To comply with the Affordable Care Act, the Hawaii Department of Human Services needed a new software system. So it sought bids last summer, and received two.

The agency awarded a $90 million contract to a multi-billion dollar consulting firm, KPMG, rather than a smaller company, EngagePoint, that has previously secured similar jobs in other states.

But EngagePoint’s bid would have cost taxpayers $24 million less.

And not surprisingly, EngagePoint was troubled by the process, especially since the 10-person group that evaluated the two proposals initially rated them nearly even. KPMG edged out EngagePoint by just three points, 727 to 724, when they were first rated across a dozen categories in November.

But state officials say KPMG turned out to be the most qualified bidder after a re-scoring process that saw what had at first been a minor point gap widen to a large margin. In fact, EngagePoint scored so low the second time around it was disqualified.

After the first round, EngagePoint protested and called on Human Services to reconsider the two companies’ scores. That request was granted in December after the department acknowledged in a letter to the losing bidder that proper procedures hadn’t been followed in the assessment process.

Among other things, DHS wrote that EngagePoint’s references were not appropriately evaluated because the language in the request for proposals does not specify that three separate corporate references are required. KPMG scored seven points higher than EngagePoint in the “qualifications and experience” category.

But the re-calculation brought unexpected results. KPMG earned an even higher score and EngagePoint did so poorly that it failed to even qualify for the project.

Two EngagePoint officials, David Smith and Sonia Lucas, responded with a four-page letter in which they took DHS to task over the procurement process.

“The reliability of the overall initial and re-scoring evaluation processes remain questionable at best,” they said in their Dec. 4 letter.

The disqualification of EngagePoint suggests that DHS should not have proceeded with the company’s proposal from the outset if it didn’t meet the minimum requirements, but EngagePoint said it will not pursue an administrative appeal because further delaying the project would hurt the public.

The process began when the DHS’ Med-QUEST Division put out the bid in August 2012 for a project to develop a new software system as part of its Affordable Care Act-related preparations. In particular, the state is looking to upgrade its nearly 25-year-old system that determines whether a person is eligible for Medicare and Medicaid. The eligibility system is an integral part of the state healthcare exchanges that are being instituted as part of the new federal law.

The feds recognize that most states will need to upgrade their systems, so they are paying 90 percent of the implementation costs. In the case of this $90 million contract, that means Hawaii has to pay $11.48 million of it.

The state’s new health insurance exchange must be prepared to accept applications as of Oct. 1, 2013. DHS Director Patricia McManaman said in a Nov. 28 letter to the state procurement office that “any delay will result in the state’s failure to comply with federal law.”

The Department of Commerce and Consumer Affairs estimates that 54,000 Hawaii residents might be eligible for tax credits that average about $3,500 per individual annually. McManaman calculates that delaying the implementation of the eligibility system would cost Hawaii more than $15 million each month.

Med-QUEST Division Administrator Kenneth Fink, the procurement officer, deferred comment to DHS spokeswoman Kayla Rosenfeld.

The DHS spokeswoman told Civil Beat that the formal EngagePoint protest delayed the start of work by a month.

EngagePoint declined to comment for this article. But in its letter, EngagePoint urged DHS to carefully review the protocols that it uses to evaluate proposals, to make sure that they consistently follow requirements and to ensure that “differences” are dealt with so that fair evaluations can take place in the future.

Read DHS’s response to EngagePoint’s protest here:

Read EngagePoint’s response to DHS here:

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