CMS Contracting: Issues Concerning Administrator's Decision to	 
Exclude Subcontractor (08-JUL-03, GAO-03-842).			 
                                                                 
In September 2002, the Centers for Medicare & Medicaid Services  
(CMS) awarded the RAND Corporation, with the University of	 
Wisconsin's Center for Health Systems Research & Analysis as a	 
subcontractor, a task order to study inconsistency in the nursing
home survey process. Allegations were made that CMS directed RAND
not to retain the Center as a subcontractor in retaliation for	 
technical concerns that the Center's Director had raised about	 
another CMS initiative. GAO was asked to examine these		 
allegations. Specifically, GAO was asked to examine CMS's	 
selection of RAND for this task order, the basis for CMS's	 
decision to exclude the Center as a subcontractor, and whether	 
the Center's exclusion extended to other CMS contracts. 	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-842 					        
    ACCNO:   A07477						        
  TITLE:     CMS Contracting: Issues Concerning Administrator's       
Decision to Exclude Subcontractor				 
     DATE:   07/08/2003 
  SUBJECT:   Contractors					 
	     Internal controls					 
	     Nursing homes					 
	     Service contracts					 
	     Surveys						 
	     Subcontractors					 
	     Procurement practices				 
	     Contract administration				 

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GAO-03-842

a

GAO United States General Accounting Office

Report to the Chairman, Committee on Finance, U. S. Senate

July 2003 CMS CONTRACTING Issues Concerning Administrator*s Decision to
Exclude Subcontractor

GAO- 03- 842

CMS followed a competitive process in awarding the nursing home survey
inconsistency research task order to RAND, with the Center as its
subcontractor. RAND*s proposal outlined a plan in which the Center would
perform approximately half of the work, in terms of cost, in the first
year and about 80 percent over a 3- year period, if the government
exercised its options to extend the task order for 2 additional years.
Based on four criteria, including an evaluation of personnel and
experience and past performance, CMS awarded the task order to RAND on
September 27, 2002. At virtually the same time as the award, the
Administrator intervened to

exclude the Center from the RAND task order. The Administrator provided
several reasons to support his exclusion of the Center, including his
conclusion that the Center had performed poorly on a number of ongoing CMS
task orders, especially those related to nursing home survey and
certification. He understood that contract provisions provided him the
legal authority to direct RAND not to use the Center as a subcontractor.
GAO reviewed each of the reasons provided by the Administrator and
concluded that, in light of the evidence, the Administrator did not have a
reasonable basis to direct RAND not to subcontract with the Center. For
example, GAO*s review of the evidence did not support the Administrator*s
assertion

of poor past performance by the Center; in fact, its strong past
performance was a key factor in the decision to award the task order to
RAND.

Instead, the Administrator*s decision to exclude the Center from the RAND
task order appears to have been retaliation for the Center Director's
involvement in another CMS nursing home initiative. Because of technical
concerns voiced about this separate initiative, the Administrator
perceived the Center*s Director to be obstructing CMS*s implementation of
the initiative in November 2002. Regardless of the merit of the
Administrator*s view of the Center*s Director and concerns about his
involvement in the other initiative, the Administrator was not authorized
to effectively change the substance of the proposal on which the award to
RAND had been based. Therefore, in GAO*s view, the Administrator*s action
was improper and undermined the integrity of CMS*s procurement process.

Communications between the Administrator and the Center suggested that the
Administrator*s decision to exclude the Center was limited to the RAND
task order. However, senior CMS staff understood the Administrator*s
instructions to exclude the Center to extend to other contracting
opportunities and thus attempted to limit the involvement of the Center in
other CMS contracts. In September 2002, the Centers for

Medicare & Medicaid Services (CMS) awarded the RAND Corporation, with the
University of Wisconsin*s Center for Health

Systems Research & Analysis as a subcontractor, a task order to study
inconsistency in the nursing home survey process. Allegations were made
that CMS directed

RAND not to retain the Center as a subcontractor in retaliation for
technical concerns that the Center*s Director had raised about another CMS
initiative. GAO was asked to examine these allegations. Specifically, GAO
was asked to examine CMS*s selection of RAND for this task order, the
basis for CMS*s decision to exclude the

Center as a subcontractor, and whether the Center*s exclusion extended to
other CMS contracts. GAO recommends that the

Secretary of Health and Human Services take appropriate action to remedy
this situation. Such a remedy could include permitting RAND to subcontract
with the Center as RAND had proposed or reopening the competition for the

award of this task order. Also, the Secretary should have CMS procurement
decisions affecting

the Center since September 2002 reviewed to ensure they were supported by
a reasonable basis. HHS and CMS concurred with our recommendations,
although CMS disagreed with our conclusion that the Administrator*s action
was improper.

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 842. To view the full product,
including the scope and methodology, click on the link above. For more
information, contact Kathryn G. Allen at (202) 512- 7118. Highlights of
GAO- 03- 842, a report to the

Chairman, Committee on Finance, U. S. Senate

July 2003

CMS CONTRACTING

Issues Concerning Administrator*s Decision to Exclude Subcontractor

Page i GAO- 03- 842 CMS Contracting Letter 1 Results in Brief 2 Background
3 CMS Selected RAND Following a Competitive Process but

Excluded Proposed Subcontractor 7 Administrator*s Decision to Exclude
Center Was Improper 13 Efforts to Exclude the Center Extended to Other
Contracting Opportunities 19 Conclusions 22 Recommendations for Executive
Action 23 Agency Comments 23 Appendix I Comments from the Centers for
Medicare &

Medicaid Services 25

Table

Table 1: Chronology of Key Events in 2002 Relating to Award of Task Order
to RAND with the Center as a Subcontractor 12 Contents

Page ii GAO- 03- 842 CMS Contracting Abbreviations

CAHPS Consumer Assessment of Health Plans CICA Competition in Contracting
Act of 1984 CMS Centers for Medicare & Medicaid Services FAR Federal
Acquisition Regulation HCFA Health Care Financing Administration HHS
Department of Health and Human Services

NQF National Quality Forum QI quality indicator RFP request for proposals
RTI Research Triangle Institute

This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.

Page 1 GAO- 03- 842 CMS Contracting

July 8, 2003 The Honorable Charles E. Grassley Chairman Committee on
Finance United States Senate

Dear Mr. Chairman: Since 1997, considerable attention has been focused on
the need to improve the quality of care in the nation*s 17,000 nursing
homes. In a series of reports and testimonies prepared at your request as
the Chairman of the Senate Special Committee on Aging, we found
significant weaknesses in federal and state survey and oversight
activities designed to detect and correct quality problems in nursing
homes. Several others have also reported on these problems, including the
Institute of Medicine and

the Office of Inspector General of the Department of Health and Human
Services (HHS). In 1998, the President announced a series of initiatives
intended to address many of the weaknesses we identified. These
initiatives covered several areas, including the strengthening of states*
periodic surveys of nursing homes and improving federal monitoring of
state survey activities. Also in 1998, the Health Care Financing
Administration (HCFA) launched a Web site** Nursing Home Compare** that
has progressively expanded the availability of public information on
nursing homes and the quality of care provided. 1 In April 2002, the
agency began a pilot project to augment the information provided on this
Web site

to include quality indicators (QI) that allow consumers to make
comparisons across nursing homes. This project was expanded nationwide on
November 12, 2002.

