Emergency Planning Management,inc. v. United States

In the United States Court of Federal Claims

No. 19-1024

(Filed: October 2, 2019)

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EMERGENCY PLANNING *

MANAGEMENT INC. *

Pre-award Bid Protest; Rational

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Basis Standard; Competition in

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Contracting Act; Bundling;

Plaintiff, *

Consolidation; Agency Discretion;

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Small Business Act; Motion for

v. *

Permanent Injunction; 28 U.S.C.

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§ 1491(b); Standard for Injunctive

THE UNITED STATES, *

Relief.

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Defendant. *

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Joshua B. Duvall, Matross Edwards, LLC, Washington, D.C., with whom was Matthew R.

Keller, Praemia Law, PLLC, Reston, Virginia, for Plaintiff.

David R. Pehlke, Trial Attorney, with whom were Joseph H. Hunt, Assistant Attorney

General, Robert E. Kirschman, Jr., Director, Patricia M. McCarthy, Assistant Director,

Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington,

D.C., and Tracey Sasser, Assistant General Counsel, U.S. Department of Education,

Washington, D.C., for Defendant.

OPINION AND ORDER

WHEELER, Judge.

In this pre-award bid protest, Plaintiff Emergency Planning Management, Inc.

(“EPM”) challenges the latest student loan servicing procurement by the Department of

Education (“ED”). At issue is the agency’s alleged preference for one small business

program at the expense of others and its decision to consolidate once-separate services into

a single procurement.

EPM is a veteran-owned small business that collects defaulted student debt. EPM

contests ED’s recent student loan servicing solicitation, called “Next Generation

Processing and Servicing Environment” (“Next Gen”), which combines default collection

with other student loan servicing work, so that one entity will oversee the “full life-cycle”

of a student loan from origination to payoff. Because EPM is a small business specializing

in default collection services, it claims that Next Gen’s “full life-cycle” structure unfairly

precludes it from competing for prime contracts.

EPM argues that the Next Gen’s Business Processing Operations (“BPO”)

solicitation is unlawful because: (1) it consolidates loan servicing and default collection

without justification, thereby precluding small business participation; (2) it violates federal

laws and Congressional policies regarding debt collectors; (3) it is arbitrary and capricious;

and (4) ED failed to adhere to the notification requirements regarding the consolidation of

services. The Government responds that the Court recently addressed these exact issues

and determined that Next Gen’s consolidated structure is justified. See FMS Inv. Corp. v.

United States, 144 Fed. Cl. 140, 145–49 (2019).

The parties have filed cross-Motions for Judgment on the Administrative Record,

pursuant to Rule 52.1 of the Court. For the reasons explained below, the Court DENIES

EPM’s motion, and GRANTS the Government’s cross-motion.

Background

This Court previously has provided the detailed history of the solicitation at issue in

this case. On December 11, 2015, ED released its first iteration of the Next Gen

solicitation. See FMS Inv. Corp. v. United States, 139 Fed. Cl. 221, 223 (2018), amended,

139 Fed. Cl. 439 (2018). In May 2018, after various contract awards, protests, and

corrective actions, ED cancelled the solicitation. See id. at 224. A group of Private

Collection Agencies (“PCAs”) challenged the cancellation decision. In September 2018,

this Court ruled that the decision to cancel the solicitation was arbitrary and capricious. Id.

at 227.

The 2019 Appropriations Act directed ED to “award no funding for any solicitation

for a new federal student loan servicing environment . . . ‘unless the environment provides

for the full life-cycle of loans from disbursement to payoff.”’ FMS Inv. Corp, 144 Fed. Cl.

at 145 (citing, and quoting in part, Dep't of Def. and Labor, Health and Hum. Servs., and

Educ. Appropriations Act, 2019 and Continuing Appropriations Act, 2019, Pub. L. No.

115-245, Div. B, Title III, 132 Stat. 2981, 3102 (2018) (“2019 Act”)). ED interpreted “full

life-cycle” and “from disbursement to payoff” to require its new student loan solicitations,

Next Gen, to combine loan servicing and default collection work into one solicitation

where one entity provides “cradle-to-grave” servicing.

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In January 2019, ED reissued three Next Gen solicitations, which added further

requirements for small business participation.1 The new solicitations include a total small-

business subcontracting goal of 32 percent. See Administrative Record (“AR”) 62–63.

