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Protech Solutions, Inc. v. The Delaware Department of Health and Human Services

Court of Chancery of Delaware

November 30, 2017

THE DELAWARE DEPARTMENT OF HEALTH AND HUMAN SERVICES, an agency of the State of Delaware, Respondent,

          Submitted: November 14, 2017

          David A. Felice, BAILEY & GLASSER LLP, Wilmington, Delaware; Brian A. Glasser, Victor S. Woods, and James L. Kauffman, BAILEY & GLASSER LLP, Washington, District of Columbia; Attorneys for Petitioner.

          Lawrence W. Lewis and John H. Taylor III, STATE OF DELAWARE DEPARTMENT OF JUSTICE, Wilmington, Delaware; Attorneys for Respondent Delaware Department of Health and Social Services

          Steven L. Caponi, K & L GATES LLP, Wilmington, Delaware; Steven G. Schortgen and Jennifer Klein Ayers, K & L GATES LLP, Dallas, Texas; Attorneys for Nominal Respondent Conduent State & Local Solutions, Inc.


          MONTGOMERY-REEVES, Vice Chancellor.

         In March 2017, the State of Delaware Division of Child Support Services (the "Division" or the "State") issued a Request for Proposal ("RFP") for maintenance and operations ("M&O") services for the Delaware Child Support System (the "System").[1] Ultimately, three vendors submitted bids in response to the RFP. Two of the vendors, Conduent State & Local Solutions, Inc. ("Conduent") and Protech Solutions, Inc. ("Protech"), were the current contractor and subcontractor, respectively, for the System. Protech chose to rely on nonpublic data and stale information when writing its bid, all of which was in direct conflict with the information provided to the bidders by the Division. The Division ultimately rejected Protech's bid. Protech now comes to the Court asking to be saved from its own miscalculation because the winning bidder allegedly received nonpublic information-information that was consistent with the publicly available information. Specifically, Protech seeks a preliminary injunction to prevent the Division from awarding the contract to the winning bidder, Conduent, until the Court can determine whether to permanently enjoin the contract and require a re-bid process. I deny the Motion for Preliminary Injunction because Protech fails to show a reasonable probability of success in proving the contract should be permanently enjoined and rebid.

         I. BACKGROUND

         Conduent had a contract with the Division from May 1, 2010 to September 30, 2017 for the design, development, and implementation of the System (the "Prime Contract").[2] Protech served as a subcontractor under the Prime Contract until the final year.[3] In late October or early November 2016, the Division began drafting the RFP and issued it on March 1, 2017.[4] The new contract was to begin in August 2017.[5]

         Both Conduent and Protech submitted bids in response to the RFP, as did a third non-party, Computer Aid, Inc, ("CAI").[6] The Division selected Conduent's bid.[7] On July 24, 2017, Protech submitted a written bid protest to the Division.[8] On August 4, 2017, Protech and the Division reached a standstill agreement such that Protech would not file or pursue litigation, and the Division would not award a contract while the parties continued discussions between their lawyers.[9] On August 11, 2017, after consideration of Protech's bid protest, the Division issued Protech a written denial.[10] On September 5, 2017, Protech filed its Verified Petition to Protest/Enjoin a State Contract Award (the "Petition"). On November 14, 2017, the Court heard oral arguments on the Motion for a Preliminary Injunction.

         II. ANALYSIS

         A. Standard of Review

         "[A] motion for preliminary injunctive relief requires [this Court] to take a step that, procedurally speaking, is extraordinary: to make a 'preliminary' determination of the merits of a cause before there can be a final adjudication of [petitioner's] claims."[11] "To obtain a preliminary injunction, the [petitioner] must demonstrate: (1) a reasonable probability of success on the merits; (2) that they will suffer irreparable injury without an injunction; and (3) that their harm without an injunction outweighs the harm to the defendants that will result from the injunction."[12] "A party showing a 'reasonable probability' of success must demonstrate that it 'will prove that it is more likely than not entitled to relief.'"[13] The preliminary injunction "burden is not a light one, " and such an "extraordinary remedy. . . will never be granted unless earned."[14]

         Here, in order to prevail, Protech must demonstrate that it is more likely than not that the Division violated the express requirements of the procurement statute, employed a process that was arbitrary or capricious, or acted in bad faith.[15]

This Court will not normally or lightly decline to defer to a . . . decision made by [an agency]. Given the broad discretion conferred upon the agency . . . and the highly deferential nature of the applicable judicial review standard, only in extraordinary cases would this Court be justified in setting aside such a decision.[16]

         "Simple disagreement with the agency's evaluations or conclusions is . . . not enough to support allegations of bias."[17] "Neither [are] [b]ald allegations of bias; inferences, suspicion and innuendo; nor the possibility and appearance of impropriety, without 'hard facts' implying actual misconduct, . . . sufficient to fulfill the clear and convincing proof required to show bias on the part of the government."[18]

         B. Protech Has Not Demonstrated a Reasonable Probability of Success on the Merits

         Protech advances four main arguments related to alleged deficiencies or biases in the procurement process, which it contends are sufficient to require a do-over of the entire bidding process. First, Protech asserts the RFP was not "sufficiently definite to permit free, open, and competitive bidding on a common basis."[19] Second, Protech contends the Division provided Conduent with inside information about "personnel resources."[20] Third, Protech argues the Division utilized a "deficient and otherwise arbitrary" process by not disclosing the use of a technology scoring committee in the RFP.[21] Fourth and finally, Protech avers that Conduent's proposal "failed to meet the material requirements of the RFP and should have been summarily rejected."[22] Unfortunately for Protech, however, these arguments are based on misunderstanding of Delaware procurement law, misconstruction of the facts, and rather ironic allegations of use of nonpublic information.

