficult to determine the level of
   effort being proposed by each offeror. Hearing Transcript (Tr.), Apr. 6,
   2006, at 848-50.[10]

   By letters dated August 24, 2005, the agency initiated discussions with
   CIGNA and Palmetto. AR, Tab 43. Due to the agency's difficulty in
   determining each offeror's proposed level of effort, the agency created a
   "level of effort" (LOE) template for offerors to complete, sending that
   template to offerors with the August 24 discussion letters.[11] With
   regard to the LOE template, the discussion letters stated:

     CMS is requesting that you confirm your proposed level of effort by
     completing the enclosed template as instructed. The template shall
     include all productive hours to fulfill the statement of work
     requirements related to your proposal. This includes those hours charged
     to the contract whether those hours are allocated through an indirect
     cost pool or to an ABC code. Your subcontractor hours shall be
     identified as well. The hours shall be provided by contract year for all
     years. In order to fully understand your proposed level of effort, CMS
     is asking that you confirm your proposed level of effort by way of
     completing this template. You are cautioned that this is not a request
     to revise your Business Proposal. Rather it is an analysis tool that
     will be used to better understand your proposed level of effort.[[12]]

   AR, Tab 43, at 1-2.

   Both CIGNA and Palmetto responded to the initial discussions by
   submitting, among other things, the LOE templates; thereafter, each
   offeror participated in various rounds of discussions, both written and
   oral, submitting various further clarifications, modifications, and
   revisions to their proposals.

   On November 30, the agency requested submission of final revised proposals
   (FRPs). In its request, the agency expressly provided that the updated LOE
   templates were to be included as part of the FRPs. AR, Tab 37, FRP Request
   (Nov. 30, 2005), at 2-3.

   On December 9, CIGNA and Palmetto submitted their respective FRPs; these
   final proposals were subsequently evaluated by the various evaluation
   panels. With regard to the non-cost/price evaluation factors, CIGNA's FRP
   received a point score of [deleted]; Palmetto's FRP received a point score
   of [deleted]. AR, Tab 41, at 21. CIGNA's final proposed cost/price was
   [deleted] million; Palmetto's final proposed cost/price was [deleted]
   million. Id.

   On December 15, the contracting officer made a presentation to the source
   selection board (SSB) and the source selection authority (SSA) during
   which she presented the evaluation results and made award recommendations
   for each of the four jurisdictions. With regard to jurisdiction C, the
   contracting officer recommended award to Palmetto. In her presentation and
   recommendation with regard to jurisidiction C, the contracting officer
   identified the following factors under the heading "Best Value/Trade-Off
   Analysis": CIGNA's technical score was [deleted], but CIGNA's cost/price
   was [deleted]; Palmetto's evaluated weaknesses were not considered to
   present a risk for successful contract performance; and Palmetto had
   proposed a [deleted] level effort than CIGNA.[13] AR, Tab 41, at 26. In a
   memorandum dated January 4, the SSB essentially repeated the information
   reflected in the contracting officer's December 15 recommendation,
   concurring in the recommended award to Palmetto for jurisdiction C. AR,
   Tab 45, at 6. On January 6, the SSA executed the source selection
   decisions for all four jurisdictions, selecting Palmetto for award of the
   jurisdiction C contract, stating: "Based upon the recommendations of the
   Contracting Officer and concurrence given by the SSB, I hereby decide as
   the Source Selection Authority to award the DME MAC contracts and
   optional/specialty services to the offerors identified above."[14] AR, Tab
   45, at 16.

   On January 20, the agency conducted a debriefing with CIGNA regarding the
   source selection decision. On January 24, 2006, CIGNA filed its initial
   protest with this Office.

   DISCUSSION

   In its January 24 protest, CIGNA challenged various aspects of the source
   selection process, arguing, among other things, that CMS failed to conduct
   meaningful discussions with CIGNA and misevaluated various aspects of
   CIGNA's and Palmetto's proposals.

   On February 23, the agency filed its required administrative report,
   responding to the January 24 protest. With that report, the agency
   produced the evaluation record on which the source selection decision was
   based. Upon reviewing the agency record, CIGNA's counsel found that some
   of the specific data submitted in Palmetto's FRP, including its LOE
   template, differed from data on which the agency's source selection
   decision was based. Accordingly, CIGNA filed a supplemental protest on
   March 6.

