.��..� DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Morehouse Community Organization
Docket No. 87�152
Motion to Reconsider
Board Decision No. 888
DATE: October 1, 1987
�
The Morehouse Community Improvement Organization, Inc. (MCIO
orGrantee)
notified the Board that it wished to appeal at a higherlevel
Board
Decision No. 888, dated August 5, 1987. Decision No.888 upheld
the
determination by the Office of Human DevelopmentServices
(Agency)
disallowing costs claimed for transportationservices that exceeded
the
price established by a contractbetween MCIO #nd the provider of
the
services, Mr. White. TheGrantee alleges that the Board's decision
was
"unfair and withoutprogrammatic foundation." Specifically,
MCIO
complained that ithad requested an "onsite review of the situation"
and
that it hadsubmitted briefs analyzing and comparing
transportation
coststhroughout the area but that "no consideration was given
toeither."
As the cover letter to our decision indicated, the decision isthe
final
administrative action in the appeal, and consequently,there is
no
further administrative review at a higher levelalthough the Grantee
is
not precluded from seeking judicialreview. Nevertheless,
Board
regulations at 45 C.F.R. 16.13permit the Board to reconsider a
decision
where a party promptlyalleges a clear error of fact or
law.
Accordingly, we will treatthe Grantee's notice as a request
for
reconsideration.
The record before the Board in Decision No. 888 established thatMCIO
had
contracted with Mr. White to provide transportationservices
covering
five school routes for the seven months atissue. This contract
provided
that Mr. White would be paid on acents�per�mile basis each month
for
every mile of transportationactually provided during the month.
MCIO
did not dispute thenature of the terms nor the applicability of
the
contract butargued that Mr. White had been confused about the
actual terms of the contract. The terms, however,
correspondedprecisely
with the bid Mr. White had submitted to MCIO
beforereceiving the
contract. In spite of the binding nature of
thecontract, MCIO decided
to pay Mr. White $5034 in excess of thecontract
formula because of his
alleged confusion as to theterms. The Board
upheld the Agency's
determination that the$5034 in claimed costs were not
properly charged
to this grantbecause the grantee was under no obligation to
pay the
excessamounts to the provider of transportation services, and
thepayment
could not be viewed as a necessary cost of the grant.�j In its
letter to
the Board, MCIO argued that no consideration hadbeen given to
its
request for an onsite review of thecircumstances surrounding
the
payment. Prior to and during Boardproceedings MCIO had in fact
asked
the Agency counsel or otherAgency representatives to perform an
onsite
review. TelephoneConference Tape of May 27,1987. ## The Agency
counsel
declinedthe request for an onsite visit because, he asserted,
the
issuessurrounding the disallowance had already been fully �
�
*/ At no time during the appeal did MCIO request the #oard toprovide
an
onsite review or a hearing. While Board regulations donot
contemplate
that the Board will perform onsite investigativereviews, they do
provide
that the Board may provide a hearing. If an appellant believes that
a
hearing is appropriate, theregulations say it should
specifically
request one from the Boardat the earliest possible time in the
Board's
proceedings. TheBoard will approve a request "if it finds there
are
complexissues or material facts in dispute the resolution of
which
wouldbe significantly aided by a hearing, or if the Board
determinesthat
its decision�making otherwise would be enhanced by
oralpresentatations
and arguments in an a#versary, #videntiaryhearing." No
hearing was
requested h#re, nor was tl#ere anydemonstration that a hearing
would be
#opropriate under theregulatory standard.
This appeal involved an amount in #ispute of less than $25,000,and so
the
Board used its expe#ited process. This processexpressly provides
for a
telepho#e conference call to enable theparties to respond orally
to each
other's writ##n submissions. In fact, the Board provided the
parties in this
case with theopportunity to participate in �two�
telephone conference calls
andaddit#onal opportunities to present
written submissions notexpressly
contemplated by regulations.
developed and there was no reason to believe that the Agencywould in
any
way be aided in its understanding of the case. Thisdisallowance
was
originally based on audit findings prepared bythe Grantee's
own
accountant, and the parties were given ampleopportunity during
Board
proceedings to present writtensubmissions and to participate
in
telephone conferences insupport of their positions. The
Grantee,
moreover, did not givethe Agency at the time of its request
any
indication of theinformation that might be provided during an
onsite
visit thatcould cause the Agency to alter its position. Nor
did
theGrantee allege that the Agency was required
under
Departmentprocedures to provide an onsite visit either before
or
afterissuing a disallowance.