         1. Protech fails to show a reasonable probability that the Division used unlawful procurement procedures

         Protech's initial argument fails for two reasons. First, Protech's arguments about the statutory requirements of the RFP apply the standard for large public work contracts rather than the correct standard for professional services contracts. Second, even applying the correct standard, Protech has failed to demonstrate a reasonable probability that the Division violated an express requirement of the procurement statute.

         Procurement law in Delaware is largely statutory and found in Title 29, Chapter 69 of the Delaware Code. Under the current statutory configuration, Chapter 69 has six subchapters: general provisions, central contracting, materiel and nonprofessional services, public works contracting, the energy performance contracting act, and professional services.[23] "'Professional services' means services which generally require specialized education, training or knowledge and involve intellectual skills. Examples of professional services include, but are not limited to, . . . computer information management . . . ."[24] The professional services subchapter governs the contract at issue in this litigation.[25] The contract at issue in this litigation is a "large professional service procurement process" under Sections 6981 and 6982.[26]

         Protech relies on a standard from Delaware Technical and Community College v. C & D Contractors, Inc., where the Supreme Court of Delaware examined a prior version of the public works subchapter.[27] "'Public works contract' means construction, reconstruction, demolition, alteration and repair work and maintenance work paid for, in whole or in part, with public funds."[28] Current Section 6962 governs large public works contract procedures. Subsection (d) is titled "Bid specifications and plans requirements, " and states in part:

Preparation of plans and specifications and approvals. --The contracting agency shall cause suitable plans and specifications to be prepared for all contracts pursuant to this section. All plans and specifications shall be prepared by registered and licensed architects and/or engineers who shall sign the plans and specifications and affix their seals thereto.[29]

         Case law has developed around this Section and its prior incarnations, specifically about what suitable plans and specifications entail.[30] Protech relies on this case law for its argument that the RFP, issued pursuant to Sections 6981 and 6982 and not Section 6962, was not "sufficiently complete, definite, and explicit as to permit free, open, and competitive bidding on a common basis, "[31] because it did not provide bidders with exact staffing numbers and a budget expectation, which Protech alleges were necessary for it to prepare its bid competitively.[32] None of the case law Protech relies on applies to professional services procurement or the current case.[33]

         Instead, the requirements for a large professional service RFP are more ¶exible and set out in Section 6981:

(f) Each agency shall establish written administrative procedures for the evaluation of applicants. These administrative procedures shall be adopted and made available to the public by each agency before publicly announcing an occasion when professional services are required. One or more of the following criteria may be utilized in ranking the applicants under consideration:
(1) Experience and reputation;
(2) Expertise (for the particular project under consideration);
(3) Capacity to meet requirements (size, financial condition, etc.);
(4) Location (geographical);
(5) Demonstrated ability;
(6) Familiarity with public work and its requirements; or
(7) Distribution of work to individuals and firms or economic considerations.
(g) In addition to the above, other criteria necessary for a quality, cost-effective project may be utilized.
(h) Each project shall be given individual attention, and a weighted average may be applied to criteria according to its importance to each project.
(i) For the selection process described in § 6982(b) of this title, price may be a criteria used to rank applicants under consideration.[34]

         This Court analyzed the standards for professional services RFPs in Doctors Pathology Services P.A. v. State Division of Public Health, Department of Social Services.[35] There, this Court considered a request for injunctive and declaratory relief when "a frustrated provider of laboratory services, assert[ed] that the agency failed to comply with the statutes governing its procurement of professional services."[36] "Agency procurement procedures are deemed 'lawful unless they deviate materially from the relevant statute.'" [37] Section 6981 establishes only two requirements for the professional services procurement process: there must be (1) a public announcement including several enumerated items of information, and (2) "written administrative procedures for the evaluation of applicants."[38] This Court has recognized that the remainder of "the professional services negotiation subchapter establishes only general guidelines for the procurement process: agencies are granted great discretion to shape the process to meet their needs."[39]

         Thus, to show a material deviation from Section 6981 sufficient to obtain a preliminary injunction, Protech must show a reasonable probability of success on claims that the Division failed to make the necessary public announcement or had no written procedures for the evaluation of applicants. At oral argument, Protech withdrew its argument that the Division did not make the necessary public announcement, [40] and Protech has not alleged that there were no written procedures for the evaluation of applicants. Therefore, the Division's procedures did not deviate materially from Section 6981.

         2. Protech fails to show a reasonable probability that the Division's process was arbitrary, capricious, or in bad faith

         Protech's remaining three arguments relate to whether the Division's decision process was arbitrary, capricious, or in bad faith.

         a. Protech fails to show a reasonable probability that Conduent's alleged "inside information" was inconsistent with information provided to all bidders

         Ultimately, Protech objects to three forms of alleged inside information that Conduent received: the September 9, 2016 email from Midge Holland[41] to John Polk[42] and Maggie Claypool, [43] the June and July 2016 meetings about staffing under the Prime Contract, ...

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