DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Kentucky Cabinet for Human Resources
Docket No. 87-90
Decision No. 915
DATE: October 26, 1987
DECISION
The Kentucky Cabinet for Human Resources (State) appealed a
determination
by the Office of Child Support Enforcement (Agency) to
disallow $11,406 in
federal financial participation (FFP) for costs
incurred in the 1981 purchase
of automated data processing (ADP)
hardware for the State's Child Support
Division of the Jefferson County
Attorney's Office (County Attorney's
Office).
As discussed below, we uphold the Agency's disallowance in full.
Background
The facts in this case are uncontested. In February 1981, the
Agency
approved the State's Advance Planning Document (APD), which contained
a
request for FFP for the acquisition and installation of ADP hardware
and
software. See State's appeal file, Ex. 8. The Agency's
approval was
for 75 percent FFP toward the acquisition of a System PDP
11/44
processor from Plessey Peripheral Systems (Plessey).
Subsequently, the
State's County Attorney's Office and Plessey entered into a
contract for
the PDP 11/44. See State's appeal file, Ex. 6. At
the time of the
installation, however, the PDP 11/44 was not available, and
the State
and the County Attorney's Office agreed to Plessey's installation
of a
lower capacity system, the PDP 11/34. 1/ The Agency disallowed
the
difference in FFP between the cost paid for the PDP 11/44, which
was
approved but not delivered, and the cost of the PDP 11/34, which
was
delivered and installed, but never approved. 2/ The decision
to
disallow this amount was based on the rationale that the State
and
County did not get what they paid for, and while the total
expenditures
did not exceed the limit imposed under the approved APD, the
equipment
acquired was not that which was approved.
Discussion
It is uncontested by the parties that the regulation clearly
requires
written prior approval for the acquisition of ADP equipment or
services,
and that the regulation was in effect during the period involved in
this
case. The issue to be determined by the Board is whether, within
the
limits of the Agency's prior approval, the State had the authority
to
substitute the ADP hardware. We conclude that the State had no
such
authority. The applicable regulation at 45 CFR 95.611 (1981)
provides,
in part:
(a) General-Acquisition
requirement. A State shall obtain
prior
written approval from the
Department when it plans to acquire ADP
equipment or services that it anticipates will have
total
acquisition costs of $100,000 or
more in Federal and State funds
over a
twelve-month period . . . (b) Specific prior
approval
requirements. The State
agency shall obtain written approval of
the Department: (1) For the advance planning document or
any
change of the advance planning
document prior to entering into
contractual agreements or making any other commitment
for
acquisition of ADP equipment or ADP
services . . . (emphasis
added)
The State argued that it had prior written approval for the system
which
it obtained. The State maintained that although the APD contained
a
request for the Plessey PDP 11/44, once the Agency approved the
request
for FFP for the equipment, the Agency acknowledged a performance
level
for the equipment and a FFP amount of $199,950. The State argued
that
it had the authority to allow the substitution because the upgraded
PDP
11/34 possessed the capabilities to perform at the
acknowledged
performance level, i.e., at the same level as the PDP 11/44.
Although
the goal of the program was accomplished by a more indirect route
than
desired, the State argued that the goal of the program was
accomplished
at a total cost of $172,437.50, which was less than the amount
approved
by the Agency. Moreover, the State argued that the Agency was
informed
of the necessity for the substitution and of the upgrade
procedure
throughout the process of the acquisition of the lesser model, and
at no
time during this process did the Agency inform the State that
it
disapproved of the upgrade. Instead, the State maintained that
the
Agency only requested documentation on the upgrade. Finally, the
State
argued that this case is a situation where the Agency has sought
to
exalt form of approval over the substantial enhancement to
the
administration of the program.
Essentially, the Agency argued that specific prior approval was
required
for the acquisition of the ADP equipment and, although the
State
received prior approval for the Plessey PDP 11/44, this approval did
not
extend to the PDP 11/34. We agree. As noted above, not only
does
section 95.611(b)(1) provide for approval of the advance
planning
document but, also, for any change of the advance planning document.
3/
Moreover, the State was advised twice before the issuance of
the
disallowance of the need for a revised APD. On June 21, 1982, a
letter
from the Agency's Regional Representative to the State's Secretary
for
the Department for Human Resources stated, in pertinent part:
One issue did surface which we have
discussed with our Central
office.