Accordingly, we can find no reason to conclude that the
Boardshould
reconsider its decision because the Agency declined theGrantee's
request
to perform an onsite review. It is afundamental principle of
grant
administration that the grantee�j
MCIO also alleged in its letter to the Board that it hadsubmitted
briefs
analyzing and comparing transportation coststhroughout the area but
that
no consideration was given to thebriefs. In fact, MCIO never
submitted
to the Board �any� briefscomparing transportation costs.
(Even if such
an exhibit hadbeen submitted, it would have been of
questionable
relevance tothe central issue.) The closest thing to a
comparison of
costsactually submitted was an exhibit entitled
"TransportationExample �
Profit Margin." This exhibit was specifically
discussedby the Board on
page 6 of its decision. The Board stated
thatthe disallowed costs
exceeded the contract price and thereforewould have
been unallowable
whether or not the contract provideda profit margin for the
contractor.
The Board also noted,however, that using the Grantee's own
profit
assumptions, Mr. White would have made a profit from the
paymentsprovided
by the contract.
In summary, the Board considered in its decision all
relevantexhibits
submitted by MCIO, including the exhibit analyzing
Mr.White's profit
margin.
�Conclusion�
For the reasons discussed above, MCIO has provided us with nobasis
upon
which to reconsider,our decision. We must thereforedeny the
request
for#re#onsideration.
�
.
#
#.'
###'######.
� Norval
D.
(John) Settle
� �
Alexan#er G. ##eit###
�j .��..��..��..��.#̔ ####### ..
._..' � Donald
F.Garrett�#J�
Presiding Board Member
� .��..� DEPARTMENTAL GRANT APPEALS BOARD Department ofHealth and
Human
Services�.J� SUBJECT: Morehouse
Community
DATE: August 5,
1987 Improvement Organization, Inc. Docket No.
87�41 � .��..�Audit
Control No. 06�65170 Decision No. 888�.J�
�
The Morehouse Community Improvement Organization, Inc. (Granteeor
MCIO)
appealed a decision by the Office of Human DevelopmentServices
(Agency)
to disallow costs paid in excess of thecontracted price
for
transportation services covering five schoolroutes. The
disallowance
followed the recommendation containedin an audit report for the
grant
period that ended March 1, 1986. The Agency based the disallowance
on
the fact that the costs werenot allocable to the project and,
therefore,
violated the costprinciples in OMB Circular No. A�122.
During the course of the proceedings before the Board, the Agencyfiled
a
motion to increase the disallowance amount from $724 to$5,034, and
the
Board granted that motion.l/
For reasons stated below, we uphold the disallowance of $5,034for
five
school routes subject to reduction if the Grantee candocument
extra
costs for field trips and other allowable costs oftransportation
not
previously claimed. We allow the Grantee 30days from the date of
this
decision to provide to the Agencyverification of such other
allowable
transportation costs.
� �
�1�/ The original disallowance amount represented approximately
onemonth's
alleged overpayment for the five school routes. TheAgency
subsequently
moved to amend the disallowance to includethe alleged
overpayment for seven
months in the grant period atissue. In a
telephone conference call, on
July 14, 1987, thePresiding Board Member
granted the Agency's motion to
increasethe disallowance. The Presiding
Board Member noted 1) that
theAgency was changing the amount only, not
the basis for thedisallowance, 2)
that the original disallowance amount
had beenbased on a finding by the
Grantee's accountant, which the
Agencyin its initial brief had questioned,
but not corrected, due tothe
absence of documentation from the Grantee, and
3) that theGrantee had a
full opportunity to respond to the increase in
theamount duri#g Board
proceedings.
