DATE: January 26, 1998

SUBJECT: Marie Detty Youth and Family Services Center

Docket No. A-97-45
Decision No. 1643

DECISION
The Marie Detty Youth and Family Services Center (Marie Detty), a Head Start grantee in Lawton, Oklahoma, appealed a determination by the Administration for Children and Families (ACF) disallowing $87,500 in federal Head Start funds expended during the program year July 1, 1996 - June 31, 1997 (PY 3). The disallowed charges consisted of $17,500 paid to a construction contractor and $70,000 paid to a consulting company which developed Marie Detty's manual of policies and procedures as well as other materials.

During the appeal, Marie Detty submitted documentation supporting its $17,500 claim for construction services, and ACF withdrew that portion of the disallowance. Marie Detty also determined that only $53,980 of the $70,000 claimed for consulting costs were allocable to Head Start, and repaid the $16,020 difference. ACF determined that the remaining costs were not allowable charges to Marie Detty's Head Start grant under applicable cost principles because the services Marie Detty received could have been obtained for little or no cost from an organization designated as a Head Start Technical Assistance Support Center (TASC); because they were not related to the purposes of the Head Start program and primarily benefited Marie Detty's other programs; and because some of the costs were for public relations, for which Martie Detty failed to obtain required prior approval.

As explained below, we find that most of the charges for costs related to the preparation of the policies and procedures manual and other materials were allowable because the services provided benefited the Head Start program, and because it was reasonable for Marie Detty to contract for those services. We also find that ACF failed to show that Marie Detty could have obtained the services from the TASC. We thus reverse that portion of the disallowance, amounting to $45,500. However, we sustain the disallowance of $8,480 for the portion of the contract that was for public relations activities because we find no evidence that the contract was intended to provide the types of public relations activities that Head Start grantees are required to undertake, or that such allowable activities were undertaken.

Applicable law, regulations, and policies

The Head Start program is designed to deliver comprehensive health, educational, nutritional, social and other services to economically disadvantaged children and their families. 42 U.S.C. . 9831 and 45 C.F.R. . 1304.1-3. Nonprofit organizations which receive Head Start funds are subject to the cost principles set forth in Office of Management and Budget Circular A-122 ( (OMB A-122), made applicable to HHS grants by federal regulations at 45 C.F.R. . 74.27(a) (1994). See 45 Fed. Reg. 46,022 (1980). OMB A-122 provides a uniform set of cost principles for determining costs of grants, contracts, and other agreements and is designed to promote efficiency and understanding between nonprofit grantees and the federal government. Home Education Livelihood Program, Inc., DAB No. 1598 (1996). It provides guidance on allowable direct costs and allocable indirect costs, as well as guidance on specific cost items. Id.

OMB A-122 requires that in order to be allowable charges to a grant award, costs must be reasonable for the performance of the grant award and allocable thereto. OMB A-122, Attachment (Att.) A, . A.2.a. A cost is reasonable if it is the type generally recognized as ordinary and necessary for the operation of the organization or performance of the award, and allocable to the award in accordance with the relative benefits received. Id. at .. A.3.a, A.4. In assessing reasonableness, the circular requires that a cost must not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. Att. A, . A.3. Costs claimed under an award must also be adequately documented. Att. A, . A.2.g.

Professional service costs, which include fees for consultant services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the grantee, are allowable when reasonable in relation to the services rendered and when they are not contingent upon the recovery of the costs from the government. OMB A-122, Att. B, . 35. The assessment of reasonableness is based on a number of relevant factors, including the nature and scope of the service rendered in relation to the service required; the necessity of contracting for the service, considering the organization's capability in the particular area; whether the service can be performed more economically by direct employment than contracting; and the adequacy of the contractual agreement for the service. Id.

In addition to the regulations and cost principles generally applicable to all nonprofit grantees, specific requirements and performance standards for Head Start agencies are found at Parts 1301-1308 of 45 C.F.R.

