[Federal Register Volume 75, Number 208 (Thursday, October 28, 2010)]
[Rules and Regulations]
[Pages 66319-66341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26727]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 95

RIN 0970-AC33


State Systems Advance Planning Document (APD) Process

AGENCY: Office of Child Support Enforcement (OCSE), Administration for 
Children and Families (ACF), Department of Health and Human Services 
(HHS).

ACTION: Final rule.

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SUMMARY: The Advance Planning Document (APD) process governs the 
procedure by which States obtain approval for Federal financial 
participation in the cost of acquiring automated data processing 
equipment and services. This final rule reduces the submission 
requirements for lower-risk information technology (IT) projects and 
procurements and increases oversight over higher-risk IT projects and 
procurements by making technical changes, conforming changes and 
substantive revisions in the documentation required to be submitted by 
States, counties, and territories for approval of their Information 
Technology plans and acquisition documents.

DATES: Effective Date: This regulation is effective October 28, 2010.

FOR FURTHER INFORMATION CONTACT: Robin Rushton, OCSE Division of State 
and Tribal Systems, (202) 690-1244, e-mail: <a href="/cdn-cgi/l/email-protection#d785b8b5beb9f985a2a4bfa3b8b997b6b4b1f9bfbfa4f9b0b8a1"><span class="__cf_email__" data-cfemail="dc8eb3beb5b2f28ea9afb4a8b3b29cbdbfbaf2b4b4aff2bbb3aa">[email protected]</span></a>. 
Deaf and hearing impaired individuals may call the Federal Dual Party 
Relay Service at 1-800-877-8339 between 8 a.m. and 7 p.m. Eastern Time.

SUPPLEMENTARY INFORMATION:

Statutory Authority

    This final regulation is published under the general authority of 5 
U.S.C. 301, 42 U.S.C. 622(b), 629b(a), 652(a), 652(d) 654A, 671(a), 
1302, and 1396a(a). This regulation is published under the authority 
granted to the Secretary of the U.S. Department of Health and Human 
Services, (the Secretary) by Section 1102 of the Social Security Act 
(the Act), 42 U.S.C. 1302. This section authorizes the Secretary to 
publish regulations that may be necessary for the efficient

[[Page 66320]]

administration of the functions for which she is responsible under the 
Act.

Background

    The Department of Health and Human Services (HHS) provides national 
leadership and direction in planning, managing, and coordinating the 
nationwide administration and financing of comprehensive State public 
assistance systems to support programs for children and families. The 
Advance Planning Document (APD) process governs the procedure by which 
States obtain approval for Federal Financial Participation (FFP) in the 
cost of acquiring automated data processing (ADP) equipment and 
services. The APD process was designed to mitigate financial risks, 
avoid incompatibilities among systems and ensure that a system supports 
the program goals and objectives and operates as intended by law and 
regulation. The APD process also assists in ensuring that the 
expenditure of Federal funds is made in accordance with Federal 
regulation.
    This rule sets forth technical and conforming revisions, 
establishes new requirements and modifies existing requirements. The 
technical revisions delete or update obsolete references to agency 
names and assistance programs. The conforming revisions to regulations 
reflect the inclusion of entitlement grants under procurement standards 
found in 45 CFR Part 92, Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State, Local and Tribal Governments. 
(Prior to this rule, Part 95 cross-referenced procurement standards in 
45 CFR Part 74, titled Uniform Administrative Requirements for Awards 
and Subawards to Institutions of Higher Education, Hospitals, Other 
Nonprofit Organizations, and Commercial Organizations). These 
conforming changes are being made in response to comments and reflect 
Federal regulations that were published on September 8, 2003 [68 FR 
52843] to promulgate uniform administrative requirements for certain 
Federal grants and agreements with State, local and tribal governments. 
The rule eliminates and reduces the documentation required to be 
submitted for Federal approval of FFP in the costs of acquiring ADP 
equipment or services.
    Technical revisions were prompted in part by changes made by the 
Personal Responsibility and Work Opportunity Reconciliation Act of 
1996, which eliminated the Job Opportunities and Basic Skills (JOBS) 
training program and replaced the Aid to Families with Dependent 
Children (AFDC) program with a Temporary Assistance for Needy Families 
(TANF) block grant that is not subject to 45 CFR Part 95. Other 
technical amendments were due to the name change from Health Care 
Financing Administration to Centers for Medicare & Medicaid Services 
(CMS).
    The conforming revisions were made to reflect the final rule on 
Uniform Administrative Requirements for Awards and Subawards to 
Institutions of Higher Education, Hospitals, Other Nonprofit 
Organizations, and Commercial Organizations; and Certain Grants and 
Agreements with States, Local Governments and Indian Tribal Governments 
and Uniform Administrative Requirements for Grants and Cooperative 
Agreements to State and Local Governments [68 FR 52843], which brought 
entitlement grant programs administered by HHS, such as the Child 
Support Enforcement (CSE) program, under the same regulations that 
already applied to non-entitlement programs for grants and cooperative 
agreements to State, local, and tribal governments. This was done by 
expanding the scope of 45 CFR Part 92 to include entitlement grant 
programs and removing such programs from the scope of Part 74. 
According to the rules published in 68 FR 52843, the affected programs 
under an approved State plan for titles I (Grants to States for Old-Age 
Assistance for the Aged), IV-A (Block Grants to States for Temporary 
Assistance for Needy Families), IV-B (Child and Family Services), IV-D 
(Child Support and Establishment of Paternity), IV-E (Federal Payments 
for Foster Care and Adoption Assistance), X (Grants to States for Aid 
to the Blind), XIV (Grants to States for Aid to the Permanently and 
Totally Disabled), XVI (Grants to States for Aid to the Aged, Blind, 
and Disabled), XIX (Grants to States for Medical Assistance Programs), 
and XXI (Children's Health Insurance Program) of the Social Security 
Act (the Act) and title IV, chapter 2 (Refugee Assistance) of the 
Immigration and Nationality Act must comply with procurement standards 
in 45 CFR Part 92. (Please note this final rule on State Systems 
Advance Planning Documents (APD) narrows the cross-reference to Part 92 
by deleting reference to titles I, IV-A, X, XIV, XVI of the Act and 
title IV, chapter 2 of the Immigration and Nationality Act from Sec.  
95.601, titled Scope and Applicability, of this final rule.)
    Prior to this rule, regulations at 45 CFR Part 95 (Sec.  95.605, 
Definitions, Sec.  95.613, Procurement Standards, Sec.  95.615, Access 
to Systems and Records, Sec.  95.621, ADP Reviews, Sec.  95.705, 
Equipment Costs--Federal Financial Participation, Sec.  95.707, 
Equipment Management and Disposition) contained six references to Part 
74; those references were deleted in this final rule and replaced with 
references to Part 92 where applicable. (Please refer to the Provisions 
of the Regulation and Changes Made in Response to Comments and the 
Response to Comments sections of this preamble for additional 
information.)
    The new and modified requirements in this rule were made in 
response to a variety of studies and recommendations from Federal, 
State and private organizations over the last decade, including the 
U.S. Government Accountability Office (GAO), the Technology and 
Procurement Policy Subcommittee of the House Government Reform 
Committee, the National Association of State Chief Information Officers 
(NASCIO), the American Public Human Service Association (APHSA) and the 
Office of Management and Budget (OMB).
    In March 1998, the U.S. General Accounting Office, now known as the 
Government Accountability Office (GAO) and the Nelson A. Rockefeller 
Institute of Government jointly established the GAO/Rockefeller 
Institute Working Seminar on Social Program Information Systems. The 
working seminar had about 30 members, including congressional staff, 
Federal and State program and information technology managers, and 
welfare researchers. The working seminar met eight times and discussed 
how the shifting human services landscape had transformed States 
automated systems needs. The three key challenges identified by 
participants at this conference were: (1) Simplifying the approval 
process for obtaining Federal funding for information systems; (2) 
enhancing strategic collaboration among different levels of government; 
and; (3) obtaining staff expertise in project management and 
information technology.
    In 2002, the GAO reviewed the statutory and regulatory requirements 
for Federal approval and funding of State IT development and 
acquisition projects. (See GAO-02-347T, July 2002). The review examined 
agencies' processes for reviewing, approving, and funding State IT 
development acquisition projects and whether these processes hinder or 
delay States' efforts to obtain approval for projects. The review also 
examined how the Food and Nutrition Service (FNS) (under the U.S. 
Department of Agriculture (USDA)), ACF and CMS ensure that they 
consistently apply the OMB Circular A-87 to fund IT development and 
acquisition projects. The GAO found

[[Page 66321]]

that in fiscal years 2000 and 2001 States had submitted 866 planning 
and acquisition documents. In its analysis of these submissions, GAO 
determined that 92 to 96 percent of the State requests submitted to 
Child Support Enforcement (CSE), Child Welfare, and CMS were responded 
to within the required 60 days but only 74 percent of the State 
requests involving multiple programs were responded to within the 60 
days.
    On July 9, 2002, the Subcommittee on Technology and Procurement 
Policy, House Government Reform Committee, held a Congressional hearing 
on State and Local Information Technology Management. The hearing 
included testimony from State and Federal IT officials, the National 
Association of State Information Resource Executives (NASIRE), 
representatives from the IT vendor community, and GAO. Although 
testimony differed on the degree of Federal oversight, witnesses agreed 
that the regulations and policies should be updated to reflect changes 
in technology over the last two decades.
    The National Association of State Chief Information Officers 
(NASCIO) and the American Public Human Services Association (APHSA) 
also have been actively involved in this issue and submitted proposals 
on how to reform the Federal oversight of State IT projects and 
procurement approval process.
    The Office of Management and Budget (OMB) also has raised concerns 
about the information paperwork burden imposed on States by the APD 
prior approval process. Normally the renewal of the OMB Information 
Collection authority is granted for a three-year period, but in 2003 
and 2004 OMB limited the renewal to one-year increments and has asked 
to be kept informed of the Department's efforts to reduce or streamline 
the APD process. In April 2005, OMB approved the current APD process 
for an additional three years based partially on the progress that has 
been made on this reform effort. Another three-year extension was 
approved through February 2, 2011.
    On March 23, 2010, President Obama signed into law the Patient 
Protection and Affordable Care Act (Affordable Care Act) into law. This 
law has very significant implications for millions of Americans who 
will now be eligible for the benefits under Medicaid and the Child 
Health Insurance Program (CHIP). The Centers for Medicare and Medicaid 
Services (CMS) anticipates millions of newly eligible individuals 
applying for, and being determined to be eligible for, these programs. 
CMS plans to build upon the provisions described herein as it 
implements the Affordable Care Act and does not expect implementation 
to conflict with measures in this current rule.