Under the new solicitation, offerors were required to submit Small Business Participation

Plans (“SBPP”). See AR 534–50 (communications with the Small Business

Administration (“SBA”) regarding the BPO’s SBPP). The Next Gen solicitation also

increased the objectives for Historically Underutilized Business Zone (“HUBZone”) small

business concerns. See id. Congress created the HUBZone program to “provide Federal

contracting assistance for qualified small business concerns located in historically

underutilized business zones, in an effort to increase employment opportunities,

investment, and economic development in those areas.” 48 C.F.R. § 19.1301(b) (2000).

The BPO solicitation requires utilization of HUBZone businesses to increase from 19 to

30 percent within two years. See AR 540.

Shortly thereafter, in February 2019, FMS Investment Corporation, a PCA, filed a

complaint with this Court alleging in part that the BPO solicitation inappropriately bundled

services. See FMS Inv. Corp., 144 Fed. Cl. at 143–44. Over the next six weeks, six more

PCAs filed protests. See id. at 143. Five PCAs filed a motion for a preliminary

injunction—all of which were denied. See id. In July 2019, after two PCAs withdrew their

protests, this Court held that ED’s Next Gen solicitations, including the BPO solicitation

at issue here, were not arbitrary and capricious and declined to issue injunctive relief. See

id. at 145 (“ED is clearly complying with the 2019 [Appropriations] Act…”).

On July 16, 2019, EPM filed its Complaint and motions for a temporary restraining

order and a preliminary injunction. Dkt. Nos. 1, 5, 6, 7. On July 23, 2019, the Court heard

arguments on the motions and issued an Order denying EPM’s request for a temporary

restraining order and a preliminary injunction. Dkt. Nos. 11, 12. The parties completed

briefing on September 19, 2019, and the Court heard oral arguments on September 26,

2019. Dkt. Nos. 21–29.

Analysis

I. Standard of Review

The Tucker Act grants this Court subject-matter jurisdiction over bid protests. 28

U.S.C. § 1491(b)(1) (2012). In a bid protest, the Court reviews an agency’s decision

pursuant to the standards set out in the Administrative Procedure Act (“APA”). 28 U.S.C.

§ 1491(b)(4); 5 U.S.C. § 706 (2012). The APA provides that “a reviewing court shall set

aside the agency action if it is arbitrary, capricious, an abuse of discretion, or otherwise not

1

The revised solicitations included three requests for proposals (“RFPs”): (1) the Business Process Operations

(“BPO”) RFP, (2) the Enhanced Processing Solution (“EPS”) RFP, and (3) the Optimal Processing Solution (“OPS”)

RFP.

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in accordance with law.” 5 U.S.C. § 706(2)(A); Banknote Corp. of Am., Inc. v. United

States, 365 F.3d 1345, 1350–51 (Fed. Cir. 2004) (citation omitted).

Under the APA, a court may set aside a corrective action if it “lack[s] a rational

basis.” Dell Fed. Sys., L.P. v. United States, 906 F.3d 982, 990 (Fed. Cir. 2018) (citations

omitted). The rational basis standard is highly deferential; “a court is not to substitute its

judgment for that of the agency.” F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502,

514 (2009) (citations omitted); see also Dell Fed. Sys. L.P., 906 F.3d at 992. An agency

need only provide a “coherent and reasonable explanation” for its action. Impresa

Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1333 (Fed. Cir.

2001) (citation omitted). A court will uphold even an agency “decision of less than ideal

clarity if the agency’s path may reasonably be discerned.” Balestra v. United States, 803

F.3d 1363, 1373 (Fed. Cir. 2015) (internal quotation and citations omitted).

II. The BPO Solicitation

An agency “bundles” or “consolidates” when it combines “two or more procurement

requirements that were previously solicited as separate, smaller contracts.” Feldman, S.,

Bundling, Gov’t Cont. Guidebook § 4:6 (4th ed. 2018); see also 15 U.S.C. § 632(o)(2).

Not all bundling, however, is prohibited. EPM argues that the BPO solicitation’s

“combination of loan servicing and debt collection[] services are likely to be unsuitable for

award to a small-business concern.” Dkt. No. 21 at 21.

The Small Business Act (“the Act”) provisions relating to bundling state that

agencies must “avoid unnecessary and unjustified bundling of contract requirements that

precludes small business participation in procurements as prime contractors.” 15 U.S.C.

§ 631(j)(3). Under the Act, agencies that wish to consolidate a solicitation must (1) conduct

market research to determine whether consolidation is necessary and justified and (2)

notify the SBA with its findings. See 15 U.S.C. § 644(e)(2)(A); FAR § 10.001(c)(2). In

addition, the Federal Acquisition Regulation (the “FAR”) requires contracting officers to

notify incumbent contractors 30 days prior to issuing a bundled solicitation. See FAR

§§ 7.107-5, 10.001(c)(2).