As part of its work to improve the nursing home survey process, in
September 2002, the Centers for Medicare & Medicaid Services (CMS) awarded
the RAND Corporation a task order to study the inconsistency in nursing
home survey results across states, based on a proposal that included the
University of Wisconsin*s Center for Health Systems

1 In June 2001, the agency*s name was changed from the Health Care
Financing Administration (HCFA) to the Centers for Medicare & Medicaid
Services (CMS). In this report, we continue to refer to HCFA where our
findings apply to the organizational structure and operations associated
with that name.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 842 CMS Contracting

Research & Analysis as a subcontractor. 2 , 3 However, CMS also instructed
RAND not to subcontract with the Center. Allegations were brought to you
that CMS had inappropriately directed RAND not to retain the Center as a
subcontractor in retaliation for technical concerns that the Center*s
Director, who was proposed by RAND to be the co- principal investigator
for the task order, made about CMS*s April 2002 nursing home QI
initiative. As a result, you asked us to examine these allegations. We
agreed to examine (1) CMS*s selection of RAND for this task order, (2) the
basis for CMS*s decision to exclude the Center as a subcontractor, and (3)
whether the exclusion of the Center extended to other CMS contracts. To

do this, we reviewed relevant contract files and other key documents. We
interviewed CMS staff, including the Administrator and one of his Special
Assistants, the Director and other staff of the Acquisition and Grants
Group, the Project Officer assigned to this task order, and the Director
of the Quality Measures and Health Assessment Group. We also interviewed
RAND contracting and program staff, and University of Wisconsin and Center
staff, including attorneys, contracting personnel, and the Center*s
Director. We conducted our work from January 2003 through June 2003 in
accordance with generally accepted government auditing standards.

CMS followed a competitive process in selecting RAND, with the Center as
its subcontractor, for the task order to study inconsistencies in the
nursing home survey process. However, in our view, the Administrator
improperly intervened to exclude the Center from the task order, thus
undermining the integrity of the procurement process at CMS. The Center
was integral to the RAND proposal, with RAND indicating that the Center
would perform approximately half of the work, in terms of cost, in the
first year and about 80 percent* valued at about $1.6 million* over a 3-
year period, if CMS exercised its options to extend the task order for 2
additional years. Further, the Center*s expertise in the nursing home
survey area was a key factor in CMS*s decision to select RAND*s proposal
over those submitted by two others. However, at virtually the same time
that CMS awarded this task order, the CMS Administrator intervened without
a

2 This task order was issued under a CMS contract for Medicare Research
and Demonstrations. 3 The Center is the University of Wisconsin component
that had been designated to perform work under the University*s proposed
subcontract with RAND and that carries out health care research under the
University*s contracts with CMS. Therefore, we refer to the Center rather
than the University as the contracting entity throughout the report.
Results in Brief

Page 3 GAO- 03- 842 CMS Contracting

reasonable basis to exclude the Center as RAND*s subcontractor. The
Administrator*s decision to exclude the Center appears to have been
retaliation for the Center Director*s expressed technical concerns about
CMS*s project to include nursing home QIs on the *Nursing Home Compare*
Web site. The Director*s comments did not affect the QIs CMS used or the
timing of the national rollout. However, the Administrator characterized
the Center Director*s comments as obstructing the consensus- building
process for the QI initiative. Senior CMS staff understood the
Administrator*s instructions to exclude the Center to extend beyond the
RAND task order and thus attempted to limit the involvement of the Center
in other CMS contracts.

In order to maintain the integrity of CMS*s procurement process, we are
recommending that the Secretary of Health and Human Services take
appropriate action to remedy the situation. Appropriate remedies could
include permitting RAND to subcontract with the Center as RAND had
proposed or reopening the competition for the award of the nursing home
survey research task order. In addition, we are recommending that the
Secretary have CMS procurement decisions affecting the Center since
September 2002 reviewed to ensure that they were supported by a reasonable
basis. HHS and CMS concurred with our recommendations, although CMS
disagreed with our conclusion that the Administrator*s action was
improper.

To facilitate the procurement of services quickly while obtaining the
advantage of competition, the Federal Acquisition Streamlining Act of 1994
authorized agencies to award task order contracts to multiple sources. 4
Task order contracts, which are also referred to as *indefinite delivery/
indefinite quantity contracts,* *umbrella contracts,* or *master
contracts,* typically cover a range of services, without specifying a
fixed statement of work and deliverables. Instead, orders are issued for
the performance of specific tasks during the period of the contract.
Agencies using task order contracts are required to provide contractors
with *a fair opportunity to be considered* in the award of the individual
task orders issued to meet agency needs. The Federal Acquisition
Regulation (FAR) gives procurement officials broad latitude in
administering the *fair consideration* process. The FAR requires them to
consider price or cost

4 Pub. L. No. 103- 355, S: 1054( a), 108 Stat. 3243, 3261- 3265 (codified
at 41 U. S. C. S:S: 253h- 253k (2000)). Background

Page 4 GAO- 03- 842 CMS Contracting

as one factor in the selection process; it also suggests that other
factors relevant to the award of a specific task order, such as past
performance, quality of deliverables, and cost control, be taken into
consideration. 5 CMS*s Office of Research, Development, and Information is
responsible

for coordinating the agency*s multiple- award task order contracts, which
the agency refers to as *master contracts,* while its Acquisition and
Grants Group is responsible for awarding these contracts as well as
subsequent task orders.

On February 24, 2000, HCFA issued a solicitation for master contracts in
five specialty research areas related to Medicare and Medicaid. 6 Fourteen
contractors, including RAND and the Center, were awarded master contracts
in the specialty area of *Medicare Research and Demonstrations.* The
master contracts provided that contractors would be awarded at least
$25,000 over the term of the contract, including options. The master
contracts also provided that task orders would be awarded following a
competitive process limited to the 14 contractors.

On July 12, 2002, CMS sent a request for proposals (RFP) to the 14
contractors for a task order to study the inconsistency across states in
the nursing home survey process. Under contract with CMS, states are
required to conduct periodic surveys of nursing homes that participate in
Medicare and Medicaid to determine whether care and services meet the

assessed needs of the residents and whether homes are in compliance with
federal quality requirements, such as those regarding the prevention of
avoidable pressure sores, weight loss, or accidents. Surveys must be
conducted at each home on average every 12 months and no less than once
every 15 months. During a nursing home survey, a state survey team that
includes registered nurses spends several days at a home reviewing

the quality of care provided to a sample of residents. Any deficiencies
identified during routine surveys are classified according to the number
of residents potentially or actually affected and their severity. Previous
research has demonstrated considerable differences among states in terms
of survey findings.

The Center, which is one of the 14 master contract holders, has worked
with CMS and other entities to conduct research on a range of health care

5 See 48 C. F. R. S: 16.505( b) (2002). 6 The solicitation referred to
these contracts collectively as Research, Analysis, Demonstration, and
Survey Design Task Order Contracts.