Provisions of the Regulation and Changes Made in Response to Comments

    A Notice of Proposed Rule Making (NPRM) was published in the 
Federal Register [73 FR 12341] on March 7, 2008. During the comment 
period, we received 33 letters generating 153 comments. On the whole, 
comments were positive and welcomed the increased flexibility in the 
APD submission requirements for lower-risk projects. Many of the 
comments suggested we retain the term ``Advance Planning Document'' 
(APD) and eliminate use of the proposed term ``Information Technology 
Document'' (ITD). Accordingly, we have retained the term ``Advance 
Planning Document'' in all of its permutations and deleted 
``Information Technology Document'' throughout this rule. In response 
to comments, we also revised the regulation to clarify that States are 
permitted to transmit electronic versions of the APD, acquisition 
solicitation and contract documents as long as a valid signature 
accompanies the documentation. We did this by replacing the phrase ``in 
writing'' with ``in a record'' throughout this regulation.
    Other commenters asserted that the procurement standards in Part 92 
should be cross-referenced in Subpart F (titled Automated Data 
Processing Equipment and Services--Conditions for Federal Financial 
Participation) of Part 95, rather than the procurement requirements in 
Part 74. This comment also affects proposed Sec.  95.613, Procurement 
Standards, which removed the general cross-reference to Part 74, but 
added certain key requirements from Part 74 (i.e., recipient's or 
grantee's responsibilities, codes of conduct, competition, procurement 
procedures, contract provisions) to the proposed section. We agreed 
with these comments and have deleted all cross-references to Part 74 
and removed the proposed requirements in Sec.  95.613 of the NPRM which 
were taken from Part 74. Where applicable, we have replaced the 
previous reference to Part 74 with a cross-reference to Part 92, which 
permits grantees to follow the same State procurement rules and 
standards that are used for non-FFP matched projects. Accordingly all 
HHS grantees are now subject to the procurement standards set forth in 
45 CFR Part 92.
    Section 95.613 Procurement Standards was revised to provide for a 
limited exception where the Department retains the authority to provide 
greater oversight, including requiring a State to comply with the 
competition provisions of Sec.  92.36(c) if it determines that a State 
procurement process is an impediment to competition that could 
substantially impact project cost or risk of failure.
    Changes made in response to comments are discussed in more detail 
under the Response to Comments section of this preamble. Following is a 
summary of those changes:

Section 95.601--Scope and Applicability

    Section 95.601 prescribes conditions under which the Department of 
Health and Human Services will approve FFP in the costs of automated 
data processing services or equipment for social service programs under 
certain titles of the Act. In the proposed rule we narrowed the scope 
of this part by deleting reference to titles I, IV-A, X, XIV, XVI and 
XXI of the Act and title IV, chapter 2 of the Immigration and 
Nationality Act. In response to comments, we re-inserted the reference 
to title XXI, titled Children's Health Insurance Program, to clarify 
that this part applies to the automated data processing equipment and 
services related to the CHIP program, if a State enhances its existing 
Medicaid Management Information System (MMIS) to include CHIP 
functions.
    Consistent with the proposed rule, the scope of this final rule 
does not apply to titles I, X, XIV or XVI of the Act as these titles 
have been repealed by the Social Security Amendments of 1972 (P.L. 92-
603). Similarly, this rule does not apply to title IV-A of the Act 
since PRWORA eliminated the JOBS program and replaced AFDC with TANF, a 
block grant. Lastly, this rule does not apply to title IV, chapter 2 of 
the Immigration and Nationality Act because the State Legalization 
Impact Assistance Grants program, a time-limited program previously 
administered by the Office of Refugee Resettlement, has expired. 
Consequently, the scope of this rule is limited to titles IV-B (Child 
and Family Services), IV-D (Child Support and Establishment of 
Paternity), IV-E (Federal Payments for Foster Care and Adoption 
Assistance), XIX (Grants to States for Medical Assistance Programs) and 
XXI of the Act (Children's Health Insurance Program).

Section 95.605--Definitions

    Section 95.605 sets forth definitions as used in this part. Certain 
defined terms in the NPRM, such as Alternative approach to the APD 
requirements, Base Contract, Grantee, Project, Service Agreement 
paragraphs (d)-(f) and

[[Page 66322]]

Service Oriented Architecture are being adopted in the final rule 
without revision. The intent of this section is to identify and define 
relevant terms in a centralized location at the beginning of the 
regulation to facilitate reading of the rule. To that end and in 
response to comments in the final rule, we used language from Sec.  
95.610(a)(1), (b) and (c) and Sec.  95.626(a), to create or revise 
definitions for the terms Acquisition Checklist, Advance Planning 
Document (APD), Planning APD, Implementation APD, APD Update, 
Operational APD and Independent Verification and Validation (IV&V). We 
also revised the definitions of Commercial-off-the-shelf (COTS) 
Software, Software Maintenance and Non-Competitive.
    Acquisition Checklist means the standard Department checklist that 
States can submit to meet prior written approval requirements instead 
of submitting the actual Request for Proposal (RFP), contracts or 
contract amendments. The Acquisition Checklist allows States to self-
certify that their acquisition documents, which include RFPs, 
contracts, contract amendments or similar documents, meet State and 
Federal procurement requirements, contain appropriate language about 
software ownership and licensing rights in compliance with Sec.  
95.617, and provide access to documentation in compliance with Sec.  
95.615.
    Advance Planning Document, Initial advance automated data 
processing planning document or Initial APD means a recorded plan of 
action to request funding approval for a project which will require the 
use of ADP service or equipment. The term APD refers to a Planning APD, 
or to a planning and/or development and implementation action document 
i.e., Implementation APD, or to an Advance Planning Document Update. 
Requirements are detailed in Sec.  95.610, paragraphs (a), (b), and 
(c).
    Advanced Planning Document Update (APDU) means a document or record 
submitted annually (Annual APDU) to report project status and/or post 
implementation cost-savings, or on an as needed (As Needed APDU) basis, 
to request funding approval for project continuation when significant 
project changes are anticipated; for incremental funding authority and 
project continuation when approval is being granted by phase; or to 
provide detailed information on project and/or budget activities as 
specified in Sec.  95.610(c).
    Planning APD means a plan of action in a record which requests FFP 
to determine the need for, feasibility, and cost factors of an ADP 
equipment or services acquisition and to perform one or more of the 
following: Prepare a Functional Requirements Specification; assess 
other States' systems for transfer, to the maximum extent possible, of 
an existing system; prepare an Implementation APD; prepare a request 
for proposal (RFP) and/or develop a General Systems Design (GSD).
    Implementation APD means a recorded plan of action to request 
Federal financial participation (FFP) in the costs of designing, 
developing and implementing the system.
    Operational APD means a record of no more than two pages to be 
submitted annually by State programs whose system is not in 
development. The Operational APD provides a short summary of the 
activities, method of acquisition, and annual budget for operations and 
software maintenance.
    Similarly, in response to commenters, we also added a definition 
for the term Independent Verification and Validation (IV&V) to this 
section, which ``means a well-defined standard process for examining 
the organizational, management, and technical aspects of a project to 
determine the effort's adherence to industry standards and best 
practices, to identify risks, and make recommendations for remediation, 
where appropriate.''
    Under Sec.  95.605 we revised the definitions of the terms 
Commercial-off-the-shelf (COTS) Software and Software Maintenance in 
response to comments that the proposed definitions were too limiting. 
With regard to COTS Software, we removed the last sentence of the 
proposed definition which read: ``Examples of COTS include: Standard 
word processing, database, and statistical packages'' and added that 
language to the preamble discussion of COTS. Likewise, comments 
indicated that the last sentence in the proposed definition of Software 
Maintenance inappropriately contains a requirement: ``Software 
maintenance that substantially increases risk or cost or functionality 
will require an as-needed ITD.'' We removed that sentence from the 
definition. For added clarity, an As-Needed APD is required when 
Software Maintenance results in major changes in the scope of the 
project, system concept or developmental approach. We revised the 
definition of acquisition checklist to expand the definition to include 
contracts and contract amendments as well as RFPs.
    Non-competitive means solicitation of a proposal from only one 
source, or after solicitation of a number of sources, negotiation with 
selected sources based on a finding that competition is inadequate. The 
definition of non-competitive was significantly modified from the 
definition proposed in the NPRM. This revised definition removes 
specific Federal criteria for sole source justifications from the 
definition of non-competitive and reflects that each State is permitted 
under 45 CFR 92.36 to use the same procurement policies and procedures 
that it uses for procurements from non-Federal funds. Several 
commenters recommended HHS deference to State procurement policies. One 
commenter noted, ``as always (we) take the position that if a state was 
in compliance with its procurement rules, that it should be able to 
self-declare that its IT procurement meets all state standards and this 
should be sufficient for Federal approval''. Another commenter stated 
``We recommend using the same approach to procurement standards that is 
used in Part 92 of Title 45 of the Code of Federal Regulations which 
governs `Uniform Administrative Requirements for Grants and Cooperative 
Agreement to State, Local and Tribal Governments'. In Subpart C, 
Section 92.36 sets forth the requirements related to procurement; 
92.36(a) exempts states from complying with the requirements set forth 
in this section. Instead, States are required to follow the same 
policies and procedures used for procurements from its non-Federal 
funds. The procurement standards set forth in Section 95.613 may 
conflict with or contradict procurement standards set forth in State 
law even though both are attempting to achieve similar goals.''
    As noted below, in the discussion of section 95.610(a)(2)(viii)(C), 
a State that uses a non-competitive solicitation will need to include a 
justification for this procedure in describing its procurement 
strategy. That justification should make reference to the procurement 
policies and procedures used by the State for procurement from non-
Federal funds.

Section 95.610--Submission of Advance Planning Documents

    We deleted the first sentence of proposed Sec.  95.610(a)(1) from 
the NPRM and moved that language to the definition of Advance Planning 
Document in Sec.  95.605. We added the phrase ``including the use of 
shared or purchased services in lieu of State acquired stand-alone 
resources: To Sec.  95.610 to clarify that it is permissible for States 
to form consortia to acquire and maintain development, maintenance or 
other services to address their automation needs. We added Sec.  
95.610(a)(2)(viii) to specify the need for an acquisition summary in 
the Planning APD that will provide for the basis for exempting 
acquisitions from prior approval.

[[Page 66323]]

    Section 95.610(c) identifies the criteria for submitting an APD 
Update (APDU), including an Annual APDU and an As-Needed APDU. In 
response to comments we revised the timeframe for submitting the Annual 
APDU from 60 days prior to the anniversary date of the Planning APD to 
60 days prior to the expiration of authority for FFP in the costs of 
acquiring automated data processing equipment and services. By 
requiring the APDU 60 days before the expiration of authority for FFP 
granted in the previous APDU, the process decreases the likelihood of a 
gap in approved FFP in the cost of the State's system.
    Section 95.610(c)(1)(viii) of the proposed rule related to 
requesting an annual cost benefit analysis has been deleted. We 
received nine comments on this provision. The revisions to the annual 
cost benefit analysis in the NPRM were supported by all commenters, but 
they suggested a total elimination of the cost benefit updates. The 
commenters pointed out that not all projects have tangible, measurable 
benefits and that CBA updates are unnecessarily burdensome when the 
values often are stable for large software application developments. We 
concur that this annual requirement has not provided the type of 
information useful to determine whether States are pursuing the most 
cost-effective methods to justify the additional burden it placed on 
States. We have modified our oversight and monitoring to focus on high 
risk projects and we believe that the proposed IV&V and disapproval 
provisions in the final rule are a more targeted means of insuring 
development of cost effective human service systems.
    We modified the requirements of Sec.  95.610(c) related to Annual 
and As-Needed APDU to require an acquisition summary to describe the 
information needed on planned acquisitions in order to qualify for an 
exemption from the prior approval requirements of Sec.  95.611. The 
information that must be included in the APD in order for the State to 
qualify for an exemption from prior approval requirements is now listed 
in Sec.  95.610(c)(1)(viii) as follows:
    (a) Type and scope of contract--Examples of type of contract are: 
Firm fixed price, labor hours, and time and materials. Examples of 
scope of contract are: Maintenance and operation, COTS software, 
application software development, service contract, and licenses.
    (b) Procurement strategy--Examples of procurement strategy are: 
Full and open competition, limited competition (e.g. master service 
contract) and sole source procurement. If the procurement is sole 
source, the State needs to provide a sole source justification, either 
separately or as part of the APDU. That justification should make 
reference to the procurement policies and procedures used by the State 
for procurement from non-Federal funds.
    (c) Estimated cost or not to exceed amount--Describes the total 
cost of the acquisition and annual cost if applicable, or the specified 
number of labor hours not to be exceeded for all project categories.
    (d) Timeframe of contract--Examples of the timeframe of a contract 
should include the years in the initial contract with the number of 
options for additional years. This should include the estimated begin 
and end dates of the contract.
    (e) A signed certification from the authorized State official that 
the proposed acquisition will comply with all State and Federal 
requirements including the retention of software ownership rights 
specified in Sec.  95.617. The Acquisition Checklist issued in OCSE 
Information Memorandum 05-03 provides a summary of Federal requirements 
that should be included in the acquisition solicitation documents. A 
statement in the APD that the acquisitions summarized will comply with 
all applicable State procurement requirements and the Federal 
requirement specified in the Acquisition Checklist will be sufficient.