Background

Marie Detty Youth and Family Services Center, a community action agency (CAA) which administered youth programs including youth services and shelter programs in Lawton, Oklahoma, received a grant to take over an existing Head Start program on July 1, 1994. BHM, Inc., the Head Start TASC designated by ACF, began providing training and technical assistance services to Marie Detty beginning September 1994, including on-site assistance with nutrition education activities and appropriate classroom practices on one occasion in October. BHM also provided information about the services it could make available, between December 1994 and the summer of 1995; during the summer of 1995, several Marie Detty Head Start staff members attended BHM seminars.

During the first five days of May 1995, Marie Detty underwent a Head Start "Self Assessment Assistance Model" field visit by a Review Team whose members included retired ACF program specialists, a representative of the Region VI-B TASC, and officers of the Oklahoma and Texas Head Start Associations. The Review Team examined Marie Detty's Head Start program and administered the On Site Performance Review Instrument, which measures a Head Start grantee's compliance with Head Start regulations. Among its recommendations, the Review Team advised that Marie Detty develop a "program plan" addressing the required community needs assessment, self assessment, and internal communications, and that Marie Detty revise its agency procedures "to include Head Start from philosophy to personnel policies, etc." Attachment to Marie Detty's Notice of Appeal. The team opined that this could be done in conjunction with program planning in a retreat setting, and advised the "use of consultants with considerable expertise in the two above areas to assist in expediting the process." Id.

Marie Detty reported that, in accord with this recommendation, and upon the initiative of its Head Start Policy Council, it began looking for a consultant to provide management-related activities including drafting consolidated policies and procedures for Head Start and Marie Detty's existing non-Head Start programs. Marie Detty reported sending invitations to bid to eight prospective consultants, including BHM (although ACF denied that BHM received a request for a bid from Marie Detty). Marie Detty received responses from two contractors who had not been sent the invitation to bid but had the invitation forwarded to them by other prospective contractors. The proposal from the eventual awardee, Updike Walker, Inc., was selected because its cost was half of that of the other respondent, and because it had experience with community programs. The Updike Walker contract was signed on April 1, 1996. Updike Walker's monthly progress reports from April - November 1996, and monthly summaries of activities from April - December 1996, reflect numerous meetings with Marie Detty's staff.

In June 1996, while ACF was in the process of reviewing Marie Detty's continuation grant proposal for PY 3, Marie Detty submitted a revised grant application seeking to carry or roll forward $267,449 ($201,449 in federal funds) from PY 1 to PY 3. The budget justification specified $38,716 for "consultation," and stated that, "The Policy Council wants to assure a zero deficiency program, assure compliance with program policy and best practice methods." ACF Brief, Att. 3, Exhibit (Ex.) A. These funds were spent on the Updike Walker contract. The parties disagreed over whether ACF was aware or approved of Marie Detty's intention to spend Head Start funds on the consulting contract.

The Updike Walker contract cost $80,100, of which $70,000 had been paid, with Head Start funds, by the time that ACF took the disallowance in November 1996. (Marie Detty made an additional payment of $9,000 in March 1997, and reported owing an additional $1,100 as of October, to be paid on final approval of the product.) After ACF took the disallowance, Marie Detty reviewed the work performed by Updike Walker and concluded that the contract partially benefited Marie Detty's other programs. Marie Detty therefore allocated the contract cost between Head Start and its youth services programs, concluding that only $53,980 should have been charged to Head Start. It refunded the $16,020 difference to ACF.

Marie Detty reported that the $80,100 contract was divided into four parts -- accreditation, public relations, management activities, and assessment activities. Marie Detty charged Head Start 75% of the cost of the accreditation component ($32,250), 80% of the public relations component ($8,480), and 50% each of the management activities ($6,750) and assessment activities ($6,500) components.

Updike Walker's written product under the contract, as provided to ACF by Marie Detty and entered into the record by ACF (ACF Br., Att. 1, Ex. D), consists of:

• Two five-page brochures, one titled "Public Relations and Marketing Project Plan" and the other "Program Evaluation and Assessment Plan;"
• Three short surveys: a two-page employee satisfaction survey, and one-page surveys of the Marie Detty Board of Directors and the Head Start Policy Council;
• Three short issue papers: a two-page "issues for the parent focus group" and one-page "issues for the Community Focus Group" and "issues for the Youth Focus Group;"
• A 385-page manual of policies and procedures, which ACF referred to as the "Policy and Procedures" and "Accreditation" portions of the Updike Walker contract.

