a

GAO

United States General Accounting Office

Report to the Chairman, Committee on 

Finance, U.S. Senate

July 2003 CMS CONTRACTING

Issues Concerning 

Administrator’s 

Decision to Exclude 

Subcontractor

GAO-03-842
CMS followed a competitive process in awarding the nursing home survey 

inconsistency research task order to RAND, with the Center as its 

subcontractor. RAND’s proposal outlined a plan in which the Center would 

perform approximately half of the work, in terms of cost, in the first year 

and about 80 percent over a 3-year period, if the government exercised its 

options to extend the task order for 2 additional years. Based on four 

criteria, including an evaluation of personnel and experience and past 

performance, CMS awarded the task order to RAND on September 27, 2002. 

At virtually the same time as the award, the Administrator intervened to 

exclude the Center from the RAND task order. The Administrator provided 

several reasons to support his exclusion of the Center, including his 

conclusion that the Center had performed poorly on a number of ongoing 

CMS task orders, especially those related to nursing home survey and 

certification. He understood that contract provisions provided him the legal 

authority to direct RAND not to use the Center as a subcontractor. GAO 

reviewed each of the reasons provided by the Administrator and concluded 

that, in light of the evidence, the Administrator did not have a reasonable 

basis to direct RAND not to subcontract with the Center. For example, 

GAO’s review of the evidence did not support the Administrator’s assertion 

of poor past performance by the Center; in fact, its strong past performance 

was a key factor in the decision to award the task order to RAND. 

Instead, the Administrator’s decision to exclude the Center from the RAND 

task order appears to have been retaliation for the Center Director's 

involvement in another CMS nursing home initiative. Because of technical 

concerns voiced about this separate initiative, the Administrator perceived 

the Center’s Director to be obstructing CMS’s implementation of the 

initiative in November 2002. Regardless of the merit of the Administrator’s 

view of the Center’s Director and concerns about his involvement in the 

other initiative, the Administrator was not authorized to effectively change 

the substance of the proposal on which the award to RAND had been based. 

Therefore, in GAO’s view, the Administrator’s action was improper and 

undermined the integrity of CMS’s procurement process. 

Communications between the Administrator and the Center suggested that 

the Administrator’s decision to exclude the Center was limited to the RAND 

task order. However, senior CMS staff understood the Administrator’s 

instructions to exclude the Center to extend to other contracting 

opportunities and thus attempted to limit the involvement of the Center in 

other CMS contracts. 

In September 2002, the Centers for 

Medicare & Medicaid Services 

(CMS) awarded the RAND 

Corporation, with the University of 

Wisconsin’s Center for Health 

Systems Research & Analysis as a 

subcontractor, a task order to 

study inconsistency in the nursing 

home survey process. Allegations 

were made that CMS directed 

RAND not to retain the Center as a 

subcontractor in retaliation for 

technical concerns that the 

Center’s Director had raised about 

another CMS initiative. GAO was 

asked to examine these allegations. 

Specifically, GAO was asked to 

examine CMS’s selection of RAND 

for this task order, the basis for 

CMS’s decision to exclude the 

Center as a subcontractor, and 

whether the Center’s exclusion 

extended to other CMS contracts. 

GAO recommends that the 

Secretary of Health and Human 

Services take appropriate action to 

remedy this situation. Such a 

remedy could include permitting 

RAND to subcontract with the 

Center as RAND had proposed or 

reopening the competition for the 

award of this task order. Also, the 

Secretary should have CMS 

procurement decisions affecting 

the Center since September 2002 

reviewed to ensure they were 

supported by a reasonable basis. 

HHS and CMS concurred with our 

recommendations, although CMS 

disagreed with our conclusion that 

the Administrator’s action was 

improper. 

www.gao.gov/cgi-bin/getrpt?GAO-03-842.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Kathryn G. 

Allen at (202) 512-7118. 

Highlights of GAO-03-842, a report to the 

Chairman, Committee on Finance, U.S. 

Senate 

July 2003 

CMS CONTRACTING 

Issues Concerning Administrator’s 

Decision to Exclude Subcontractor 
Page i GAO-03-842 CMS Contracting 

Letter 1

Results in Brief 2

Background 3

CMS Selected RAND Following a Competitive Process but 

Excluded Proposed Subcontractor 7

Administrator’s Decision to Exclude Center Was Improper 13

Efforts to Exclude the Center Extended to Other Contracting 

Opportunities 19

Conclusions 22

Recommendations for Executive Action 23

Agency Comments 23

Appendix I Comments from the Centers for Medicare & 

Medicaid Services 25 

Table 

Table 1: Chronology of Key Events in 2002 Relating to Award of 

Task Order to RAND with the Center as a Subcontractor 12

Contents 
Page ii GAO-03-842 CMS Contracting 

Abbreviations 

CAHPS Consumer Assessment of Health Plans 

CICA Competition in Contracting Act of 1984 

CMS Centers for Medicare & Medicaid Services 

FAR Federal Acquisition Regulation 

HCFA Health Care Financing Administration 

HHS Department of Health and Human Services 

NQF National Quality Forum 

QI quality indicator 

RFP request for proposals 

RTI Research Triangle Institute 

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Page 1 GAO-03-842 CMS Contracting 

July 8, 2003 

The Honorable Charles E. Grassley 

Chairman 

Committee on Finance 

United States Senate 

Dear Mr. Chairman: 

Since 1997, considerable attention has been focused on the need to 

improve the quality of care in the nation’s 17,000 nursing homes. In a 

series of reports and testimonies prepared at your request as the Chairman 

of the Senate Special Committee on Aging, we found significant 

weaknesses in federal and state survey and oversight activities designed to 

detect and correct quality problems in nursing homes. Several others have 

also reported on these problems, including the Institute of Medicine and 

the Office of Inspector General of the Department of Health and Human 

Services (HHS). In 1998, the President announced a series of initiatives 

intended to address many of the weaknesses we identified. These 

initiatives covered several areas, including the strengthening of states’ 

periodic surveys of nursing homes and improving federal monitoring of 

state survey activities. Also in 1998, the Health Care Financing 

Administration (HCFA) launched a Web site—“Nursing Home Compare”—

that has progressively expanded the availability of public information on 

nursing homes and the quality of care provided.1

 In April 2002, the agency 

began a pilot project to augment the information provided on this Web site 

to include quality indicators (QI) that allow consumers to make 

comparisons across nursing homes. This project was expanded 

nationwide on November 12, 2002. 

