Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Nebraska Department of Social Services
DATE: May 16, 1991
Docket No. 91-8
Decision No. 1251
DECISION
The Nebraska Department of Social Services (State) appealed a decision
of
the Administration for Children and Families (ACF), disallowing
$69,386 in
federal funding for contractual services claimed under the
Child Support
Enforcement program (title IV-D of the Social Security
Act). ACF
determined that the services in question were automated data
processing (ADP)
services and that Nebraska had not obtained the
necessary prior written
approval required by regulation before it
acquired those services. 1/
On appeal, the State argued, among other things, that the contract
in
question covered personal services and that the requirements
concerning
personal services therefore applied.
We find that the services in question were not ADP services and that
the
prior approval requirement cited by ACF would not have been
applicable
in any event. Accordingly, we reverse the disallowance.
Background
During 1989, the State planned for and then acquired a new
statewide
computer system for its Child Support Enforcement program.
The State
needed the system to coordinate all the different computer systems
used
by the district court clerks who process child support payments in
each
of its 93 counties. State Brief (Br.), p. 1. Before
contracting with
one or more private firms to provide the necessary equipment
and
services for the new system, the State contracted with the firm
of
Robert Petrie and Associates (Petrie firm) to provide the State
with
project management services related to the development
and
implementation of the new system. The State entered into the
contract
at issue, Contract No. 2064, on June 7, 1989. Services
provided
beginning in April 1989 were included in the contract and the
contract
contemplated total charges for services provided not to exceed
$370,500.
See State Exhibit (Ex.) 4 at 1.
Attachment A of the contract specifically listed the
activities
"expected to be conducted" during the contract period with respect
to
both the State and court components of the new system. It also
listed
the organization and roles of various entities that would play a part
in
the development and implementation of the system, including a
project
steering committee, project working groups, advisory committees,
teams
of various State officials, and the ADP system contractor.
Finally, the
Attachment (p. 4) listed the specific functions that would be
performed
by the Petrie firm:
o development of detailed work plans.
o development of budgets and materials required to support
continued
funding.
o convening of monthly progress meetings with steering
committee or
working groups.
o convening of weekly status meetings with State project
team and
contractor project manager.
o review of work performed by members of State project team.
o coordination of contractor activities with contractor
project
manager.
o participation in meetings with user representatives,
including
caseworkers, county attorneys and clerks of district
courts.
o coordination only of project activities with those of
other
related undertakings.
On July 3, 1989, the Associate Deputy Director, Information
Systems
Management, of the federal Office of Child Support Enforcement,
gave
conditional approval of the State's contract with the Petrie firm
by
stating:
Based on the information provided by Mr. Tom Ruffino both
in
this letter [dated June 27, Agency Ex. 2] and in our
telephone
conversation, we understand the involvement and the
importance
of Mr. Petrie to the State's Child Support effort.
Therefore,
we are approving, as of the date of this letter, the
State's
entry into a personal services contract with Mr. Petrie
through
July 31, 1991.
This approval is at the regular Federal Financial
Participation
(FFP) matching rate in the amount of $300,000. We
understand
this to be the estimated cost of the contract and that the
State
will provide a more precise cost shortly. Therefore,
this
approval is made on the condition that the State provide:
1. The personal services contract for our
approval
prior to the signing of the contract.
2. A total project budget plan for the
remaining
activities.
State Ex. 3.
At the time this letter was sent to the State, however, the State
had
already executed the contract, as noted above, and, indeed, had
already
notified the Petrie firm on June 23, 1989, that the contract would
be
canceled within 60 days of the firm's receipt of the notice
of
cancellation. The State gave as the reason to the Petrie firm for
the
abrupt cancellation: "indications from Federal officials that they
are
unwilling to participate with federal funding in the costs of
your
contract." The June 23 letter suggested that Federal
unwillingness
stemmed from the State's use of sole source contracting and its
failure
to request proposals and to award the contract on a competitive
basis.
State Ex. 8.
ACF was subsequently notified in September, 1989 that the State had
signed
Contract No. 2064 with the Petrie firm on June 7, 1989. ACF
received a
copy of the contract in early October, 1989.
In deciding to disallow $69,386 in claimed funding under the contract,
ACF
relied on the prior approval requirements applicable to the
acquisition of
ADP equipment and services. We discuss each of ACF's
arguments related
to prior approval for ADP services below. 2/
Analysis
Department regulations at Subpart F of 45 C.F.R. Part 95, as in
effect
during the period at issue, describe the conditions under which
the
Department will approve FFP at the applicable rates for the costs of
ADP
equipment and services under an approved State plan under title IV-D
of
the Social Security Act. 45 C.F.R. 95.601.