ACF's arguments
ACF argued that the Updike Walker contract was not an allowable charge to Head Start funds because:

• The services that Marie Detty contracted for with Updike Walker could have been provided for free or at little cost by the TASC, BHM, Inc. ACF argued that BHM staff had been meeting with Marie Detty and conducting on-site visits beginning in September 1994, during which they reviewed Marie Detty's policies and procedures. ACF introduced a statement from a BHM project director stating that assisting grantees in developing policies and procedures typically takes seven days at $250 per day, plus travel expenses. ACF argued that the cost of the Updike Walker contract thus exceeded what a reasonably prudent person would pay, again in violation of OMB A-122.
• The Head Start program received no benefit from the cost of the Updike Walker contract. ACF argued that the written work product of the Updike Walker contract benefited Marie Detty's youth services programs rather than its Head Start program. ACF pointed out that while accreditation is not a Head Start requirement, the largest component of the contract was for accreditation, with some 165 pages of the 385-page policies and procedures manual consisting of accreditation standards from the Council of Rehabilitative Facilities (CARF). ACF also alleged that portions of the contract addressing Head Start consisted merely of Head Start regulations. ACF argued that the cost of the Updike Walker contract was thus not reasonable for or allocable to the performance of Marie Detty's Head Start award, as required by the applicable cost principles. Additionally, since Updike Walker's fee was tendered before services were received, ACF argued that the contract was a retainer agreement which was subject to the further requirement in the cost principles that the cost be supported by evidence of bona fide services available or rendered.
• Some of the contract costs was for public relations, for which Marie Detty failed to obtain prior approval was required by OMB A-122. ACF also argued the cost of this component of the Updike Walker contract was unreasonable (and thus unallowable) because Updike Walker did not produce any brochures, videos or public service announcements.

As discussed in detail below, we reverse the disallowance of the cost of the accreditation, management activities and assessment activities portions of the Updike Walker contract because we find, based on review of the record (including a conference call held on October 30, 1997), that it was reasonable for Marie Detty to hire a consultant to conduct these activities, and that the materials produced by Updike Walker reasonably related to Head Start program requirements and benefited Marie Detty's Head Start program. However, the evidence does not support similar findings with respect to the public relations component of the contract, and we sustain the disallowance of that portion of the contract cost charged to Head Start funds.

1. The "Policy and Procedures," "Accreditation" and "Assessment" components of the Updike Walker contract

Among the considerations to be applied in assessing the reasonableness of the disallowed expenses are the circumstances prevailing at the time that Marie Detty decided to enter into the Updike Walker contract. OMB A-122, Att. A, . A.3. Also relevant is the necessity of contracting for the service, considering Marie Detty's capability in the particular area. Id., Att. B, . 34. Viewed from this perspective, Marie Detty's decision to hire outside consultants to prepare its policies and procedures manual was reasonable, and wholly understandable.

Marie Detty was a new grantee with no prior Head Start experience when it took over an existing program in July 1994. Marie Detty was not familiar with the specific and complicated requirements of the Head Start program, which are often more comprehensive than those imposed by local governments for CAAs operating youth services programs. For example, the community involvement requirements faced by most CAAs are different from the Head Start requirement to create a board composed of at least 50% of parents of Head Start children, plus community representatives. 45 C.F.R. Part 1304, App. B, Chart A. Similarly, the Head Start program calls for the Head Start Policy Council to approve employee hiring and termination decisions. Id., Chart C. Despite the training and on-site technical assistance services Marie Detty received from the TASC beginning in September 1994, the Head Start Review Team which assessed Marie Detty's program in May 1995 still advised the use of an outside consultant to incorporate Head Start requirements into Marie Detty's organization-wide policies. Moreover, the Head Start Policy Council, whose wishes carry great weight in the management of any Head Start program, initiated the process that resulted in the Updike Walker contract. Finally, Marie Detty argued without gainsaying that its relatively small administrative staff was ill equipped to prepare the Head Start policy manual on its own. It contended that its staff lacked the expertise and time to develop such a manual while simultaneously performing their other duties.