   Following submission of CIGNA's March 6 protest, the agency, for the first
   time, advised our Office of various communications that had taken place
   between CMS and Palmetto after the December 9 deadline for submission of
   FRPs.[15] First, the agency revealed that on December 13, several days
   after FRPs had been submitted, [a Palmetto official] sent an e-mail to the
   contracting officer and the BEP chair, stating, in part, as follows:

     I left you a voice mail message earlier regarding our input . . . on the
     labor template. In the [deleted] hours, we [deleted], causing us to
     grossly overstate the labor hours in our LOE template for that activity.
     I have attached the accurate hour and FTE totals.

   Agency's March 17, 2006 Response to Supplemental Protest, attach. (E-mail,
   Dec. 13, 2005, 5:03 p.m.).

   At the GAO hearing, the BEP chair acknowledged that, during the week after
   FRPs were submitted, she telephoned a Palmetto official with questions
   regarding the data contained in Palmetto's final LOE template. Tr. at 984.
   The BEP chair elaborated that, in reviewing Palmetto's FRP, the agency
   evaluators determined that Palmetto had [deleted] the level of effort it
   represented it would provide in performing the DMEPOS contract.
   Accordingly, the BEP chair testified that she had telephoned a Palmetto
   official to ask him to "confirm the hours in his [LOE] template." Tr.,
   Apr. 6, 2006, at 1029. The December 13 e-mail, quoted above, reflected
   Palmetto's response to the BEP chair's telephone call. Rather than
   confirming the validity of its FRP, Palmetto stated that it was, in fact,
   materially inaccurate.

   At the GAO hearing, the BEP chair acknowledged that, although it was clear
   from the agency's post-FRP communications with Palmetto that Palmetto
   intended to make some changes to templates that had previously been
   submitted, Tr., Apr. 6, 2006, at 1,060, there was no way to discern from
   the face of Palmetto's FRP submission what level of effort Palmetto
   intended its final submission to reflect. [16]  Tr. 1,062-63; see also Tr.
   Apr. 6, 2006, at 924.

   The communications between CMS and the agency regarding Palmetto's LOE
   template were not their only post-FRP communications. On March 29 (after
   GAO had announced it would conduct a hearing in this matter), CMS advised
   our Office of additional post-FRP e-mails between Palmetto and CMS.
   Specifically, CMS disclosed that, on December 13, just minutes after [a
   Palmetto official] sent the above-discussed e-mail to CMS, Palmetto
   personnel sent another e-mail to the BEP chair, stating on the subject
   line, "Revised DMAC schedules." Letter from CMS to GAO, Mar. 29, 2006,
   attach. This e-mail states, in part: "Please see the attached errata sheet
   with changes from our proposal submitted on December 9, 2005." Id. Among
   other things, that e-mail included the following table:[17]

   +------------------------------------------------------------------------+
   |Item Affected            |DME MAC Business Proposal                     |
   |-------------------------+----------------------------------------------|
   |-------------------------+----------------------------------------------|
   |[deleted], Activity Code |The indirect rate for [deleted] cost pool was |
   |[deleted], subCLIN       |incorrect. The rate in proposal was [deleted] |
   |[deleted], CLIN [deleted]|but the rate should have been [deleted].      |
   |-------------------------+----------------------------------------------|
   |[deleted], subCLIN       |Subtotal [deleted] formula was not calculating|
   |[deleted], CLIN [deleted]|                                              |
   |                         |correctly.                                    |
   |-------------------------+----------------------------------------------|
   |[deleted], subCLIN       |The Total cost for the positions listed below |
   |[deleted], CLIN [deleted]|were linked to the incorrect subCLIN. The     |
   |                         |dollars were actually for subCLIN [deleted]   |
   |                         |instead of [deleted].                         |
   |                         |                                              |
   |                         |.        [deleted]                            |
   |                         |                                              |
   |                         |.        [deleted]                            |
   |                         |                                              |
   |                         |.        [deleted]                            |
   +------------------------------------------------------------------------+

   Id.

