+------------------------------------+---------------------------------+
| **Administration for Children and  | **Health Care Financing         |
| Families (ACF)**                   | Administration (HCFA)**         |
+------------------------------------+---------------------------------+
| U.S. Department of Health and      | U.S Department of Health and    |
| Human Services                     | Human Services                  |
|                                    |                                 |
| Administration for Children &      | Health Care Financing           |
| Families                           | Administration                  |
|                                    |                                 |
| 370 L\' Enfant Promenade, S. W.    | 7500 Security Boulevard         |
|                                    |                                 |
| Washington, DC 20447               | Baltimore, MD. 21244-1850       |
+------------------------------------+---------------------------------+
| **Action Transmittal**             |                                 |
+------------------------------------+---------------------------------+
| Transmittal No. AT-OSSP-00-01      | Date: March 13, 2000            |
+------------------------------------+---------------------------------+

**TO:** STATE PUBLIC ASSISTANCE AGENCIES, STATE INFORMATION EXECUTIVES,
AND OTHER INTERESTED PARTIES

**SUBJECT:** FEDERAL/STATE INFORMATION TECHNOLOGY POLICY--- Department
of Health and Human Services Approval of Funding, When a State Fails to
Obtain Prior Written Approval In Accordance with 45 CFR Part 95, Subpart
F

# RELATED

**REFERENCES:** 45 CFR Part 95, Subpart F; 45 CFR Part 74; 42 CFR Part
433, Subpart C

**PURPOSE:** This Action Transmittal (AT) establishes procedures and new
criteria by which the Department of Health and Human Services (DHHS)
will, on a limited exception basis, consider approving Federal financial
participation (FFP) in State automatic data processing (ADP) equipment
and services acquisitions, when a State has failed to obtain DHHS' prior
written approval in accordance with the requirements of 45 CFR Part 95,
Subpart F.

**BACKGROUND:** DHHS rules at 45 CFR Part 95, Subpart F require that
States obtain DHHS' prior written approval, as a condition for Federal
financial participation in the cost of ADP equipment and services. These
rules pertain to titles IV-B and IV-E, Child Welfare, Foster Care and
Adoption Assistance; title IV-D, Child Support Enforcement; and title
XIX, Medicaid of the Social Security Act. This requirement is one of the
major tools by which the Department oversees State systems activities,
which affect the administration of the covered programs. This oversight
role is appropriate given that the Federal government provides a
significant level of funding for these systems activities.

The rules at 45 CFR Part 95, Subpart F require States to obtain DHHS'
prior written approval when a State:

-   plans to acquire ADP equipment or services with FFP at the regular
    matching rate of a program covered by these rules, that it
    anticipates will have total acquisition costs of \$5,000,000 or more
    in Federal and State funds; or

-   plans to acquire ADP equipment or services with proposed FFP at an
    enhanced matching rate of a program covered by these rules,
    regardless of the total cost of the acquisition; or

-   plans a sole source (non-competitive) ADP acquisition of equipment
    or services from a non-governmental source, with FFP at the regular
    matching rate, that has a total State and Federal acquisition cost
    of more than \$1,000,000.

> The rules at 45 CFR Part 95, Subpart F detail the specific documents,
> such as advance planning documents (APDs), APD updates, request for
> proposals, contracts and sole source justifications, that require
> prior written approval to meet the above requirements. These rules
> also specify when changes to projects or ADP acquisitions, such as
> contract amendments, require prior written approval.

The policy established by this AT is based on a reading of 45 CFR Part
95, Subpart F, which states that the Secretary "may" deny FFP due to a
State's failure to secure prior Federal written approval. Heretofore,
DHHS has interpreted this requirement stringently. DHHS has recently
reconsidered its policy and determined that it is appropriate, in light
of the experience with ADP acquisitions, to allow limited flexibility in
applying this requirement. Hence, in the future, according to the
procedures and criteria outlined in this AT, DHHS will consider
approving FFP for systems acquisitions for which States have failed to
obtain DHHS' prior written approval.