Based on all these considerations, we conclude that it was reasonable for Marie Detty to seek outside consultants to revamp its policies and procedures to ensure that they reflected the requirements of the Head Start program. There is nothing in the record suggesting that Updike Walker lacked the credentials to fulfill this role, or that the procurement process by which Updike Walker was selected was defective.

Marie Detty also had no basis to believe that the services it required could be furnished by the TASC. The description of the services available from the TASC supports Marie Detty's argument that BHM would not have drafted the policy manual, but would only have provided samples of policies, leaving it to Marie Detty staff to do the drafting, a task Marie Detty did not feel competent to undertake for the reasons stated above. ACF Br., Att. 2. Moreover, the TASC was designed to provide Head Start-specific consulting services, not the overall organizational revamping Marie Detty's management was seeking. In addition, the document "TASC SERVICES" that Marie Detty submitted as an attachment to its notice of appeal confirms that the available services consisted primarily of conducting training and providing information. While this document shows that the TASC maintained information on consultants, ACF did not show that Marie Detty was required to use consultants recommended by the TASC to develop its policies and procedures manual or to seek prior ACF approval before contracting for that service. Marie Detty's determination that it needed an outside consultant was also supported by the TASC's apparent failure to apprehend the need to incorporate Head Start policies into Marie Detty's overall organizational structure, which was identified as a problem by the Head Start Review Team some six months after the TASC began working closely with Marie Detty.

Having determined that it was reasonable for Marie Detty to seek a contractor to prepare its policies, our next inquiry is whether the contract benefited the Head Start program. ACF asserted that the written product that Updike Walker produced under the contract, including the 385-page manual of policies and procedures, provided no benefit at all to the Head Start program, primarily because it incorporated standards for CARF accreditation, not a requirement of the Head Start program.

Marie Detty contended that Updike Walker used the CARF accreditation standards as a "best practices" manual for integrating the Head Start program into Marie Detty's existing youth services and shelter programs. CARF accreditation per se was not a goal of the consulting contract. Marie Detty recognized that the services provided by Updike Walker ultimately benefited both Head Start and non-Head Start programs, and it therefore allocated the benefits among those programs and repaid to the Head Start program an amount representing the non-Head Start programs' share of the costs. ACF's rejoinder was that Marie Detty should have allocated 100 percent of the costs to the non-Head Start programs because Head Start received no benefit whatsoever.

We have reviewed the Updike Walker work product and find that it confirms Marie Detty's contention that the CARF accreditation standards were used as guidance for the overall program structure. ACF was simply wrong in insisting that use of these standards could not benefit the Head Start program, as many of these standards overlap or are relevant to Head Start requirements.

While ACF did not identify the 165 pages of the policies and procedures manual which it said consisted of CARF standards, it appears ACF was referring to pages relating to policies and procedures for 12 different accreditation criteria, which form the organizational basis of the 385-page document. The manual is divided into 12 sections, each based on a specific accreditation criterion, which are presumably the CARF accreditation standards. Each section begins with a statement of policy and purpose for the particular accreditation criterion, followed by pages containing specific procedures to comply with the criterion. The procedures pages are followed by pages of related supporting materials, some of which are Head Start regulations and policy manual excerpts. Our review of the manual shows that the pages containing accreditation policies and procedures are not solely CARF documents, and do not exclusively address CARF standards or accreditation criteria. Some of these "CARF" pages make specific reference to Marie Detty's Head Start program and reflect the requirements of the Head Start regulations, while others concern general agency management practices that benefit all of Marie Detty's programs, including Head Start.

