Protests could delay outsourcing of tax collection

Protests filed by unsuccessful bidders may cause delays in an Internal Revenue Service initiative to hire private sector companies to help collect tax debt.

Livermore, Calif.-based Diversified Collection Services and Houston, Texas-based GC Services have filed protests with the Government Accountability Office over the IRS' process for selecting three collection companies to carry out the first phase of the initiative.

The protests were filed on March 17 and March 20, according to GAO Senior Attorney Edward Goldstein, shortly after the March 9 announcement of the contract award. IRS spokesman John Lipold said it is not yet clear whether the protests will affect the timeline for work on the contract.

The contents of the DCS protest were not public, but Maria Perrin, senior vice president of business development with the firm, said the protest was aimed at understanding the criteria used in the selection process. "Once we get more information, it will become either 'OK, we understand the procedure we went through,' or 'no, we don't agree,' " she said.

One of two protests filed by GC Services focused on the history of Austin, Texas-based Linebarger Goggan Blair & Sampson, one of the firms awarded a contract. A former partner with that firm, Juan Pena, pleaded guilty in September 2004 to federal charges of conspiracy and bank fraud in connection with a bribery case.

Pena was one of four defendants involved in paying bribes to two San Antonio city councilmen in return for a contract to collect fines and fees for the city, according to a Justice Department statement announcing Pena's plea.

GC Services' protest alleges that the IRS incorrectly applied the selection criteria to Linebarger Goggan's bid, failing to take into account the bribery case.

Ken Oden, currently general counsel for Linebarger Goggan, was brought on at the firm shortly after the scandal as an ethics manager. He said the company acted aggressively to address Pena's misconduct. Pena left the firm within 48 hours of the charges coming to light in late 2002, Oden said.

"No other member of our firm was alleged to have done anything wrong, and the firm itself was not alleged to have done anything wrong," Oden said. "[Pena's] conduct was indefensible, and he has been penalized for it."

Oden said when he joined the company he was given carte blanche "to write the toughest code of ethics for any law firm in the United States." That code includes requirements for disclosure of spending authorizations, as well as an "economic death penalty" with provisions that any employee or contractor who violates the terms of employment forfeit any money ever paid by the company, he said.

The IRS has said it is fully aware of the case, stating in a press release, "The IRS believes the firm responded to the issue appropriately, and the situation did not adversely affect their business performance."

The National Treasury Employees Union, however, has been critical of the outsourcing initiative since its inception, and cited the protests and bribery case as indications of a highly flawed process. These flaws exist, "alongside continuing problems with the agency's historic weak oversight of private contractors," said Colleen Kelley, president of the union.