+------------------------------------+---------------------------------+---+
| **Administration for Children\     | Centers for Medicare and        |   |
| and Families (ACF)**\              | Medicaid Services (CMS)         |   |
| U.S. Department of Health and      |                                 |   |
| Human Services\                    | U.S. Department of Health and   |   |
| 370 L\' Enfant Promenade SW\       | Human Services\                 |   |
| Washington. DC 20447               | 7500 Security Boulevard\        |   |
|                                    | Baltimore, MD 21244             |   |
+------------------------------------+---------------------------------+---+

**Information Memorandum**

  ----------------------------------------- -----------------------------
  Information Memorandum No. IM 05-02       Date: May 2, , 2005

  ----------------------------------------- -----------------------------

+----------------+-----------------------------------------------------+
| **TO:**        | State Public Assistance Agencies, State Information |
|                | Executives, And Other Interested Parties            |
+----------------+-----------------------------------------------------+
| **SUBJECT:**   | FEDERAL/STATE INFORMATION TECHNOLOGY POLICY         |
|                | Relationship Of Master Contracts For Acquisition Of |
|                | State Information Technology Products Or Services   |
|                | And Competition.                                    |
+----------------+-----------------------------------------------------+
| **RELATED\     | 45 CFR PART 95, SUBPART F; 45 CFR PART 92;          |
| REFERENCES:**  | 7 CFR PART 277                                      |
+----------------+-----------------------------------------------------+
| **PURPOSE:**   | This Information Memorandum (IM) provides guidance  |
|                | to the states and territories (hereafter referred   |
|                | to as states) regarding the use of state master     |
|                | contracts to acquire state Information Technology   |
|                | products and services. This IM does not establish   |
|                | any new systems policy. This IM is intended to      |
|                | codify into one document the federal response to    |
|                | questions posed by states regarding the             |
|                | relationship of master contracts to the procurement |
|                | standard for maximum practical open and free        |
|                | competition of IT procurements.                     |
+----------------+-----------------------------------------------------+
| *              | The Administration for Children and Families (ACF)  |
| *BACKGROUND:** | and Centers for Medicare and Medicaid Services      |
|                | (CMS) are charged with oversight responsibility for |
|                | Information Technology projects that result in      |
|                | automated information systems supporting the        |
|                | programs administered by these federal agencies.    |
|                | Procurements of Automated Data Processing (ADP)     |
|                | equipment and services by states, tribes and        |
|                | territories are subject to federal procurement      |
|                | standards which include a requirement for maximum   |
|                | practical free and open competition regardless of   |
|                | whether the procurement is formally advertised or   |
|                | negotiated.                                         |
|                |                                                     |
|                | One of the trends in state procurements in recent   |
|                | years has been the growth in the use of master      |
|                | contracts for the acquisition of Information        |
|                | Technology products and services that are acquired  |
|                | repetitively. States have requested guidance        |
|                | regarding whether these master contracts require    |
|                | sole source justification or if they meet the       |
|                | federal procurement standards for open and free     |
|                | competition and what documentation, if any, needs   |
|                | to be submitted for federal approval or prior       |
|                | approval of task orders issued against these state  |
|                | master contracts.                                   |
+----------------+-----------------------------------------------------+

+----------------+-----------------------------------------------------+
| *              | A master contract or initiative to qualify vendors  |
| *DISCUSSION:** | does [not]{.underline} require prior written        |
|                | approval from the Department of Health and Human    |
|                | Services (DHHS). However, if Federal financial      |
|                | participation (FFP) is requested when the state     |
|                | seeks to acquire products or services from that     |
|                | master contract, then the master contract needs     |
|                | federal approval and the task order for the         |
|                | services or products to be acquired needs prior     |
|                | federal approval. At the point when task orders are |
|                | to be issued to qualified vendors on the master     |
|                | contract to secure competitive price quotes for     |
|                | needed products or services, DHHS requires a copy   |
|                | of the Request for Proposals (RFP) that was used to |
|                | qualify vendors on the master contract, the master  |
|                | contract itself, and the proposed task order to     |
|                | assure that the state has followed competitive      |
|                | procedures. The review of the RFP and resultant     |
|                | master contract is a one-time review for federal    |
|                | approval. Thereafter, prior federal review and      |
|                | approval requirements would not apply to the master |
|                | contract but would apply to the subsequent task     |
|                | orders issued against the master contract, as the   |
|                | underlying RFP and master contract would have       |
|                | already received approval.                          |
|                |                                                     |
|                | An acquisition that uses an approved master         |
|                | contract does not require sole source justification |
|                | as long as the federal review of both the contract  |
|                | and the task order determines that the state has    |
|                | followed competitive procedures (i.e., allowed      |
|                | multiple eligible vendors on the master contract an |
|                | opportunity to bid).                                |
|                |                                                     |
|                | If the provisions of the state master contract are  |
|                | complied with, (i.e., issuing the task order to a   |
|                | specified number of qualified vendors on the master |
|                | contract) then the task order would not require a   |
|                | sole source justification even if only one vendor   |
|                | on the qualified list provided a response to the    |
|                | task order solicitation.                            |
|                |                                                     |
|                | Any attempt by the state to "direct" procurement of |
|                | a product or service to a specified vendor on the   |
|                | approved master contract list would be considered a |
|                | sole source procurement and thus require sole       |
|                | source justification.                               |
|                |                                                     |
|                | By its very nature, a master contract reduces       |
|                | competition. Therefore, to ensure that competitive  |
|                | procedures are followed by the state, task orders   |
|                | issued against a master contract can not exceed the |
|                | original scope of the master contract. One way of   |
|                | determining whether the task orders issued against  |
|                | the master contract exceed the original scope of    |
|                | the master contract is to consider whether 1) the   |
|                | RFP for the master contract gives sufficient notice |
|                | to all vendors that the master contract would cover |
|                | all state IT procurements or 2) the proposed scope  |
|                | limits the products or services offered, limits the |
|                | state agencies eligible to participate, or          |
|                | otherwise sets a ceiling on total contract value.   |
|                |                                                     |
|                | The concern to DHHS in reviewing any proposed       |
|                | acquisition is the justification for the resources  |
|                | being acquired, the reasonableness of the projected |
|                | costs, and assurance that the spirit of competition |
|                | is met (namely that the selection process ensures   |
|                | the state will receive best product at the best     |
|                | price). If our review of a proposed acquisition     |
|                | from a master contract results in a finding that    |
|                | further competition is required to obtain a better  |
|                | price and/or product, or finds need to open an      |
|                | existing long term contractual arrangement to       |
|                | competition, we will require that the state agency  |
|                | acquire the equipment or services through an RFP or |
|                | similar competitive process. In these cases, RFPs   |
|                | and contracts above regulatory threshold limits     |
|                | will have to be submitted to the federal program    |
|                | offices that have approval of the IT services       |
|                | acquired under these master contracts.              |
|                |                                                     |
|                | To ensure proper planning, and to avoid situations  |
|                | where there would be insufficient time to fully     |
|                | compete the acquisition, we encourage states to     |
|                | summarize their procurement plans in their APD      |
|                | Updates so DHHS can provide guidance in a timely    |
|                | manner.                                             |
+----------------+-----------------------------------------------------+

  ----------------- -----------------------------------------------------
  **INQUIRIES:**    HHS -- Director, ACF/ACYF/CB/DSS\
                    Director, ACF/OCSE/OAPO/DSTS\
                    CMS -- Director, Division of State Systems

                    
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> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Joel Anthony

Director

Office of Financial Services

Administration for Children and Families

Department of Health and Human Services