During the third quarter of 2011, requests for proposal from public sector entities seeking to outsource collection operations yielded at least 71 opportunities totaling more than $6.2 billion in portfolios available for bidding and eventual servicing, as reported by MyGovWatch.com. Requestors included well-established receivables management outsourcers such as the Oklahoma Department of Human Services, the East Carolina University School of Medicine, and the Lucas, OH, Metropolitan Housing Authority. New outsourcing opportunities this past quarter included those announced by the Illinois Department of Revenue, Fort Lauderdale, FL, and the Commonwealth of Kentucky.

FirstSource True to Its Name in Iowa

The University of Iowa held a procurement last September related to the collection of primary and secondary placement insurance and self pay accounts for hospital- and physician-based healthcare services. While many times in public procurements rate is a significant award factor, here it was anything but. FirstSource Solutions won primarily because of the quality of its proposal to the buyer, more so than any other factor.

Competitors Credit Bureau Collection Service, HRS Erase, and Engage Medical all offered rates within one percentage point of FirstSource for all account types, so clearly this buyer did not select its vendor based on rate in 2010. The decision was based largely on what FirstSource had to say in the proposal it submitted, as seen on MyGovWatch.com. From its certifications and qualifications in healthcare to its relevant expertise and beyond, FirstSource outscored all other companies in the procurement evaluations shown on MyGovWatch.com at a rate of nearly 2 to 1. This contract is a great example of how government entities should buy outsourced collection services -- based on value.

This potential five-year contract features average balances of more than $2,200 and liquidation rates up to 21% historically. The contract requires on-site staff.

World’s Largest Customer: Sneaking in the Back Door

It’s no secret that the U.S. Department of Education (ED) has close to two dozen vendors collecting on defaulted student loans. What is not widely known among collection industry professionals (at least those not already involved in the contract) is this: ED gives its vendors a significant incentive to subcontract 10% of the portfolio to qualified small businesses. (Here, a small business is defined as one with less than $7 million in fees on average over the last three completed fiscal years.) What is also not widely known is that ED will pay its collection agencies $500,000,000 (you read it correct, half a billion) in 2012 and expects this number to increase by 40%, to $700,000,000, in just three years. Grade school math says this means some small businesses could participate in this contract indirectly through a prime contractor to the tune of up to $3 million per year in fees by 2015.

Net Gain Marketing and Consolidated Business Services have partnered to act as a clearinghouse for small businesses seeking to hear about potential subcontracting engagements on a timely basis. This partnership has sparked most of the subcontracting relationships ED’s vendors have entered into with their subcontractors over the last few years, but more opportunity will present itself in 2012 and beyond.

“We have seen it all over the last two years, what works, what does not work, what various ED vendors require from their subcontractors, and what types of people are good matches for others,” said Nick Bernardo, president of Net Gain Marketing, continuing, “We encourage all small businesses willing to invest in entering this growth market to contact us to participate in future informational conference calls we will be holding to help small businesses educate themselves on the potential opportunity, and whether or not it is right for them, by calling 877-533-1670, x701.”

Nine Vie for KC Contract

Kansas City, Missouri, entertained offers from nine companies in late 2010, all vying for a chance to collect taxes, ambulatory fees, utility accounts, and other miscellaneous accounts for this large Midwestern city. While the selected company was Kansas Counselors, leading companies that submitted offers included NCO Financial Systems, The Affiliated Group, Linebarger, Goggan, Blair, & Sampson, GC Services, Client Services, and Deca Financial Services, among others.

It would be easy to say that the buyer here went with the home-town team, but that’s only part of the story. Kansas Counselors also submitted the low bid for this one-year contract with four, 1-year options. Pricing was structured by age, with accounts under 90 days priced differently than those up to and beyond 120 days. This contract should be out for bid again in 2015.

RFPs On the Horizon

Looking ahead, MyGovWatch.com indicates that following buyers are likely to release an RFP for bidding later this quarter: the City of Los Angeles, CA, for taxes, judgments and other fines and fees, the Vermont Department of Taxes for taxes, and the Colorado Department of Personnel and Administration for taxes, healthcare, education and other miscellaneous accounts.

As always, part of the process of winning public sector contracts is meeting with decision makers well before any procurement starts to gain the opportunity to develop a relationship that may favorably affect the written requirements of the next procurement and, at the very least, give you special insight into what the buyer needs. MyGovWatch.com users have access to MyWatchList, which lets users anticipate the release of hundreds of future government solicitations in the next year.

Around the Horn

Out in Redding, California, States Recovery Systems was awarded a contract to collect utility accounts and administrative citations at 20%. Monthly placements are estimated at 167 accounts worth $31,000. States Recovery Systems received a total score of 2504, a couple hundred points more than also-rans Credit Consulting Group and Financial Credit Network. Other bidders included Array Services Group, Creditech, United Adjustment Corporation, and North Valley Collection Services.

Up in Wisconsin, the Madison Area Technical College recently received proposals for the collection of tuition accounts and MATC Foundation loans. A contract was awarded to TEK Collect at 35%. The buyer chose this vendor from among 6 bidders for this three-year contract with two 1-year options. Monthly placements are $170,000 with monthly revenue estimated at $9,000 per month. Madison Area Technical College had a backlog of $1.5 million as of the date of the procurement. Tek Collect’s score was 55.7%, while other bidders, such as National Recoveries, National Recovery Agency, Credit Bureau Data, and NCO Financial Systems, scored anywhere from 37.7% to 41.1%.

Back East, SUNY Downstate Medical Center awarded a contract for healthcare self-pay accounts to NCO Financial Systems and Jzanus, who were the only vendors to submit proposals. The buyer indicated that this procurement in 2009 was released because the funds allocated for the 2007 contract were exhausted before the expiration date of the contract. Monthly referrals are estimated to be over 8,000 accounts worth more than $7.4 million.

In the Southwest, an invitation to bid was held by Tulsa, Oklahoma for municipal court fines and fees, which was awarded to nationwide government contractor Linebarger, Goggan Blair & Sampson, a leading government contractor based in Texas. The liquidation rate for this contract is estimated at 60%, with placements of 600 accounts per month worth $75,000.