As part of its work to improve the nursing home survey process, in 

September 2002, the Centers for Medicare & Medicaid Services (CMS) 

awarded the RAND Corporation a task order to study the inconsistency in 

nursing home survey results across states, based on a proposal that 

included the University of Wisconsin’s Center for Health Systems 

 1

In June 2001, the agency’s name was changed from the Health Care Financing 

Administration (HCFA) to the Centers for Medicare & Medicaid Services (CMS). In this 

report, we continue to refer to HCFA where our findings apply to the organizational 

structure and operations associated with that name. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-842 CMS Contracting 

Research & Analysis as a subcontractor.2,3 However, CMS also instructed 

RAND not to subcontract with the Center. Allegations were brought to you 

that CMS had inappropriately directed RAND not to retain the Center as a 

subcontractor in retaliation for technical concerns that the Center’s 

Director, who was proposed by RAND to be the co-principal investigator 

for the task order, made about CMS’s April 2002 nursing home QI 

initiative. As a result, you asked us to examine these allegations. We 

agreed to examine (1) CMS’s selection of RAND for this task order, (2) the 

basis for CMS’s decision to exclude the Center as a subcontractor, and (3) 

whether the exclusion of the Center extended to other CMS contracts. To 

do this, we reviewed relevant contract files and other key documents. We 

interviewed CMS staff, including the Administrator and one of his Special 

Assistants, the Director and other staff of the Acquisition and Grants 

Group, the Project Officer assigned to this task order, and the Director of 

the Quality Measures and Health Assessment Group. We also interviewed 

RAND contracting and program staff, and University of Wisconsin and 

Center staff, including attorneys, contracting personnel, and the Center’s 

Director. We conducted our work from January 2003 through June 2003 in 

accordance with generally accepted government auditing standards. 

CMS followed a competitive process in selecting RAND, with the Center as 

its subcontractor, for the task order to study inconsistencies in the nursing 

home survey process. However, in our view, the Administrator improperly 

intervened to exclude the Center from the task order, thus undermining 

the integrity of the procurement process at CMS. The Center was integral 

to the RAND proposal, with RAND indicating that the Center would 

perform approximately half of the work, in terms of cost, in the first year 

and about 80 percent—valued at about $1.6 million—over a 3-year period, 

if CMS exercised its options to extend the task order for 2 additional 

years. Further, the Center’s expertise in the nursing home survey area was 

a key factor in CMS’s decision to select RAND’s proposal over those 

submitted by two others. However, at virtually the same time that CMS 

awarded this task order, the CMS Administrator intervened without a 

 2

This task order was issued under a CMS contract for Medicare Research and 

Demonstrations. 

3

The Center is the University of Wisconsin component that had been designated to perform 

work under the University’s proposed subcontract with RAND and that carries out health 

care research under the University’s contracts with CMS. Therefore, we refer to the Center 

rather than the University as the contracting entity throughout the report. 

Results in Brief 
Page 3 GAO-03-842 CMS Contracting 

reasonable basis to exclude the Center as RAND’s subcontractor. The 

Administrator’s decision to exclude the Center appears to have been 

retaliation for the Center Director’s expressed technical concerns about 

CMS’s project to include nursing home QIs on the “Nursing Home 

Compare” Web site. The Director’s comments did not affect the QIs CMS 

used or the timing of the national rollout. However, the Administrator 

characterized the Center Director’s comments as obstructing the 

consensus-building process for the QI initiative. Senior CMS staff 

understood the Administrator’s instructions to exclude the Center to 

extend beyond the RAND task order and thus attempted to limit the 

involvement of the Center in other CMS contracts. 

In order to maintain the integrity of CMS’s procurement process, we are 

recommending that the Secretary of Health and Human Services take 

appropriate action to remedy the situation. Appropriate remedies could 

include permitting RAND to subcontract with the Center as RAND had 

proposed or reopening the competition for the award of the nursing home 

survey research task order. In addition, we are recommending that the 

Secretary have CMS procurement decisions affecting the Center since 

September 2002 reviewed to ensure that they were supported by a 

reasonable basis. HHS and CMS concurred with our recommendations, 

although CMS disagreed with our conclusion that the Administrator’s 

action was improper. 

To facilitate the procurement of services quickly while obtaining the 

advantage of competition, the Federal Acquisition Streamlining Act of 

1994 authorized agencies to award task order contracts to multiple 

sources.4

 Task order contracts, which are also referred to as “indefinite 

delivery/indefinite quantity contracts,” “umbrella contracts,” or “master 

contracts,” typically cover a range of services, without specifying a fixed 

statement of work and deliverables. Instead, orders are issued for the 

performance of specific tasks during the period of the contract. Agencies 

using task order contracts are required to provide contractors with “a fair 

opportunity to be considered” in the award of the individual task orders 

issued to meet agency needs. The Federal Acquisition Regulation (FAR) 

gives procurement officials broad latitude in administering the “fair 

consideration” process. The FAR requires them to consider price or cost 

 4

Pub. L. No. 103-355, § 1054(a), 108 Stat. 3243, 3261-3265 (codified at 41 U.S.C. §§ 253h-253k 

(2000)). 

Background 
Page 4 GAO-03-842 CMS Contracting 

as one factor in the selection process; it also suggests that other factors 

relevant to the award of a specific task order, such as past performance, 

quality of deliverables, and cost control, be taken into consideration.5

CMS’s Office of Research, Development, and Information is responsible 

for coordinating the agency’s multiple-award task order contracts, which 

the agency refers to as “master contracts,” while its Acquisition and Grants 

Group is responsible for awarding these contracts as well as subsequent 

task orders. 

On February 24, 2000, HCFA issued a solicitation for master contracts in 

five specialty research areas related to Medicare and Medicaid.6

 Fourteen 

contractors, including RAND and the Center, were awarded master 

contracts in the specialty area of “Medicare Research and 

Demonstrations.” The master contracts provided that contractors would 

be awarded at least $25,000 over the term of the contract, including 

options. The master contracts also provided that task orders would be 

awarded following a competitive process limited to the 14 contractors. 

On July 12, 2002, CMS sent a request for proposals (RFP) to the 14 

contractors for a task order to study the inconsistency across states in the 

nursing home survey process. Under contract with CMS, states are 

required to conduct periodic surveys of nursing homes that participate in 

Medicare and Medicaid to determine whether care and services meet the 

assessed needs of the residents and whether homes are in compliance 

with federal quality requirements, such as those regarding the prevention 

of avoidable pressure sores, weight loss, or accidents. Surveys must be 

conducted at each home on average every 12 months and no less than 

once every 15 months. During a nursing home survey, a state survey team 

that includes registered nurses spends several days at a home reviewing 

the quality of care provided to a sample of residents. Any deficiencies 

identified during routine surveys are classified according to the number of 

residents potentially or actually affected and their severity. Previous 

research has demonstrated considerable differences among states in terms 

of survey findings. 

The Center, which is one of the 14 master contract holders, has worked 

with CMS and other entities to conduct research on a range of health care 

 5

See 48 C.F.R. § 16.505(b) (2002). 

6

The solicitation referred to these contracts collectively as Research, Analysis, 

Demonstration, and Survey Design Task Order Contracts. 
Page 5 GAO-03-842 CMS Contracting 

issues, particularly in the area of nursing homes and the regulatory survey 

process. Over the past 15 years, the Center has been a prime contractor or 

subcontractor on 20 individual agency projects whose value to the Center 

totals over $41 million.7,8 Beginning in 1994, the Center assisted the agency 

in its efforts to (1) monitor the implementation of a revised long-term care 

survey process and (2) identify possible reasons for variations in survey 

findings among states.9

 The Center’s survey work on this project was 

discussed in a July 1998 HCFA report to Congress and helped reveal a 

general problem of underidentification of regulatory deficiencies in 

nursing homes.10

The Center has a particularly extensive background in the development 

and use of QIs for nursing homes, which are essentially numeric warning 

signs of potential care problems, such as greater-than-expected instances 

of weight loss, dehydration, or pressure sores among a nursing home’s 

residents. HCFA began contracting with the Center in 1988 to develop, 

test, and implement QIs as a way to improve the rigor of the survey 

process. As part of this effort, the Center developed a national automated 

system to provide to states and to HCFA assessment information on every 

nursing home resident in the United States.11

CMS recently undertook an effort to publicly report nursing home QIs on 

the agency’s “Nursing Home Compare” Web site. This effort, which began 

in April 2002 with a pilot program in six states and was expanded 

 7

Six of these projects valued at about $32.2 million are ongoing. Approximately $10.7 

million of the $41 million is attributable to projects specifically related to the nursing home 

survey process. 

