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State agency dismissive of Xerox claims

CHARLESTON, W.Va. - A losing bidder challenging the outcome of a $248 million state contract may not have a "credible basis for its protest," an attorney for the state Department of Health and Human Resources said in a recent letter.

Atlanta-based Xerox is challenging a contract DHHR recently signed with California-based Molina Medicaid Solutions. The contract - which is perhaps the largest in state history - is for a new computer system to process claims for the state's 420,000 Medicaid recipients.

Molina runs the current system, but the state just signed a new agreement with the company to replace that aging system.

Xerox wants the state to cancel the new decade-long deal with Molina because of what Xerox alleges are "numerous flaws, inconsistencies, errors and conflicts" during a multi-year bidding process.

Attorneys for Xerox and Molina are now involved in a behind-the-scenes battle over Xerox's allegations and the release of what DHHR says are "many tens of thousands of documents" related to the bidding process. Xerox is seeking documents from the state to substantiate its allegations.

The two companies are arguing as a DHHR official reviewing the matter decides whether the department inappropriately awarded the contract to Molina. That ruling could come down in coming weeks.

But DHHR may already be dubious of Xerox's allegations that the bidding process was fatally flawed.

A DHHR attorney, Harry Bruner, said department officials believe Xerox may be trying to "protract this matter by requesting what appears to be so many irrelevant documents and running up the cost and wasting DHHR staff and management time."

"Xerox is also giving the impression to WVDHHR that it does not have a credible basis for its protest other than making mere allegations," Bruner wrote in a letter to Xerox's attorneys dated Jan. 23.

"WVDHHR" is another acronym for DHHR.  Bruner is an employee of the state Attorney General's Office who represents DHHR.

A Xerox attorney appears worried that Jan. 23 letter may be a shot across the bow.

"Xerox is concerned that these 'impressions' you are referring to suggest DHHR may be pre-judging the merits of Xerox's protest," Xerox attorney Carte Goodwin wrote to Bruner on Jan. 30.

"In closing, as it has the right to do, Xerox has filed a lawful protest to a procurement process that has numerous flaws, inconsistencies, errors and conflicts," the letter said. "And as it has the right to do, Xerox has filed a lawful public document request."

Xerox's protest, filed in late December, was just the latest twist in a bidding process that has dragged on for nearly two years at DHHR. The contract has been bid out three times because of problems with two initial bids.

Xerox alleges Molina won the new $250 million contract in part because Molina cut a multi-million dollar "side deal" with DHHR to upgrade the current computer system. Xerox said that as a result of this upgrade, Molina was able to underbid Xerox and two other companies. Xerox says Molina had access to Xerox trade secrets because of an error by DHHR. Xerox also alleges Molina representatives had special access to DHHR staffers during the bidding process.

In turn, Molina says it is the victim of an "evidence-free smear campaign" by Xerox, which is one of Molina's competitors in a lucrative market.

In a separate Jan. 30 letter to the head of DHHR's purchasing office, Xerox said the state should bid out the contract yet again.

Xerox cited a move by state lawmakers and Gov. Earl Ray Tomblin's office to strip DHHR of special purchasing authority the department was given in 2009.

The special authority allowed DHHR officials to sidestep normal purchasing procedures on certain Medicaid-related contracts, including the computer system contract. Now, following the problems with the computer contract and a legislative audit of DHHR, Tomblin's office and members of the Legislature want to change the law again to make sure DHHR has to send its contracts through the normal process.

Xerox says this reversal proves DHHR has not been able to adequately manage its own affairs and suggests that the new contract Molina was awarded was the result of a flawed bidding process.

"This impending statutory change raises a fundamental question," Xerox said. "If (DHHR)'s inability to fairly administer this very important . . . procurement has prompted legislative action to strip the agency's independent purchasing authority, then how can the award (of the contract) - the largest contract in state history - be permitted to stand?"

Contact writer Ry Rivard at ry.rivard@dailymail.com or 304-348-1796. Follow him at www.twitter.com/ryrivard.


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