Section 95.611 Prior Approval Conditions

    Section 95.611 provides the thresholds for prior approval 
conditions. This final rule changes the manner in which acquisition 
exemptions from prior Federal approval are granted. Currently, only the 
cost of the acquisition triggers prior Federal approval. The intent of 
these regulatory revisions is to presumptively approve a wider range of 
acquisitions based on risk rather than simply cost of the acquisition. 
Sections 95.611(a)(2) and (b) were revised in the final rule to 
substitute ``which is reflected in a record'' or ``in a record'', 
instead of the current language of ``in writing.'' The revision is in 
response to comments encouraging a move toward e-government and 
expediting electronic submissions and approvals. Language within Sec.  
95.611(b)(1)(iii) states ``unless specifically exempted by the 
Department,'' which permits Federal programs to grant exemptions for 
RFPs, contracts and contract amendments. All Federal programs have 
granted exemptions, but not routinely, and the burden to request the 
exemption is on the State. The final rule amends Sec.  
95.611(b)(2)(iii) to facilitate the routine granting of these 
exemptions by including an acquisition summary in the Planning, Annual 
or As-Needed APDUs. Section 95.611(b)(2)(iii) specifies that for 
acquisition documents, the exemption request is assumed to be approved 
concurrent with the approval of the Planning, Annual or As-Needed APDU 
unless the Federal program office specifically indicates in writing 
which acquisition(s) should be submitted for prior Federal review and 
approval. Section 95.611(b)(1)(iii) also specifies the conditions for 
assumed approval of an exemption. These conditions include: Providing 
sufficient detail to base an exemption, no deviation from the terms of 
the exemption, and the acquisition is not the initial acquisition for a 
high risk activity such as software application development. Examples 
of failure to meet the first two conditions include, but are not 
limited to the following:
    <bullet> The exemption was based on the acquisition summary that 
indicated the procurement would pursue full and open competition; the 
eventual acquisition was sole source.
    <bullet> The summary indicated the acquisition will be a firm fixed 
price contract; the eventual acquisition was modified to time and 
materials.
    <bullet> The acquisition summary indicated that the scope of the 
contract will be maintenance and operation; the eventual acquisition 
was expanded to include software development.
    <bullet> The acquisition summary specified that the acquisition was 
for a specific functionality, such as document generation; the eventual 
acquisition was expanded to include other functionality, such as 
calendaring.
    The third condition for assumed approval of an exemption is when 
``the acquisition is not the initial acquisition for a high risk 
activity, such as software application development.'' Examples of 
situations that may prompt the Department to not grant an exemption 
request include, but are not limited to the following: The acquisition 
is for high risk activity such as customized software development; the 
RFP and contract are related to developing a new or replacement system; 
the project has past significant cost overruns and/or implementation 
problems; the State has a past pattern of limiting competition; or the 
size of the acquisition does not appear to be commensurate with the 
size of the program or caseload. While the acquisition summary is not 
required for an Implementation APD, this will not prevent a Federal 
program office from exercising existing regulatory authority and 
exempting acquisitions

[[Page 66324]]

included in an Implementation APD. For example, the Department may 
request prior approval of an RFP, but exempt the resulting contract 
from prior approval if the State keeps the Department informed during 
the procurement process and submits an information copy of the signed 
contract. In addition, the Implementation APD may summarize several 
different types of procurements in the first year such as IV&V, Quality 
Assurance, or Project Management in addition to the software 
development acquisition. While the acquisition for software development 
is high risk and subject to prior approval, at the program office's 
discretion the other acquisition in an Implementation APD could be 
exempted, so the State is encouraged to provide an acquisition summary 
in the Implementation APD as well.
    We have retained the submission thresholds for prior approval 
requirements of Sec.  95.611 for those requestors who opt not to 
include a description of planned acquisitions in their APDU. The 
Federal program offices will continue to review and provide comments on 
any acquisition document submitted by the requesting State, Territory 
or Tribe as technical assistance. In response to comments, we increased 
the submission threshold for regular rate software application 
development from $5 million to $6 million for competitive procurements. 
In keeping with the comments encouraging an increased submission 
threshold, we also revised Sec.  95.611(b)(2)(iv) to increase the 
submission thresholds for enhanced funded projects from $300,000 to 
$500,000.
    Section 95.611(d) was revised to improve the clarity of the 
provision. We replaced the term ``ACF'' with ``the Department'' to 
clarify that this provision applies to CMS as well as ACF program 
offices. The term ``approving components'' was replaced with a new 
term, ``Federal program offices,'' and clarifies that the Department 
will send the State an acknowledgment letter once it has received the 
incoming request from the State and will respond within 60 days. If the 
State has not received a response from the Federal program office(s) 
within 60 days of the acknowledgment letter, then the State can assume 
that it has approval to proceed. The regulation uses the term 
``provisional approval'' to signify that the Federal program office 
retains the authority to disapprove the Initial APD or IT acquisition, 
but if the Federal program office has not provided any guidance within 
those 60 days, then the burden shifts to the Federal program office to 
justify subsequent requests for more information or disapproval. The 
phrase ``approval, disapproval or request for more information'' is 
retained in the regulation. The term ``written approval'' was replaced 
with ``which is reflected in a record'' to permit electronic 
transmissions which is intended to improve and expedite communications 
between the State and Federal offices. However, this revision does not 
change the requirement that the State's request be sent by an 
authorized requestor and that the Federal approval, disapproval or 
request for additional information, while no longer required to be in 
writing, must still be reflected in a record by the authorized 
individual in the Federal program office. An oral request or an e-mail 
for additional information from a Federal program office will not 
``stop the clock.'' The State should expect an approval, disapproval or 
request for additional information from the same Federal official to 
whom the State's request was sent.
    Section 95.611(e) was revised to specify which acquisitions are not 
subject to prior approval and clarify that the Department retains the 
authority to request submittal of acquisition documents regardless of 
threshold.

Section 95.613 Procurement Standards

    Section 95.613 provides that the procurement standards for ADP 
equipment and services are subject to Part 92 instead of Part 74. Since 
Sec.  92.36 exempts States from the provisions of Sec.  92.36 
paragraphs (b) through (i) the State will follow the same procurement 
policies and procedures that they use for non-Federal matched ADP State 
projects. The Department retains the authority to provide greater 
oversight, including requiring a State to comply with the competition 
provisions in Sec.  92.36(c) if it determines that a State procurement 
process is an impediment to competition that could substantially impact 
project cost or risk of failure. This revision is in response to 
multiple comments urging the Federal programs to defer to State 
procurement standards, especially in the area of limitations on 
competition.

Section 95.617 Software and Ownership Rights

    Section 95.617 provides the software and ownership rights that must 
be contained in the contract for all software or modifications 
developed or installed with Federal financial participation. In 
response to comments, we eliminated the examples of software packages 
in Sec.  95.617(c) that met the exemption from this software ownership 
provision.

Section 95.621 ADP Reviews

    Section 95.921 provides the types of periodic on-site surveys and 
reviews of State and local agency ADP methods that the Department may 
conduct. Paragraph (d) related to acquisitions not subject to prior 
approval was updated to delete the previous reference to Part 74 and 
substitute Part 92.

Section 95.623 Reconsideration of Denied FFP for Failure To Obtain 
Prior Approval

    Section 95.623 provides a process by which a State may request 
reconsideration for FFP which was denied due to the State's failure to 
request Federal prior approval. In response to comments requesting 
additional specificity, a new paragraph (b) was added that specifies 
information and documentation that must be submitted with the request 
for reconsideration. To provide more clarification on the criteria that 
must be met to qualify for reconsideration, we have revised Sec.  
95.623(b) to add the criteria that is currently in OSSP-Action 
Transmittal 00-01. However, we anticipate that requests for 
reconsideration will abate given the new authority in Sec.  95.610 to 
exempt planned acquisitions from prior approval.

Section 95.624 Consideration for FFP in Emergency Situations

    Section 95.624 was revised to change the introductory text, 
paragraph (a) and paragraph (b)(2) to eliminate the reference to 
written request and substitute ``which is reflected in a record'' or 
``reflected in a record.'' This change was prompted by comments 
received that encouraged us to move toward e-government and remove any 
requirement for written submissions and approvals. This change will 
expedite transmittal of requests from States and Territories in 
emergency situations.

Section 95.626 Independent Verification and Validation

    Proposed Sec.  95.626 is revised to correct the introductory text 
and references to ``Independent Validation and Verification'' and 
replace it with the correct terminology of ``Independent Verification 
and Validation.'' We also made a technical changes to the first two 
triggers, i.e., missing regulatory and statutory deadlines and failing 
to meet a critical milestone, by adding lead-in language to clarify 
that the assessment is intended to be prospective and not reactive if 
the agency determines that the State is ``at risk'' of these problems.
    In keeping with our focus on high risk projects, two additional 
triggers to IV&V

[[Page 66325]]

were added to Sec.  95.626. The two triggers are:
    (7) State's procurement policies put the project at risk, including 
a pattern of failing to pursue competition to the maximum extent 
feasible.
    (8) State's failure to adequately involve the State program office 
responsible for administering the program in the development and 
implementation of the project.
    We included these additional triggers for IV&V because past 
experience tells us that the State's failure to seek full and open 
competition to the maximum extent practicable or to involve State 
program offices in the planning/development effort are indicators that 
the project is at risk. Lack of competition in itself is not a trigger 
for IV&V; rather, the Department will conduct an assessment to 
determine if the pattern of failing to pursue competition creates risk 
to the project. This determination may require an IV&V assessment 
review to evaluate the impact that the lack of competition has had on 
the project for both increased cost and increased risk for system 
failure. A decision on whether an IV&V contract is required or the 
scope of the IV&V services will be deferred until after the IV&V 
assessment. Lack of involvement of State program offices in the 
development and implementation of the project is a trigger for IV&V. 
During the IV&V assessment, the team will consult with all 
stakeholders, which includes end users, caseworkers and business 
partners, to assess the user involvement and buy-in regarding system 
functionality and the ability of the system to support program business 
needs.
    The changes proposed to Sec.  95.631 in the NPRM were related to a 
change in terminology from Advance Planning Document to Information 
Technology Document. Since the comments expressed overwhelming 
opposition to the change, Sec.  95.631 will be unchanged in the final 
rule.
    Several sections in the NPRM are being adopted as proposed. Section 
95.612 Disallowance of Federal Financial Participation, Sec.  95.615 
Access to systems and records, Sec.  95.627 Waivers, 95.635 
Disallowance for automated system that fails to comply with 
requirements, Sec.  95.705 Equipment costs and Sec.  95.707 Equipment 
management and disposition are being adopted without revision in the 
final rule.

Response to Comments

    We received 153 comments from 33 State Agencies and other 
interested parties. Below is a summary of the comments and our 
response.