An agency, however, enjoys broad discretion to determine its own needs. See

Savantage Fin. Servs., Inc. v. United States, 595 F.3d 1282, 1286 (Fed. Cir. 2010);

Totolo/King v. United States, 87 Fed. Cl. 680, 695–96 (2009) (“[W]ide discretion is

afforded to contracting officers in making responsibility determinations and in determining

the amount of information that is required to make a responsibility determination.” (internal

quotation and citations omitted)). Therefore, a successful protest to an agency’s

combination of multiple procurement requirements must demonstrate that the

consolidation is not rationally related to the agency’s needs. See CHE Consulting, Inc. v.

United States, 552 F.3d 1351, 1354 (Fed. Cir. 2008); K-Lak Corp. v. United States, 98 Fed.

Cl. 1, 5 (2011) (“To show a violation of a regulation or procedure, a claimant must show a

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clear and prejudicial violation of applicable statutes or regulations.” (internal quotation and

citations omitted)).

A. Support for Consolidation

This Court previously determined that ED has a rational basis for consolidating the

student loan servicing and collection processes. See FMS Inv. Corp., 144 Fed. Cl. at 144.

Although the contractors in FMS Investment Corporation were not small businesses, the

analysis of ED’s justification for its actions remains unchanged. ED conducted market

research and consulted subject matter experts, which included hiring McKinsey &

Company, Inc., to identify the “best-in-class collections practices.” Dkt. No. 25 at 6

(quoting FMS AR 4–5); see also AR 525–30. ED points out that it also relied on “responses

submitted through Phase I” of the Next Gen solicitation to “improve [Next Gen’s]

delinquency management practices and bring them closer to commercial practice

standards.” Dkt. No. 25 at 6 (quoting FMS AR 4).

In fact, EPM concedes that not all bundling is prohibited. See Dkt. No. 21 at 28.

The Federal Circuit has noted that regardless of whether anti-bundling provisions apply, a

procurement may be valid when the agency “conducted extensive market research before

determining that consolidation of the procurement requirements was necessary and

justified.” Tyler Constr. Grp. v. United States, 570 F.3d 1329, 1335 (Fed. Cir. 2009)

(internal quotation and citations omitted). Here, as in Tyler, the contracting officer

documented the rationale behind seeking a procurement to cover the “full life-cycle” of the

loan, which included decreasing borrower’s confusion, standardizing systems, ensuring

debt collection was not prioritized over borrowers’ long-term success, and adhering to

congressional directives set forth in the 2019 Appropriations Act.2 See FMS AR 2–3,

2507–13, 14382–89; Dkt. No. 22 at 6.

EPM largely relies on the same arguments raised in FMS Investment Corporation

while hoping for a different outcome. The Court sees no justification for reversing its

previous determination that ED provided a “coherent and reasonable explanation” for Next

Gen’s consolidation. See FMS Inv. Corp., 144 Fed. Cl. at 146 (internal quotation and

citations omitted). The Court will not infringe on ED’s wide discretion to determine its

own needs.

B. Notification Requirements

Next, EPM argues that ED did not provide the proper 30-day notice of its intent to

bundle the contracts. See Compl. ¶¶ 62, 64, 65, 69; Dkt. No. 23 at 17; see also FAR

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A more in-depth analysis of why ED’s consolidation of the Next Gen solicitation is rational can be found

in this Court’s July 31, 2019 opinion in FMS Investment Corporation, 144 Fed. Cl. at 145–47.

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§ 7.107-5(a)(1); 13 C.F.R. § 125.2(d)(5). However, ED maintains that any failure to fully

comply with the notification requirements did not harm EPM. See Dkt. No. 22 at 10–11.

To support its contentions, EPM relies on Sigmatech, Inc., B-296401, Aug. 10,

2005, 2005 CPD ¶ 156. In Sigmatech, the Government Accountability Office (“GAO”)

held that the Army improperly bundled a solicitation when it failed to comply with the

FAR’s notification requirements. See id. (citing FAR §§ 7.107(a), (b), 10.001(c)(2),

19.202-1). Rather than denying its noncompliance, the Army argued that the FAR

provisions were not applicable to it. The GAO sustained the protest because the Army did

not: (1) notify the incumbent small business contractor of its intent to bundle, (2) provide

a bundling analysis, or (3) notify the SBA of its acquisition strategy. See id.