**DISCUSSION:** DHHS' policy of requiring prior written approval of
States' ADP equipment and services acquisitions is longstanding. It is
the Department's intent that this policy remain in effect and be the
principal process for approving FFP in proposed State systems
acquisitions. The decision to establish procedures and criteria for
considering providing FFP in limited instances where a State has failed
to obtain prior written approval of an acquisition is not intended to
weaken in any way the requirement for prior approval. It is intended to
add flexibility to the existing policy, which will allow senior DHHS
officials to determine when it is appropriate to grant FFP in instances
where a State failed to obtain prior written approval. The procedures
detailed in this AT are intended to assure that instances where approval
is granted under these procedures and criteria are limited in number and
consistent with the decision the DHHS would have rendered had the State
submitted a request for prior approval.

It is to both the Federal and State governments' advantage if States
acquire prior written approval of their systems acquisitions. The
process affords the Federal government the opportunity to assure that
proposed acquisitions meet Federal requirements and will be beneficial
to the programs. It also provides the opportunity for the Federal
government to provide technical assistance and guidance gained from its
knowledge of nationwide State systems and program activities. In
particular for States, it ensures that a State knows before it makes a
system acquisition whether or not DHHS FFP will be available for the
acquisition. Failure to acquire prior written approval places a State at
risk of not receiving FFP in its ADP acquisition expenditures.

**POLICY:** DHHS will consider approving FFP for ADP acquisitions in
certain limited circumstances, where a State failed to obtain prior
written approval, as required by 45 CFR Part 95, Subpart F. A request to
approve FFP, when a State failed to acquire prior written approval, must
adhere to the procedures and requirements set forth herein. DHHS'
determination will be based upon a review of an advance planning
document (APD) and other pertinent documentation (request for proposals,
contracts, contract amendments, acquisitions under master contracts and
procurement schedules, tasks orders, etc.), and consider the
requirements and factors outlined below.

# 

# APPLICABILITY: This policy will apply prospectively to new acquisitions and to acquisitions initiated before the effective date of the policy, for which a State failed to obtain prior written approval, and for which there has not been a \"final administrative decision\" (as defined below), in accordance with the provisions of section 1132 of the Social Security Act and the regulations at 45 CFR Part 95, Subpart A.

A "final administrative decision" occurs when: HHS takes a disallowance,
and the State has not appealed in 30 days; or HHS takes a disallowance,
the State appealed to the Departmental Appeals Board (DAB), and the DAB
sustained the disallowance; or HHS either denies the State's request for
retroactive approval of funding or the State made no claim of funding,
and the two-year claiming period provided for in the above-cited statute
and regulation expired.

## STATE

**SUBMISSION:** A request for approval of a State systems acquisition,
for which a State failed to acquire prior written approval, must:

-   be submitted to the Director, Office of State Systems,
    Administration for Children and Families, DHHS by a State cabinet
    official who reports directly to the Governor of the State (e.g.,
    program agency head);

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-   or be submitted to the Director, Data and Systems Group, Center for
    Medicaid and State Operations, Health Care Financing Administration,
    DHHS, when the request pertains only to title XIX, Medicaid
    Management Information Systems;

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-   include an advance planning document (APD) and other related
    documentation (request for proposals, contracts, contract
    amendments, acquisitions from master contracts and procurement
    schedules, tasks orders, etc), that meet the information content
    requirements for these documents as defined by the rules at 45 CFR
    Part 95, Subpart F;

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-   explain the circumstances that caused the State's inadvertent
    failure to comply with the prior approval requirements; and

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-   detail the procedures the State will put in place to ensure future
    compliance with the prior approval requirements.

These submission procedures will apply to the programs covered by 45 CFR
Part 95, Subpart F.

DHHS will review a State submission to assure that the State followed
the required submission procedures outlined above.