8

For Wisconsin’s state fiscal year 2002, the Center’s funding for CMS and other projects 

totaled approximately $13.8 million, and its total staff consisted of approximately 65 

faculty, researchers, programmers, and support personnel. 

9

“Consultation in Analysis of Long-Term Care Survey Process,” Contract No. 500-94-0075, 

from September 1994 through August 1998. 

10HHS, HCFA, Report to Congress, Study of Private Accreditation (Deeming) of Nursing 

Homes, Regulatory Incentives and Non-Regulatory Initiatives, and Effectiveness of the 

Survey and Certification System (Washington, D.C.: July 1998). 

11Effective July 1999, HCFA instructed states to begin using QIs derived from these data to 

review the care provided to a nursing home’s residents before state surveyors actually visit 

the home to conduct a survey. Surveyors use the QIs to help select a preliminary sample of 

residents and preview information on the care provided to these residents prior to the onsite inspection. QIs are derived from data collected during nursing homes’ assessments of 

residents, called the minimum data set. 
Page 6 GAO-03-842 CMS Contracting 

nationwide on November 12, 2002, is intended to help consumers choose a 

nursing home. To develop and help select the QIs for this initiative, CMS 

contracted with two organizations with expertise in health care data and 

quality measurement—Abt Associates, Inc., and the National Quality 

Forum (NQF).12 Abt identified a list of potential QIs—including some of 

those developed by the Center—as being suitable for public reporting, and 

NQF was tasked with reviewing Abt’s work and making recommendations 

to CMS regarding the QIs for the pilot and national implementation. To 

accomplish this task, NQF established a 12-member steering committee, 

which included the Center’s Director.13

The NQF Steering Committee differed with CMS on several aspects of the 

agency’s QI initiative, including the risk-adjustment methodology, 

selection of QIs, and the time frame for publishing the data.14 For example, 

NQF concluded that some of the QIs required further review and that 

CMS’s QI initiative would have benefited from a postponement of 3 to 4 

months. We also evaluated CMS’s QI initiative, and on October 31, 2002, 

reported that its plan to publicly report QI data had considerable merit.15

However, we also raised concerns about the agency’s moving forward with 

its initiative without resolving a number of important open issues on the 

appropriateness of the QIs chosen for national reporting and the accuracy 

of the underlying data. For example, CMS planned to proceed with the 

national rollout without waiting for the advice it sought on the QIs from 

 12NQF is a nonprofit organization created to develop and implement a national strategy for 

health care quality measurement and reporting. NQF participants include government and 

private entities as well as entities from all sectors of the health care industry. 

13The Steering Committee of 12 included health services researchers, geriatricians, state 

survey agency personnel, state Medicaid directors, health systems representatives, and 

others. 

14Risk adjustment is important because it provides consumers with an “apples-to-apples” 

comparison of nursing homes by taking into consideration the characteristics of individual 

residents and adjusting QI scores accordingly. For example, a home with a 

disproportionate number of residents who are bedfast or who present a challenge for 

maintaining an adequate level of nutrition—factors that contribute to the development of 

pressure sores—may have a higher pressure sore score. Adjusting a home’s QI score to 

fairly represent to what extent a home does—or does not—admit such residents is 

important for consumers who may wish to compare one home to another. 

15See U.S. General Accounting Office, Nursing Homes: Public Reporting of Quality 

Indicators Has Merit, but National Implementation Is Premature, GAO-03-187

(Washington, D.C.: Oct. 31, 2002). 
Page 7 GAO-03-842 CMS Contracting 

NQF.16 In addition, we reported that CMS’s planned November 2002 

implementation did not allow sufficient time to ensure that the indicators 

it published were appropriate and useful to consumers. We recommended 

that the CMS Administrator delay the initiative to resolve outstanding 

issues and thoroughly evaluate the results of the six-state pilot. Such a 

delay, we concluded, would allow CMS to assess both how the information 

should be presented and how it could improve assistance to consumers. 

CMS implemented its QI initiative in November 2002 as planned but 

committed to continually improve the QIs and to work to resolve the 

issues discussed in our report. 

CMS followed a competitive process in awarding a task order for nursing 

home survey inconsistency research work to RAND under the Medicare 

Research and Demonstrations master contract. RAND’s proposal, which 

explicitly included the Center as a subcontractor, outlined a plan in which 

the Center would perform approximately half of the work, in terms of 

cost, in the first year and about 80 percent over a 3-year period, if the 

government exercised the options of extending the task order for 2 

additional years. On the basis of four criteria—-statement of the problem 

and technical approach, personnel and experience, management plan, and 

past performance—-CMS awarded the task order to RAND on September 

27, 2002. At virtually the same time, however, the CMS Administrator 

instructed agency staff to inform RAND that it could not subcontract with 

the Center. RAND continues to believe that the Center is the most 

qualified subcontractor available and as of June 23, 2003, had not 

conducted any substantive work under the CMS task order. 

 16Although the NQF Steering Committee had originally planned to complete its review of 

potential indicators using its consensus process by August 2002, in June 2002 CMS asked 

NQF to delay finalizing its recommendations until 2003. 

CMS Selected RAND 

Following a 

Competitive Process 

but Excluded 

Proposed 

Subcontractor 
Page 8 GAO-03-842 CMS Contracting 

CMS issued an RFP on July 12, 2002, to the 14 holders of Medicare 

Research and Demonstrations master contracts for a project to assess 

inconsistencies in the application of the nursing home survey process 

across states and to develop specific policy and programmatic options for 

improvement.17 To improve survey consistency among states, the RFP 

listed four objectives for the task order: (1) distinguish variability in the 

survey measurement findings that is appropriate (that is, the result of real 

quality variations among nursing homes) from variability that is 

inappropriate (that is, the result of surveyor inconsistency), (2) identify 

the aspects of survey inconsistency that are cited by key stakeholders, (3) 

identify the most important causes of inconsistency, and (4) develop 

policy and programmatic options for improvement. The RFP specifically 

identified the need for a major fieldwork effort to collect primary data to 

compare state survey team decisions with those of an independent and 

expertly qualified research team.18 Proposals were to be evaluated on the 

basis of four criteria, with a total possible score of 100. These criteria and 

their associated point totals were (1) statement of the problem and quality 

of technical approach (35 points), (2) personnel and experience (30 

points), (3) management plan and facilities (10 points), and (4) past 

performance (25 points). The RFP specifically included subcontractors 

among those whose background, experience, and accomplishments would 

be reviewed as part of the evaluation process. 