General Comments

    1. Comment: Commenters were overwhelmingly supportive of keeping 
the terminology of Advance Planning Document (APD) in lieu of the 
proposed term, Information Technology Documents (ITD). This proposed 
change generated the most comments, all of which supported retaining 
the term APD. One commenter suggested several corresponding changes if 
the terminology was changed from APD to ITD.
    Response: We agree and the terminology of Advance Planning Document 
(APD) is retained in the final regulation.
    2. Comment: Several commenters urged compatible rules and 
guidelines across Federal human service agencies to minimize confusion 
and allow needed automation projects to proceed without unnecessary 
delay.
    Response: We agree and note that the USDA's Food and Nutrition 
Services, which has jurisdiction over the Supplemental Nutrition 
Assistance Program (SNAP) systems in commenting on the NPRM, stated: 
``In the interest of sustaining a consistent federal approval process 
for State agencies, we intend to minimize differences in the procedures 
to the extent possible. We intend to propose similar changes in a 
proposed regulation in the near future.''
    3. Comment: One commenter requested clarification on why Title I, 
X, XIV, XVI (AABD) and XXI were deleted.
    Response: The NPRM proposed deleting reference to title XXI 
(Children's Health Insurance Program (CHIP)) because, in general, CHIP 
programs are not subject to Part 95. However, if a State opts to 
enhance its MMIS to include CHIP functions, then Part 95 would apply to 
the MMIS in its entirety, including the CHIP portion. Consequently, we 
have re-inserted reference to title XXI in Sec.  95.601, titled Scope 
and Applicability, and clarified the circumstances by which the CHIP 
programs are subject to Part 95 in the preamble.
    The other titles of the Act, as identified by the commenter, were 
deleted from this rule because those titles were repealed by the Social 
Security Amendments of 1972 (Pub. L. 92-603) and are no longer 
applicable. (Please note that Pub. L. 92-603, Sec.  303, repealed 
titles I (Grants to States for Old-Age Assistance for the Aged), X 
(Grants to States for Aid to the Blind), XIV (Grants to States for Aid 
to the Permanently and Totally Disabled) and XVI (Grants to States for 
Aid to the Aged, Blind, and Disabled) of the Act, except with respect 
to Puerto Rico, Guam, and the Virgin Islands. Also, the Commonwealth of 
the Northern Marianas may elect to initiate social services programs 
under these titles if it chooses; see Vol. II, Pub. L. 94-241, approved 
March 24, 1976, 90 Stat. 263, Covenant to Establish Northern Mariana 
Islands).
    4. Comment: Several commenters requested training materials and 
training sessions on the new regulations as quickly as possible after 
the regulations are finalized. Several commenters specifically 
requested that the Medicaid manual be updated to reflect final 
regulations.
    Response: All Federal agencies involved have committed to 
developing training materials and providing training and technical 
assistance on the new regulations once the regulations are issued in 
final form. With respect to the State Medicaid manual and other 
guidance to States, CMS will update these policy guidelines 
accordingly.
    5. Comment: One commenter requested that we submit the NPRM for 
another round of comments. No rationale was provided as to why a second 
round of comments was needed.
    Response: The NPRM was widely disseminated to State agencies and 
other interested parties with ample opportunity to comment. 
Furthermore, the comments received were predominately supportive of the 
proposed changes. Thus, we are not extending the comment period.
    6. Comment: Several commenters applauded the reduction and 
elimination of documentation and noted that the ability to submit 
documents electronically is welcome. One commenter suggested that the 
term ``written'' be eliminated or redefined throughout the regulation 
to permit electronic transmission of the APD and related IT 
documentation.
    Response: We agree and have revised the regulation to clarify that 
States are permitted to transmit electronic versions of APDs, 
acquisition solicitations and contract documents as long as a valid 
form of the authorized requester's signature accompanies the 
documentation (i.e., signature may be transmitted by fax, scanned PDF 
electronic document or electronic signature). We note that the 
elimination of the term ``written'' does not permit oral approvals or 
disapprovals by the Federal program offices. The regulation still 
requires that the approval or disapproval be recorded. We also stress 
that the State should expect that the electronic approval or 
disapproval will be made by the same Federal official to

[[Page 66326]]

whom the State's request was addressed. An email from a Federal program 
analyst requesting additional information in order to complete the 
analysis of the State's request should be considered technical 
assistance and would not constitute an official request for additional 
information under Sec.  95.611(d). If no official response is received 
by the requesting State within 60 days of the acknowledgment letter, 
the State may assume provisional approval.

Section 95.605--Definitions

    1. Comment: One commenter requested additional specificity 
regarding the definition of noncompetitive and asked that the following 
terms within the definition also be defined: Infeasible; what 
constitutes a delay; what criteria is used to determine exigency or 
emergency; and what number of proposals is required to satisfy adequate 
competition.
    Response: We have not added definitions for the terms identified by 
the commenter because these terms are used in previous Federal 
standards for sole source justifications under Part 74 which is no 
longer relevant for State procurements. For the reasons discussed 
above, definitions of these terms are no longer needed.
    2. Comment: One commenter suggested a definition of APD and 
suggested that the substantive requirements for APD should remain in 
Sec.  95.610, Submission of advance planning documents, but that the 
initial paragraph of Sec.  95.610 as well as subparagraph (a)(1) and 
paragraphs (b) and (c) should be moved to Sec.  95.605, Definitions.
    Response: We agree with the commenter that Sec.  95.605, 
Definitions, should include the definitions for the terms Advance 
Planning Document, (APD), Planning APD, Implementation APD, APD Update 
and Operational Update. We have taken language from Sec.  95.610(a)(1) 
and added this language as the definition for APD under Sec.  95.605. 
We have also retained this language in Sec.  95.610(a)(1) rather than 
deleting it. We determined that paragraphs (b) and (c) set forth 
requirements for submitting APDs and are not a part of the definition 
for APD. These paragraphs are appropriately placed in Sec.  95.610, 
Submission of advance planning documents, and have not been moved to 
Sec.  95.605, Definitions.
    3. Comment: There were several interrelated comments requesting 
clarification of the definitions of commercial-off-the-shelf (COTS) 
software, service-oriented architecture (SOA) and a recommendation for 
a new definition of Enterprise Architecture. Some commenters suggested 
that the examples cited in the regulation be deleted; other commenters 
recommended the addition of new examples. Several commenters suggested 
that the definition of COTS be cross-referenced to Sec.  95.610(b)(3) 
to clarify that enterprise-level COTS software meets the definition of 
COTS and requirements for FFP when conducting feasibility studies. One 
commenter suggested removing the examples in the COTS definition as 
examples might be limiting and urged clarification that both SOA and 
enterprise-level COTS software are acceptable for consideration in 
feasibility studies, analysis of alternatives and overall system 
approach. One commenter suggested that we remove the specific term 
``service-oriented architecture'' from regulations because terms and 
meanings change with such frequency and technology advances at such a 
pace that such specificity will only be current in regulation for a 
short span of time. Another commenter suggested that the regulation 
should concentrate on the intent that States can explore other 
alternative technology solutions beyond system transfers and new custom 
development. The commenter also noted that based on open standards, a 
description of the intent would be relevant for a longer period of 
time. A commenter suggested that a requirement to provide an 
explanation of why a system transfer is not feasible whenever an 
alternative technology is identified implies that system transfer is 
the development approach of choice. Another commenter recommended 
allowing enterprise framework applications under the examples cited in 
Sec.  95.617, Software ownership rights, to simplify State 
procurements. All the comments were related to other alternative 
technology solutions beyond system transfers and new custom development 
that can be considered in the Feasibility Study/Analysis of 
Alternatives. Some commenters requested confirmation that COTS software 
that is not available to the general public at a list price or needs 
customization does not meet the definition of COTS under this rule.
    Response: We agree that the examples in the COTS definition might 
be limiting. We have removed them from the regulation and instead 
reference them in the preamble.
    We did not find it necessary to revise Sec.  95.617, Software and 
ownership rights. Federal program agencies, OCSE and the Administration 
for Children, Youth and Families, have previously issued guidance 
explaining that Enterprise level COTS and SOA are acceptable 
alternatives in a feasibility analysis. OCSE issued an Information 
Memorandum IM-05-04, which is titled Use of Enterprise Level 
Commercial-Off-the-Shelf (COTS) Software in Automated Human Services 
Information Systems and may be accessed at the following link: http://www.acf.hhs.gov/programs/cse/pol/IM/2005/im-05-04.htm. The Children's 
Bureau has issued guidance under ACYF-IM-07-03, titled Service Oriented 
Architecture (SOA) and available at http://www.acf.hhs.gov/programs/cb/laws_policies/policy/im/2007/im0703.htm. These policy issuances 
sufficiently explain that the business process the Department uses for 
enterprise-level COTS is the same for any other information technology 
product.
    We note that a definition of the term COTS is needed due to the 
inclusion of a new submission threshold for hardware and COTS software. 
However, we believe that commenters may have assumed the definition of 
COTS was related to Sec.  95.617, titled Software and Ownership rights. 
Under Sec.  95.617 COTS products that are provided at established 
catalog or market prices, not developed solely for human service 
programs and sold or leased to the general public are exempted from the 
State and Federal government's software ownership provisions. We would 
like to clarify that a COTS product available at list price and in need 
of customization (i.e. modifications to meet the State's particular 
requirements) meets the definition of COTS under this rule. An example 
is an Excel application that is available at list price but needs 
customization to meet a human service program need. The Excel 
application is a COTS product exempt from software and ownership 
provisions of Sec.  95.617. In this example, the vendor may charge a 
licensing fee, but any customization to the COTS product that was 
funded with FFP would be subject to the software and ownership rights 
in Sec.  95.617 even if the customization was made by the vendor 
providing the COTS software. We defined the term Service-Oriented 
Architecture (SOA) because we introduced it in Sec.  95.610(b)(3) in 
the discussion of criteria for submitting an Implementation APD related 
to feasibility studies and analysis of alternatives.
    4. Comment: Several commenters suggested that Enterprise 
Architecture be defined in Sec.  95.605 as well as defined in Medicaid 
Information Technology Architecture (MITA).

[[Page 66327]]

    Response: We have chosen to limit the regulatory definitions to 
terms that impact the application of the regulatory requirements. As 
previously mentioned, OCSE and the Children's Bureau have issued 
guidance on Enterprise Architecture through IM-05-04, which is titled 
Use of Enterprise Level Commercial-Off-the-Shelf (COTS) Software in 
Automated Human Services Information Systems and may be accessed at the 
following link: http://www.acf.hhs.gov/programs/cse/pol/IM/2005/im-05-04.htm and ACYF-IM-07-03, titled Service Oriented Architecture (SOA) 
and available at http://www.acf.hhs.gov/programs/cb/laws_policies/policy/im/2007/im0703.htm. These policy issuances clarify that 
Enterprise Architecture is subject to the same regulatory requirements 
of Part 95. There is nothing about Enterprise Architecture that impacts 
the applicability of the regulations. The suggestion that CMS define 
Enterprise Architecture in their MITA, is outside the scope of this 
regulation. MITA is not defined in this final rule because it is 
outside the scope of the NPRM and to introduce it now would not provide 
interested parties sufficient notice or an opportunity to comment on 
the definition or applicability of MITA for Enterprise Architecture and 
cost allocation.
    5. Comment: One commenter suggested that the definition of 
Independent Verification and Validation should be moved from Sec.  
95.626(a) to the definitions section under Sec.  95.605. They also 
pointed out that the words verification and validation are sometimes 
transposed and should be used consistently.
    Response: We agree and added the definition of IV&V based on the 
language from Sec.  95.626(a) to the definitions section under Sec.  
95.605. We also agree that the consistent terminology should be 
Independent Verification and Validation (IV&V) and have revised the 
regulation accordingly.
    6. Comment: We received several comments on the new definition of 
Software Maintenance. Several commenters requested additional 
specification as to quantity, scope, criteria, risk, increased 
functionality and level of risk. One commenter asked for clarification 
whether Software Maintenance and operation phase begins when a project 
is certified or when the project is implemented.
    Response: The Institute of Electrical and Electronics Engineers 
(IEEE) definition of maintenance was used as the basis for the 
regulatory definition. While we understand the desire for additional 
clarity and specificity, we believe that adding specificity in the 
definition would result in less flexibility and latitude on the part of 
the Federal and State agencies in meeting their program goals in a 
cost-effective manner. Neither system certification nor implementation 
defines when a project's software development and maintenance phase 
begins. It is the absence of system development that determines whether 
the State is eligible to submit an Operations and Software Maintenance 
(O&SM) APD Update under Sec.  95.611(c)(3).
    7. Comment: Several commenters asked for clarification of funding 
requirements on a phased implementation basis and the implications, if 
any, should phased concepts conflict with contract approval.
    Response: This is not a new requirement. The APDU references 
incremental funding authority and project continuation when approval is 
being granted by phase. The contract may be approved for a longer 
period of time, but FFP approval is usually limited to the planning, 
development, testing, implementation, or maintenance phases. The 
majority of States request FFP on an annual basis because their State 
matching funds are appropriated on an annual basis. But Federal funding 
by development phases is still permitted and used by Federal agencies 
on a case-by-case basis. The APD and procurement approval process has 
always been a two-step process regardless of whether FFP is being 
approved on a phased or annual basis. Prior approval is required under 
the conditions set forth in Sec.  95.611 for the acquisition 
solicitation and contract documents which may be multi-phase or multi-
year. This is consistent with the incremental funding authority under 
the definition of Advance Planning Document. Whether FFP is approved on 
a phased or annual basis is in part determined by which time period 
(phased or annual) is provided in the Annual APD Update.
    8. Comment: Several commenters understood that there was a 
substantive requirement embedded in the definition of Software 
Maintenance in Sec.  95.605, ``Software maintenance that substantially 
increases risk or cost or functionality will require an As-Needed 
APD.'' Other commenters requested that the summary section provide 
clarification on what distinguishes a high-risk from a low-risk 
project, whether it is related to costs, production timetables or a 
particular phase of production.
    Response: We have removed this sentence from the definition of 
Software Maintenance and moved it to the preamble with additional 
clarification of when changes to Software Maintenance would warrant an 
As-Needed APD.
    9. Comment: Several commenters requested a definition of the terms 
Enhanced Match Rate and Regular Match Rate. They requested a clear 
definition of the match rate associated with those terms. One commenter 
had a specific question on a Statewide Automated Child Welfare 
Information System (SACWIS) project whose development was initially 
funded at the enhanced FFP rate, but is now receiving FFP at the 
regular match rate for its operational costs. This commenter asked for 
clarification as to which thresholds and requirements apply.
    Response: Enhanced Match Rate is already defined under Sec.  95.605 
as ``Enhanced matching rate means the higher than regular rate of FFP 
authorized by Title IV-D, IV-E and XIX of the Social Security Act for 
acquisition of services and equipment that conform to specific 
requirements designed to improve administration of the Child Support 
Enforcement, Foster Care and Adoption Assistance and Medicaid 
programs.'' We cannot provide the percentages associated with the 
enhanced and regular rate in regulation, because the percentages are 
established in legislation and vary with both the program and the 
period of time. For example, provisions under the Gramm-Rudman-Hollings 
Balanced Budget and Emergency Deficit Control Act of 1985 (Pub. L. 99-
177) impacted the percentage rates for both Enhanced and Regular Match 
Rates in the past. Under these regulations, if a project was initially 
developed with funding at the Enhanced Match Rate but is currently 
being completed or enhanced with funding at the Regular Match Rate, 
then the Regular Match Rate submission thresholds apply.