# DHHS DECISION: The DHHS decision will be based upon the following:

A)  The request for approval must meet the following requirements:

1\) the acquisition must be reasonable, useful and necessary;

2)  the State's failure to obtain prior written approval must have been
    inadvertent (i.e., the State did not knowingly avoid the prior
    approval requirements);

3)  the request was not previously denied by DHHS;

4)  the acquisition must otherwise meet all other applicable Federal and
    State requirements, and would have been approved under 45 CFR Part
    95, Subpart F had the State requested prior written approval;

5)  the State must not have a record of recurrent failures, under any of
    the programs covered by the prior approval regulations, to comply
    with the requirement to obtain prior written approval of its
    automatic data processing acquisitions (i.e., submissions under
    these procedures, from States that have failed in the past to
    acquire prior written approval in accordance with 45 CFR Part 95,
    Subpart F, may be denied);

6)  contracts must include, or be modified to include all related
    Federal requirements, such as those currently contained in 45 CFR
    Part 95, Subpart F; and

7)  the State must agree to institute controls to ensure that prior
    approval requirements are met in the future.

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B)  DHHS will also consider the following factors in making a decision
    regarding prior approval:

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1)  whether the acquisition has proved beneficial to the affected
    Federal program(s);

2)  the extent to which the project is in good standing (i.e., within
    budget and on schedule); and

3)  whether the activity involved a non-competitive acquisition as
    discussed below.

# SOLE SOURCE

# ACQUISITIONS: HHS' experience indicates that a large percentage of States' failures to obtain required prior written approval involves non-competitive acquisitions, including the execution of new contracts without competition, contract amendments, task orders against master contracts, etc. Federal policy, embodied in regulations, circulars, and other policy documents, is to encourage procurement of goods and services under Federally-funded grants through free and open competition. In this manner, the Federal government and States are most likely to receive the most value for taxpayer dollars.

In reviewing requests for funding of ADP acquisitions for which a State
did not obtain prior written approval, HHS will look very closely at the
circumstances surrounding all non-competitive acquisitions. The
circumstances under which FFP for a non-competitive acquisition may be
approved under the procedures herein are limited to the following:

-   the procured item was available only from a single source;

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-   public exigency or emergency existed where the urgency for the
    requirement did not permit a delay incident to competitive
    solicitation;

-   the Federal grantor agency (DHHS) would have authorized
    non-competitive negotiation if the acquisition had been submitted
    for prior written approval; or,

-   after solicitation of a number of sources, competition was
    determined inadequate.

> DHHS will approve funding for non-competitive acquisitions only to the
> extent that it determines that it would have approved funding for the
> non-competitive acquisition had the State submitted it for prior
> written approval. States should not expect full or automatic
> retroactive approval of non-competitive contracts. For example, where
> DHHS determines that it would not have approved a non-competitive
> acquisition or approved it for only a limited time period, if it had
> been submitted for prior written approval, the decision on the State's
> request will be, respectively, a disapproval or approval for the
> period of time which DHHS would have approved if the request was
> timely.

## DHHS DECISION

**ISSUANCE:** Upon completion of DHHS' review of a State submission
under these procedures, a written DHHS decision will be provided to the
State:

-   from the head of the responsible DHHS operating division (OPDIV) to
    which the submission applies (i.e., Assistant Secretary for Children
    and Families, Administrator, Health Care Financing Administration);
    or

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-   for submissions that apply to more than one DHHS OPDIV, from the
    Assistant Secretary for Children and Families, with the concurrence
    of the Administrator, Health Care Financing Administration. This is
    consistent with current procedures for State systems submissions
    that apply to more than one DHHS OPDIV.

The written decision will be final and will provide the rationale for
the decision rendered on the submission.

# EFFECTIVE

# DATE: On the date of this AT.

## INQUIRIES: ACF Regional Administrators

##  HCFA Regional Administrators

## 

## 

## 

##  [/S/]{.underline} [/S/]{.underline} 

##  Olivia A. Golden Nancy-Ann Min DeParle

##  Assistant Secretary Administrator 

##  for Children and Families Health Care Financing Administration