EPM’s reliance on Sigmatech is misplaced. Even if ED failed to notify “each small

business performing a contract,” the fact that EPM—unlike Sigmatech—is not an

incumbent contractor severely undercuts its argument. See FAR §§ 7.107-5(a)(1),

10.001(c)(2) (requiring notification to any “incumbent small business concerns”);

Sigmatech, B-296401, Aug. 10, 2005, 2005 CPD ¶ 156 (citing failure to notify incumbent

contractor as a factor in granting the protest).

EPM also accuses ED of not consulting with the appropriate Small Business

Specialist in violation of FAR § 7.104(d). See Compl. at ¶¶ 69, 84, 89–91; Dkt. No. 23 at

18. Once again, the facts of Sigmatech, and this case diverge. Unlike in Sigmatech, the

administrative record here indicates that ED not only notified the SBA of the BPO

solicitation but also provided the SBA with drafts of the small business participation plan.

See Dkt. No. 22 at 11; AR 534–50 (email chain with Martina Williams, SBA Procurement

Center Representative).

EPM further claims that ED’s failure to adhere to the notification requirements

prevented it from proposing alternative procurement structures. See Dkt. No. 23 at 18.

This argument also fails. This is not the first iteration of the Next Gen solicitation. The

prior solicitations also consolidated loan and default services. In any event, EPM was

aware of the solicitation, as it timely filed this protest.

C. Small Business Commitment

In an effort to distinguish its case from FMS Investment Corporation, EPM

challenges the consolidation of these services, based on the requirements of the Small

Business Act, the Competition in Contracting Act (“CICA”), and the FAR.

During the contracting officer’s research, the agency identified approximately sixty

entities that were interested in ED’s solicitation. See AR 533. The Phase I solicitation

resulted in 40 entities responding, four of which were small businesses. See id. After the

contracting officer analyzed their capabilities, none of the four small businesses advanced

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to Phase 2. See id. Based on the solicitation and research, the contracting officer concluded

that “there was not a reasonable expectation of obtaining offers from two or more

responsible small business concerns that are competitive in terms of market prices, quality,

and delivery,” and therefore the agency was not obligated to set the procurement aside for

small businesses. Id.

Given the detail and reasoning contained in the AR, EPM’s claim that ED’s

handling of the BPO solicitation was contrary to the statutory and regulatory provisions

supporting small business participation must fail. ED was conscious of the potential effects

on small businesses and endeavored to promote their participation. For example, the BPO

solicitation is explicitly “open to all entities…including small businesses” and permits

entities to associate together as teams or joint ventures when submitting proposals. See

AR 533, 540. ED also requires offerors to submit a detailed Small Business Participation

Plan which includes a goal that small businesses perform 32 percent of the subcontracted

work. See AR 62–63; FAR 7.107-4(b)(4). Even if the Court were to disagree with the

contracting officer’s determination, the market research establishes, at a minimum, a

rational basis for its conclusion.

The Court’s prior finding that ED appropriately exercised its discretion in

structuring its Next Gen solicitations remains unchanged. EPM, like FMS, challenges Next

Gen’s consolidation of loan and default services. In this case, the fact that EPM is a small

business does not affect ED’s justification for its structuring of the BPO solicitation.

EPM’s notification arguments are also unpersuasive. EPM fails to demonstrate how any

defect in ED’s compliance with FAR Part 7’s procedural requirements prejudiced it.

Therefore, the Court sees no reason to substitute its judgment for that of the agency.

III. Small Business Participation Plan

EPM also accuses ED of unreasonably favoring HUBZone businesses at the expense

of other small businesses. See Dkt. No. 21 at 30. ED counters that a contracting officer’s

decision is a matter of business judgment entitled to a “presumption of regularity.” Dkt.

No. 22 at 7 (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415

(1971)).

Congress enacted the Small Business Act in 1953 to protect the interests of small

business. 15 U.S.C. § 631(a). The purpose of the Act is to ensure the attainment of a

“Government-wide goal for participation by small business concerns [in government

contracts] ... [of] not less than 23 percent of the total value of all prime contracts for each

fiscal year.” Id. § 644(g). In addition to aiding small businesses in general, the Act

contains programs that favor certain categories of small business. One such program is the

HUBZone program which encourages participation of small businesses located in

economically disadvantaged or distressed areas. See id. § 657(a). Under the HUBZone

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program, three percent of the total value of federal contract awards should be set aside for

HUBZone businesses. See id. § 644(g).