Three of the 14 eligible entities submitted proposals to CMS, including 

RAND with the Center as its subcontractor. RAND’s proposal was 

prepared jointly with the Center and was premised on collaboration 

between RAND and the Center during the project. Center staff were to 

conduct the majority of the fieldwork, relying on their researchers’ survey 

experience. RAND indicated that the Center would perform approximately 

50 percent of the work in terms of cost during the first year. If CMS 

decided to exercise its options for years 2 and 3, RAND estimated the total 

 17“Improving the Consistency of the Nursing Home Survey Process,” RFP No. CMS-02-

017/JB, issued July 12, 2002. Nursing home deficiency rates and scope and severity 

determinations vary substantially among states. For example, according to the RFP, the 

percentage of nursing homes with no health deficiency citations in 2000 ranged from 2.3 

percent in Arizona to 37.8 percent in Virginia. The RFP explained that although some of 

these differences might be accounted for by real quality-of-care differences among nursing 

homes, it also is extremely unlikely that average differences of this great a magnitude for 

entire states can be explained by real quality-of-care differences. 

18The RFP repeatedly cited the previous survey work done by Center staff and attributed 

some improvements to the nursing home survey process to the Center’s findings. 

CMS Followed a 

Competitive Process to 

Select the Proposal 

Submitted by RAND 
Page 9 GAO-03-842 CMS Contracting 

cost of its proposal at $2.0 million, of which the Center was expected to 

receive about $1.6 million. The tasks to be performed during the first year 

consisted largely of design preparation activities, with major fieldwork 

efforts and report writing occurring during the option years. 

A review panel, composed of CMS staff with different areas of expertise 

and chaired by the Project Officer for this task order, was convened to 

evaluate the three submitted proposals based on the four criteria 

described above. To assign scores in the first three areas—statement of 

the problem and technical approach, personnel and experience, and 

management plan—panel members generally relied on information 

contained in the proposals. With respect to past performance, the RFP 

instructions required each offeror to submit a list of recent and related 

projects with CMS and other entities, and the Project Officer gathered past 

performance data on some of these projects by asking panel members and 

other individuals familiar with the offerors to complete a survey. The 

results of these surveys, as well as comments solicited from others who 

had worked with each of the offerors in the past, were shared and 

discussed by the panel, after which the individual panel members assigned 

a past performance score to each offeror. On the basis of its initial 

evaluation, the panel found each of the three submitted proposals to be 

acceptable. 

The review panel chair then sent a series of questions to the three offerors 

to gain additional information about their proposals. The three entities 

responded to these questions, submitting their best and final offers. 

RAND’s best and final offer proposed that the Center would perform more 

than 50 percent of the work during the first year, in terms of cost. The 

same panel again met to evaluate and score the best and final offers, and 

the RAND proposal received the highest number of points. The panel 

members specifically cited the Center’s expertise in the area, particularly 

among its surveyors, as a reason for RAND’s high score. CMS sent a letter 

to RAND on September 26, 2002, to notify the firm of its selection, and the 

CMS Contracting Officer signed the task order to RAND for $248,355 on 

September 27, 2002. The task order stated that “[c]onsent is hereby given” 

for a subcontract to the Center and expressly provided for the Center to 

receive $134,706.19

 19The task order also incorporated RAND’s technical proposal by reference. 
Page 10 GAO-03-842 CMS Contracting 

At virtually the same time that CMS awarded the task order to RAND, the 

CMS Administrator, who told us he had received advice that he had the 

legal authority to do so, directed staff from the Acquisition and Grants 

Group to inform RAND that it could not subcontract with the Center. 

Accordingly, on September 27, 2002, the same day that CMS awarded the 

task order to RAND, a CMS contract specialist left a voicemail message 

with RAND’s Contract and Grant Administrator, with the following 

instructions:20

...[The] subcontract with University of Wisconsin...must be deleted at this time from your 

task order....I’m not sure exactly what the issues are but upper management has directed 

us not to award any...contracts or subcontracts with the University of Wisconsin until 

further notice. 

An e-mail message dated September 26, 2002, from the Director of CMS’s 

Acquisition and Grants Group to a Special Assistant to the Administrator 

demonstrates that CMS was contemplating this action before the award 

was made: 

I just wanted to confirm our discussion last night....We are also going to award the Rand 

contract under which Wisconsin is a subcontractor. However, we can explore the 

possibility of requesting that Rand remove Wisconsin as a subcontractor after award. 

The Center’s Director, who learned of the agency’s action from RAND on 

October 8, 2002, attempted to determine the status of the Center’s role on 

the task order first through telephone calls to officials in CMS’s 

Acquisition and Grants Group and then through e-mail communications 

with the Administrator. The Center’s Director met with the Administrator 

and one of his Special Assistants on October 18, 2002. Although the 

Director and the Administrator both characterized the meeting as 

productive, on October 22, 2002, the Administrator sent an e-mail message 

to the Center’s Director, reiterating his decision to direct RAND not to use 

the Center as a subcontractor. The University’s Vice Chancellor for 

Research and Dean of the Graduate School sent a letter to the CMS 

Administrator on November 15, 2002, asking for the rationale for the 

 20A RAND official provided us with an electronic copy of the recorded voicemail message 

as well as a written transcription of the voicemail message that included the date and time 

it was received. We have corrected the transcription of this voicemail message and e-mail 

quotations throughout this report for spelling errors. Except where otherwise indicated by 

bracketed material or ellipses, they are verbatim. 

CMS Administrator 

Intervened to Exclude 

Subcontractor 
Page 11 GAO-03-842 CMS Contracting 

agency’s action.21 On December 4, 2002, the University filed a bid protest 

with GAO’s Procurement Law Group requesting that CMS be required to 

rescind its order to RAND barring the Center as a subcontractor.22

However, GAO dismissed the bid protest on December 16, 2002, explaining 

that (1) it does not consider protests from subcontractors, and (2) the 

protest was not submitted within the appropriate time frame.23 On 

December 18, 2002, CMS modified the RAND task order and formally 

withdrew its consent for the Center as a subcontractor. (Table 1 contains a 

summary of the dates on which these and other related events occurred.) 

 21As of June 20, 2003, CMS had not responded to this letter. 

22Under the Competition in Contracting Act of 1984 (CICA), GAO considers protests of 

solicitations for contracts and awards or proposed awards of contracts by federal agencies. 

See 31 U.S.C. §§ 3551-3556. CICA and GAO’s implementing regulations generally define the 

scope of GAO’s bid protest jurisdiction. GAO’s authority to hear bid protests is distinct 

from its authority to conduct audits, evaluations, and investigations of federal programs 

and activities. 

23B-291751, Dec. 16, 2002. 
Page 12 GAO-03-842 CMS Contracting 

Table 1: Chronology of Key Events in 2002 Relating to Award of Task Order to RAND with the Center as a Subcontractor 

 Date Action 

July July 12 CMS sends RFP to 14 contractors. 

August Aug. 8 Three offerors submit proposals in response to the RFP. RAND proposes to use the Center as a 

subcontractor. 

 Aug. 20 CMS panel conducts initial review of proposals. 

September Sept. 6-10 CMS conducts discussions with three offerors and requests best and final offers. 

 Sept. 17 CMS panel reviews best and final offers. Panel recommends RAND for award. 

 Sept. 26 CMS sends letter to RAND stating that it had been selected for the task order. RAND signs the 

task order and sends it to CMS. 