Our review disclosed materials relevant to Head Start in the following sections of the policies and procedures manual:

• The first section of the manual, at pages 1-14, consists of materials relating to an accreditation criteria dealing with "input from persons served." The "CARF" pages in this section of the policy manual require Marie Detty to, among other things, conduct a community needs survey and a self-assessment of the Head Start program. This manual section is directly relevant to the Head Start requirements that each program have a comprehensive community needs assessment (CNA) completed every three years, with annual updating, and that the program be able to describe how the CNA data was used in program planning and decision-making. 45 C.F.R. . 1305.3(b) and (d). The Head Start regulations also require that grantees conduct annual program self-assessments. 45 C.F.R. Part 1304, Appendix B, Chart C. The section on evaluation of consumer satisfaction and service outcomes, at pages 379-385, also addresses assessment. The "CARF" pages also require Marie Detty to provide written plans and other materials relating to the Head Start program which address parent participation, and they address the regulatory requirement that the Head Start program seek input from community representatives and maintain contact with Policy Council members. This portion of the manual also includes excerpts from the ACF Head Start policy manual containing the requirements reflected in the "CARF" pages. (The structure of "CARF" pages containing Head Start policies and requirements, followed by excerpts from Head Start materials, including regulations, is repeated in other sections of the manual.) Parent participation is a key element of Head Start. The parent involvement component of Head Start is designed to recognize the critical role that parents play in the development of their children. The parent participation policy of Head Start is set out in the Head Start policy manual. See 45 C.F.R. .. 1304.2-2(e), 1304.5 and Part 1304, Appendix B; Community Action Agency of Franklin County, Inc., DAB No. 1609 (1997).
• The section of the manual containing Marie Detty's policies on accessibility, at pages 22-31, reflects in the pages prepared by Updike Walker legal requirements, applicable to the Head Start program, that facilities, materials and equipment be accessible to children with disabilities, in accordance with the Americans with Disabilities Act and Section 504 of the Rehabilitation Act of 1973. See 45 C.F.R. .. 1308.4(f), 1308.5. Materials on equal access to programs and services are also found in the section on Individual Centered Planning, Service Design and Service Delivery, at pages 370-378.
• The section containing Marie Detty's policy and procedures on outcomes, at pages 32-46, concerns the collection and dissemination of information from clients including persons served, family members, and community sources. As does the section addressing "input from persons served," above, this section includes procedures requiring that the Head Start program have community needs surveys and self-assessments, conducted by a team which includes the Head Start manager, designated coordinators, Policy Council members, board members, parents, and staff. This portion of Marie Detty's policy manual is also relevant to the Head Start requirements for CNAs and program self-assessments, cited above in reference to the first section of the manual.
• The section on rights, health and safety, at pages 47-108, contains Marie Detty's health and safety standards. Procedures relevant to the Head Start program address the requirement for a Head Start health coordinator to monitor children's medical and health needs, the safety of the physical environment and facilities used for Head Start activities, evacuation plans, first aid training, parental consent for emergency treatment, and infection control training. See 45 C.F.R. .. 1304.2-3(a), 1304.3-6(a)(3).
• The section on human resource development, at pages 109-183, addresses personnel policies and issues such as hiring, staffing, position classification, laws regarding discrimination, background checks, personnel records, evaluations, training and professional development, leave, benefits, employee grievances, and disciplinary actions. These activities benefit all of Marie Detty's programs, including Head Start. Personnel policies and procedures, and are required by the Head Start regulations. 45 C.F.R. . 1301.31. In addition, this section incorporates specific Head Start requirements of Policy Council approval for hiring and termination. 45 C.F.R. Part 1304, App. B, Chart C.
  