A contracting officer’s decision invokes a “highly deferential rational basis review.”

See Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1368–69 (Fed. Cir. 2009). As

ED pointed out, “it is well established that procurement officials are entitled to a strong

presumption of regularity and good faith.” Dkt. No. 22 at 20 (quoting Am-Pro Protective

Agency, Inc. v. United States, 281 F.3d 1234, 1239–41 (Fed. Cir. 2002)).

Next Gen’s HUBZone set asides do not thwart the overarching goals of the Act.

First, the Act’s target of 23 percent for small business participation in federal contract

awards incorporates several types of small businesses programs, including the HUBZone

program. Moreover, HUBZone’s three percent target is a minimum—not a cap. Next

Gen’s SBPP explicitly states that the HUBZone requirements “may result in total small

business subcontracting exceeding 32%.” AR at 63.

Despite EPM’s contention, the HUBZone goals are not anti-competitive. Compl.

¶ 52. No statutes or regulations expressly prohibit ED from establishing larger HUBZone

participation goals. Rather, the HUBZone goals create an additional basis on which

potential offerors must now compete. That is, potential offerors will also be evaluated on

their ability to find and partner with HUBZone companies.

Finally, EPM maintains that the HUBZone goals are irrational, prejudicial, and

without support. Compl. ¶¶ 82–102. ED rebuts this argument and points to the AR to

support its claim that the SBA reviewed and endorsed ED’s SBPP, including its HUBZone

goals. AR 345, 534–50. The Court also rejects EPM’s contention that the HUBZone goals

are prejudicial and prevent small businesses from competing as a prime contractor. Compl.

¶ 96. EPM fails to establish how these goals cause it to suffer a redressable competitive

harm distinct from other entities. In fact, EPM concedes that “possibly [no] large business

offerors” could meet the HUBZone goals. Dkt. No. 23 at 20.

IV. Permanent Injunction

Under its bid protest jurisdiction, the Court has the power to issue an injunction

pursuant to 28 U.S.C. § 1491(b). See PGBA, LLC v. United States, 389 F.3d 1219, 1223

(Fed. Cir. 2004) (“We give deference to the Court of Federal Claims’ decision to grant or

deny injunctive relief, only disturbing the court’s decision if it abused its discretion.”). In

deciding whether a permanent injunction is proper, a court considers (1) whether the

plaintiff has succeeded on the merits; (2) whether the plaintiff will suffer irreparable harm

without an injunction; (3) whether the balance of the hardships favors an injunction; and

(4) whether an injunction is in the public interest. See PGBA, LLC, 389 F.3d at 1228–29;

Dyonyx, L.P. v. United States, 83 Fed. Cl. 460, 467 (2008) (noting that injunctive relief is

an “extraordinary” remedy).

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First, as explained above, EPM has not succeeded on the merits. Second, EPM’s

irreparable harm is unclear. EPM contends that the BPO solicitation prohibits it from

acting as a prime contractor. See Dkt. No. 7 at 29. As a result, EPM proffers that it will

lose the opportunity to make a profit and will have to make “significant” employee layoffs.

Dkt. No. 7 at 35. EPM’s arguments, however, ignore that it may still compete through a

teaming arrangement or as a subcontractor. Moreover, this Court cannot order ED to assign

EPM the accounts to service. Even if ED restructured the Next Gen solicitations to

incorporate EPM’s objections, EPM would not be entitled to some minimum amount of

business.

EPM has failed to prove that ED’s actions were arbitrary, capricious, or otherwise

not in accordance with the law. In this bid protest, ED’s actions were rationally related to

the risks identified throughout the prior solicitation and related bid protest lawsuits. An

injunction would delay Next Gen and ED’s cradle-to-grave servicing goal, forcing ED to

commit resources to a PCA solicitation that it no longer needs. Finally, EPM failed to

establish that ED’s actions were based on clear and prejudicial violations of an applicable

procurement statute or regulation. In the Court’s view, refraining from interfering in a

procurement can also serve the public interest. The Court, therefore, finds no legally

compelling reason to issue an injunction.

Conclusion

For the reasons set forth above, the Court DENIES EPM’s motion for judgment on

the administrative record and DENIES EPM’s motion to permanently enjoin the

Department of Education from proceeding with the Next Gen solicitations. The Court

GRANTS the Government’s motion for judgment on the administrative record. The Clerk

of the Court is directed to enter judgment for the Government. No costs.

IT IS SO ORDERED.

s/Thomas C. Wheeler

THOMAS C. WHEELER

Judge

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