The regulations define "automatic data processing services" to include:
(b) Services provided by private sources or by employees of
the
State agency . . . to perform such tasks as feasibility
studies,
system studies, system design efforts, development of
system
specifications, system analysis, programming and
system
implementation.
The provision in Subpart F concerning the conditions for prior
approval
states:
95.611 Prior approval conditions.
(a) General-Acquisition requirement. A state shall obtain
prior
written approval from the Department as specified in
paragraph
(b) of this section, when it plans to acquire ADP equipment
or
services with proposed FFP at the regular matching rate that
it
anticipates will have total acquisition costs of $200,000
or
more in Federal and State funds over a twelve-month period,
or
$300,000 or more in Federal and State funds for the
total
acquisition. . . . A State shall also obtain prior
written
approval from the Department, as specified in paragraph
(b),
when it plans to acquire noncompetitively from a
nongovernmental
source ADP equipment or services that cost more than
$25,000 in
Federal and State funds. . . .
The primary threshold requirement for the prior approval conditions
of
section 95.611 under the circumstances here is that the
contractual
services be within the definition of "ADP services."
Although ACF
alleged that the contractual services were "clearly" within
the
definition, it did not provide the Board with any explanation for
this
conclusion or even make reference to the specific services
provided
under the contract by the Petrie firm. Nor did ACF explain why
its own
official had previously referred to the services in correspondence
with
the State as "personal services" rather than ADP services.
After carefully reviewing all of the documents in the record,
with
particular attention to the list of services described above from
the
contract attachment, we conclude that the services could reasonably
be
viewed by the State as management and administrative activities one
step
removed from the actual provision of ADP services. Essentially,
the
State contracted with the Petrie firm to provide management services
to
facilitate the development and acquisition of ADP equipment
and
services, rather than to actually provide the equipment or services.
Thus, based on what we have been able to glean from the record
concerning
the nature of the contractual services, and the absence of
any explanation
from ACF in support of its position concerning the
nature of these services,
we conclude that the services could reasonably
be viewed as outside the scope
of the definition of ADP services. The
State argued that it should be
entitled to rely on the ACF official's
characterization of the services as
"personal services" in the
correspondence quoted above. While we by no
means view that
characterization as conclusive and binding (and while we
recognize that
personal services and ADP services may in specific instances
be
overlapping categories), ACF here has provided us with no basis
to
conclude that the services were ADP services.
Finally, even if the services at issue were generally within
the
definition of ADP services, the only prior approval requirement
ACF
alleged was not met here is the requirement in section
95.611(b)(3)(ii).
That section applies only when a Department official
specifically
requires approval for a contract for ADP services prior to
signature of
the contracting officer. Although ACF alleged prior
approval was
specifically required here in the letter quoted above dated July
3,
1989, that letter does not make reference to any prior
approval
requirement for ADP services as such, nor does it refer to any
prior
approval requirement in 45 C.F.R. Part 95, Subpart F. Thus, even
if the
services at issue were ADP services, it is by no means clear that
any
prior approval requirement was invoked by the ACF within the meaning
of
section 95.611(b)(3)(ii).
Conclusion
On the basis of the foregoing analysis, we reverse the disallowance.
Judith
A.
Ballard
Cecilia
Sparks
Ford
Donald
F.
Garrett
Presiding
Board
Member
1. This disallowance was originally issued by the Family
Support
Administration. Effective April 15, 1991, that agency was one
of
several combined into the Administration for Children and Families.
2. ACF also cited in a footnote in its brief (p. 10) the provision
in
45 C.F.R. Part 74, Appendix G, section 6, that advises federal
grantor
agencies that pre-award review and approval of contracts by
federal
agencies is permitted only under certain prescribed circumstances,
such
as where the procurement is expected to exceed $10,000. This
provision,
however, does not create a requirement for pre-award approval
of
contracts in any particular program, and ACF did not argue that such
a
requirement existed in the Child Support Enforcement program.
See
Virginia Dept. of Medical Assistance, DAB No. 1195 (1990), pp.
3-4.
Aside from this reference in a footnote, ACF did not rely on
any
procurement requirements for this disallowance. Nor did it clarify
why
the State apparently felt compelled based on federal concerns to
cancel
its contract with the Petrie firm on June