   At the GAO hearing, Palmetto personnel maintained that there was a
   [deleted] on Palmetto's overall cost/price as a result of the changes
   described in this e-mail. See, e.g., Tr., Apr. 6, 2006, at 1,143, 1,146.
   However, the Palmetto personnel also testified that the table itself
   contains an error, specifically asserting that the statement "Subtotal
   [deleted] formula was not calculating correctly" should have referenced
   CLIN [deleted], rather than CLIN [deleted]. Tr., Apr. 6, 2006, at
   1144.[18]

   Communications between a procuring agency and an offeror that permit the
   offeror to materially revise or modify its proposal generally constitute
   discussions. FAR sect. 15.306(d); Lockheed Martin Simulation, Training &
   Support, B-292836.8 et al., Nov. 4, 2004, 2005 CPD para. 27;
   4^th Dimension Software, Inc.; Computer Assocs. Int'l, Inc., B-251936,
   B-251936.2, May 13, 1993, 93-1 CPD para. 420. In this regard,
   communications that permit an offeror to correct a mistake constitute
   discussions unless the mistake is minor and both the existence of the
   mistake and what was actually intended are clearly apparent from the face
   of the proposal. Matrix Int'l Logistics, Inc., B-272388, B-272388.2, Dec.
   9, 1996, 97-2 CPD para. 89; Stacor Corp., B-231095, July 5, 1988, 88-2 CPD
   para. 9. If an agency does conduct discussions with one offeror, it must
   conduct discussions with all competitive range offerors, and provide all
   such offerors an opportunity to submit revised proposals. KPMG Peat
   Marwick, LLP, B-259479, May 9, 1995, 95-2 CPD para. 13; Paramax Sys.
   Corp., B-253098.4 et al., Oct. 27, 1993, 93-2 CPD para. 282.

   Here, it is clear the agency conducted discussions with Palmetto following
   submission of FRPs. As discussed above, the agency's FRP specifically
   provided that the LOE templates were a required part of the offerors'
   cost/price proposals. AR, Tab 37, FRP Request (Nov. 30, 2005), at 2-3.
   With regard to the materiality of the error in the LOE template, Palmetto
   itself characterizes its FRP submission as reflecting a "gross[]
   overstate[ment]" of its intended level of effort, and the agency's
   contemporaneous documents establish that the agency relied on Palmetto's
   post-FRP revisions regarding the proposed level of effort in making the
   contracting officer's and SSB's award recommendations, and the SSA's
   source selection decision. AR, Tab 41, at 21; Tab 45, at 6, 16. Finally,
   as acknowledged by the BEP chair during the GAO hearing, the agency could
   not discern Palmetto's intent with regard to the final proposed level of
   effort from the face of Palmetto's FRP without the additional post-FRP
   submissions. On this record alone, it is clear the post-FRP communications
   constituted discussions.

   In addition, Palmetto's post-FRP submission of various other changes to
   its cost/price proposal support the conclusion that discussions were
   conducted. With regard to Palmetto's December 13 e-mail referencing
   "Revised DMAC Schedules," and including the table listing various errors
   in its FRP, it is clear that neither the existence of the errors
   identified in that table, nor what Palmetto's actual intentions were with
   regard to the errors, was apparent from the face of Palmetto's FRP.
   Specifically, it is clear that Palmetto's proposed rate of [deleted] for
   the "[deleted] cost pool," was not an obvious error apparent from the face
   of Palmetto's proposal, nor was there any way for the agency to determine
   that the rate "should have been" [deleted]. Similarly, since Palmetto
   testified that the errata table itself contains an error, there can be no
   suggestion that the face of Palmetto's FRP clearly established what
   Palmetto intended in this regard.

   On this record, we reject the agency's and Palmetto's assertions that the
   post-FRP communications, during which the agency permitted Palmetto to
   make significant revisions to its proposal, should be considered as merely
   minor corrections. Rather, the communications clearly constituted
   discussions concerning material aspects of Palmetto's proposal, which
   triggered the agency's obligation to give CIGNA a similar opportunity to
   revise its proposal.[19]

   The protest is sustained.