�Background� �j
On August 26, 1985, the Grantee contracted with Mr. White
toprovide
transportation for the Morehouse Community ImprovementOrganization
Head
Start program for the 1985�86 school session. The contract stated,
in
part:
� .�The following agreement contained herein, and solely herein,is
hereby
entered into by the undersigned parties for aperiod of �nine�
months. . . .
The Agency shall pay thecontracted Agency at the following
rate. Fifty
cents (50cents) per mile for Bastrop routes 1, 2, and 3;
sixty cents(60
cents) per mile for Mer Rouge Route #4 and sixty�five(65
cents) per mile for
Oak Ridge/Collinston Route #5. Therate for field
trips and other
transportation as agreedprior to the departure of such
trips. �Payments
shall bemade at the end of each month in� �accordance
to the number ofmiles
calculated per day� �and verified by the
Director�. Agency's Appeal File, Ex.
A. (Emphasis added)�.J�
� �
2/ Because the Grantee's program year ends on March 31st,
#nlypayments
made during the months of September 1985 through March1986 are
at issue.
The Agency stated that two additionalpayments under the contract
for
April and May 1986 made during asubsequent grant year were not
included
in this disallowance. Agency's First Supplemental Brief, p. 2, n.
1.
The contract made no reference to the estimated total payment
of$25,506
calculated in the Board of Director's internal memorandumfor
a
hypothetical 180 day school year.
Subsequently, the Head Start Director attempted to pay Mr. Whitefor
the
first month with a payment of $1,837.80, which was basedon
actual
mileage of transportation provided during that month. However,
the
Grantee alleged that Mr. White com#lained to theMCIO Board of
Directors
because he believed this amount was�j
The Agency argued before this Board that Mr. White's bid wasbased on
a
cents�per�mile basis, and that the Grantee contractedwith Mr. White
on
that basis. �See� Agency's Appeal File, Ex. A. Further, the
Agency
argued that the Grantee's June 28, 1985memorandum was not a part of
the
solicitation or bidding process,having been developed as a#
internal
document for Grantee's useafter the bids had been received.
Moreover,
the Agency arguedthat the contract itself contains a clause
limiting the
terms ofthe agreement to the "agreement contained herein,
and
�solely��herein�. . . ." (emphasis added) Agency's Brief, p. 4.
The
Agencyconcluded that since Mr. White was to be paid under
the
contractfor miles travelled during actual school days (and
not
ahypothetical school year) it is immaterial what MCIO calculatedas
its
total "dollar amount" obligation in deciding whether toaccept
Mr.
White's bid. �Id�.
Finally, the Agency submitted its calculation of the amount
thatit
maintains is due Mr. White under the Grantee's contract. During
MCIO's
grant year, April 1, 1985 through March 31, 1986,the Grantee paid
Mr.
White a total of $19,880 comprised of sevenpayments of $2,840.
The
Agency maintained that for the sevenmonths at issue, Mr. White was due
a
total of $14,845.37 underthe applicable transportation contract
�based
on the actual� �daysof transportation provided�.3/ �See� Agency's
First
� �
3/ The Agency submitted a detailed series of calculations #oarrive at
its
total amount due Mr. White under the contract. �See�Agency's
First
Supplemental Brief, pp. 3�5. (continued...)
Supplemental Appeal File, Exs. D�G. The disallowance
representsthe
difference (rounded off) between the amount due under
thecontract and
the amount paid.
�Discussion�
The question raised by the appeal is whether the payments inexcess of
the
terms of the contract are allocable to the HeadStart grant. We
find
that the amounts paid to Mr. White inexcess of fee arrangements in
the
contract executed by theGrantee are not allocable to the Head
Start
grant and aretherefore unallowable.
OMB Circular No. A�122, "Cost Principles for Non�ProfitOrganizations,"
at
Attachment A, A.2.a., provides that to be�j
Here, the Grantee cannot claim the amount in excess of thecontracted
price
as a valid Head Start expenditure because theGrantee has not shown
that it
was necessary to incur these costsin view of the contractual
terms obligating
it to pay only alesser amount. Nor has the Grantee
provided any other
basis onwhich the costs could be allocated to the
grant. While
theGrantee's budget allows for transportation costs, the
Granteemust show why
it was necessary to incur costs in excess of
thecontract for transportation
services provided to Head Startchildren
under the grant charged.