Page 5 GAO- 03- 842 CMS Contracting

issues, particularly in the area of nursing homes and the regulatory
survey process. Over the past 15 years, the Center has been a prime
contractor or subcontractor on 20 individual agency projects whose value
to the Center totals over $41 million. 7 , 8 Beginning in 1994, the Center
assisted the agency in its efforts to (1) monitor the implementation of a
revised long- term care

survey process and (2) identify possible reasons for variations in survey
findings among states. 9 The Center*s survey work on this project was
discussed in a July 1998 HCFA report to Congress and helped reveal a
general problem of underidentification of regulatory deficiencies in
nursing homes. 10 The Center has a particularly extensive background in
the development

and use of QIs for nursing homes, which are essentially numeric warning
signs of potential care problems, such as greater- than- expected
instances of weight loss, dehydration, or pressure sores among a nursing
home*s

residents. HCFA began contracting with the Center in 1988 to develop,
test, and implement QIs as a way to improve the rigor of the survey
process. As part of this effort, the Center developed a national automated
system to provide to states and to HCFA assessment information on every
nursing home resident in the United States. 11 CMS recently undertook an
effort to publicly report nursing home QIs on

the agency*s *Nursing Home Compare* Web site. This effort, which began in
April 2002 with a pilot program in six states and was expanded 7 Six of
these projects valued at about $32. 2 million are ongoing. Approximately
$10.7 million of the $41 million is attributable to projects specifically
related to the nursing home survey process.

8 For Wisconsin*s state fiscal year 2002, the Center*s funding for CMS and
other projects totaled approximately $13.8 million, and its total staff
consisted of approximately 65 faculty, researchers, programmers, and
support personnel.

9 *Consultation in Analysis of Long- Term Care Survey Process,* Contract
No. 500- 94- 0075, from September 1994 through August 1998. 10 HHS, HCFA,
Report to Congress, Study of Private Accreditation (Deeming) of Nursing
Homes, Regulatory Incentives and Non- Regulatory Initiatives, and
Effectiveness of the Survey and Certification System (Washington, D. C.:
July 1998).

11 Effective July 1999, HCFA instructed states to begin using QIs derived
from these data to review the care provided to a nursing home*s residents
before state surveyors actually visit the home to conduct a survey.
Surveyors use the QIs to help select a preliminary sample of residents and
preview information on the care provided to these residents prior to the
onsite inspection. QIs are derived from data collected during nursing
homes* assessments of residents, called the minimum data set.

Page 6 GAO- 03- 842 CMS Contracting

nationwide on November 12, 2002, is intended to help consumers choose a
nursing home. To develop and help select the QIs for this initiative, CMS
contracted with two organizations with expertise in health care data and
quality measurement* Abt Associates, Inc., and the National Quality Forum
(NQF). 12 Abt identified a list of potential QIs* including some of those
developed by the Center* as being suitable for public reporting, and NQF
was tasked with reviewing Abt*s work and making recommendations to CMS
regarding the QIs for the pilot and national implementation. To accomplish
this task, NQF established a 12- member steering committee, which included
the Center*s Director. 13 The NQF Steering Committee differed with CMS on
several aspects of the agency*s QI initiative, including the risk-
adjustment methodology,

selection of QIs, and the time frame for publishing the data. 14 For
example, NQF concluded that some of the QIs required further review and
that CMS*s QI initiative would have benefited from a postponement of 3 to
4 months. We also evaluated CMS*s QI initiative, and on October 31, 2002,
reported that its plan to publicly report QI data had considerable merit.
15 However, we also raised concerns about the agency*s moving forward with

its initiative without resolving a number of important open issues on the
appropriateness of the QIs chosen for national reporting and the accuracy
of the underlying data. For example, CMS planned to proceed with the
national rollout without waiting for the advice it sought on the QIs from

12 NQF is a nonprofit organization created to develop and implement a
national strategy for health care quality measurement and reporting. NQF
participants include government and private entities as well as entities
from all sectors of the health care industry.

13 The Steering Committee of 12 included health services researchers,
geriatricians, state survey agency personnel, state Medicaid directors,
health systems representatives, and others.

14 Risk adjustment is important because it provides consumers with an
*apples- to- apples* comparison of nursing homes by taking into
consideration the characteristics of individual residents and adjusting QI
scores accordingly. For example, a home with a disproportionate number of
residents who are bedfast or who present a challenge for maintaining an
adequate level of nutrition* factors that contribute to the development of
pressure sores* may have a higher pressure sore score. Adjusting a home*s
QI score to fairly represent to what extent a home does* or does not*
admit such residents is important for consumers who may wish to compare
one home to another. 15 See U. S. General Accounting Office, Nursing
Homes: Public Reporting of Quality Indicators Has Merit, but National
Implementation Is Premature, GAO- 03- 187 (Washington, D. C.: Oct. 31,
2002).

Page 7 GAO- 03- 842 CMS Contracting

NQF. 16 In addition, we reported that CMS*s planned November 2002
implementation did not allow sufficient time to ensure that the indicators
it published were appropriate and useful to consumers. We recommended that
the CMS Administrator delay the initiative to resolve outstanding issues
and thoroughly evaluate the results of the six- state pilot. Such a delay,
we concluded, would allow CMS to assess both how the information should be
presented and how it could improve assistance to consumers. CMS
implemented its QI initiative in November 2002 as planned but committed to
continually improve the QIs and to work to resolve the issues discussed in
our report.

CMS followed a competitive process in awarding a task order for nursing
home survey inconsistency research work to RAND under the Medicare
Research and Demonstrations master contract. RAND*s proposal, which
explicitly included the Center as a subcontractor, outlined a plan in
which the Center would perform approximately half of the work, in terms of

cost, in the first year and about 80 percent over a 3- year period, if the
government exercised the options of extending the task order for 2
additional years. On the basis of four criteria*- statement of the problem
and technical approach, personnel and experience, management plan, and

past performance*- CMS awarded the task order to RAND on September 27,
2002. At virtually the same time, however, the CMS Administrator
instructed agency staff to inform RAND that it could not subcontract with
the Center. RAND continues to believe that the Center is the most
qualified subcontractor available and as of June 23, 2003, had not
conducted any substantive work under the CMS task order.