 Sept. 27 CMS signs the task order and instructs RAND not to subcontract with the Center. 

 Sept. 30 At the request of CMS, RAND sends two e-mails to CMS indicating that RAND will not subcontract 

with the Center. 

October Oct. 7 CMS Project Officer, unaware of the decision regarding the Center, e-mails Center’s Director 

reiterating that RAND has been awarded the task order. 

 Oct. 10 Center’s Director e-mails CMS Project Officer that RAND has been instructed by CMS not to 

subcontract with the Center. 

 Oct. 14-17 CMS Administrator and Center’s Director exchange e-mails regarding the basis for the 

Administrator’s decision to exclude the Center from the RAND task order. 

 Oct. 18 CMS Administrator and a Special Assistant meet with Center’s Director to discuss CMS decision 

about the Center. 

 Oct. 22 Center’s Director e-mails CMS Administrator and a Special Assistant as a follow-up to meeting and 

asks about moving forward on project; CMS Administrator e-mails Center’s Director that he is not 

changing his mind about the Center as a subcontractor. 

 Oct. 23 Center’s Director e-mails CMS Administrator to ask why he refuses to reverse his decision. 

 Oct. 25 CMS Administrator e-mails Center’s Director indicating no change in his decision. 

November Nov. 15 University sends a letter to CMS Administrator requesting clarification of his decision. CMS did not 

respond. 

December Dec. 4 University files bid protest with GAO. 

 Dec. 16 GAO dismisses bid protest without addressing issues presented. 

 Dec. 18 CMS signs a task order modification withdrawing its consent for the Center as a subcontractor and 

the Center’s Director as the co-principal investigator. 

Sources: HHS, RAND, and University of Wisconsin. 

Given the uncertainty surrounding the use of the Center as its 

subcontractor, RAND had not conducted any substantive work under the 

task order as of June 23, 2003, over 8 months after the task order was 

awarded. RAND officials told us that they had initially perceived that 

concerns about the Center’s participation would be quickly resolved, with 

the Center reinstated as the subcontractor. As a result, RAND’s response 

for several months was to request extensions from CMS on performing the 

work. On February 25, 2003, however, an official from CMS’s Acquisition 

and Grants Group requested that RAND provide the agency with a course 

of action for performing the work without the Center. RAND provided 

Task Order Work on Hold 8 

Months After Award 
Page 13 GAO-03-842 CMS Contracting 

CMS with three options on March 14, 2003, all of which envisioned RAND 

performing as the prime contractor but potentially using another 

subcontractor. RAND’s letter emphasized that it continued to believe that 

the Center was the most qualified subcontractor and that the options were 

only to be used if CMS continued to withhold its consent for the Center. 

On May 15, 2003, CMS asked RAND to delay its work under this task order 

until we had completed our investigation. However, on June 12, 2003, 

CMS’s Acquisition and Grants Group sent a letter to RAND requesting the 

termination of the task order by mutual consent. On June 19, 2003, RAND 

responded that it agreed with the agency’s earlier suggestion to wait for 

our report before taking further action. 

The Administrator informed us that a number of factors supported his 

exclusion of the Center from the RAND task order. First, he stated that the 

“subcontract consent” clause in the master contract authorized CMS to 

direct RAND not to use the Center as a subcontractor. A second factor the 

Administrator identified was the desire to award work to “new” 

contractors with “fresh” approaches and ideas in areas such as nursing 

home survey and certification. Third, the Administrator told us that he and 

his staff had assessed the Center’s performance on a number of ongoing 

CMS task orders and determined that the Center had performed poorly on 

several of them, especially those related to nursing home survey and 

certification. Finally, the Administrator stated that during the development 

and implementation of the nursing home QI initiative, the Center’s 

Director had worked against consensus and was unwilling to compromise, 

which generated significant problems for the agency. We have reviewed 

each of the reasons provided by the Administrator and conclude that, in 

light of the evidence, the Administrator did not have a reasonable basis to 

direct RAND not to subcontract with the Center.24 Rather, the 

Administrator’s decision appears to have been in retaliation for the 

Director’s comments on CMS’s QI initiative. As a result, we believe that the 

Administrator’s action was improper. 

 24Contracting agencies are afforded broad discretion in their procurement decisions. 

Maintenance Engineers v. United States, 50 Fed. Cl. 399, 412 (2001); Preferred Systems 

Solutions, B-291750, Feb. 24, 2003, 2003 CPD P 56 at 4. Accordingly, when those decisions 

are challenged, they are generally reviewed only to ensure that they are consistent with the 

solicitation’s stated terms and applicable procurement statutes and regulations, and that 

they have a reasonable basis. Halter Marine v. United States, 56 Fed. Cl. 144, 156-59 

(2003); TLT Construction Corporation v. United States, 50 Fed. Cl. 212, 215 (2001); Sams 

El Segundo, LLC, B-291620.3, Feb. 25, 2003, 2003 CPD P 48 at 8. 

Administrator’s 

Decision to Exclude 

Center Was Improper 
Page 14 GAO-03-842 CMS Contracting 

Two of the reasons cited by the Administrator—the subcontract consent 

clause and a desire to obtain work from new contractors—do not provide 

reasonable bases for excluding the Center from the RAND task order. The 

Administrator’s reliance on the subcontract consent clause is 

inappropriate because the task order award was largely based on the 

integral role of the Center in the work to be performed. Further, both the 

use of a task order competition limited to the 14 holders of master 

contracts and the RFP for this task order undermine the Administrator’s 

second reason—an interest in working with new contractors. 

The Administrator asserted that the subcontract consent clause contained 

in the master contract authorized him to disapprove RAND’s use of the 

Center as a subcontractor under the task order. The subcontract consent 

clause requires the contracting officer to review requests for approval of 

subcontractors submitted by a prime contractor and advise the contractor 

of the agency’s approval or disapproval in writing. While a subcontract 

consent clause generally provides an agency with broad authority to 

accept or reject proposed subcontractors, the Administrator’s reliance on 

the clause in this context is inappropriate for a number of reasons. 

As a preliminary matter, the subcontract consent clause cited by the 

Administrator is typically applicable after contract award, as a matter of 

contract administration, rather than at contract award.25 Here, the 

Administrator’s decision to exclude the Center as a subcontractor related 

to the award of the task order, rather than to CMS’s administration of the 

task order. RAND had identified the Center as a subcontractor in the 

proposal it submitted to CMS, and the Administrator required RAND to 

remove the Center at essentially the same time as CMS awarded the task 

order to RAND. 

More importantly, even if the subcontract consent clause was applicable, 

the Administrator’s exercise of his authority under this clause was not 

reasonable. CMS selected RAND in large part because of the strengths of 

its proposed subcontractor, after reviewing the Center’s past performance, 

the role it would have under the task order, and the time Center personnel 

would devote to the project. Moreover, the agency consented to the RAND 

 25The language of the clause (referring to requests by the “contractor,” not offerors 

competing for a contract), as well as the FAR provision governing its use, support the view 

that its applicability is limited to post-award modifications or the approval of 

subcontractors that the agency had not otherwise agreed to prior to award. See 48 C.F.R. § 

52.244-2. 

