Health Net 2009 Annual Report Download - page 12

We submitted our final proposal to the Department of Defense for the third generation of TRICARE
Managed Care Support contracts (referred to as “T3”) on January 2, 2009, and on July 13, 2009 we were notified
by the Department of Defense that we were not selected to be the Managed Care Support Contractor under the T3
contract for the North Region. On July 20, 2009 we filed a protest with the Government Accountability Office
(“GAO”) in connection with the T3 award decision made by the TRICARE Management Authority (“TMA”)
citing a Procurement Integrity Act violation by the Department of Defense in releasing our initial proposed bid
price to the public, including through its website. On July 23, 2009, the Department of Defense conducted a
debriefing of the proposal evaluation and the basis for the award decision. On July 28, 2009, we filed a second
protest with the GAO in connection with the T3 award decision, citing flaws in the proposal evaluation and
award decision and other grounds for protest. The filing of our timely protest triggered an automatic suspension
of the performance of the T3 North Region contract until the protest was decided by the GAO. This effectively
stopped performance on the implementation of the T3 North contract. Also, the Department of Defense has
indicated that, if transition work is resumed, the T3 North contractor will be given a ten month transition period
prior to the start of health care delivery under the T3 North contract. However, the Department of Defense
always has the authority to shorten the transition period to less than ten months.
On October 13, 2009, the GAO rendered a decision denying our July 20, 2009 protest, and on November 4,
2009, the GAO rendered a decision upholding our July 28, 2009 protest. The GAO sustained our July 28, 2009
protest on six grounds, including the appearance of impropriety based on an unfair competitive advantage
stemming from the T3 contract awardee’s use of a former high-level government employee in preparing its
proposal and such individual’s access to non-public proprietary information concerning our incumbent contract.
The GAO recommended that TMA conduct a new evaluation of the award of the T3 contract. With respect
to the alleged unfair competitive advantage, GAO recommended that the contracting officer perform a thorough
review regarding the scope of the former TMA employee’s access to non-public proprietary information and
source selection sensitive information, which could have afforded the T3 contract awardee a competitive
advantage in the preparation of its T-3 proposal. The GAO recommended that the contracting officer determine
which actions, if any, should be taken to address the appearance of impropriety stemming from that individual’s
participation in the preparation of the T3 contract awardee’s T-3 proposal. Regarding the other issues upon which
the protest was sustained, the GAO recommended that TMA re-evaluate the proposals consistent with the
opinion and make a new source selection decision.
On December 18, 2009, TMA sent a letter to the GAO indicating that it accepted the GAO’s
recommendations and would take the requested corrective action. Specifically, TMA stated that it would prepare
appropriate corrective action to address the flaws identified in the GAO decision, but only after the Department
of Defense completed its review of the unfair competitive advantage issue and actions, if any, necessary to
address the appearance of impropriety. The Department of Defense did not provide a timeline for concluding its
review.
At this time, we are not able to determine what specific actions the Department of Defense will take in
response to recommendations by the GAO, nor can we determine whether or not the protest decision by the GAO
will have any effect upon the ultimate outcome of the contract award.
For additional information regarding our TRICARE contract for the North Region and the T3 North Region
contract, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and “Item 1A. Risk Factors—A significant reduction in revenues from the government programs in which we
participate could have an adverse effect on our business, financial condition or results of operations.”
Other Department of Defense Contracts
In 2007, MHN was awarded a five-year contract, the Military Family & Life Consultant Program
(“MFLC”), to develop, administer and monitor the non-medical counseling program for service members.
Services under the MFLC began on April 1, 2007 and will end in 2012, subject to an early termination provision
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