Section 95.610--Submission of Advance Planning Documents

    1. Comment: Several commenters asked whether ACF would 
retroactively approve FFP in the costs of tasks associated with the 
planning phase if a State combines its Planning APD and Implementation 
APD submissions.
    Response: Paragraphs (a) and (b) of Sec.  95.611 require prior 
approval of a Planning APD and Implementation APD when the State plans 
to acquire ADP equipment and services that it anticipates will have 
total acquisition costs of $5,000,000 or more in Federal and State 
funds. Section 95.605 defines the term Total Acquisition Cost to mean 
``all anticipated expenditures (including State staff costs) for 
planning and

[[Page 66328]]

implementation for the project. For purposes of this regulation total 
acquisition cost and project cost are synonymous.''
    2. Comment: One commenter asked why an As-Needed APDU would be 
necessary if the State can request additional funding or project 
extension through an Annual APDU. Another commenter noted that existing 
rules allow agencies to submit an As-Needed APDU with the Annual APDU 
and stated that the proposed rule would require a State to submit the 
As-Needed APDU, no later than 60 days after the occurrence of project 
changes. The commenter stated that such change would represent an 
increased burden to States and would be inconsistent with the purpose 
of the NPRM.
    Response: Neither the proposed rule nor this final rule prevents a 
State from including changes in an Annual APD Update that otherwise 
would need to be reported in an As-Needed APDU. This is not a new 
provision and is consistent with requirements in the former Sec.  
95.605(b)(ii) as a part of the definition for As-Needed APDU. 
Additionally, the NPRM and this final rule retained the following 
language in Sec.  95.610(c)(2): ``The As-Needed APDU may be submitted 
any time as a stand-alone funding or project continuation request, or 
may be submitted as part of the Annual APDU.''
    3. Comment: Two commenters requested clarification on when 
modernization of a legacy system would fall into the Planning APD 
(PAPD) or Implementation APD (IAPD) process. One commenter asked for 
clarification on whether a Federal feasibility study must be prepared 
and approved before Federal funding is provided for modernization tasks 
that, while significant in scope, do not result in a new system.
    Response: If the State has an open APDU, and wishes to enhance its 
legacy system, an APD Update is the appropriate mechanism to obtain 
approval for each incremental improvement. If a State is incrementally 
enhancing its system, it would not be required to submit a PAPD or an 
IAPD; the State also would not be required to conduct a feasibility 
study or an analysis of alternatives.
    We have learned that several States opt to conduct feasibility 
studies and include the option of enhancing their legacy system as one 
of their alternatives in their analysis of alternatives. This practice 
may be especially advantageous when the benefit of modernization is in 
question. This point is predicated by the commenter's statement that 
while incremental modernization is significant in scope, it does not 
result in a new system. If the incremental enhancement results in a 
substantial departure from the base system, HHS reserves the right to 
require additional documentation, including a feasibility study.
    4. Comment: A majority of commenters welcomed the changes to the 
Cost Benefit Analysis (CBA) reporting requirements and indicated that 
the current requirement of annual submission is burdensome. One 
commenter indicated that this proposal brought the HHS CBA requirements 
closer to those of the Food and Nutrition Service (FNS) under the 
Department of Agriculture (USDA). Several commenters, while supporting 
the additional flexibility, urged additional modifications and 
flexibility with regard to CBA requirements. Commenters suggested that 
we consider information technology projects that are not being done to 
generate savings, but mandated to comply with Federal requirements. The 
commenters also stated that there are many intangible benefits that are 
difficult to quantify and recommend permitting a social return on 
investment approach. Two commenters asked if the revenue stream model 
and its report were eliminated. One commenter asked for clarification 
on whether the CBA is a separate report or can be included in the APDU.
    Response: Based on the comments, we have removed the requirement 
for an annual cost benefit analysis from Sec.  95.610(c)(1)(viii) 
related to required components of the Annual APDU. In response to the 
numerous comments received, we concur that this annual requirement has 
not provided the type of information useful to determine whether States 
are pursuing the most cost-effective methods to justify the additional 
burden the annual CBA placed on States. We have modified our oversight 
and monitoring to focus on high risk projects and we believe that the 
proposed IV&V and disapproval regulatory provisions in the final rule 
provides more targeted means of insuring development of cost effective 
human service systems. Please note, the CBA is a required element of 
the Planning APDU and Implementation APDU as stated in Sec.  
95.610(a)(2)(v) and Sec.  95.610(b)(4), respectively. The CBA should 
not be submitted as a separate report.
    HHS has issued several guidance documents to assist State human 
service agencies to meet this cost benefit analysis requirement. These 
include: (1) Feasibility, Alternatives and Cost/Benefit Analysis 
Guide--July 1993; (2) Companion Guide <greek-i>2--Cost/Benefit Analysis 
Illustrated--August 1994 (Revised 2004); (3) An Overview of Companion 
Guide 3--Cost/Benefit Analysis Illustrated for Child Support 
Enforcement Systems--September 2004; and (4) Companion Guide 3--Cost/
Benefit Analysis Illustrated for Child Support Enforcement Services--
September 2000 (Revised June 2004). Each of these documents may be 
accessed at the following link: http://www.acf.hhs.gov/programs/cse/stsys/dsts_plan_cba.html. The Children's Bureau has developed three 
additional CBA companion guide chapters specifically to assist Child 
Welfare-related system projects. They may be accessed at the following 
link: http://www.acf.hhs.gov/programs/cb/systems/sacwis/federal.htm.
    We have also provided technical assistance on CBA requirements 
through revenue stream model spreadsheets, help files and functional 
model spreadsheets, which are available by request. The revenue stream 
model is a mechanism used by State Child Support Enforcement (CSE) 
agencies to meet the annual CBA requirement. The Revenue Stream Model 
will not be required under this final rule, but will remain available 
to assist States in tracking the cost benefit of child support 
automation.
    Lastly, we recognize that there may be Congressional or regulatory 
mandates requiring system enhancements that will not result in monetary 
benefits that exceed the costs of those system enhancements. We expect 
States to analyze and consider the most cost effective of the various 
automation alternatives.
    5. Comment: Several commenters asked for clarification of 
situations where a State has closed its APD. Commenters asked whether 
the final regulation would require them to submit an Operational APDU 
if the Total Acquisition Cost exceeds $5 million and, if so, whether 
the Operational APDU would be reviewed under new streamlined approval 
requirements. One commenter also asked if the final regulations require 
States to submit an As-Needed APDU based on the new requirements. 
Another commenter asked if the State is required to submit an APD if it 
initially submitted an Operation and Software Maintenance (O&SM) APDU 
and then acquired hardware and application software that do not meet 
the definition of O&SM but the cost of those items was under the 
submission thresholds. This commenter also asked if a State is required 
to submit an APD in the situation described above, how that requirement 
would impact the State's project.

[[Page 66329]]

    Response: By definition, an Operational APDU is ``to be submitted 
annually by State programs whose system is not in development. The 
Operational APD provides a short summary of the activities, method of 
acquisition, and annual budget for operations and software 
maintenance.''
    Under the final rule States would not be required to reopen an 
Implementation APD, but would be required to submit an Operational APDU 
that consists of no more than two pages of information about summary of 
operational activities, acquisitions and annual budget. If the State is 
only acquiring maintenance services as defined in the regulation, the 
State would be exempt from submitting procurement documents related to 
those operational activities unless requested to do so in writing by 
the Federal agency. In response to comments, we are also permitting an 
exemption from the prior approval requirement for acquisition documents 
for projects still in development mode, if the planned acquisitions are 
sufficiently described in the Planning, Annual or As-Needed APDU. This 
regulatory change permits a wider range of acquisitions to be exempted 
from prior approval regardless of the estimated cost of the 
acquisition. Instead of basing prior approval solely on cost, the 
revision to this regulation would place the burden on the Federal 
approving agency to notify the requesting State if the description was 
inadequate or if the summary of the planned acquisition raises concern 
and requires the full acquisition documents to be submitted for prior 
Federal approval.
    If the State is submitting an Operational APD, it will not be 
required to submit an APD because hardware falls under the definition 
of operations. If the State anticipates acquiring software development 
that does not meet the definition of Software maintenance, it should 
submit either an Annual or As-Needed APDU and summarize the planned 
acquisition. The Federal program office, in its approval of the APDU, 
will either exempt the planned acquisition from prior Federal approval 
or specify which acquisitions it requires to be submitted in full for 
prior Federal review and approval. If the software development occurs 
after the submittal and approval of the annual APDU, the State may 
submit an As-Needed APDU updating the acquisition strategy or submit 
the acquisition for Federal prior approval.
    6. Comment: One commenter disagreed with the APD Update due date of 
60 days prior to the anniversary date of the APD. The commenter stated 
that such a due date is inconsistent with Food and Nutrition Service 
(FNS), which requires that the APDU be submitted after 90 days of the 
anniversary date so agencies can report actual expenditures and a full 
year's activities.
    Response: We have revised the regulation at Sec.  95.610(c) to 
clarify that the APD Update is due 60 days prior to the expiration of 
authorized FFP in the costs of acquiring automated data processing 
equipment or services. We acknowledge the discrepancy with the FNS 
regulations, but do not believe that it is in States' interest to 
further revise the HHS regulation at Sec.  95.610(c). By requiring the 
APDU 60 days before the expiration of authority for FFP granted in the 
previous APDU, the HHS process decreases the likelihood of a gap in 
approved FFP in the cost of the State's system.
    7. Comment: Several commenters supported the new, shorter APD for 
State systems that are in operations and maintenance mode. One 
commenter supported the change, but recommended stipulating the 
specific information that must be included in the report. If it proves 
insufficient, more information or a full APDU could be requested by the 
Federal approving agency.
    Response: The comment was focused on the Operational APDU, but the 
final rule expands the APDU acquisition summary that should be included 
in a Planning, Annual or As-Needed APDU to qualify for exemption from 
prior approval. Therefore, Sec.  95.610 has been expanded to specify 
the type of specific information that must be included in the areas of 
summary of activities, acquisitions and annual budget.