Neither the Subcontract 

Consent Clause Nor CMS’s 

Interest in New 

Contractors Provided a 

Reasonable Basis for the 

Administrator’s Decision 

Subcontract Consent Clause 
Page 15 GAO-03-842 CMS Contracting 

subcontract with the Center in the task order itself, explicitly endorsing 

this element of the RAND proposal. If the Administrator acted properly in 

excluding the Center—which we do not believe is the case—the award to 

RAND would no longer be supported because it was largely based on 

RAND’s subcontract with the Center.26

Given the terms of the solicitation, the Administrator’s stated preference 

for CMS to work with new contractors with fresh approaches to the 

nursing home survey and certification area did not provide a reasonable 

basis for his decision to exclude the Center as a subcontractor. The 

solicitation did not state that being new to the area of nursing home 

quality review was a selection criterion. To the contrary, the competition 

for the nursing home research task order was limited to the 14 entities that 

were eligible to compete under the master contract.27 In addition, much of 

the solicitation’s discussion of the agency’s need for work in this area was 

based on the Center’s prior efforts, which were repeatedly referenced. If 

the Administrator believed there was a need to involve “new” researchers 

in the nursing home survey and certification work, he could have directed 

agency officials to amend the solicitation to reflect this criterion and 

request revised proposals. 

The evidence also does not support the Administrator’s statement that 

poor past performance by the Center justified his decision to exclude it 

from the RAND task order. As noted above, “past performance” and 

“personnel and experience” accounted for 25 and 30 percent, respectively, 

of the evaluation score, and officials from CMS’s Acquisition and Grants 

Group told us that information about the past performance of a contractor 

or subcontractor—either positive or negative—would be in the contract 

file. Our review of the file for this task order, however, shows no record of 

poor past performance by the Center. The scores that the RAND proposal 

received for both of these criteria were high, and the contract file included 

several examples of the Center’s strong past performance and unique 

 26It is well established that the selection of a proposal for award of a federal contract must 

be based on the proposal as it was submitted by the offeror and evaluated against the 

selection criteria in the solicitation. Cf. 41 U.S.C. § 253b(a); Bionetics Corp., B-221308, Dec. 

24, 1985, 85-2 CPD P 715 (pertaining to competitive procedures under CICA). 

27CMS was not required to satisfy its research needs by awarding a task order under the 

master contract. A provision in the master contract suggests that an entity other than one 

of the 14 master contract holders could have met CMS’s need for nursing home survey 

research through a separate contract. 

Agency’s Interest in New 

Contractors 

Assertion of Center’s Poor 

Past Performance Not 

Supported 
Page 16 GAO-03-842 CMS Contracting 

qualifications. CMS acquisition and grants and program staff we 

interviewed also were not aware of any documentation suggesting poor 

performance by the Center. The selection panel assessed the Center’s past 

performance as very satisfactory and pointed to the central role of its staff 

in the proposed fieldwork as a key factor in the decision to award the task 

order to RAND. In response to one offeror’s post-award request for 

information about weaknesses in its proposal, CMS officials identified the 

absence of staff with extensive survey experience, like that of the Center. 

Our review of other sources of performance information also yielded a 

high level of praise for the Center’s prior work. For example, as part of the 

agency’s review of proposals for its 2000 master contract, CMS requested 

evaluations from managers in CMS and other entities on projects that were 

either ongoing or completed within the past 3 years. CMS staff collected 18 

such past performance evaluations for the Center on a mix of CMS and 

non-CMS projects.28 For these evaluations, reviewers rated the Center in 

six categories, including performance. The majority of evaluations 

completed for the Center were positive. While a few of the reviewers gave 

the Center lower scores in some categories than in others, all but one 

indicated on the evaluation that they would contract with the Center 

again. The remaining reviewer gave an “unsure” response. 

In addition, the Administrator’s assessment of the Center’s performance 

on ongoing projects as a prime contractor or a subcontractor is not 

persuasive and therefore does not support his assertion that the Center’s 

past performance was poor. This assessment, which was documented in 

an e-mail message dated February 4, 2003, from a Special Assistant to the 

Administrator to senior CMS contracting and other officials—over 4 

months after the decision was made to exclude the Center as a 

subcontractor—contains an unsupported statement that most of the work 

managed by the Center “did not produce favorable results.” For the six 

task orders cited in this assessment, the vast majority of the funds—about 

83 percent—were directed to two task orders in which the Administrator 

determined that the Center performed well.29 With respect to the remaining 

 28The 2000 master contract solicitation instructed offerors to provide a list of contracts and 

subcontracts completed during the past 3 years and ongoing contracts and subcontracts 

similar in nature to the scope of the solicitation. 

29These two projects involved examinations of the (1) Implementation of Medicare 

Consumer Assessment of Health Plans (CAHPS) Disenrollment Survey and (2) National 

Implementation of Medicare CAHPS/Fee-for-Service Survey. 
Page 17 GAO-03-842 CMS Contracting 

four projects, the assessment characterizes the Center’s performance as 

poor but does not provide specific examples of poor performance. For 

example, in reference to the Center’s work on two survey and certification 

task orders, the assessment states that “this program/process [survey and 

certification] has been very problematic for CMS.... [I]t continues to be an 

area that generates great concern.... This doesn’t mean that all of the 

problems are the responsibility of this contractor - but CMS would 

certainly benefit from a fresh approach - old ideas from this contractor 

and others are not working.” The assessment does not go on to specify 

examples of the Center’s poor performance on the projects and does not 

explain why the Center, which is one of several contractors to have 

performed work in the area, would be responsible for weaknesses in the 

nursing home survey and certification process.30 The assessment also does 

not explain why the other contractors involved in the nursing home survey 

process were not excluded from survey-related task orders on a similar 

basis. 

The Administrator’s negative view of the Center’s work on these four task 

orders identified in the summary assessment document also is not 

consistent with the master contract performance evaluations completed 

by CMS project managers, who a CMS official said are in the best position 

to comment on the performance of a contractor. For example, with 

respect to the two survey and certification projects referred to above, the 

respective CMS project officers gave high marks to the Center in all 

applicable categories on the performance evaluations. While there are 

some negative statements, most of the other documents related to these 

four task orders are positive. 

The Administrator’s October 17, 2002, e-mail message to the Center’s 

Director also contradicts his assertion that the Center’s past performance 

was poor. In this e-mail message, the Administrator stated, in part: 

I am sure your work with us will continue.... If you do good work—as you apparently do—

and deal with us fairly—you will get the same treatment from me. 

 30While the Center has performed work on several projects related to the survey and 

certification process, there are other contractors with similar levels of CMS contracting 

experience in this area. 
Page 18 GAO-03-842 CMS Contracting 

The evidence suggests that the Administrator’s decision to exclude the 

Center from the RAND task order was in retaliation for the Center 

Director’s comments about CMS’s nursing home QI initiative, including the 

Director’s provision of technical information that we requested during our 

review of the effort. Although these comments did not affect the QIs CMS 

used or the timing of the national rollout, the Center’s Director was 

perceived by the Administrator as obstructing the consensus-building 

process for the QI initiative by being unwilling to compromise. Having 

received advice that he had the legal authority to exclude the Center from 

the RAND task order and understanding (although erroneously) that the 

task order was valued at $30,000, the Administrator directed CMS staff to 

exclude the Center. Acknowledging that he was not familiar with the 

agency’s contracting process, the Administrator told us he believed it was 

appropriate for him to intervene in this instance given the Center 

Director’s position on the QI initiative. Regardless of the merit of the 

Administrator’s view of the Center’s Director and concerns about the 

Director’s capacity to build consensus, the Administrator was not 

authorized to effectively change the proposal on which the award to 

RAND had been based. As explained earlier, the award to RAND was no 

longer supported once the Administrator excluded RAND’s proposed 

subcontractor. 