16 Although the NQF Steering Committee had originally planned to complete
its review of potential indicators using its consensus process by August
2002, in June 2002 CMS asked NQF to delay finalizing its recommendations
until 2003. CMS Selected RAND

Following a Competitive Process but Excluded Proposed Subcontractor

Page 8 GAO- 03- 842 CMS Contracting

CMS issued an RFP on July 12, 2002, to the 14 holders of Medicare Research
and Demonstrations master contracts for a project to assess
inconsistencies in the application of the nursing home survey process
across states and to develop specific policy and programmatic options for
improvement. 17 To improve survey consistency among states, the RFP listed
four objectives for the task order: (1) distinguish variability in the
survey measurement findings that is appropriate (that is, the result of
real quality variations among nursing homes) from variability that is
inappropriate (that is, the result of surveyor inconsistency), (2)
identify the aspects of survey inconsistency that are cited by key
stakeholders, (3) identify the most important causes of inconsistency, and
(4) develop policy and programmatic options for improvement. The RFP
specifically identified the need for a major fieldwork effort to collect
primary data to compare state survey team decisions with those of an
independent and

expertly qualified research team. 18 Proposals were to be evaluated on the
basis of four criteria, with a total possible score of 100. These criteria
and their associated point totals were (1) statement of the problem and
quality of technical approach (35 points), (2) personnel and experience
(30 points), (3) management plan and facilities (10 points), and (4) past
performance (25 points). The RFP specifically included subcontractors
among those whose background, experience, and accomplishments would be
reviewed as part of the evaluation process.

Three of the 14 eligible entities submitted proposals to CMS, including
RAND with the Center as its subcontractor. RAND*s proposal was prepared
jointly with the Center and was premised on collaboration between RAND and
the Center during the project. Center staff were to conduct the majority
of the fieldwork, relying on their researchers* survey experience. RAND
indicated that the Center would perform approximately 50 percent of the
work in terms of cost during the first year. If CMS decided to exercise
its options for years 2 and 3, RAND estimated the total

17 *Improving the Consistency of the Nursing Home Survey Process,* RFP No.
CMS- 02- 017/ JB, issued July 12, 2002. Nursing home deficiency rates and
scope and severity determinations vary substantially among states. For
example, according to the RFP, the percentage of nursing homes with no
health deficiency citations in 2000 ranged from 2. 3 percent in Arizona to
37. 8 percent in Virginia. The RFP explained that although some of these
differences might be accounted for by real quality- of- care differences
among nursing homes, it also is extremely unlikely that average
differences of this great a magnitude for

entire states can be explained by real quality- of- care differences. 18
The RFP repeatedly cited the previous survey work done by Center staff and
attributed some improvements to the nursing home survey process to the
Center*s findings. CMS Followed a Competitive Process to

Select the Proposal Submitted by RAND

Page 9 GAO- 03- 842 CMS Contracting

cost of its proposal at $2.0 million, of which the Center was expected to
receive about $1.6 million. The tasks to be performed during the first
year consisted largely of design preparation activities, with major
fieldwork efforts and report writing occurring during the option years. A
review panel, composed of CMS staff with different areas of expertise

and chaired by the Project Officer for this task order, was convened to
evaluate the three submitted proposals based on the four criteria
described above. To assign scores in the first three areas* statement of
the problem and technical approach, personnel and experience, and
management plan* panel members generally relied on information

contained in the proposals. With respect to past performance, the RFP
instructions required each offeror to submit a list of recent and related
projects with CMS and other entities, and the Project Officer gathered
past performance data on some of these projects by asking panel members
and other individuals familiar with the offerors to complete a survey. The
results of these surveys, as well as comments solicited from others who
had worked with each of the offerors in the past, were shared and
discussed by the panel, after which the individual panel members assigned
a past performance score to each offeror. On the basis of its initial
evaluation, the panel found each of the three submitted proposals to be
acceptable.

The review panel chair then sent a series of questions to the three
offerors to gain additional information about their proposals. The three
entities responded to these questions, submitting their best and final
offers. RAND*s best and final offer proposed that the Center would perform
more than 50 percent of the work during the first year, in terms of cost.
The same panel again met to evaluate and score the best and final offers,
and the RAND proposal received the highest number of points. The panel
members specifically cited the Center*s expertise in the area,
particularly

among its surveyors, as a reason for RAND*s high score. CMS sent a letter
to RAND on September 26, 2002, to notify the firm of its selection, and
the CMS Contracting Officer signed the task order to RAND for $248,355 on
September 27, 2002. The task order stated that *[ c] onsent is hereby
given* for a subcontract to the Center and expressly provided for the
Center to receive $134, 706. 19 19 The task order also incorporated RAND*s
technical proposal by reference.

Page 10 GAO- 03- 842 CMS Contracting

At virtually the same time that CMS awarded the task order to RAND, the
CMS Administrator, who told us he had received advice that he had the
legal authority to do so, directed staff from the Acquisition and Grants
Group to inform RAND that it could not subcontract with the Center.
Accordingly, on September 27, 2002, the same day that CMS awarded the task
order to RAND, a CMS contract specialist left a voicemail message with
RAND*s Contract and Grant Administrator, with the following instructions:
20 *[ The] subcontract with University of Wisconsin* must be deleted at
this time from your task order*. I*m not sure exactly what the issues are
but upper management has directed

us not to award any* contracts or subcontracts with the University of
Wisconsin until further notice.

An e- mail message dated September 26, 2002, from the Director of CMS*s
Acquisition and Grants Group to a Special Assistant to the Administrator
demonstrates that CMS was contemplating this action before the award was
made:

I just wanted to confirm our discussion last night*. We are also going to
award the Rand contract under which Wisconsin is a subcontractor. However,
we can explore the possibility of requesting that Rand remove Wisconsin as
a subcontractor after award. The Center*s Director, who learned of the
agency*s action from RAND on

October 8, 2002, attempted to determine the status of the Center*s role on
the task order first through telephone calls to officials in CMS*s
Acquisition and Grants Group and then through e- mail communications with
the Administrator. The Center*s Director met with the Administrator and
one of his Special Assistants on October 18, 2002. Although the Director
and the Administrator both characterized the meeting as productive, on
October 22, 2002, the Administrator sent an e- mail message to the
Center*s Director, reiterating his decision to direct RAND not to use

the Center as a subcontractor. The University*s Vice Chancellor for
Research and Dean of the Graduate School sent a letter to the CMS
Administrator on November 15, 2002, asking for the rationale for the

20 A RAND official provided us with an electronic copy of the recorded
voicemail message as well as a written transcription of the voicemail
message that included the date and time it was received. We have corrected
the transcription of this voicemail message and e- mail quotations
throughout this report for spelling errors. Except where otherwise
indicated by bracketed material or ellipses, they are verbatim. CMS
Administrator Intervened to Exclude

Subcontractor

Page 11 GAO- 03- 842 CMS Contracting

agency*s action. 21 On December 4, 2002, the University filed a bid
protest with GAO*s Procurement Law Group requesting that CMS be required
to rescind its order to RAND barring the Center as a subcontractor. 22
However, GAO dismissed the bid protest on December 16, 2002, explaining
that (1) it does not consider protests from subcontractors, and (2) the

protest was not submitted within the appropriate time frame. 23 On
December 18, 2002, CMS modified the RAND task order and formally withdrew
its consent for the Center as a subcontractor. (Table 1 contains a summary
of the dates on which these and other related events occurred.)

21 As of June 20, 2003, CMS had not responded to this letter. 22 Under the
Competition in Contracting Act of 1984 (CICA), GAO considers protests of
solicitations for contracts and awards or proposed awards of contracts by
federal agencies.