Section 95.611--Prior Approval Conditions

    1. Comment: One commenter disagreed with the proposed requirement 
for States to request approval of O&SM (Operation and Software 
Maintenance) acquisition documents on an exception basis or if the 
acquisition is non-competitive. Another commenter requested 
clarification on the threshold for submitting non-competitive O&SM 
acquisitions.
    Response: As stated in Sec.  95.611(a)(3) of this rule, ``A State 
shall obtain prior approval from the Department, which is reflected in 
a record, for a sole source/non-competitive acquisition of ADP 
equipment or services with a total State and Federal acquisition cost 
of $1,000,000 or more.'' Therefore the threshold for submitting sole 
source or noncompetitive operational acquisitions is $1 million or 
more. Please note, the final rule now revises Sec.  95.613 to reference 
the procurement standards of Sec.  92.36(a), which indicates that 
grantees will use their own procurement procedures which reflect 
applicable State and local laws and regulations, provided that the 
procurements conform to applicable Federal law and standards identified 
in this section. Therefore, grantees must still submit sole source 
procurements over the $1 million threshold for Federal approval, but 
the Federal program offices will consider the State procurement laws 
and policies related to acceptable sole source justifications used in 
non-FFP-matched State projects.
    2. Comment: One commenter asked for clarification on what happens 
to a State's project if a State contracts for custom software that is 
under the prior approval threshold of $1 million and the Federal 
approving agency later asks for a full Implementation APD.
    Response: The Advance Planning Document is the written plan of 
action to acquire the proposed ADP services or equipment. The 
requirement in the current as well as the proposed regulation at Sec.  
95.611 is for a State to obtain prior written approval for an 
Implementation APD when the State plans to acquire ADP equipment or 
services with FFP that it anticipates will have total acquisition costs 
of $5 million or more. Total acquisition cost is defined in Sec.  
95.605 as ``all anticipated expenditures (including State staff costs) 
for planning and implementation for the project. For purposes of this 
regulation, total acquisition cost and project costs are synonymous.'' 
The fact that an individual contract is under the threshold for 
submission for prior approval does not affect the threshold for the 
total or negate the need for the State to submit an APD and provide a 
detailed description of the activities to be undertaken and the methods 
to be used to accomplish the project. This would include a report of 
the tasks/milestones remaining to be completed.
    3. Comment: One commenter wanted clarification of which threshold 
applies if the State uses all State staff and does not contract for its 
system development or maintenance.
    Response: Total Acquisition Cost is defined in Sec.  95.605 as 
``all anticipated expenditures (including State staff costs) for 
planning and implementation for the project. For purposes of this 
regulation total acquisition cost and project costs are synonymous.'' 
Thus the threshold for submission of an APD is $5 million in 
anticipated expenditures, whether a State uses its staff or contracts 
with an outside vendor.

[[Page 66330]]

    4. Comment: We received comments suggesting that we expand the 
Acquisition Checklist to include acquisitions related to Sec.  
95.611(a)(1)(iii) and Sec.  95.611(a)(2)(iii). (Since subparagraphs 
(a)(1)(iii) and (a)(2)(iii) do not exist in Sec.  95.611, Prior 
approval conditions, we assume the comments were referring to Sec.  
95.611(b)(1)(iii) and Sec.  95.611(b)(2)(iii), which cover specific 
prior approval requirements for regular and enhanced FFP requests, 
respectively, for RFP and contracts.) Another commenter requested that 
the use of the Acquisition Checklist be extended to include the use of 
master contracts.
    Response: We agree. The final rule expands the scope of 
acquisitions that are not subject to prior Federal approval to 
contracts, as well as RFPs, non-competitive acquisitions and 
acquisitions over the previous submission thresholds. The definition of 
Acquisition Checklist has been revised to reflect that it applies to 
contracts and contract amendments as well as RFPs and may include sole 
source as well as competitive procurements. This is consistent with the 
final rule revising Sec.  95.611 to permit an exemption from prior 
approval through the Annual or As-Needed APDU process. We are retaining 
the optional vehicle of an expanded Acquisition Checklist for use by 
grantees that opt not to include acquisition summary information in 
their APD or who prefer the Acquisition Checklist approach. Existing 
policy under IM-05-03 (titled Optional checklist for states and 
territories use in requesting an exemption of prior approval for 
Information Technology acquisition documents and available at the 
following link http://www.acf.hhs.gov/programs/cse/pol/IM/2005/im-05-03.htm) and ACYF-CB-IM-05-02, (titled Relationship Of Master Contracts 
For Acquisition Of State Information Technology Products Or Services 
And Competition and available at the following link http://www.acf.hhs.gov/programs/cb/laws_policies/policy/im/2005/im0502.htm), 
already provides States the option to self-certify that acquisition of 
automated data processing equipment and/or services complies with all 
Federal regulations and policies by using the Acquisition Checklist. As 
stated in IM-05-03 and ACYF-CB-IM-05-02, the Acquisition Checklist 
currently may be used for Request for Proposals, Requests for Quote, 
Invitations to Bid, or similar State and local acquisition documents 
seeking Federal funding for development or maintenance acquisitions at 
either the regular or enhanced matching rate, including acquisitions 
under Sec.  95.611(b)(1)(iii) and Sec.  95.611(b)(2)(iii) as noted by 
the commenter. Guidance related to the Acquisition Checklist will be 
updated following the issuance of this final rule. The NPRM and this 
final rule include a definition of Acquisition Checklist in Sec.  
95.605 as follows:
    Acquisition Checklist means the standard Department checklist that 
States can submit to meet prior written approval requirements instead 
of submitting the actual Request for Proposal (RFP) contract or 
contract amendment. The Acquisition Checklist allows States to self-
certify that their acquisition documents, which include RFPs, 
contracts, contract amendments or similar documents, meet State and 
Federal procurement requirements, contain appropriate language about 
software ownership and licensing rights in compliance with Sec.  
95.617, and provide access to documentation in compliance with Sec.  
95.615.
    Currently, IM-05-03 and ACYF-CB-IM-05-02 limit use of the 
Acquisition Checklist stating that it is not to be used for contracts 
(including master contracts as asked by the commenter), Advance 
Planning Documents or sole source acquisitions (including contract 
amendments that exceed the regulatory submission threshold of $1 
million). States and territories must continue to submit the 
acquisition document(s) associated with these procurements to the 
Department(s) for Federal prior approval. However, a State may use the 
Acquisition Checklist when submitting a task order solicitation in 
connection with an approved master contract, if the initial master 
contract has been submitted and approved by a Federal agency, prior to 
approving the use of solicitations in the State's acquisition 
checklist. We retained the ``unless specifically exempted'' language in 
Sec.  95.611(b)(1)(iii) and (b)(2)(iii) permitting the Federal agencies 
to exempt in writing contracts and contract amendments from prior 
approval on a case by case basis. Please note that if the State is 
soliciting services related to a high risk project, the Federal agency 
may request the full acquisition document rather than the Acquisition 
Checklist.
    5. Comment: One commenter asked if the streamlined approval and 
thresholds identified in Sec.  95.611(b)(1)(v) apply to States with 
closed APDs.
    Response: Yes, the acquisition submission thresholds of Sec.  
95.611(b)(1)(v) apply to States with closed as well as open APDs.
    6. Comment: One commenter inquired whether States are required to 
use the term Request for Proposal (RFP) or acquisition solicitation 
document and if so, asked that we provide examples.
    Response: There is no requirement for a State to utilize the 
terminology of either RFP or acquisition solicitation document. States 
can continue to use their preferred terminology to refer to RFPs or 
similar documents. The reason for the term acquisition solicitation 
document is that States use different terminology such as Invitation 
for Bid (IFB) without realizing that the provisions of Sec.  95.611 
applied to those documents as well.
    7. Comment: Several commenters stated that although the ability to 
self-certify through the Acquisition Checklist exists under IM-05-03 
and ACYF-CB-IM-05-02, they support including a definition of 
Acquisition Checklist in this rule. Another commenter (a Federal 
approving agency) does not support use of the Acquisition Checklist and 
points out that FNS does not accept the Acquisition Checklist for its 
SNAP system acquisitions.
    Response: Use of the Acquisition Checklist is optional. It is 
appropriate for States to use the Acquisition Checklist for 
solicitation documents seeking FFP in the costs of automated data 
processing equipment or services from HHS agencies. States seeking 
funding approval from the FNS should comply with the rules of that 
agency.
    8. Comment: One commenter expressed concern that HHS agencies could 
nullify or set aside the self-certification Acquisition Checklist at 
their discretion.
    Response: We would like to reassure the commenter that the 
Acquisition Checklist is an authorized tool for a State to self-certify 
that its acquisition of automated data processing equipment and/or 
services complies with all Federal regulations and policies. As 
previously stated, we have issued Federal policy in support of the 
Acquisition Checklist through IM-05-03 (titled Optional checklist for 
states and territories use in requesting an exemption of prior approval 
for Information Technology acquisition documents and available at the 
following link http://www.acf.hhs.gov/programs/cse/pol/IM/2005/im-05-03.htm) and ACYF-CB-IM-05-02, (titled Relationship Of Master Contracts 
For Acquisition Of State Information Technology Products Or Services 
And Competition and available at the following link http://www.acf.hhs.gov/programs/cb/laws_policies/policy/im/2005/im0502.htm).
    We believe it is important to note, however, that neither the 
inclusion of a

[[Page 66331]]

summary of planned acquisitions in the APD nor the use of the 
Acquisition Checklist guarantee Federal acceptance. The Department is 
modifying its approach to review of acquisitions, from a trigger that 
is based solely on cost of the contract, to an approach that is based 
on assessed risk to the project. We anticipate that the summary of 
acquisitions included in the State's Annual APD Update will provide us 
with sufficient information to exempt the acquisition from prior 
Federal approval; however, we reserve the authority to request that 
specified acquisitions be submitted for prior Federal review and 
approval. One example of acquisitions that will require prior Federal 
review and approval is the initial acquisition for system development, 
but it may also include acquisitions for customized software 
development. The final rule shifts the burden of requesting that the 
full acquisition documentation be provided for prior Federal approval 
from the grantee to the Federal program office. As stated in IM-05-03 
and ACYF-CB-IM-05-02, the Federal approving authority will provide a 
record of acceptance or denial of the State's Acquisition Checklist or 
the APDU within 60 days of submittal.
    9. Comment: Several commenters urged that the thresholds for large 
States or large multi-program enterprise initiatives be increased to 
$15 million for software application development and $60 million for 
hardware including COTS software. Several commenters suggested 
utilizing a percentage of total project cost rather than a dollar 
threshold. One commenter was concerned that the increase in prior 
approval thresholds for enhanced funding from $100,000 to $300,000 was 
too low and suggested a percentage factor. Alternatively, commenters 
recommended increasing the enhanced funding threshold to $500,000, 
which is consistent with their State's multiple award schedule master 
services agreement. One commenter asked if the $20 million threshold 
would apply if a State's enhanced funding has expired and the State is 
currently seeking funding at the regular match rate for hardware and 
COTS towards its Statewide Automated Child Welfare Information System 
(SACWIS).
    Response: We agree. We amended the acquisition threshold for 
regular rate software acquisition development in Sec.  95.611(b)(5)(A) 
from $5 million to $6 million for competitive RFP and procurements. 
Section 95.611 has been amended to permit exemptions for acquisitions 
over the increased thresholds. While sole source procurements over $1 
million must include a justification, that justification may be 
included with the exemption request in the Annual or As-Needed APDU, 
and the State's procurement policies regarding sole source 
justifications will be considered in the assessment of risk. Section 
95.611(b)(2)(iii) increases the submission threshold for acquisition 
solicitation documents and contracts at the enhanced match rate from 
$100,000 in current regulation to $300,000 proposed in the NPRM to 
$500,000 in the final rule. In eliminating the majority of submission 
thresholds for projects funded at the regular rate, we shift the burden 
to the Federal program offices to limit their requests for full 
acquisition documentation to those procurements that are either 
insufficiently described in the APD or appear to be at high risk. The 
final rule acknowledges that the acquisition thresholds for large 
States or grantees seeking funding for multi-program projects do not in 
themselves signify that the acquisition is high risk. The Federal 
program offices will consider multiple risk factors before requesting 
the full acquisition documentation be submitted for prior Federal 
approval. We amended Sec.  95.621 to clarify that ADP reviews of 
acquisitions not subject to prior approval include those acquisitions 
exempted from prior approval as well as those acquisitions under the 
submission threshold.
    10. Comment: One commenter disagreed with the proposal in Sec.  
95.611(b)(1)(vi) to eliminate the requirement to submit procurement 
documents related to competitive Software Maintenance and Operations. 
They pointed out that this will be inconsistent with FNS, which 
requires States to submit RFPs and contracts, and considers such 
acquisition documents critical to assess the scope of work and identify 
any potential issues with regard to program requirements.
    Response: We believe that the Operational APD, as defined in Sec.  
95.605, will provide us with sufficient information to highlight 
potential problems. We also believe that the Federal programs can 
assess the risk associated with procurements that are summarized in the 
APD and it is appropriate to limit requests for submitting additional 
solicitation documents for prior Federal approval to those acquisition 
documents determined to be at higher risk.
    11. Comment: One commenter asked for clarification on whether prior 
approval would be needed if there are several RFPs that compromise the 
scope of a project. The commenter also asked if a single RFP is defined 
as the base contract or if the cumulative total of multiple RFPs that 
have been awarded to accomplish a single agency goal is defined as the 
base contract and whether each RFP stands on its own and is subject to 
the 20 percent prior approval threshold. We also received comments 
asking if States have to submit previous contract amendments when the 
contract amendments exceed the 20 percent threshold. Another commenter 
agreed with the proposal as long as a copy of the amendments is sent to 
the Federal program office.
    Response: We have retained the definition of Base Contract for 
those grantees that opt to not seek an exemption or submit an 
Acquisition Checklist. Base Contract is defined in Sec.  95.605 to mean 
``the initial contractual activity, including all option years, allowed 
during a defined unit of time, for example, 2 years. The base contract 
includes option years but does not include amendments.'' The Base 
Contract refers to the contract, not the RFP, and is related to each 
individual contract, not multiple contracts associated with a specific 
project or agency goal.
    As stated in Sec.  95.611(b)(1)(vi), prior approval is not required 
for contract amendments involving contract cost increases with a 
cumulative total that is below 20 percent of the base contract cost. If 
the State later learns that the amendments for that contract will 
exceed the 20 percent threshold, the State should submit all previous 
contract amendments for information purposes. Provided that those 
contract amendments comply with the scope of the project, the 
amendments would not require prior approval. However, we remind States 
that under Sec.  95.621(d), ADP Reviews, Federal agencies retain the 
right to review acquisitions not subject to prior approval.
    12. Comment: One commenter requested clarification of the term 
``scope'' or ``change in scope'' as it applies to thresholds for 
procurements. The commenter noted that changes in scope can be minor 
and involve a limited number of additional hours and resources and have 
minimal impact on timelines; or changes in scope can require 
significant resource and a rebase line of the project.
    Response: ``Changes in the scope of the contract'' refers to 
significant changes such as requesting new functionality not addressed 
in the original contract or expanding the types of expertise needed for 
the project. States that consider their scope changes to be minor or 
have minimal impact may submit such rationale as