The Administrator’s frustration with the Center’s Director regarding the QI 

project is demonstrated in e-mail exchanges between the two. For 

example, in an e-mail message on October 16, 2002, referring to the QI 

initiative, the Administrator wrote: 

...Your problem with the agency is me—and I have discussed that with the Secretary at 

some length. I am happy to talk to you—but if you want to continue to yank my chain—I 

will continue to disconnect you from this agency. And I am happy to discuss this in front of 

the Secretary, either of your Senators—or anyone you like. There is no entitlement to 

government contracts—especially when you try to sandbag the agency you contract with—

and I have NO doubt they would all agree with me if I have to discuss it in more detail. 

When asked by the Center’s Director on October 17, 2002, why the Center 

was excluded from the RAND task order, the Administrator responded, in 

part: 

I gave you every shot in the world to get your views in.... We have worked hard to build 

that consensus in the last year, and are not interested in having it erode before the 

November 12th publication.... You were part of a fair, thorough and unbiased process. I 

don’t think it is too much to ask the participants in that process not to rip it apart when it is 

put in place. The RAND subcontract is a very very small part of your work. I am sure your 

Evidence Suggests that 

Administrator’s Decision 

Was Retaliation for the 

Center Director’s 

Comments on QI Initiative 
Page 19 GAO-03-842 CMS Contracting 

work with us will continue. But the government has no requirement to contract with 

anyone. 

The timing of certain events relating to the Administrator’s decision to 

exclude the Center from the RAND task order and the involvement of the 

Center’s Director in commenting on the QI initiative further suggest that 

the Administrator’s directive was retaliatory in nature. For example, on 

September 25, 2002—roughly 6 weeks before the national rollout and 2 

days before the task order award—the Center’s Director met with CMS’s 

Project Director for the QI initiative, at which time the Center’s Director 

provided a position paper that identified several technical issues that he 

believed the agency needed to address prior to the national 

implementation. Although the CMS official characterized the meeting as 

productive, she also told us that CMS and the Center’s Director had a 

fundamental disagreement over certain technical aspects of the initiative, 

and she believed that the Center’s Director would not be satisfied unless 

CMS changed course and included the QIs that the Center’s Director 

supported in its public reporting program. On the same day as this 

meeting, September 25, 2002, this CMS official contacted a Special 

Assistant to the Administrator to brief him on the substance of the 

discussion. The same evening, the Special Assistant and the Director of 

CMS’s Acquisition and Grants Group also discussed the status of the 

RAND contract and the possibility of excluding the Center, which 

occurred 2 days later on September 27, 2002. 

Although communications between the Administrator and the Center 

suggested that the Administrator’s decision to exclude the Center was 

limited to the RAND task order, other evidence we reviewed indicated that 

senior CMS officials intended to exclude the Center from other CMS 

contracting opportunities based on their understanding of the 

Administrator’s direction. Most notably, internal CMS communications 

suggest that agency officials had essentially barred the Center from 

participating as a prime or subcontractor on other task orders. However, 

CMS’s treatment of the Center under other task orders has varied since its 

exclusion from the RAND task order. While CMS denied a request 

submitted in December 2002 to provide additional funds to the Center as a 

subcontractor, the agency recently decided to exercise an option to extend 

another task order on which the Center is the prime contractor. 

Efforts to Exclude the 

Center Extended to 

Other Contracting 

Opportunities 
Page 20 GAO-03-842 CMS Contracting 

On January 30, 2003, CMS sent a letter to the Center advising it that the 

agency and the Center no longer had a contractual relationship because of 

the Center’s insistence on certain changes to the master contract that CMS 

considered unacceptable.31 As a result, the Center was no longer eligible to 

compete for task orders issued under the master contract. Center officials 

told us that they were surprised and confused by CMS’s letter since they 

believed that their concerns regarding the master contract had been 

resolved. Therefore, the Center requested clarification in a February 7, 

2003, letter to CMS. On April 30, 2003, CMS advised the Center that it 

continued to find the Center’s proposed changes unacceptable, but offered 

to reinstate the Center’s master contract under the original terms. 

Regardless of the dispute concerning the master contract, a January 29, 

2003, internal CMS e-mail message suggests that the Center would not 

have been considered for task order awards despite the existence of a 

contractual relationship with CMS. Describing the context in which the 

ongoing dispute between the Center and CMS had arisen, the Director of 

CMS’s Acquisition and Grants Group wrote to a Special Assistant to the 

Administrator, in part: 

In September, we sent [the Center] a modification to extend its current [master] contract 

for Medicare research activities. We have no intention of awarding it work under the 

contract based upon [the Administrator’s] instructions. But, we felt we had to exercise the 

option to extend the base contract for legal reasons. 

Earlier e-mail and voicemail messages also suggest that, as a practical 

matter, the Center had been barred from serving as a prime contractor for 

task orders under the master contract as well as a subcontractor to other 

entities. For example, the Director of CMS’s Acquisition and Grants Group 

e-mailed the following direction concerning the Center to some of his staff 

in November 2002: 

...The Administrator’s Office has directed us not to make awards to [the Center].... If [the 

Center] is the apparent successful offeror for any competed task order, do not make an 

award until we have had the chance to raise the matter with the Office of the 

Administrator.... 

 31Negotiations over information disclosure provisions in the master contract had been 

ongoing since October 2000, during which time CMS had twice exercised options to extend 

the contract. CMS officials told us that negotiations after contract award are common and 

that the Center had been eligible to compete for task orders under the master contract 

notwithstanding the ongoing negotiations. 

Staff Understood 

Instructions to Exclude the 

Center to Extend to Other 

CMS Contracting 

Opportunities 
Page 21 GAO-03-842 CMS Contracting 

In the same e-mail message, the Director of CMS’s Acquisition and Grants 

Group also directed a senior member of his staff to pursue acquisition 

strategies, including competing work under other master contracts and 

awarding task orders to small businesses, designed to limit the Center’s 

participation in CMS procurements. A later internal e-mail message 

emphasized that the instructions regarding awards to the Center extended 

to subcontracts and funding transfers as well. 

An intent to exclude the Center from CMS procurements could constitute 

an improper de facto debarment.32 A de facto debarment occurs when an 

agency excludes a potential contractor from government contracting or 

subcontracting without following the procedures set forth in the FAR, 

which requires agencies to notify contractors of the reasons for proposed 

debarments and provide them with an opportunity to respond.33 During the 

course of our review, we found no evidence that the agency had followed 

these procedures with respect to the Center. 