The original prior notice of acquisition indicated
that
a Plessey 11/44 would be
purchased. At the time of
delivery,
this hardware was not
available so a Plessey 11/34 was
installed
until such time that the 11/44
could be delivered at the original
price. Mr. Smith is considering retaining the 11/34
and
acquiring a second disc drive which
would bring the price of the
11/34 in
line with the 11/44. Our Central office has advised
if
the county does retain the 11/34 and
purchases a new disc drive,
they need to
submit an addendum to their original prior notice
of
acquisition.
Agency's appeal file, Ex. A.
This letter clearly gave the State notice of the Agency's position on
the
matter. Further, a second letter, dated January 5, 1983, confirmed
a
November 17, 1982 meeting with staff of the County Attorney's Office.
Again,
the Agency notified the State of a need for a revised APD to
cover a change
of hardware. Agency's appeal file, Ex. B, p. 2. Any
request by the
Agency for information on the upgraded system is not
inconsistent with the
Agency's actions. On the contrary, a review of
the State's
documentation on the upgraded system might have led to the
two notifications
from the Agency instructing the State to submit a
revised APD. Further,
the fact that the cost of the PDP 11/34 and its
software was less than the
total amount approved for the PDP 11/44 is
not relevant to the issue of
whether the State had prior approval for
the installation of the PDP
11/34.
Finally, the Board, in its acknowledgment of notice of appeal,
requested
the Agency to comment on the applicability of retroactive approval
in
this case, i.e., whether the State could have sought
retroactive
approval of the substitution. The Agency maintained that
although the
State had the opportunity to request retroactive approval, as
noted
above, the State has never made such a request. In any event, the
State
is now precluded from making such a request, and the Agency is
precluded
from approving it. The applicable regulation, at 45 CFR
95.623 (1986),
outlines the procedure that must be followed in order to
obtain a waiver
of the prior approval requirements for ADP equipment and
services
obtained prior to December 1, 1985. That regulation
provides:
For ADP equipment and services acquired
by a State without prior
written
approval, the Department may waive the prior
approval
requirement if prior to
December 1, 1985:
(a) The State
submitted to the Department all
information
required under section
95.611, satisfactorily responded to all
concerns raised by the Department and received a final letter
of
approval from the Department; or,
(b) The State has a
request
pending with the
Department for retroactive approval, which
the
Department received before December
1, 1985 and the Department
determines
that the request would have received prior
approval
had a timely request for such
approval been made by the State
agency.
The State did not file a request for retroactive approval before
December
1, 1985.
In light of the foregoing, we find that the State did not receive
prior
approval for the Plessey PDP 11/34 hardware. Further, we find
that the
State was notified of its obligation to request approval for
the
substituted hardware, and that it did not make such a request.
Finally,
we find that even if the State now made such a request, the
applicable
regulation on waiver of prior approval now precludes the Agency
from
considering such a request for approval. Therefore, we uphold
the
disallowance.
Conclusion
As discussed above, we uphold the disallowance of $11,406.
________________________________ Donald
F.
Garrett
________________________________
Alexander
G. Teitz
________________________________ Norval
D.
(John) Settle Presiding Board Member
1. Initially, it appears from the record that the
installation of
the PDP 11/34 was an interim measure until the PDP 11/44
could be
delivered. See State's appeal file, Ex. 16, and Agency's
appeal file,
Ex. A. Instead, however, the County Attorney's Office
decided to keep
the PDP 11/34 and update the system's software. Other
than the State's
argument that the updated PDP 11/34 performed at the same
capacity as
the PDP 11/44, no other basis was given for the decision to keep
the PDP
11/34 and update it with additional software.
2. The disallowance at issue involved only the costs
of the hardware
for the basic systems and did not include the software. By
letter dated
February 28, 1985, a representative for Plessey listed the cost
of the
basic PDP 11/44 as $48,255, and the cost of the basic PDP 11/34
as
$33,047. The difference in cost between the basic hardware for the
two
systems was $15,208 ($11,406 FFP), The Agency disallowed only
the
difference of the $11,406 FFP. See State's appeal file, Ex. 12, p.
4.
3. Although not explicitly stated in Kentucky's
argument, a question
raised by this case is what, if any, modifications might
be so
insubstantial as to not have the status of a "change"
within
contemplation of the regulation. We need not address this
question
here, because the acquisition of a system by the same
manufacturer
costing approximately one-third less than that which OCSE
approved
fairly is a "change" under any reasonable reading of
the