[[Page 66332]]

justification for seeking a sole source contract amendment, rather than 
conducting a new procurement of that task.
    13. Comment: One commenter opposed the requirement that a State 
submit acquisition documents under the threshold amounts on an 
exception basis if requested to do so in writing. The commenter stated 
that such a requirement would create hardship on State staff to 
recreate documentation that had been exempt from submission.
    Response: This is not a new requirement and is consistent with 
regulations at Sec.  95.621(d) which state that the Department will 
conduct periodic on-site reviews and surveys of automated data 
processing equipment and services, including acquisitions not subject 
to prior approval. Also, this requirement would not require State staff 
to ``recreate'' documentation, since all States receiving Federal 
Financial Participation for a contract are required to retain the 
contract records and documentation during the contract timeframe and 
three years after the contract has been terminated as indicated in 
Sec.  92.42, Retention and access requirements for records.

Section 95.613--Procurement Standards

    1. Comment: One commenter representing a national organization 
indicated that revising the procurement standards in Sec.  95.613 to 
include the procurement language currently in Part 74 makes the 
proposed rule less cumbersome and is a positive action. However, the 
same commenter stated ``if a state was in compliance with its 
procurement rules, that it should be able to self-declare that its IT 
procurement meets all state standards and this should be sufficient for 
federal approval.'' Other commenters urged that the procurement 
standards in Part 92 (titled Uniform Administrative Requirements for 
Grants and Cooperative Agreements to State, Local and Tribal 
Governments) be used for Subpart F (titled Automated Data Processing 
Equipment and Services--Conditions for Federal Financial Participation) 
of Part 95. The commenter asserts that States should be permitted to 
follow the same policies and procedures used for procurements that do 
not receive FFP. One commenter asked why we are reverting to the 
procurement standards removed in 2003 when HHS grants were transferred 
from Part 74 (titled Uniform Administrative Requirements for Awards and 
Subawards to Institutions of Higher Education, Hospitals, Other 
Nonprofit Organizations and Commercial Organizations) to Part 92. One 
commenter indicated that State laws may conflict with these Federal 
procurement standards.
    Response: We agree with comments that States should be permitted to 
follow the same policies and procedures used for procurements that do 
not receive FFP. We removed all cross-references to Part 74 and deleted 
the requirements in proposed Sec.  95.613 that require maximum 
practical full and open competition. We have added a sentence that 
retains limited authority for the Department to require additional 
oversight, including compliance with Sec.  92.36(c) for acquisitions if 
it determines that a State procurement process is an impediment to 
competition that could substantially impact project cost or risk of 
failure. Procurements for Electronic Benefit Transfer (EBT) remain 
subject to the prior approval requirements and are unlikely to be 
exempted from prior approval. The final rule also replaces the cross-
reference to Part 74 with the cross-reference to Part 92. Section 
95.613 as published in this final rule subjects procurement of 
automated data processing equipment and services to the procurement 
standards in Part 92 and prior approval requirements in Sec.  95.611 of 
this final rule.
    2. Comment: One commenter asked for clarification if the simplified 
acquisition threshold remains at $100,000.
    Response: Regulations at Sec.  95.613(e)(8)(ii) were deleted in the 
final rule. The threshold amount is referenced in Sec.  92.36(d), 
Methods of procurement to be followed, and is defined in 41 U.S.C. 
403(11), Public Contracts--Office of Federal Procurement Policy, which 
currently sets the Simplified Acquisition Threshold at $100,000. This 
final rule does not change the definition of Simplified Acquisition 
Threshold.
    3. Comment: Several commenters recommended excluding the language 
regarding preference for products and services that conserve natural 
resources and protect the environment and are energy efficient, as this 
language may be burdensome and unenforceable.
    Response: We have deleted the specific language in this rule and 
replaced it with a general cross-reference to Part 92. Please note that 
the final rule related to procurement standards references the 
procurement standards of Sec.  92.36(a) which provides that States are 
exempt from Sec.  92.36(b) through (i).
    4. Comment: One commenter was unable to find reference to Subpart Q 
of Part 74 and asked for clarification on what portion of Part 92 is 
applicable.
    Response: Subpart Q of Part 74 was eliminated in the publication of 
a final rule on March 22, 1996 [61 FR 11743], which is the reason that 
this regulation eliminates that and other obsolete regulatory 
references to Part 74 in Part 95.
    5. Comment: One commenter disagreed with the requirement that all 
contracts include language regarding partial breach for termination. 
The commenter suggested that the clauses be at the State's discretion. 
They stated that they want the contractor to perform, regardless of 
forces beyond their control, because the providers are considered 
critical for business continuity purposes.
    Response: We have retained this requirement through the cross-
reference to Part 92 (specifically Sec.  92.44, titled Termination for 
convenience). This is not a new requirement as States have been subject 
to these requirements for over 15 years.

Section 95.617--Software and Ownership Rights

    1. Comment: Several commenters urged that this final rule clarify 
whether enterprise architecture framework software such as Curam, 
Lagan, Harmony and @dvantage, which can be customized or configured to 
meet the needs of a vast variety of HHS programs, meets the COTS 
criteria and is acceptable in place of the traditional custom developed 
model or transfer model. One commenter suggested replacing the language 
on proprietary software in Sec.  95.617(c) with a reference to the new 
definition of acceptable COTS software as the exception to the software 
ownership provisions. The commenter stated that the belief that custom 
developed or transfer solutions are fundamentally superior to COTS 
software is a false premise and one not supported by current market 
research, experience, or Federal regulation. Another commenter 
recommended amending the ownership and licensing requirements for 
proprietary software in Sec.  95.617(c) to provide FFP in the costs of 
proprietary applications software developed specifically for the public 
assistance programs covered under this subpart and recommended that FFP 
should only be considered if the State provides: (1) A business 
justification for purchase of the software, and (2) a plan detailing 
how any future transition from a proprietary application to any other 
type of application will be accomplished. The commenter limited the 
recommendation to proprietary applications software developed without 
FFP and noted that the ownership requirements in Sec.  95.617(a)

[[Page 66333]]

and the licensing requirements in Sec.  95.617(b) continue to apply to 
any software designed, developed or installed with FFP.
    Response: We did not propose any changes to Sec.  95.617, Software 
and ownership rights, in the NPRM, other than removal of the example of 
listed software packages. Although we appreciate the commenters' 
recommendations, we do not consider it necessary or appropriate to 
revise Sec.  95.617 at this stage of the regulatory process, since the 
public would not have an opportunity to comment on what would be a 
significant change in the regulation. However, related guidance is 
available through IM-05-04, Use of Enterprise Level Commercial-Off-the-
Shelf (COTS) Software in Automated Human Services Information Systems, 
which clarifies that enterprise architecture framework software are 
acceptable alternatives to be considered in a Feasibility Study or 
Analysis of Alternatives. Please refer to the following link for a more 
detailed discussion on this topic: http://www.acf.hhs.gov/programs/cse/pol/IM/2005/im-05-04.htm.

Section 95.623--Reconsideration of Denied FFP for Failure To Obtain 
Prior Approval

    1. Comment: One commenter stated that they appreciate and support 
the ability of Federal agencies to allow FFP in situations where a 
State inadvertently neglected to obtain prior approval. One commenter 
recommended that the timeframe for reconsideration of disallowance be 
extended from 30 days to 90 days. Another commenter requested 
clarification as to whether the 30 days was from the date of the 
letter, 30 calendar days, State/Federal workdays or 30 days from 
receipt of the letter.
    Response: As stated in Sec.  95.623, a ``State may request 
reconsideration of the disallowance of FFP by written request to the 
head of the Federal program office within 30 days of the initial 
written disallowance determination.'' The 30 days are calendar days and 
begin from the receipt date stamped on the letter by the Federal 
program office.
    We disagree with the comment to extend the timeframe for responding 
to a disallowance from thirty days to ninety days. Thirty days was 
selected as the appropriate timeframe to request reconsideration to 
ensure that this rule is consistent with the timeframe established in 
the rules and regulations that govern the HHS disallowance and 
reconsideration appeal processes as set forth in 45 CFR Part 16, titled 
Procedures of the Departmental Grant Appeals Board.