CMS’s unfavorable treatment of the Center was apparent in another CMS 

task order under a separate master contract where the Center is one of 

four subcontractors to the Research Triangle Institute (RTI).34 In this 

project, the Center and another subcontractor are charged with leading a 

multiphase project to test and implement the use of QIs in the long-term 

care survey process.35 The Center’s Director is the principal investigator on 

the Center’s subcontract with RTI. In late December 2002, the Project 

Officer for this task order submitted a request to adjust subcontractor 

 32Debarment refers to the formal exclusion of a prospective contractor from government 

contracting. The FAR identifies various reasons for debarment. Among other things, a 

contractor may be debarred for a conviction of or civil judgment for fraud, violation of 

federal or state antitrust statutes related to the submission of offers, or commission of 

other offenses indicating a lack of business integrity that seriously and directly affects the 

contractor’s present responsibility. See 48 C.F.R. § 9.406-2. 

33See 48 C.F.R. § 9.406-3; Quality Trust, Inc., B-289445, Feb. 14, 2002, 2002 CPD P 41 at 4 

(noting that a necessary element of a de facto debarment is that an agency intends not to 

do business with the firm in the future). 

34Contract No. 500-96-0010, Task Order 3, “Evaluating the Use of Quality Indicators in the 

Long Term Care Survey Process.” 

35The other subcontractor is the Division of Health Care Policy and Research within the 

University of Colorado’s Health Sciences Center. 

CMS’s Treatment of Center 

on Other Task Orders 

Varied 
Page 22 GAO-03-842 CMS Contracting 

funding levels, including a relatively small addition for the Center.36 This 

request was not approved by CMS’s Acquisition and Grants Group, based 

on the staff’s understanding of the Administrator’s instructions regarding 

the Center. A CMS official confirmed that there were no additional reasons 

the request was not approved, and when the reference to the Center was 

deleted, the request, which included additional adjustments to other 

subcontractor funding levels, was approved. 

On June 9, 2003, the Director of CMS’s Acquisition and Grants Group told 

us that CMS had recently decided to exercise an option to extend a task 

order on which the Center is the prime contractor but which does not 

involve the Center’s Director.37 The extension through September 30, 2004, 

is valued at $3.3 million, with the overall task order valued at 

approximately $15.6 million. A task order modification for this extension 

was provided to the Center for signature on May 29, 2003. A CMS official 

told us that the agency would sign the modification once it receives a 

signed copy from the Center. 

Consistent with the “fair consideration” requirements of the Federal 

Acquisition Streamlining Act of 1994 and the terms of the master contract, 

CMS conducted a competitive process for the award of a task order for 

nursing home survey work. Although the resulting award to RAND was 

based largely on the identity and past performance of its proposed 

subcontractor—the Center—the Administrator intervened in the 

procurement by directing RAND to exclude the Center from serving as a 

subcontractor. The Administrator’s action was not supported by any 

reasonable basis, including a reasonable exercise of authority under the 

subcontract consent clause contained in the master contract. Rather, the 

action appears to have been taken in retaliation for the Center Director’s 

technical concerns about another CMS initiative. The Administrator’s 

action thus was improper and undermined the integrity of the 

procurement process at CMS. Moreover, the Administrator’s exclusion of 

the Center was understood by senior CMS officials to extend to other CMS 

procurements in which the Center might play a role as a prime contractor 

or subcontractor. 

 36This request included the transfer of $20,000 from one of the other subcontractors to the 

Center. The Center’s budget for the RTI task order is approximately $2.3 million. 

37“Implementation of Medicare CAHPS Fee for Service,” Contract No. 500-95-0061, Task 

Order 7. The task order was awarded to the Center in August 2000. 

Conclusions 
Page 23 GAO-03-842 CMS Contracting 

In order to maintain the integrity of CMS’s procurement process, we 

recommend that the Secretary of Health and Human Services take 

appropriate action to remedy the Administrator’s improper decision to 

exclude the Center from the RAND task order. Such a remedy could 

include permitting RAND to subcontract with the Center as RAND had 

proposed or reopening the competition for the award of the nursing home 

survey research task order. We further recommend that the Secretary have 

CMS procurement decisions affecting the Center since September 2002 

reviewed to ensure that they were supported by a reasonable basis. 

We provided a draft of this report to the Secretary of Health and Human 

Services and the Administrator of CMS, as well as relevant excerpts to 

RAND and the University of Wisconsin. The Office of the Secretary 

provided oral comments and CMS provided written comments 

(reproduced in app. I). RAND and the University of Wisconsin provided 

technical comments, which we incorporated as appropriate. 

In its written comments, CMS disagreed with our conclusion that the 

Administrator’s decision to exclude the Center as a subcontractor from the 

RAND task order was improper and undermined the integrity of CMS’s 

procurement process. CMS asserted that the Administrator had a 

reasonable basis to instruct RAND not to subcontract with the Center, 

reiterating the reasons described earlier in this report without providing 

any new information. For example, CMS restated the view that the 

Center’s past performance on nursing home survey and certification 

initiatives was problematic. We did not find evidence to support this view. 

Rather, the evidence pointed to a record of strong performance in this 

area. Nonetheless, CMS concurred with our recommendation concerning 

the need to take action to remedy the situation with regard to the Center’s 

exclusion from the RAND task order award. CMS commented that the 

Administrator acknowledged that the subcontractor work under the 

RAND task order may have been more significant than he had initially 

understood and stated that the issue may be best rectified by recompeting 

the work, with the clear expectation that the agency is looking for new 

ideas with a strong results orientation. According to the written 

comments, the Administrator has directed staff to rebid the work as 

quickly as possible. Any such solicitation must include the actual selection 

criteria that CMS intends to apply. 

In oral comments, the Office of the Secretary concurred with our 

recommendation concerning the need to review CMS procurement 

decisions affecting the Center since September 2002. We were informed 

Recommendations for 

Executive Action 

Agency Comments 
Page 24 GAO-03-842 CMS Contracting 

that the Assistant Secretary for Administration and Management will 

perform an independent review of all CMS procurement activities 

involving the Center. In its comments, CMS emphasized that the 

Administrator did not intend for his decision concerning the Center on the 

RAND task order to extend to other work for CMS and that, upon learning 

of this possibility, the Administrator took immediate action instructing 

appropriate staff to “set the record straight.” CMS said the Center is to be 

treated no better or worse than any other prospective contractor, with a 

completely level playing field for all contractors that want to offer new 

ideas to improve the nursing home survey and certification process. 

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

issue date. At that time, we will send copies of this report to the Secretary 

of Health and Human Services, the Administrator of CMS, and appropriate 

congressional committees. We will also make copies available to others 

upon request. In addition, the report will be available at no charge on the 

GAO Web site at http://www.gao.gov. 

If you or your staff have any questions, please call Kathryn G. Allen at 

(202) 512-7118. Major contributors to this report include Susan Anthony, 

Helen T. Desaulniers, Laura Sutton Elsberg, and Behn M. Kelly. 

Sincerely yours, 

Kathryn G. Allen 

Director, Health Care—Medicaid 

 and Private Insurance Issues 

Dayna K. Shah 

Associate General Counsel 
Appendix I: Comments from the Centers for 

Medicare & Medicaid Services 

Page 25 GAO-03-842 CMS Contracting 

Appendix I: Comments from the Centers for 

Medicare & Medicaid Services 
Appendix I: Comments from the Centers for 

Medicare & Medicaid Services 

Page 26 GAO-03-842 CMS Contracting 
Appendix I: Comments from the Centers for 

Medicare & Medicaid Services 

Page 27 GAO-03-842 CMS Contracting (290261) 
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