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Facing Lawsuit, Procurement Chief Says There’s No Appealing His Rulings in ProtestsLock Icon

8 min read

Arkansas Procurement Director Edward Armstrong’s answer to being sued over a ruling that gave a fourth-place bidder a major state contract boils down to four words: His word is final.

So far, the law seems to agree with him.

Armstrong faces a suit by one of four dental insurers who sought the two-company job of providing $366 million worth of dental HMO services to the state Medicaid program. Armstrong’s main defense is that there is no way to appeal his rulings on protests from losing vendors in the state’s bidding process. 

The plaintiff, DentaQuest of Boston, originally finished first in the procurement judging but was disqualified by Armstrong after a protest by a competitor, MCNA Dental of Fort Lauderdale, Florida. Earlier this year, Armstrong affirmed MCNA’s protest against two of the three companies that finished higher in bidding for the work, which was set up to go to two different vendors.

The ruling ousted DentaQuest,which had been judged the top prospect initially, along with the third-place company, Liberty Dental of Irvine, California. That left MCNA splitting the job with Delta Dental, the second-place vendor.

The victory for MCNA — a politically active company that, according to FollowTheMoney.org, has donated $1.4 million to political candidates in several states over the past seven years — raised some eyebrows and was one of several protest rulings by Armstrong that put a spotlight on state procurement.

Protest decisions involving youth homes and state advertising contracts spurred an effort to transform procurement law in this spring’s regular legislative session, but that legislation failed to advance. Procurement is not a sexy issue, said state Sen. Jimmy Hickey, R-Texarkana, who led the revision movement, “but it’s where the money is.”

DentaQuest, through the Little Rock law firm of McDaniel Richardson & Calhoun PLLC, argues that it was disqualified for a minor lapse while MCNA prevailed despite failing to disclose worse infractions. But Pulaski County Circuit Judge Wendell Griffen ruled last month that DentaQuest’s push to appeal Armstrong’s ruling is unlikely to prevail.

In February, Armstrong upheld MCNA’s claims that both DentaQuest and Liberty had failed to abide by the state’s bidding instructions. Those instructions, part of a request for proposals, called for all potential vendors to disclose litigation or penalties they faced in running Medicaid programs over the previous five years. MCNA cited a Massachusetts lawsuit that named DentaQuest as a defendant, arguing that DentaQuest should be disqualified for failing to mention it in its RFP.

Armstrong agreed, tossing out DentaQuest, formally known as DSM USA Insurance Co. Inc., as well as Liberty Dental, which also failed to disclose its involvement in a lawsuit. DentaQuest’s ouster came despite a written endorsement from the Arkansas Department of Human Services, which operates the state’s Medicaid program. DHS argued in a Jan. 13 letter to Armstrong that DentaQuest was the top vendor and that MCNA’s protest lacked merit.

Armstrong begged to differ, and his ruling on Feb. 2 overturned a December announcement by the Office of State Procurement naming DentaQuest and Delta as anticipated contract winners. 

No Appeal

DentaQuest then filed its own protest, essentially saying MCNA was a pot calling the kettle black. It pointed out with several exhibits that MCNA had failed to disclose fines and corrective actions against it in Medicaid HMO programs, and pleaded that MCNA should be disqualified and that DentaQuest should be granted the contract.

Armstrong responded by saying that DentaQuest’s protest came too late, and that Arkansas law provides no mechanism for appealing his decisions on protests. “No provision is made in Ark. Code Ann. 19-11-144 for protesting a decision that the State Procurement Director makes in deciding a protest,” Armstrong wrote in a March 24 letter to DentaQuest’s lawyers, Dustin McDaniel, Scott Richardson and Bart Calhoun.

“Permitting protests of protest determinations could lead to an endless series of protests, as each new protest determination would open the door for additional protests,” Armstrong wrote.

Further, Armstrong said that DentaQuest should have flagged MCNA’s failure to disclose fines and corrective plans within weeks of his Feb. 2 decision to award MCNA part of the contract. “For whatever reason, DentaQuest elected to wait until Feb. 10, 2017 — nearly half of the fourteen-day period for submitting a protest — to even send a request to [the Texas Health & Human Services Commission, which fined MCNA twice in 2012] for copies of any corrective action plans, notice of performance deficiencies, or other information regarding MCNA,” Armstrong wrote. “Forty-one calendar days later, DentaQuest submitted the 3/6/17 protest. From this it does not appear that DentaQuest exercised due diligence …”

So DentaQuest sued Armstrong, the state and the Arkansas Department of Finance & Administration, which oversees the Office of State Procurement, claiming that Armstrong’s decision to disqualify it was arbitrary and unfair. One request in the suit, filed in April, sought a temporary restraining order to prevent the contract from advancing while the suit is pending. On May 18, Griffen ruled against DentaQuest. “The Court finds that the plaintiff has failed to demonstrate a likelihood of success on the merits; therefore, a temporary restraining order or injunction is inappropriate,” he wrote.

Griffen found that the Arkansas Administrative Procedure Act allows the courts to review “cases of adjudication” but not administrative decisions. “OSP’s decision not to entertain protest challenging the award of a state contract was an administrative decision, not an adjudication, and was not subject to judicial review,” he wrote. “The OSP’s decision did not emanate from a hearing, there was no testimony, no findings of fact or conclusions of law, and there is no record of proceedings certified by the OSP to the court.”

