On September 24, 2018 the Department of Education (ED) announced the completion of Phase I of its Next Generation Financial Services Environment (NextGen or Solicitation) and listed those firms selected to move forward to bid on Phase II. insideARM wrote about this here. The following firms were selected to bid on the components covering Business Process Operations:

  • Edfinancial Services LLC
  • General Dynamics Information Technology Inc (GDIT)
  • Missouri Higher Education Loan Authority (MOHELA)
  • Nelnet Diversified Solutions, LLC
  • Oklahoma Student Loan Authority (OSLA)
  • Pennsylvania Higher Education Assistance Agency (PHEAA)
  • Teleperformance
  • Trellis Company
  • Utah Higher Education Assistance Authority (UHEAA)

The announcement also included some material changes to the scope of the Soliciation, which has spawned yet another round (I have dubbed this Chapter 5) of protests regarding an ED Solicitation for federal student loan servicing.

Here is the brief history that describes how we got to Chapter 5

What began in 2009 as a 5-year contract for 17 large (unrestricted) and five small debt collection companies became a contract in 2014 for 11 small companies and a delay for the large firm awards. Eventually, in December 2016 seven large companies received awards, which launched dozens of protests from those who were left out, followed by a re-do, a whittling down to just 2 large companies, then more protests, and then... nothing. No large company awards at all. The whole thing was cancelled. ED’s justification for cancelling was:

"The solicitation will be cancelled due to a substantial change in the requirements to perform collection and administrative resolution activities on defaulted Federal student loan debts. In the future, ED plans to significantly enhance its engagement at the 90-day delinquency mark in an effort to help borrowers more effectively manage their Federal student loan debt. ED expects these enhanced outreach efforts to reduce the volume of borrowers that default, improve customer service to delinquent borrowers, and lower overall delinquency levels.”

(A recap with additional detail on the first four chapters is here.)

So, this is where the current NextGen Solicitation comes in. Those who will be on this contract will be the ones to implement the “enhanced servicing” strategies that are meant to reduce defaults.

As for the genesis of NextGen, in June 2017 Secretary of Education Betsy DeVos announced the hiring of Dr. A. Wayne Johnson as Chief Operating Officer of the Office of Federal Student Aid (FSA), and said he would be in charge of modernizing the agency. Sixty days later, FSA announced a “Next Generation” plan that would drastically streamline systems and processes, and improve borrower service. It was unclear at the time exactly where defaulted accounts would fit in the realm of NextGen, but a diagram released in December 2017 (and revised in February 2018) did include “Default Servicing” and “Recovery” modules (though few details were released). The diagram did note the existence of “PCAs” in this stage.

Five firms submit GAO protests

During the first week of October 2018, FMS Investment Corp. (FMS) and Continental Service Group (ConServe) filed protests with the U.S. Government Accountability Office (GAO) regarding the terms of the Federal Student Aid (FSA) NextGen procurement. Their claim is that ED has unfairly changed the nature of the Solicitation, and excluded Private Collection Agencies (PCAs) from the ability to compete. insideARM wrote about this protest on October 11, 2018.

The following firms filed GAO Protests as of today:

  • FMS, filed 10/9/18
  • ConServe, filed 10/9/18
  • TPUSA, Inc. (Teleperformance), filed 10/26/18
  • Higher Education Loan Authority of the State of Missouri (MOHELA), filed 10/31/18
  • Pennsylvania Higher Education Assistance Agency (PHEAA), filed 10/29/18

On October 26, 2018 GAO denied ED’s motion to dismiss the protest filed by FMS and ConServe and directed the government to produce the record to the protestors by November 8, 2018. As of this writing, none of the outcomes of these protests have been decided.

It’s not terribly surprising that FMS and ConServe filed protests, as they were left out of Phase I because the scope of the procurement did not include services for loans in default, yet the revised procurement does include these services… and, only those selected in Phase I are eligible to participate in Phase II.

What is interesting is that three of the protests now filed are by firms that were selected in Phase I. They’ve got a beef with the change in scope too.