• The section containing Marie Detty's policies on leadership, at pages 184-226, concerns the functions of the Board of Directors and Marie Detty's agency mission, and contains corporate documents and by-laws. It also contains specific requirements applicable to the Head Start Policy Council including the Policy Council's by-laws. See 45 C.F.R. Part 1304, App. B.
• The section containing policies and procedures relating to the accreditation criteria, labeled "legal requirements," at pages 227-297, generally requires conformance with applicable legal authorities governing Marie Detty's operations, and cross-references materials in other sections of the Marie Detty policy and procedures manual. Materials in this section relating to Head Start include procedures for gaining access to Head Start files and for administering Head Start participant eligibility requirements and enrollment goals. See 45 C.F.R. .. 1304.4-2(c), 1304-3.8 and Part 1305. Similar materials, relating to grievance appeals filed by Marie Detty clients including appeal forms and notices of confidentiality, are found in the section on grievance appeals, at pages 15-21.
• The section on financial planning and management, at pages 298-351, contains policies and procedures, including financial management practices and fiscal policies and the acquisition of equipment, which benefit all of Marie Detty's operations, including Head Start. Procedures specific to Head Start include acquisition and tracking of property purchased with Head Start funds, as well as requirements for monthly Head Start financial status reports and program insurance requirements. These policies and procedures are relevant to the Head Start program, as grantees are required to have in place a financial management system that ensures budget management, maintains control over current operations, and provides timely, accurate, current and complete disclosure of financial matters. See 45 C.F.R. Part 74, Subpart C; 45 C.F.R. . 1301.12.

Other materials produced by Updike Walker, besides the policies and procedures manual, also relate to Head Start program requirements and are thus allocable as Head Start costs. The brochure "Program Evaluation and Assessment Plan," and the surveys of employees, the board of directors, and the Head Start Policy Council, are all relevant to the requirements that Head Start agencies conduct community needs assessments and self-assessments (with board representation on the self-assessment review team); the Policy Council survey is also relevant to the parent involvement component of Head Start. Head Start agencies need to follow up on parent involvement and satisfaction with their programs, and on whether their social service efforts are meeting the families' needs as identified in the CNA. See 45 C.F.R. .. 1304.2-2(e), 1304.5, and Part 1304, App. B, 1305.3(b), (d). Similarly, the employee satisfaction survey is relevant to the requirement that Head Start programs establish personnel policies, including policies which address employee-management relations. 45 C.F.R. . 1301.31.

ACF also cited the presence of verbatim Head Start regulations in the manual as evidence that its preparation was not an allowable Head Start expense, since no work was involved. Marie Detty argued that the regulations were in the manual to show the basis for policies that differed from those that had been employed by Marie Detty's youth services program. The "CARF" procedures pages in the manual, which as noted above are not exclusively CARF materials, reflect the requirements of the Head Start program that are contained in the subsequent pages of Head Start regulations and procedures. As noted above, Head Start agencies face program requirements that are sometimes different from those governing non-Head Start CAAs. Given the direct relevance of the manual to the Head Start program, including portions ostensibly composed of CARF accreditation standards, the presence of the Head Start regulations does not mean that no chargeable effort went into the manual's creation.

That the manual also benefitted the youth services portion of Marie Detty's programs does not require disallowance of the sums charged to Head Start. Marie Detty stated that the manual was intended to apply to all its programs, and it allocated the cost of the different contract components between Head Start and its other programs. Marie Detty reasonably argued that the changes to its policies were necessitated by becoming a grantee of the Head Start program, which has different, specific requirements than those it had previously faced. Accordingly, it was proper for Marie Detty to allocate most of the costs related to production of the manual to Head Start. Additionally, ACF did not offer any alternative basis to reasonably allocate the costs of the contract to reflect the relative benefit to the Head Start program, other than its blanket assertion that the Head Start program received no benefit whatsoever, which we find is not justified.

Moreover, we conclude that ACF's criticisms of the manual, even if valid, would not provide a basis to disallow the entire charge to Head Start funds. As discussed above, a cost's reasonableness is assessed at the time the decision to incur the cost was made, and Marie Detty demonstrated that it was reasonable to hire a consultant to perform this task. That the product subsequently received may not have lived up to ACF's expectations would not, by itself, provide a basis for disallowing the entire charge.

ACF also argued that the Updike Walker contract was a retainer agreement which, under the cost principles, is subject to the further requirement that the cost be supported by evidence of bona fide services available or rendered. OMB A-122, Att. A, . 35.c. ACF did not show that the mere fact that most of the payment was tendered to Updike Walker prior to receipt of the final work product made the contract a "retainer agreement" within the meaning of the cost principles. Moreover, inasmuch as we find above that the Head Start program benefited from the cost of the contract, this provision is no basis to sustain the disallowance.