In an email to Arkansas Business, Armstrong said he would stand on “the statements that the office of the Attorney General has made in defense of the State, DFA, OSP and myself.” Similarly, he said, “rather than comment on the Honorable Judge Griffen’s decision to reject DentaQuest’s motion for a temporary restraining order, I will allow the order denying the motion to speak for itself as the best evidence of the reasoning supporting his decision.”

In a May 3 motion to dismiss DentaQuest’s lawsuit, Assistant Attorney General Maryna O. Jackson argued that the Arkansas Constitution grants the state sovereign immunity from court jurisdiction in such lawsuits, that DentaQuest failed to properly serve Gov. Asa Hutchinson and DF&A Director Larry Walther with notice of the suit, and that the APA does not authorize court review of administrative decisions.

Lawyers and supporters of DentaQuest, which promotes itself as the nation’s leading dental benefits administrator and the most experienced in working with Medicaid, say it was unfair to disqualify the company for failing to disclose a non-pending lawsuit in Massachusetts. The complaint, Sam H. et al v. DentaQuest LLC, was eventually amended to omit any claim against DentaQuest, they say, so failure to disclose it was an immaterial omission.

DentaQuest officials find it ironic that the company was chastised for being too late in pointing out MCNA’s disclosure failures. As the initial winning bidder, DentaQuest had little reason to investigate a fourth-place finisher’s background, they say, until the company learned that it had been disqualified through MCNA’s protest.

Process ‘Disrupted’

Lawless Barrientos III, DentaQuest’s government affairs director, said his company would have served Arkansas well. “The loss is to the Medicaid recipients,” Barrientos told the Arkansas Democrat-Gazette. “They are not receiving the highest-qualified vendor.”

Kristin LaRoche, DentaQuest’s senior director of public affairs, said in a statement that her company was favored by the “the independent evaluators at DHS” who “recognized DentaQuest’s commitment to excellence and high performance, as have state agencies” across the nation. “Unfortunately the bid process in Arkansas was disrupted by a competitor’s protest. We believe it was an error to take the award from DentaQuest, the most qualified bidder as determined by the state’s own reviewers… We filed a lawsuit to ensure all parties were treated fairly. We look forward to having a resolution that serves the people of Arkansas’ best interests.”

Armstrong’s supporters say he is a diligent lawyer and a stickler for details, and that his sense of integrity would make him unlikely to bend to undue political influence. Still, his logic has been called into question in several protest cases over the past year. 

His ruling on another disclosure matter — whether the advertising firm CJRW should have listed client Oaklawn Racing & Gaming as a potential conflict of interest in the competition for a $34.5 million marketing contract for the Arkansas Scholarship Lottery — drew sharp questioning from state legislators in January. 

In that case, Armstrong rejected protests by two rival ad firms, finding that disclosing conflicts was required only of the “successful bidder.” By that reasoning, the disclosure of conflicts would come only after the contract was granted, a logic that several lawmakers aggressively questioned in two hearings.

Lawmakers eventually approved the CJRW contract, but Hickey, the state senator from Texarkana, followed up with a bill that would have made the procurement judging system more transparent. It also would have made bottom-line pricing a greater factor in bid solicitations, but the bill died in committee.

Another case that raised legislative hackles involved a contract for running a half-dozen facilities for troubled youths, a contract that the governor voided, declaring that the state would take over the lockups for at least six months. 

Lawmakers refused to approve the contract, which Armstrong’s office had awarded to an out-of-state company over two Arkansas firms that had run the facilities for years. Legislators, including Hickey, sided with the rejected Arkansas companies, South Arkansas Youth Services of Magnolia and Consolidated Youth Services of Jonesboro, and objected to the higher costs of the new contract. The deal would have paid Youth Opportunity Investments LLC of Carmel, Indiana, $22 million a year, compared with $13 million the Arkansas firms received in the last year of their contract.

The snubbed Arkansas firms formally protested, and the procurement office acknowledged “incomplete documentation” in the initial award, including the fact that it couldn’t find some scoring sheets from the bid judging process. 

The state concluded that it had to “re-score the previously submitted technical packets,” but again, the Indiana company prevailed. Lawmakers held their ground, and even though the governor said he did not technically need legislative approval to proceed with the contract, he announced the state takeover.

Hickey said that even if the courts can’t review Armstrong’s protest decisions, lawmakers pass judgment on “all of these contracts” by voting to “review” or “not review” them. These votes lack the legal force to prevent contracts from advancing, but they signal that somebody is watching. “Legislative committee votes do provide an avenue for disclosure and debate,” Hickey said, “and I have yet to see, nor do I hope or expect to see, a contract proceed without this review process.”

An administrative assistant at MCNA’s  headquarters in Fort Lauderdale said the company’s founder and CEO, Dr. Jeffrey Feingold, would not be available to comment, nor would his son, Chief Operating Officer Glen Feingold.

MCNA and the Feingolds have been active political donors, and Dr. Feingold gave more than $75,000 to candidates in 2016, including $12,000 to 20 legislative hopefuls in Arkansas, according to FollowTheMoney.org.

MCNA has given more than $1.4 million in U.S. races over seven years, and Rick Perry, the former Texas governor and current U.S. energy secretary, was on its board of directors. MCNA also hires top lobbyists, and Ted Mullenix of Little Rock confirmed last week that he is working for the insurer.

No comparable record of giving was found for any of MCNA’s competitors for the Arkansas work.

The state’s contracts with MCNA and Delta Dental  are all but signed, according to Jake Bleed, a spokesman for the Department of Finance & Administration. Judge Griffen has given the state until June 20 to respond to DentaQuest’s amended complaint.

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