The Grantee's reliance on its June 25 transportation bidsmemorandum
is
misplaced. As noted by the Agency, this memorandumwas an
internal
document used only for the purpose of bidselection. The later
written
contract was a complete expressionof the parties' agreement.
�See�
Agency's Appeal File, Ex. A. Although the Grantee appeared to argue
that
the amount in thememorandum was a more accurate expression of
the
parties'agreement on the
�
�
3/(...continued) #he Grantee did not contest the Agency's
calculations.
Therefore, since the calculations are not at issue, they will
notbe
reproduced here.
contract amount, the memorandum itself is faulty because
thecalculations
contained in the memorandum were based on theassumption that
the
contractor would provide transportationservices for 180 school
days,
which was far more days than theactual number for that year �� 128
days.
The Grantee argued that after Mr. White received his firstpayment
under
the contract, he complained to the MCIO Boardbecause he felt that he
was
entitled to more money. The MCIOBoard apparently then met and voted
to
pay Mr. White more money. However, it is undisputed that the MCIO
Board
did not perform anyacts that would amend or invalidate the
original
contract. Nordid the Grantee present any legal reason why it
did not
have toadhere to the contract. Since the original
contract
remainedvalid, the Grantee could have sued Mr. White for damages
if
Mr.White refused to provide the contracted services at the
agreedrate.
In any event, the Agency is not responsible for the amountpaid to
Mr.
White in excess of the written contract fortransportation services.
�j
The Grantee, however, has provided the Board with no concreteevidence
of
any misunderstanding on the part of the MCIO Board atthe time it
entered
into the contract. The contract clearly doesnot provide for a
total fee
of $25,506. Instead, it provides fora per�mile fee based on
actual
miles driven during the contractperiod. The Grantee admitted
its
Director's initial payment wasbased on such a per�mile figure for
actual
miles driven duringthe first month. Thus, we have no basis for
finding
that theMCIO #oard misunderstood the contract terms at the
time
itexecuted the contract. Further, the Grantee never
adequatelyexplained
how Mr. White misunderstood the contract terms sincethe
$25,50# figure
was developed as part of Grantee's internalassessment of the
bids well
after all the bids had beensubmitted. At the time Mr.
White submitted
his bid, he couldonly have thought, based on the terms of the
bid, that
he wouldbe paid based on actual miles driven and this is
precisely
whatthe contract provided.
The Grantee also argued that the amount paid to Mr. White wasbelow
a
"reasonable profit margin" necessary for the contractorto provide
the
contracted services and pay for his vehicles,insurance,
drivers
(including fringe benefits) and vehiclemaintenance. However, if
this
issue were relevant to the Board'sallocability concerns (which it
is
not), the Grantee failed tosubstantiate its allegation. Indeed,
by
using the Grantee's ownprofit assumptions identified as
Grantee's
Exhibit 6, Mr. Whitecould have made a profit for the seven months
based
on paymentsprovided by the contract.
�Extra Transportation Costs�
The Agency indicated during this appeal that it would be willingto
reduce
the $5,034 disallowance by the amount due Mr. White for213 miles
of
transportation provided on September 3 and 16, 1985(Agency's
First
Supplemental Appeal File, Ex. H) and any other"extra" transportation
for
which the Grantee can verify mileage. Agency's First Supplemental
Brief,
p. 5. Indeed, the applicablecontract specifically provides that
payment
of transportation forother Head Start activities would be agreed
upon
prior to thedeparture of such trips. Since the Agency has agreed
to
allowthe Grantee an opportunity to supply evidence of
thetransportation
costs for other Head Start activities, the Granteeis
directed to provide
such information within 30 days of the�j
�Conclusion�
Based on the foregoing, we uphold the Agency's disallowancesubject to
a
reduction as discussed above.
� # .. r #'i # # .
v .
� N##val D. ###hn)
Se::le
�
�
Alexander G. Te#tz
� .��..��..��..��.#̔ . ! #.#####
## � Donald
F.Garrett�#J�
Presiding Board
Member