Mike Ginsberg, president and CEO of Kaulkin Ginsberg Company, sat down with Randy Kamm, founder and principal of Collection Quotient Consulting, to discuss the debacle that was, and continues to be, the U.S. Department of Education’s (ED) procurement process. To hear what Mike Ginsberg and Randy Kamm covered about this important and timely topic, listen to this two-part podcast available exclusively to KG Prime members. Log in or request your company code today!

Here are portions of their discussion:

Many people thought that ED would select more private collection agencies (PCAs), not fewer. The selection of just two PCAs probably has more to do with ED’s “New Generation” servicing initiative and new business model, which is taking a substantial amount of ED’s energy and focus. It appears that ED made a determination that the 11 restricted contracts, the 2 extension PCAs, the 2 unrestricted contractors announced last week in Windham Professionals and Performant Recovery (and their subcontractor network) can handle the capacity needs for the foreseeable future. They discussed why ED would add a larger number of large contractors at this point when their real priority is rethinking the servicing platform.

“We’re already seeing changes in the traditional subcontracting model,” said Randy. “In addition to requiring substantial small business subcontracting, the government is permitting small businesses to add on unrestricted large subcontractors. We’re very likely to see even more subcontracting to large unrestricted size PCAs. The only policy ED has described is that prime contractors cannot subcontract more than 50% of total volume.” Randy’s conclusion is that the industry is self-adjusting, and the paradigm is shifting, as the industry tries to manage through the changes.

Under the Trump Administration, all federal agencies need to rethink the cost associated with government services. ED’s redesign of its servicing platform, and the business model being used for debt collection, appears to be a result of an underlying government-wide effort to streamline and improve services, lower cost and make systems more efficient, which is in stark contrast to the previous administration.

“It would behoove the PCAs to proactively come up with a new pricing alternative for rehabs,” stated Randy, or he believes ED will unilaterally change pricing. As part of the servicing redesign cost reduction effort, ED is probably going to take a serious look at shifting the loan rehab process away from the PCAs and place it in the servicing contract. That way, ED will not pay the PCAs a large fee, like they currently do, but would instead pay an hourly rate for the servicer to process the paperwork. This would certainly lower costs and it would significantly alter the contingency fee pricing paradigm that’s been in place for decades.

But that’s not the only news coming from this announcement. Many have raised concerns about an appearance of a conflict of interest involving Secretary DeVos’ family investments in Performant. The backlash should have been anticipated by ED. However, given the source selection methodology outlined by ED to the Court during litigation, Randy describes the possible rationale ED used to arrive at its decision to select its vendors. Unlike earlier stages of this messy procurement, ED looked at three distinct evaluation components to reach its award decision:

  1. Evaluation factors (past performance, management plan, subcontracting plan)
  2. Evaluation of Responsible Bidder (legal judgments, financials, subcontracting plans)
  3. What is “Most Advantageous to the Government”

When Mike asked Randy about the decision to award Performant the contract based on the source selection, Randy stated, “I can’t comment on Performant’s performance across all of its federal contracts, but Performant does have experience on a number of major federal contracts, in addition to ED, that would probably score highly in an evaluation.” Whether or not there was an actual conflict of interest, Performant probably came in with the most federal experience compared to other companies.

With the perceived conflict of interest and the significant reduction in the number of awards, litigation will undoubtedly continue. ED needs to move forward. We’ve already seen collection agencies begin to reconfigure themselves and collaborate in new ways in this different world. ED will soon start directing the new award winners on how they are going to manage next steps and move forward. We will hopefully see movement and progress as all PCAs try to get back to a new normal, and students will then be able to obtain the information they need to manage their debt.

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