See 31 U. S. C. S:S: 3551- 3556. CICA and GAO*s implementing regulations
generally define the scope of GAO*s bid protest jurisdiction. GAO*s
authority to hear bid protests is distinct from its authority to conduct
audits, evaluations, and investigations of federal programs and
activities. 23 B- 291751, Dec. 16, 2002.

Page 12 GAO- 03- 842 CMS Contracting

Table 1: Chronology of Key Events in 2002 Relating to Award of Task Order
to RAND with the Center as a Subcontractor Date Action

July July 12 CMS sends RFP to 14 contractors. August Aug. 8 Three offerors
submit proposals in response to the RFP. RAND proposes to use the Center
as a

subcontractor. Aug. 20 CMS panel conducts initial review of proposals.
September Sept. 6- 10 CMS conducts discussions with three offerors and
requests best and final offers.

Sept. 17 CMS panel reviews best and final offers. Panel recommends RAND
for award. Sept. 26 CMS sends letter to RAND stating that it had been
selected for the task order. RAND signs the

task order and sends it to CMS. Sept. 27 CMS signs the task order and
instructs RAND not to subcontract with the Center. Sept. 30 At the request
of CMS, RAND sends two e- mails to CMS indicating that RAND will not
subcontract

with the Center. October Oct. 7 CMS Project Officer, unaware of the
decision regarding the Center, e- mails Center*s Director

reiterating that RAND has been awarded the task order. Oct. 10 Center*s
Director e- mails CMS Project Officer that RAND has been instructed by CMS
not to

subcontract with the Center. Oct. 14- 17 CMS Administrator and Center*s
Director exchange e- mails regarding the basis for the

Administrator*s decision to exclude the Center from the RAND task order.
Oct. 18 CMS Administrator and a Special Assistant meet with Center*s
Director to discuss CMS decision about the Center. Oct. 22 Center*s
Director e- mails CMS Administrator and a Special Assistant as a follow-
up to meeting and

asks about moving forward on project; CMS Administrator e- mails Center*s
Director that he is not changing his mind about the Center as a
subcontractor. Oct. 23 Center*s Director e- mails CMS Administrator to ask
why he refuses to reverse his decision. Oct. 25 CMS Administrator e- mails
Center*s Director indicating no change in his decision. November Nov. 15
University sends a letter to CMS Administrator requesting clarification of
his decision. CMS did not

respond. December Dec. 4 University files bid protest with GAO.

Dec. 16 GAO dismisses bid protest without addressing issues presented.
Dec. 18 CMS signs a task order modification withdrawing its consent for
the Center as a subcontractor and

the Center*s Director as the co- principal investigator. Sources: HHS,
RAND, and University of Wisconsin.

Given the uncertainty surrounding the use of the Center as its
subcontractor, RAND had not conducted any substantive work under the task
order as of June 23, 2003, over 8 months after the task order was awarded.
RAND officials told us that they had initially perceived that concerns
about the Center*s participation would be quickly resolved, with the
Center reinstated as the subcontractor. As a result, RAND*s response

for several months was to request extensions from CMS on performing the
work. On February 25, 2003, however, an official from CMS*s Acquisition
and Grants Group requested that RAND provide the agency with a course of
action for performing the work without the Center. RAND provided Task
Order Work on Hold 8

Months After Award

Page 13 GAO- 03- 842 CMS Contracting

CMS with three options on March 14, 2003, all of which envisioned RAND
performing as the prime contractor but potentially using another
subcontractor. RAND*s letter emphasized that it continued to believe that
the Center was the most qualified subcontractor and that the options were

only to be used if CMS continued to withhold its consent for the Center.
On May 15, 2003, CMS asked RAND to delay its work under this task order
until we had completed our investigation. However, on June 12, 2003, CMS*s
Acquisition and Grants Group sent a letter to RAND requesting the
termination of the task order by mutual consent. On June 19, 2003, RAND
responded that it agreed with the agency*s earlier suggestion to wait for
our report before taking further action.

The Administrator informed us that a number of factors supported his
exclusion of the Center from the RAND task order. First, he stated that
the *subcontract consent* clause in the master contract authorized CMS to
direct RAND not to use the Center as a subcontractor. A second factor the
Administrator identified was the desire to award work to *new* contractors
with *fresh* approaches and ideas in areas such as nursing home survey and
certification. Third, the Administrator told us that he and his staff had
assessed the Center*s performance on a number of ongoing CMS task orders
and determined that the Center had performed poorly on several of them,
especially those related to nursing home survey and

certification. Finally, the Administrator stated that during the
development and implementation of the nursing home QI initiative, the
Center*s Director had worked against consensus and was unwilling to
compromise, which generated significant problems for the agency. We have
reviewed each of the reasons provided by the Administrator and conclude
that, in light of the evidence, the Administrator did not have a
reasonable basis to direct RAND not to subcontract with the Center. 24
Rather, the

Administrator*s decision appears to have been in retaliation for the
Director*s comments on CMS*s QI initiative. As a result, we believe that
the Administrator*s action was improper.

24 Contracting agencies are afforded broad discretion in their procurement
decisions.

Maintenance Engineers v. United States, 50 Fed. Cl. 399, 412 (2001);
Preferred Systems Solutions, B- 291750, Feb. 24, 2003, 2003 CPD P 56 at 4.
Accordingly, when those decisions are challenged, they are generally
reviewed only to ensure that they are consistent with the solicitation*s
stated terms and applicable procurement statutes and regulations, and that
they have a reasonable basis. Halter Marine v. United States, 56 Fed. Cl.
144, 156- 59 (2003); TLT Construction Corporation v. United States, 50
Fed. Cl. 212, 215 (2001); Sams El Segundo, LLC, B- 291620.3, Feb. 25,
2003, 2003 CPD P 48 at 8. Administrator*s

Decision to Exclude Center Was Improper

Page 14 GAO- 03- 842 CMS Contracting

Two of the reasons cited by the Administrator* the subcontract consent
clause and a desire to obtain work from new contractors* do not provide
reasonable bases for excluding the Center from the RAND task order. The
Administrator*s reliance on the subcontract consent clause is
inappropriate because the task order award was largely based on the

integral role of the Center in the work to be performed. Further, both the
use of a task order competition limited to the 14 holders of master
contracts and the RFP for this task order undermine the Administrator*s
second reason* an interest in working with new contractors.

The Administrator asserted that the subcontract consent clause contained
in the master contract authorized him to disapprove RAND*s use of the
Center as a subcontractor under the task order. The subcontract consent
clause requires the contracting officer to review requests for approval of
subcontractors submitted by a prime contractor and advise the contractor
of the agency*s approval or disapproval in writing. While a subcontract

consent clause generally provides an agency with broad authority to accept
or reject proposed subcontractors, the Administrator*s reliance on the
clause in this context is inappropriate for a number of reasons.

As a preliminary matter, the subcontract consent clause cited by the
Administrator is typically applicable after contract award, as a matter of
contract administration, rather than at contract award. 25 Here, the
Administrator*s decision to exclude the Center as a subcontractor related
to the award of the task order, rather than to CMS*s administration of the
task order. RAND had identified the Center as a subcontractor in the
proposal it submitted to CMS, and the Administrator required RAND to
remove the Center at essentially the same time as CMS awarded the task
order to RAND.

