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Education Dept. awards debt-collection contract to company with ties to DeVos

Education Secretary Betsy DeVos speaks in October at a dinner in Bellevue, Wash. (Ted S. Warren/AP)

A company that once had financial ties to Education Secretary Betsy DeVos was one of two firms selected Thursday by the Education Department to help the agency collect overdue student loans. The deal could be worth hundreds of millions of dollars.

The decision to award contracts to Windham Professionals and Performant Financial Corp. — a company DeVos invested in before becoming secretary — arrives a month after a federal judge ordered the department to complete its selection of a loan collector to put an end to a messy court battle. Windham and Performant beat out nearly 40 other bidders for contracts valued at up to $400 million, but their win may be short-lived if the losing companies fight the decision.

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“The selection of only two [companies] opens the door to protests from the unsuccessful bidders,” Michael Tarkan, senior research analyst at Compass Point, wrote in a research note on Performant. “Based on prior contract awards, we would not be surprised to see protests, lawsuits and appeals which could all delay the start date for the new contract.”

Historically, the department has used as many as 17 companies to recoup past-due student loans. Earlier attempts to whittle down the number of firms have been met with resistance. Companies that lost out on a 2016 debt-collection contract have been embroiled in a lawsuit that has prevented the federal government from assigning new accounts.

The department selected seven companies to manage the portfolio two years ago, sparking protests at the Government Accountability Office, which faulted the agency with mismanaging some of the bids. A few firms filed complaints with the federal claims court, leading authorities to put a hold on all new assignments. The Education Department had estimated that the order cost taxpayers $640,000 in collections in one month.

The newly awarded contracts are supposed to resolve the litigation, but the selection of Performant could raise eyebrows.

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Performant is linked to LMF WF Portfolio, a limited liability company that once counted DeVos as an investor. LMF was one of several firms involved in providing Performant with a $147 million loan in 2012, according to regulatory filings. DeVos was required to divest from LMF within 90 days of her confirmation as secretary, but at the time of her appointment, Democrats said they were uneasy about the influence she could still wield over companies with which she has had a relationship.

Education Department spokesman Nathan Bailey said Thursday that DeVos had “no knowledge, let alone involvement,” in the new debt-collection contract. Richard Zubek, who heads investor relations at Performant, said in an email that the company “has never had any direct or indirect contact with Secretary DeVos or anyone related to Mrs. DeVos.”

Performant was among the companies that protested to the GAO about the Education Department’s 2016 contract decision. In its response to the protests, the GAO outlined the Education Department’s evaluation of the dozens of companies that submitted bids at the time. Windham’s management was rated satisfactory and its past performance deemed “exceptional,” earning the company a spot among the seven firms selected then. Performant’s management was rated “marginal,” while its past performance as a contractor was deemed “satisfactory.”

“It simply does not make sense that the agency would choose to work with lower-rated [companies] with marginal ratings that do not have an exceptional past performance record,” said Todd Canni, an attorney for Continental Service Group, one of the bidders. “While we continue to await more facts, we are deeply troubled by the optics and appearance issues associated with the agency’s award decisions.”

Canni said his client has asked the Education Department for a briefing to explain how the company was evaluated. Continental Service Group is weighing its options, including protesting the contract award with the GAO or taking up the matter with the U.S. Court of Federal Claims.

“It is beyond dispute that the [Education Department’s] decisions have, at a minimum, created the appearance of a conflict of interest,” Canni said. “Given the fact that Performant was not a highly rated [company] and, in fact, was rated fairly low . . . the agency will be under intense scrutiny and will need to explain how suddenly these ratings changed so significantly to allow Performant to leap frog over so many other qualified [companies].”

In awarding the contract Thursday, the Education Department said in court filings that Performant and Windham’s proposals were “the most advantageous to the government.”