   RECOMMENDATION

   As discussed above, we find that the agency conducted discussions with
   Palmetto following submission of the FRPs. Accordingly, we recommend that
   the agency reopen discussions with the competitive range offerors in this
   procurement, request revised proposals, evaluate those submissions
   consistent with the provisions of the solicitation, and make a new source
   selection decision. In the event CIGNA's proposal is found to represent
   the best value to the government, Palmetto's contract should be terminated
   and a contract awarded to CIGNA. We also recommend that the agency
   reimburse CIGNA for its costs of filing and pursuing its protest
   challenging the award to Palmetto, including reasonable attorneys' fees.
   Bid Protest Regulations, 4 C.F.R. sect. 21.8(d)(1) (2006). CIGNA's
   certified claim for costs, detailing the time expended and costs incurred,
   must be submitted directly to the agency within 60 days of receiving this
   decision. 4 C.F.R. sect. 21.8(f)(1).

   Anthony H. Gamboa

   General Counsel

   ------------------------

   [1] CIGNA has protested two separate contracts awarded under the same
   solicitation: one awarded to Palmetto GBA, LLC, and one awarded to
   Noridian Administrative Services, LLC. In response to CIGNA's initial
   protest submission and its supplemental submissions, our Office opened two
   docket numbers: B-297915 and B-297915.2. We are addressing in this
   decision, under docket number B-297915.2, all protest issues regarding the
   award to Palmetto, and are addressing in a separate decision, under docket
   number B-297915, all protest issues regarding the award to Noridian.

   [2] In general, fiscal intermediaries have been responsible for processing
   Medicare payments for institutional providers (for example, hospitals and
   skilled nursing facilities) under Part A of the Medicare program; carriers
   have been responsible for processing payments for professional providers
   (for example, physicians and diagnostic laboratories) under Part B of the
   Medicare program. More specifically, contractors known as "durable medical
   equipment regional carriers" (DMERCs) have been responsible for processing
   Medicare claims for durable medical equipment under Part B of the Medicare
   program. RFP, Statement of Work, at 12.

   [3] The jurisdictions were defined, according to state/territory boundary
   lines, as follows: Jurisdiction A--Connecticut, Delaware, District of
   Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New
   York, Pennsylvania, Rhode Island, Vermont; Jurisdiction B--Illinois,
   Indiana, Michigan, Minnesota, Ohio, Wisconsin, Kentucky; Jurisdiction
   C--Alabama, Arkansas, Colorado, Florida, Georgia, Louisiana, Mississippi,
   New Mexico, North Carolina, Oklahoma, Puerto Rico, South Carolina,
   Tennessee, Texas, Virgin Islands, Virginia, West Virginia; Jurisdiction
   D--Alaska, Arizona, California, Guam, Hawaii, Idaho, Iowa, Kansas,
   Missouri, Montana, Nebraska, Nevada, North Dakota, Oregon, South Dakota,
   Utah, Washington, Wyoming, Mariana Islands, American Samoa. RFP, Statement
   of Work, at 12.

   [4] The solicitation's statement of work provided an overview of the
   required tasks, stating:

     The contractor shall receive and control Medicare claims from DMEPOS
     suppliers and beneficiaries within its jurisdiction, as well as perform
     edits on those claims to determine whether the claims are complete and
     should be paid. . . . In addition, the Contractor calculates Medicare
     payment amounts and remits those payments to the appropriate party. The
     Contractor makes coverage decisions for new procedures and devices in
     local areas. The Contractor also conducts a variety of different
     suppliers services, such as answering written inquiries, and educating
     them on Medicare's rules and regulations and billing procedures.

   RFP, Statement of Work, at 13-14.

   [5] With regard to offeror capability, the solicitation established the
   following subfactors, listed in descending order of importance:
   understanding the requirements, project management, key personnel,
   information security, and compliance plan. RFP sect. M.4, at 163.

   [6] With regard to the implementation factor, the solicitation established
   the following subfactors, listed in descending order or importance:
   implementation plan, key personnel, and implementation risk. RFP sect.
   M.4, at 163.

   [7] Subject matter experts (SMEs) were also assigned to assist the TEB,
   but the SMEs did not point score the proposals.