More importantly, even if the subcontract consent clause was applicable,
the Administrator*s exercise of his authority under this clause was not
reasonable. CMS selected RAND in large part because of the strengths of
its proposed subcontractor, after reviewing the Center*s past performance,
the role it would have under the task order, and the time Center personnel
would devote to the project. Moreover, the agency consented to the RAND

25 The language of the clause (referring to requests by the *contractor,*
not offerors competing for a contract), as well as the FAR provision
governing its use, support the view that its applicability is limited to
post- award modifications or the approval of subcontractors that the
agency had not otherwise agreed to prior to award. See 48 C. F. R. S:
52.244- 2. Neither the Subcontract

Consent Clause Nor CMS*s Interest in New Contractors Provided a Reasonable
Basis for the Administrator*s Decision

Subcontract Consent Clause

Page 15 GAO- 03- 842 CMS Contracting

subcontract with the Center in the task order itself, explicitly endorsing
this element of the RAND proposal. If the Administrator acted properly in
excluding the Center* which we do not believe is the case* the award to
RAND would no longer be supported because it was largely based on

RAND*s subcontract with the Center. 26 Given the terms of the
solicitation, the Administrator*s stated preference for CMS to work with
new contractors with fresh approaches to the nursing home survey and
certification area did not provide a reasonable basis for his decision to
exclude the Center as a subcontractor. The solicitation did not state that
being new to the area of nursing home quality review was a selection
criterion. To the contrary, the competition for the nursing home research
task order was limited to the 14 entities that were eligible to compete
under the master contract. 27 In addition, much of the solicitation*s
discussion of the agency*s need for work in this area was based on the
Center*s prior efforts, which were repeatedly referenced. If the
Administrator believed there was a need to involve *new* researchers in
the nursing home survey and certification work, he could have directed
agency officials to amend the solicitation to reflect this criterion and
request revised proposals.

The evidence also does not support the Administrator*s statement that poor
past performance by the Center justified his decision to exclude it from
the RAND task order. As noted above, *past performance* and

*personnel and experience* accounted for 25 and 30 percent, respectively,
of the evaluation score, and officials from CMS*s Acquisition and Grants
Group told us that information about the past performance of a contractor
or subcontractor* either positive or negative* would be in the contract

file. Our review of the file for this task order, however, shows no record
of poor past performance by the Center. The scores that the RAND proposal
received for both of these criteria were high, and the contract file
included several examples of the Center*s strong past performance and
unique

26 It is well established that the selection of a proposal for award of a
federal contract must be based on the proposal as it was submitted by the
offeror and evaluated against the selection criteria in the solicitation.
Cf. 41 U. S. C. S: 253b( a); Bionetics Corp., B- 221308, Dec. 24, 1985,
85- 2 CPD P 715 (pertaining to competitive procedures under CICA).

27 CMS was not required to satisfy its research needs by awarding a task
order under the master contract. A provision in the master contract
suggests that an entity other than one of the 14 master contract holders
could have met CMS*s need for nursing home survey research through a
separate contract. Agency*s Interest in New

Contractors Assertion of Center*s Poor Past Performance Not Supported

Page 16 GAO- 03- 842 CMS Contracting

qualifications. CMS acquisition and grants and program staff we
interviewed also were not aware of any documentation suggesting poor
performance by the Center. The selection panel assessed the Center*s past
performance as very satisfactory and pointed to the central role of its
staff in the proposed fieldwork as a key factor in the decision to award
the task order to RAND. In response to one offeror*s post- award request
for information about weaknesses in its proposal, CMS officials identified
the absence of staff with extensive survey experience, like that of the
Center. Our review of other sources of performance information also
yielded a

high level of praise for the Center*s prior work. For example, as part of
the agency*s review of proposals for its 2000 master contract, CMS
requested evaluations from managers in CMS and other entities on projects
that were either ongoing or completed within the past 3 years. CMS staff
collected 18 such past performance evaluations for the Center on a mix of
CMS and non- CMS projects. 28 For these evaluations, reviewers rated the
Center in six categories, including performance. The majority of
evaluations completed for the Center were positive. While a few of the
reviewers gave the Center lower scores in some categories than in others,
all but one indicated on the evaluation that they would contract with the
Center again. The remaining reviewer gave an *unsure* response.

In addition, the Administrator*s assessment of the Center*s performance on
ongoing projects as a prime contractor or a subcontractor is not
persuasive and therefore does not support his assertion that the Center*s
past performance was poor. This assessment, which was documented in an e-
mail message dated February 4, 2003, from a Special Assistant to the

Administrator to senior CMS contracting and other officials* over 4 months
after the decision was made to exclude the Center as a subcontractor*
contains an unsupported statement that most of the work managed by the
Center *did not produce favorable results.* For the six task orders cited
in this assessment, the vast majority of the funds* about 83 percent* were
directed to two task orders in which the Administrator determined that the
Center performed well. 29 With respect to the remaining

28 The 2000 master contract solicitation instructed offerors to provide a
list of contracts and subcontracts completed during the past 3 years and
ongoing contracts and subcontracts similar in nature to the scope of the
solicitation.

29 These two projects involved examinations of the (1) Implementation of
Medicare Consumer Assessment of Health Plans (CAHPS) Disenrollment Survey
and (2) National Implementation of Medicare CAHPS/ Fee- for- Service
Survey.

Page 17 GAO- 03- 842 CMS Contracting

four projects, the assessment characterizes the Center*s performance as
poor but does not provide specific examples of poor performance. For
example, in reference to the Center*s work on two survey and certification
task orders, the assessment states that *this program/ process [survey and
certification] has been very problematic for CMS*. [I] t continues to be
an

area that generates great concern*. This doesn*t mean that all of the
problems are the responsibility of this contractor - but CMS would
certainly benefit from a fresh approach - old ideas from this contractor
and others are not working.* The assessment does not go on to specify
examples of the Center*s poor performance on the projects and does not
explain why the Center, which is one of several contractors to have
performed work in the area, would be responsible for weaknesses in the
nursing home survey and certification process. 30 The assessment also does
not explain why the other contractors involved in the nursing home survey
process were not excluded from survey- related task orders on a similar
basis.

The Administrator*s negative view of the Center*s work on these four task
orders identified in the summary assessment document also is not
consistent with the master contract performance evaluations completed by
CMS project managers, who a CMS official said are in the best position to
comment on the performance of a contractor. For example, with respect to
the two survey and certification projects referred to above, the
respective CMS project officers gave high marks to the Center in all
applicable categories on the performance evaluations. While there are some
negative statements, most of the other documents related to these four
task orders are positive.

The Administrator*s October 17, 2002, e- mail message to the Center*s
Director also contradicts his assertion that the Center*s past performance
was poor. In this e- mail message, the Administrator stated, in part:

I am sure your work with us will continue*. If you do good work* as you
apparently do* and deal with us fairly* you will get the same treatment
from me. 30 While the Center has performed work on several projects
related to the survey and

certification process, there are other contractors with similar levels of
CMS contracting experience in this area.

