Nebraska Department of Social Services, DAB No. 1251 (1991)

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