   [8] There was also a corporate experience/past performance panel to
   evaluate proposals under those factors, and an implementation panel to
   evaluate proposals under the implementation factor.

   [9] The cost/price figures in this decision are rounded to the nearest
   tenth of a million.

   [10] In reviewing CIGNA's protest issues, our Office conducted a hearing
   at GAO during which testimony was provided by various witnesses, including
   the source selection authority, the contracting officer, and various
   evaluation personnel. The hearing took place from April 4 through April 6,
   2006; accordingly, the transcripts for each day's testimony are identified
   by reference to their respective dates.

   [11] The LOE template consisted of a table. Across the top of the table,
   the agency listed various functional requirements of the contract; along
   the side of the table, the agency listed the various contract line item
   numbers (CLINs) and, under each CLIN, the words "Prime," "Subcontractor
   A," Subcontractor B," Subcontractor C," and "Subcontractor D." AR, Tab 43.
   It is clear the agency anticipated that offerors would identify the number
   of labor hours that would be provided under each CLIN, by the prime
   contractor or a subcontractor, to perform the various functional
   requirements listed across the top of the table.

   [12] The record is clear that the agency intended that an offeror's LOE
   template would be consistent with and complement the other portions of its
   proposal, and that the templates reflected each offeror's specific
   representation regarding the level of effort its proposal was offering to
   provide. Further, as discussed at the hearing, the specific information
   contained in the template was not identifiable from any other portion of
   the offerors' proposals. Tr., Apr. 6, 2006, at 851.

   [13] There is no dispute that the agency's assessment regarding Palmetto's
   [deleted] level of effort was based on data drawn from some version of the
   offerors' LOE templates. Tr., Apr. 6, 2006, at 893-94.

   [14] As noted above, CIGNA's proposal was rated [deleted] with regard to
   the more-important non-cost/price factors, but offered [deleted]
   cost/price. Accordingly, in selecting Palmetto's proposal for award in
   this [deleted], the agency was required to determine that the [deleted]
   associated with Palmetto's proposal were significant enough to offset
   CIGNA's [deleted] with regard to the [deleted].

   [15] Pursuant to GAO's Bid Protest Procedures, 4 C.F.R. sect. 21.1(d)(2)
   (2006), CIGNA's protest specifically requested that the agency report
   include "All . . . correspondence related in any way to the proposal[] . .
   . of . . . Palmetto." Protest, Jan. 24, 2006, at 88. As discussed below,
   the agency had in its possession several post-closing-date e-mails from
   Palmetto that indisputably constituted correspondence related to
   Palmetto's proposal, yet the agency failed to produce this correspondence
   with its February 23 report. The agency's first disclosure of any post-FRP
   communications was made to our Office on March 17.

   [16] As noted in Palmetto's December 13 e-mail, Palmetto represented that
   its "gross[] overstate[ment]" of the proposed level of effort was an
   aggregation of errors [deleted]. Agency's March 17, 2006 Response to
   Supplemental Protest, attach. (E-mail, Dec. 13, 2005, 5:03 p.m.); Palmetto
   FRP, Dec. 9, 2005, Vol. II, Tab D (LOE Template), at 45-46. In a
   post-protest submission to our Office, [a Palmetto official] states that
   the errors were actually made in yet another schedule, [deleted], from
   which the LOE template data was derived.

   [17] The format of the table mirrors the format the agency, in its
   November 30 FRP request, required offerors to use in submitting final
   proposal revisions to their cost/price proposals. AR, Tab 37, FRP Request,
   at 3.

   [18] In addition to the two e-mails discussed above, the agency disclosed
   on March 29 that Palmetto had sent yet another post-FRP e-mail to CMS on
   December 12, revising yet another aspect of the cost/price Palmetto
   submitted in its FRP. This e-mail appears to correct a mathematical error.
   Id.

   [19] The record establishes that there were aspects of CIGNA's FRP which
   the agency would have been required to bring to CIGNA's attention if it
   had conducted post-FRP discussions with CIGNA and that, had these aspects
   of CIGNA's proposal been addressed, they may well have affected the
   best-value tradeoff in this [deleted].