Page 18 GAO- 03- 842 CMS Contracting

The evidence suggests that the Administrator*s decision to exclude the
Center from the RAND task order was in retaliation for the Center
Director*s comments about CMS*s nursing home QI initiative, including the
Director*s provision of technical information that we requested during our
review of the effort. Although these comments did not affect the QIs CMS

used or the timing of the national rollout, the Center*s Director was
perceived by the Administrator as obstructing the consensus- building
process for the QI initiative by being unwilling to compromise. Having
received advice that he had the legal authority to exclude the Center from
the RAND task order and understanding (although erroneously) that the

task order was valued at $30,000, the Administrator directed CMS staff to
exclude the Center. Acknowledging that he was not familiar with the
agency*s contracting process, the Administrator told us he believed it was
appropriate for him to intervene in this instance given the Center
Director*s position on the QI initiative. Regardless of the merit of the
Administrator*s view of the Center*s Director and concerns about the
Director*s capacity to build consensus, the Administrator was not
authorized to effectively change the proposal on which the award to RAND
had been based. As explained earlier, the award to RAND was no longer
supported once the Administrator excluded RAND*s proposed subcontractor.

The Administrator*s frustration with the Center*s Director regarding the
QI project is demonstrated in e- mail exchanges between the two. For
example, in an e- mail message on October 16, 2002, referring to the QI
initiative, the Administrator wrote:

*Your problem with the agency is me* and I have discussed that with the
Secretary at some length. I am happy to talk to you* but if you want to
continue to yank my chain* I will continue to disconnect you from this
agency. And I am happy to discuss this in front of the Secretary, either
of your Senators* or anyone you like. There is no entitlement to
government contracts* especially when you try to sandbag the agency you
contract with* and I have NO doubt they would all agree with me if I have
to discuss it in more detail.

When asked by the Center*s Director on October 17, 2002, why the Center
was excluded from the RAND task order, the Administrator responded, in
part: I gave you every shot in the world to get your views in*. We have
worked hard to build that consensus in the last year, and are not
interested in having it erode before the November 12th publication*. You
were part of a fair, thorough and unbiased process. I don*t think it is
too much to ask the participants in that process not to rip it apart when
it is put in place. The RAND subcontract is a very very small part of your
work. I am sure your Evidence Suggests that

Administrator*s Decision Was Retaliation for the Center Director*s
Comments on QI Initiative

Page 19 GAO- 03- 842 CMS Contracting

work with us will continue. But the government has no requirement to
contract with anyone.

The timing of certain events relating to the Administrator*s decision to
exclude the Center from the RAND task order and the involvement of the
Center*s Director in commenting on the QI initiative further suggest that
the Administrator*s directive was retaliatory in nature. For example, on
September 25, 2002* roughly 6 weeks before the national rollout and 2 days
before the task order award* the Center*s Director met with CMS*s Project
Director for the QI initiative, at which time the Center*s Director
provided a position paper that identified several technical issues that he
believed the agency needed to address prior to the national
implementation. Although the CMS official characterized the meeting as

productive, she also told us that CMS and the Center*s Director had a
fundamental disagreement over certain technical aspects of the initiative,
and she believed that the Center*s Director would not be satisfied unless
CMS changed course and included the QIs that the Center*s Director
supported in its public reporting program. On the same day as this
meeting, September 25, 2002, this CMS official contacted a Special
Assistant to the Administrator to brief him on the substance of the
discussion. The same evening, the Special Assistant and the Director of
CMS*s Acquisition and Grants Group also discussed the status of the RAND
contract and the possibility of excluding the Center, which occurred 2
days later on September 27, 2002.

Although communications between the Administrator and the Center suggested
that the Administrator*s decision to exclude the Center was limited to the
RAND task order, other evidence we reviewed indicated that senior CMS
officials intended to exclude the Center from other CMS contracting
opportunities based on their understanding of the Administrator*s
direction. Most notably, internal CMS communications suggest that agency
officials had essentially barred the Center from participating as a prime
or subcontractor on other task orders. However,

CMS*s treatment of the Center under other task orders has varied since its
exclusion from the RAND task order. While CMS denied a request submitted
in December 2002 to provide additional funds to the Center as a
subcontractor, the agency recently decided to exercise an option to extend
another task order on which the Center is the prime contractor. Efforts to
Exclude the

Center Extended to Other Contracting Opportunities

Page 20 GAO- 03- 842 CMS Contracting

On January 30, 2003, CMS sent a letter to the Center advising it that the
agency and the Center no longer had a contractual relationship because of
the Center*s insistence on certain changes to the master contract that CMS

considered unacceptable. 31 As a result, the Center was no longer eligible
to compete for task orders issued under the master contract. Center
officials told us that they were surprised and confused by CMS*s letter
since they believed that their concerns regarding the master contract had
been resolved. Therefore, the Center requested clarification in a February
7, 2003, letter to CMS. On April 30, 2003, CMS advised the Center that it
continued to find the Center*s proposed changes unacceptable, but offered
to reinstate the Center*s master contract under the original terms.

Regardless of the dispute concerning the master contract, a January 29,
2003, internal CMS e- mail message suggests that the Center would not have
been considered for task order awards despite the existence of a
contractual relationship with CMS. Describing the context in which the
ongoing dispute between the Center and CMS had arisen, the Director of
CMS*s Acquisition and Grants Group wrote to a Special Assistant to the
Administrator, in part:

In September, we sent [the Center] a modification to extend its current
[master] contract for Medicare research activities. We have no intention
of awarding it work under the contract based upon [the Administrator*s]
instructions. But, we felt we had to exercise the option to extend the
base contract for legal reasons. Earlier e- mail and voicemail messages
also suggest that, as a practical matter, the Center had been barred from
serving as a prime contractor for task orders under the master contract as
well as a subcontractor to other entities. For example, the Director of
CMS*s Acquisition and Grants Group

e- mailed the following direction concerning the Center to some of his
staff in November 2002:

*The Administrator*s Office has directed us not to make awards to [the
Center]*. If [the Center] is the apparent successful offeror for any
competed task order, do not make an award until we have had the chance to
raise the matter with the Office of the Administrator*.

31 Negotiations over information disclosure provisions in the master
contract had been ongoing since October 2000, during which time CMS had
twice exercised options to extend the contract. CMS officials told us that
negotiations after contract award are common and that the Center had been
eligible to compete for task orders under the master contract
notwithstanding the ongoing negotiations. Staff Understood

Instructions to Exclude the Center to Extend to Other CMS Contracting
Opportunities

Page 21 GAO- 03- 842 CMS Contracting

In the same e- mail message, the Director of CMS*s Acquisition and Grants
Group also directed a senior member of his staff to pursue acquisition
strategies, including competing work under other master contracts and
awarding task orders to small businesses, designed to limit the Center*s
participation in CMS procurements. A later internal e- mail message
emphasized that the instructions regarding awards to the Center extended
to subcontracts and funding transfers as well.