2. The public relations component

The public relations component of the Updike Walker contract accounted for $8,480 of the $53,290 total cost charged to Head Start funds. ACF argued that the costs were unallowable because Marie Detty had failed to obtain prior agency approval, as required for "public information service costs." OMB A-122, Att. B, . 36. Marie Detty argued that the term "public relations" was misinterpreted by ACF, and that the services provided by Updike Walker under this portion of the contract were not "advertising" but were aimed at Marie Detty's efforts for recruiting children, and focused entirely on Head Start.

First, we do not agree with ACF that Marie Detty was necessarily required to seek prior approval for any "public relations" activities charged to Head Start funds. While OMB A-122 requires prior approval for public information service activities, and thus public relations, in general, more specific Head Start regulations mandate that grantees undertake certain outreach and recruitment activities that might be considered "public relations." A Head Start agency must maintain a recruitment process designed to inform all families with Head Start-eligible children within the recruitment area of the availability of services and encourage them to apply for admission. 45 C.F.R. . 1305.5. A Head Start agency's social services plan must provide for the recruitment of children into the Head Start program, including children with disabilities, and the Head Start agency must work with the community to determine what unmet needs exist. 45 C.F.R. .. 1304.4-1(e), 1304.4-2. To the extent that Updike Walker was engaged in the outreach and recruitment activities required of Head Start agencies, Marie Detty would not have been required to obtain prior approval to charge the costs of such activities to Head Start funds.

However, there is nothing in the record to indicate that allowable Head Start public relations activities were intended to be provided under the Updike Walker contract, or that any such materials were ever produced. The materials in the record refer prospectively to the development of public relations activities, but do not indicate that such activities would actually have been undertaken by Updike Walker. For example, the only reference to public relations activities in Updike Walker's Progress Reports is a listing in the October and November 1996 reports, seven months into the contract, of the "strategies" that will compose the public relations component, and a statement that the timetable for the public relations and marketing "strategies" has been moved to early 1997.

The work product provided to the Board under the public relations component consists of the five-page brochure, "Public Relations and Marketing Project Plan." ACF Br., Att. 1, Ex. D. It states that Updike Walker reviewed Marie Detty's existing public relations materials, consisting of a brochure, posters, public speaking, a sporadic newsletter, occasional press releases and public service announcements; there were no revisions made or suggested, however. As to further public relations work undertaken by Updike Walker, the brochure is remarkably vague, and its use throughout of prospective terminology shows that specific, allowable outreach and recruitment activities had not taken place.

Thus, the brochure states that Marie Detty's public relations plan "needs to be structured" and that "[w]e will develop a plan that has time lines and responsibilities to share the load and get the job done . . . A reworking of your existing materials will need to be done." The brochure goes on to state that "[w]e will also develop some strategies for a more mass presentation of the PR effort . . . A complete media plan will also be developed." Similar language appears in the "Action Plan" portion of the brochure, which calls on Marie Detty to "develop" its theme of valuing families, and to develop a theme-based "white paper," a campaign and a calendar for public presentations, and to "use some paid advertising to stretch" the public service announcements. Finally, the brochure concludes that the Public Relations portion of the services is the "least important," and that Updike Walker will focus its efforts to get an approved policy manual first and then "revisit the PR piece to finalize the plan and get it implemented." Id. There is no indication that any of these activities were undertaken, and Marie Detty stated that, as indicated by its proposed budget, the Updike Walker contract did not call for the production of any brochures, videos or public service announcements; such items would have to be developed at additional cost. Consequently, we conclude that the contract was not intended to provide the types of public relations activities that Head Start grantees are required to undertake, and that no such allowable activities were undertaken.

Accordingly, we conclude that charges to Head Start funds for the public relations component of the Updike Walker contract were not allowable, and we sustain the disallowance of $8,480 for this component of the contract.

Conclusion

For the reasons discussed above, we reverse the disallowance of $45,500, and sustain the disallowance of $8,480.

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Donald F. Garrett

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Norval D. (John) Settle

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M. Terry Johnson
Presiding Board Member