The fairly heavily redacted MOHELA protest makes these claims:

  • The RFP seeks "Transitional Core Processing and Related Support Activities" (also known as Component D) for federal student aid within the context of the Agency's overarching two-phase procurement. This protest contests ED’s attempt to move significant services to the RFP in Phase Il where those services had been included in a different component under Phase I.
  • ED’s new procurement approach is against the law because it attempts to acquire a new loan servicing environment together with the actual loan servicing for its entire current portfolio of over 37 million student loan accounts from a single entity; whereas, the FY 2019 Appropriations Act only permits the ED to acquire a new loan servicing environment where it "provides for the participation of multiple student loan servicers that contract directly with the Department of Education."
  • In response to the Phase I Solicitation, MOHELA submitted a proposal as a prime contractor under Components E and F, which were described in the Phase I Solicitation as multiple-award procurements encompassing “all” business process operations, and MOHELA was included among the offerors selected to participate in the Phase II solicitation for Components E and F (No. 91003118R0024). Significantly, because MOHELA had no basis to expect that business process operations were included in Component D, MOHELA did not submit a response to Component D under the Phase I Solicitation.
  • When ED issued the Phase II Solicitation for Component D on September 24, 2018, it modified the requirements to add business process operations, including contact center support, student aid back-office processing and print/mail services, which scope had been removed from the solicitation for Components E and F. Under the Phase II RFP, all of these added requirements are to be acquired together with the new loan servicing environment for current borrowers under Component D via a single contract award.
  • Although some of those services added to Component D are described as “transitional,” the anticipated contract will have a ten-year term and there is no defined milestone to transfer servicing of the student loan accounts. Moreover, despite ED’s movement of substantial services from Components E and F, which has increased the estimated value of the Component D contract by [redacted] in the first year alone and by [redacted] if the full ten-year term is carried out, the RFP limits the competition to the four offerors selected in Phase I for Component D.
  • While ED may contend that awarding a single system, single servicer contract under Component D of Phase II will be more administratively convenient than awarding multiple contracts under Component F of Phase II, or that the loan servicers can participate by teaming or subcontracting with the Component D finalists, such arguments do not justify bundling the requirements.

MOHELA is requesting that the GAO require ED to remove business process operations from Component D of the Phase II RFP and proceed with Phase II as originally contemplated, or alternatively, require that ED cancel the current Phase II RFP and issue a new solicitation that provides for multiple loan servicers and accurately reflects ED’s needs.

New protest also filed at the Court of Federal Claims

Remember the Court of Federal Claims? We spent a lot of time there during the first four chapters of this story. And, we’re back there again.

On November 2, 2018, Navient filed a protest at the Court of Federal Claims against Phase II of the Next Gen procurement. They claim that the requirements changed significantly to the point of completely overturning their bid areas.

Here’s what they claim in their also pretty heavily redacted complaint:

  • When issued, the NextGen RFP contained nine discrete components, and indicated that integration among the components was a key concern for ED. And, ED didn’t mention or reserve the right to cancel or otherwise materially modify individual components prior to the award.
  • In late August 2018, after Phase I proposals were due but before the selection announcement, ED modified the procurement and cancelled components A, B and H, which were significant portions of the solicitation.
  • These changes were so material to the scope of work that ED should have been required to cancel the RFP and issue a new one reflecting the revised requirements, or alternatively, it should have amended the RFP and permitted submission of new Phase I proposals.
  • ED also materially altered the terms and scope of the solicitation by changing requirements for component D. In Phase I, components E and F included “Solution 3.0 business process operations” and “Solicitation 2.0 business process operations.” Component D included “Solution 2.0 (core processing, related middleware, and rules engine).” On September 24, 2018 ED issued the component D RFP for Phase II which includes substantial loan servicing business operations services, in sharp contrast to the scope set forth in the Phase I solicitation.
  • Navient is at a competitive disadvantage by being required to bid based on unduly restrictive requirements that do not represent ED’s needs as they have now become known.

Navient is requesting permanent injunctive relief requiring ED to cancel or amend the solicitation and permit proposals from new offerors for Phase I, as well as reimbursement of bid and proposal costs and reasonable attorney’s fees as damages.

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