An intent to exclude the Center from CMS procurements could constitute an
improper de facto debarment. 32 A de facto debarment occurs when an agency
excludes a potential contractor from government contracting or
subcontracting without following the procedures set forth in the FAR,
which requires agencies to notify contractors of the reasons for proposed
debarments and provide them with an opportunity to respond. 33 During the
course of our review, we found no evidence that the agency had followed
these procedures with respect to the Center.

CMS*s unfavorable treatment of the Center was apparent in another CMS task
order under a separate master contract where the Center is one of four
subcontractors to the Research Triangle Institute (RTI). 34 In this
project, the Center and another subcontractor are charged with leading a
multiphase project to test and implement the use of QIs in the long- term
care survey process. 35 The Center*s Director is the principal
investigator on the Center*s subcontract with RTI. In late December 2002,
the Project Officer for this task order submitted a request to adjust
subcontractor

32 Debarment refers to the formal exclusion of a prospective contractor
from government contracting. The FAR identifies various reasons for
debarment. Among other things, a contractor may be debarred for a
conviction of or civil judgment for fraud, violation of federal or state
antitrust statutes related to the submission of offers, or commission of
other offenses indicating a lack of business integrity that seriously and
directly affects the contractor*s present responsibility. See 48 C. F. R.
S: 9.406- 2. 33 See 48 C. F. R. S: 9.406- 3; Quality Trust, Inc., B-
289445, Feb. 14, 2002, 2002 CPD P 41 at 4

(noting that a necessary element of a de facto debarment is that an agency
intends not to do business with the firm in the future). 34 Contract No.
500- 96- 0010, Task Order 3, *Evaluating the Use of Quality Indicators in
the Long Term Care Survey Process.* 35 The other subcontractor is the
Division of Health Care Policy and Research within the University of
Colorado*s Health Sciences Center. CMS*s Treatment of Center

on Other Task Orders Varied

Page 22 GAO- 03- 842 CMS Contracting

funding levels, including a relatively small addition for the Center. 36
This request was not approved by CMS*s Acquisition and Grants Group, based
on the staff*s understanding of the Administrator*s instructions regarding
the Center. A CMS official confirmed that there were no additional reasons
the request was not approved, and when the reference to the Center was
deleted, the request, which included additional adjustments to other
subcontractor funding levels, was approved.

On June 9, 2003, the Director of CMS*s Acquisition and Grants Group told
us that CMS had recently decided to exercise an option to extend a task
order on which the Center is the prime contractor but which does not
involve the Center*s Director. 37 The extension through September 30,
2004, is valued at $3.3 million, with the overall task order valued at
approximately $15.6 million. A task order modification for this extension
was provided to the Center for signature on May 29, 2003. A CMS official
told us that the agency would sign the modification once it receives a
signed copy from the Center.

Consistent with the *fair consideration* requirements of the Federal
Acquisition Streamlining Act of 1994 and the terms of the master contract,
CMS conducted a competitive process for the award of a task order for
nursing home survey work. Although the resulting award to RAND was based
largely on the identity and past performance of its proposed
subcontractor* the Center* the Administrator intervened in the procurement
by directing RAND to exclude the Center from serving as a subcontractor.
The Administrator*s action was not supported by any reasonable basis,
including a reasonable exercise of authority under the subcontract consent
clause contained in the master contract. Rather, the action appears to
have been taken in retaliation for the Center Director*s technical
concerns about another CMS initiative. The Administrator*s action thus was
improper and undermined the integrity of the procurement process at CMS.
Moreover, the Administrator*s exclusion of the Center was understood by
senior CMS officials to extend to other CMS

procurements in which the Center might play a role as a prime contractor
or subcontractor.

36 This request included the transfer of $20, 000 from one of the other
subcontractors to the Center. The Center*s budget for the RTI task order
is approximately $2.3 million. 37 *Implementation of Medicare CAHPS Fee
for Service,* Contract No. 500- 95- 0061, Task

Order 7. The task order was awarded to the Center in August 2000.
Conclusions

Page 23 GAO- 03- 842 CMS Contracting

In order to maintain the integrity of CMS*s procurement process, we
recommend that the Secretary of Health and Human Services take appropriate
action to remedy the Administrator*s improper decision to exclude the
Center from the RAND task order. Such a remedy could include permitting
RAND to subcontract with the Center as RAND had proposed or reopening the
competition for the award of the nursing home survey research task order.
We further recommend that the Secretary have CMS procurement decisions
affecting the Center since September 2002

reviewed to ensure that they were supported by a reasonable basis. We
provided a draft of this report to the Secretary of Health and Human
Services and the Administrator of CMS, as well as relevant excerpts to
RAND and the University of Wisconsin. The Office of the Secretary provided
oral comments and CMS provided written comments (reproduced in app. I).
RAND and the University of Wisconsin provided technical comments, which we
incorporated as appropriate.

In its written comments, CMS disagreed with our conclusion that the
Administrator*s decision to exclude the Center as a subcontractor from the
RAND task order was improper and undermined the integrity of CMS*s
procurement process. CMS asserted that the Administrator had a reasonable
basis to instruct RAND not to subcontract with the Center, reiterating the
reasons described earlier in this report without providing any new
information. For example, CMS restated the view that the Center*s past
performance on nursing home survey and certification initiatives was
problematic. We did not find evidence to support this view. Rather, the
evidence pointed to a record of strong performance in this area.
Nonetheless, CMS concurred with our recommendation concerning the need to
take action to remedy the situation with regard to the Center*s

exclusion from the RAND task order award. CMS commented that the
Administrator acknowledged that the subcontractor work under the RAND task
order may have been more significant than he had initially understood and
stated that the issue may be best rectified by recompeting the work, with
the clear expectation that the agency is looking for new ideas with a
strong results orientation. According to the written comments, the
Administrator has directed staff to rebid the work as quickly as possible.
Any such solicitation must include the actual selection criteria that CMS
intends to apply.

In oral comments, the Office of the Secretary concurred with our
recommendation concerning the need to review CMS procurement decisions
affecting the Center since September 2002. We were informed
Recommendations for

Executive Action Agency Comments

Page 24 GAO- 03- 842 CMS Contracting

that the Assistant Secretary for Administration and Management will
perform an independent review of all CMS procurement activities involving
the Center. In its comments, CMS emphasized that the Administrator did not
intend for his decision concerning the Center on the RAND task order to
extend to other work for CMS and that, upon learning of this possibility,
the Administrator took immediate action instructing appropriate staff to
*set the record straight.* CMS said the Center is to be treated no better
or worse than any other prospective contractor, with a completely level
playing field for all contractors that want to offer new ideas to improve
the nursing home survey and certification process.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report to
the Secretary of Health and Human Services, the Administrator of CMS, and
appropriate congressional committees. We will also make copies available
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Appendix I: Comments from the Centers for Medicare & Medicaid Services
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Appendix I: Comments from the Centers for Medicare & Medicaid Services

Appendix I: Comments from the Centers for Medicare & Medicaid Services
Page 26 GAO- 03- 842 CMS Contracting

Appendix I: Comments from the Centers for Medicare & Medicaid Services
Page 27 GAO- 03- 842 CMS Contracting (290261)

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