Section 95.626--Independent Verification and Validation

    1. Comment: Several commenters pointed out an error in transposing 
validation and verification.
    Response: We agree and have corrected the error throughout this 
rule, including the definition section under Sec.  95.605. The term is 
properly denoted Independent Verification and Validation (IV&V).
    2. Comment: Several commenters supported the IV&V for high risk 
projects only. One commenter was unclear on the criteria used to 
determine low or high risk projects and suggested that providing 
consistent guidelines, such as those used in project management 
methodologies, would improve this process. One commenter asked that we 
clarify when a project requires IV&V. Commenters recommended that such 
determination be based on project risk rating with quantifiable ways of 
measuring risk and deriving the rating. One commenter was concerned 
that if the State does not plan for IV&V in its budget up front, the 
project could be delayed. Another commenter requested further 
clarification of what constitutes significant and critical triggers for 
IV&V. Another commenter asked for additional clarification on the 
process used to determine whether an IV&V vendor is required.
    Response: The circumstances specified in Sec.  95.626(a) represent 
high-risk situations wherein IV&V by an entity independent of the State 
is required as stated in Sec.  95.626(b). We have revised the language 
in the first two triggers to permit intervention before the project 
misses a statutory or regulatory deadline or a critical milestone. We 
also have added two additional triggers that we believe put the project 
at risk and justify an IV&V assessment review. The first trigger 
relates to the State's procurement practices and whether the State has 
a pattern of failing to pursue competition to the maximum extent 
feasible. Under the final rule, the State will follow the same policies 
and procedures it uses for procurement from non-Federal funds, which 
means that in most situations, the Federal program office will accept 
the States certification that the sole source justification or other 
competition limiting terms and conditions are consistent with State 
procurement policy used for procurements from non-Federal funds. The 
Department continues to encourage all grantees to pursue full and open 
competition to the maximum extent feasible. If we detect a pattern of 
sole source contracts or contract amendments or other provisions that 
limit competition, this will trigger an IV&V assessment review. The 
IV&V assessment review will determine if the pattern of limiting 
competition has put the project at higher risk for increased costs or 
system failure. Only if the IV&V assessment review determines that the 
lack of competition increases the risk to the system project, will IV&V 
be required for that project.
    The other trigger is related to the States failure to adequately 
involve the State program offices in the development and implementation 
of the project. An analysis of past projects indicates that the lack of 
stakeholder involvement was a major indicator of system failures or 
putting the project at risk. Again, if a pattern of failure to 
adequately involve the State program offices is determined, it will 
trigger an IV&V assessment review.
    The State should plan for IV&V in the budget in case any of these 
events occur.
    The CSE program, which has exercised regulatory authority for IV&V 
since 1999, issued additional guidance on critical milestones, 
significant delays and cost overruns in OCSE-AT-99-03, titled 
Distribution of the Addendum to the State Systems APD Guide for Child 
Support Enforcement Systems and available at the following link: http://www.acf.hhs.gov/programs/cse/pol/AT/1999/at-9903.htm. We believe that 
existing policy provides sufficient guidance in this area and further 
definition of these terms in regulation would unnecessarily reduce 
flexibility in determining when IV&V is required.
    3. Comment: One commenter stated that there is a discrepancy 
between CSE regulations that require an IV&V and proposed requirements 
in the NPRM which state that IV&V may be required (emphasis added). The 
commenter questions whether Part 95 language will override CSE language 
on IV&V.
    Response: CSE regulations referred to by the commenter (which can 
be found in Sec.  307.15(b)(10), Approval of advance planning documents 
for computerized support enforcement systems) do not contradict Part 
95. OCSE routinely conducts an IV&V assessment when one or more of the 
criteria in Sec.  95.626(a) is triggered. (Note the criteria in Sec.  
95.626(a) are incorporated into Sec.  307.15(b)(10)(i). Depending on 
the results of that assessment, OCSE may or may not determine that IV&V 
is required.)
    4. Comment: One commenter recommended that IV&V be funded at 100 
percent because it is mandated.

[[Page 66334]]

Another commenter requested enhanced funding for IV&V.
    Response: Federal funding is available for approved IV&V activities 
at either the regular or enhanced match rate as defined in Sec.  95.605 
of this rule and in accordance with the relevant statutes governing 
Federal program(s).

Section 95.627--Waivers

    1. Comment: Several commenters expressed significant concern about 
the risk associated with submitting an APD based on a waiver for an 
alternative approach. Some commenters asked if the State would be 
required to forfeit FFP entirely, if the APD is not approved and there 
is no appeal. Other commenters asked if the State would be permitted to 
submit a new APD for the project, if the APD for the alternative 
approach was disapproved and whether the State would receive funding 
from the date of original APD submission. Commenters also asked about 
the HHS timeline to approve or disapprove a waiver.
    Response: If the waiver for an alternative approach is not 
approved, the State does not forfeit FFP entirely; it can submit a new 
APD. Regardless of whether the APD contains a waiver for an alternative 
approach or not, FFP is approved from the date of the HHS approval 
letter, not the date of the State's APD submission, unless the Federal 
program office agrees, as noted in a recorded approval, to a different 
approval date. The exception is the provisional approval in Sec.  
95.611(d) where the State can assume approval if the Federal program 
office has not provided approval, disapproval or a request for 
information within 60 days of the HHS acknowledgment letter.
    If a State is contemplating submitting a waiver for an alternative 
approach, we recommend that the State consult with the appropriate 
Federal agency prior to submission to expedite the review and approval 
process.

Section 95.635--Disallowance of Federal Financial Participation (FFP) 
in the Costs of Automated Systems That Failed To Comply Substantially 
With Requirements

    1. Comment: One commenter opposed disallowance of any FFP if the 
project was in compliance and suggested that any disallowance should be 
limited to the portion of a contract out of compliance. The commenter 
asked if there was an appeal process and requested clarification of the 
phrases ``certain ITD projects'' and ``substantially.'' One commenter 
recommended deletion of this provision.
    Response: There is no reference to ``certain ITD projects'' in 
Sec.  95.635, Disallowance of FFP in the costs of automated systems 
that failed to comply substantially with requirements. This regulation 
refers to the disallowance of FFP for the APD project, not disallowance 
of contract costs which is covered in Sec.  95.612. While substantially 
is retained in the title, we have modified the language in the final 
rule by replacing ``substantially'' with ``major failure to comply'' in 
Sec.  95.635(b). This change is consistent with the language in Sec.  
95.610(c)(2). An example of an APD that has a major failure to comply 
with requirements is an APD that meets one of the triggers for an As-
Needed APDU such as schedule extension of more than 60 days for major 
milestones, major changes in the scope of the project, significant 
changes to its cost distribution methodology or distribution of costs 
among Federal programs, as defined in Sec.  95.605(b). The authority in 
Sec.  95.635 permits, but does not require, recoupment of all or part 
of any costs from system projects that have a major failure to comply 
with an APD. The Federal program offices will consider a variety of 
factors in determining whether a project has ``failed'' and the amount 
of funding subject to recoupment. The good faith efforts of the grantee 
and the operational benefits arising from the expenditure will be among 
the factors that are considered. A funding disallowance is subject to 
the HHS appeal process as detailed in Part 16, Procedures of the 
Departmental Grant Appeals Board.

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), HHS 
is required to submit to the Office of Management and Budget (OMB) for 
review and approval any reporting or record keeping requirements in a 
proposed or final rule. The revisions in this final rule to the 
requirements at 45 CFR Part 95 reduces the documentation required to be 
submitted by States and territories to the Federal government. The 
current information collection burden, before this final rule is 
implemented is as follows:

----------------------------------------------------------------------------------------------------------------
                                                    Estimated       Proposed
                   Instrument                       number of     frequency of    Average burden   Total annual
                                                   respondents      response       per response       burden
----------------------------------------------------------------------------------------------------------------
Advance Planning Document......................              50            1.84             58          5,336
RFP and Contract...............................              50             .75              1.5           56.35
Emergency Funding Request......................              27            1                 1             27
Service Agreements.............................              14            1                 1             14
Biennial Security reports......................              50            1                 1.5           75
----------------------------------------------------------------------------------------------------------------

    This regulation will result in the following reductions:
    In Advance Planning Documents--a reduction in the average burden 
hours for projects that are implemented and in Operational mode. 
Instead of having to submit a full Annual or As-Needed APDU, States 
with projects in maintenance and operation mode will only have to 
submit a one- to two-page document. The Department also plans to 
develop a process for the States to submit this Operational APDU 
electronically. Since the majority of States and territories appear to 
be continuing to do ongoing software enhancements as part of continuing 
performance, we are estimating only a small reduction in the average 
burden hours associated with reducing the documentation required for 
annual Operational APDU submissions. The elimination of the annual cost 
benefit analysis in the APDU was also factored into the estimated 
reduction from 60 hours to 58 or 5,336 total burden hours for 
information technology documents.
    In RFP and contracts--a reduction is made in the average burden 
hours per RFP and acquisition due to the final rule providing several 
options for the grantee to avoid submitting their full RFP and 
contracts for prior Federal approval. We anticipate that 90% of the 
prior approval submissions of RFP and contracts will be eliminated as 
grantees seek exemptions from prior approval or opt to utilize the 
Acquisition Checklist. We believe that this will reduce the average 
number of submissions from 50 to 5 and reduce the total burden hours to 
11.5 hours.
    The revised annual burden estimates based on this regulation is as 
follows:

[[Page 66335]]



----------------------------------------------------------------------------------------------------------------
                                                   Estimated       Proposed
                  Instrument                       number of     frequency of    Average burden    Total annual
                                                  respondents      response       per response        burden
----------------------------------------------------------------------------------------------------------------
Advance Planning Document.....................              50            1.84             58            5,336
RFP and Contract..............................               5             .75              1.5             11.5
Emergency Funding Request.....................              27            1                 1               27
Service Agreements............................              14            1                 1               14
Biennial Security reports.....................              50            1                 1.5             75
----------------------------------------------------------------------------------------------------------------

    The respondents affected by this information collection are State 
agencies and territories.
    The Department considered comments by the public on this proposed 
collection of information in the following areas:
    <bullet> Evaluating whether the proposed collection activity is 
necessary for the proper performance and function of the Department, 
including whether the information will have a practical utility;
    <bullet> Evaluating the accuracy of the Department's estimate of 
the burden of the proposed collections of information, including the 
validity of the methodology and assumptions used;
    <bullet> Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    <bullet> Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical or other technology, e.g., permitting 
electronic submission of responses.
    No comments were received specifically on this information 
collection on the associated burden hours, but numerous commenters 
urged the elimination of or higher submission thresholds for prior 
approval of acquisition documents.

Regulatory Flexibility Analysis

    The Secretary certifies, under 5 U.S.C. 605(b), as enacted by the 
Regulatory Flexibility Act (Pub. L. 96-354), that this rule will not 
result in a significant impact on a substantial number of small 
entities. The primary impact is on State and Territorial governments. 
State and Territorial governments are not considered small entities 
under the Regulatory Flexibility Act. The intent of these rules is to 
reduce the submission requirements for lower-risk information 
technology (IT) projects and procurements and increase oversight over 
higher-risk IT projects and procurements by making technical changes, 
conforming changes and substantive revisions in the documentation 
required to be submitted by States, counties, and territories for 
approval of their IT plans and acquisition documents.

Regulatory Impact Analysis

    Executive Order 12866 requires that regulations be reviewed to 
ensure that they are consistent with the priorities and principles set 
forth in the Executive Order. The Department has determined that this 
final rule is consistent with these priorities and principles. Since it 
significantly reduces the documentation required to be submitted by the 
States and Territories related to lower risk IT projects and 
procurement, costs are reduced. Examples of documentation that is no 
longer required to be submitted for prior approval under this final 
rule are that most acquisitions will be exempt from prior approval, and 
instead of having to submit a full Annual or As-Needed APDU, States 
with projects in maintenance and operation mode will only have to 
submit a document with as few as 2 pages, depending on the scope of 
activities. The current information collection burden is reduced to 
reflect these reduced costs to States and Territories. Thus the rule 
will not increase costs and in fact will result in some cost savings. 
To estimate the savings we used the same methodology and State and 
contractor average annual rate as we recommend that States use for 
their cost estimates in our Planning Advance Planning Document 
training. In those training documents we recommend an average standard 
hourly rate of $100 for State systems staff and $175 for contractor 
State staff. The reduction of 243.25 hours for APDs would translate to 
a cost savings of $24,325 for State staff, or $42,568 if the RFP is 
prepared by a Quality Assurance contractor. The reduction of 288 hours 
for submission of RFPs would translate to a cost savings of $28,800 if 
prepared by State staff and $50,400 if prepared by contractor staff. So 
the estimate of total cost savings related to the reduction in the 
information collection budget would be $53,125 to $92,968 a year.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1501) requires that a covered agency prepare a budgetary impact 
statement before promulgating a rule that includes any Federal mandate 
that may result in the expenditure by State, local, and Tribal 
governments in the aggregate, or by the private sector, of $100 million 
adjusted for inflation, or more in any one year.
    If a covered agency must prepare a budgetary impact statement, 
section 205 further requires that it select the most cost-effective and 
least burdensome alternative that achieves the objectives of the rule 
and is consistent with the statutory requirements. In addition, section 
203 requires a plan for informing and advising any small governments 
that may be significantly or uniquely impacted by the rule.
    We have determined that this rule will not result in the 
expenditure by State, local, and Tribal governments in the aggregate, 
or by the private sector, of more than $100 million in any one year 
adjusted annually for inflation. The current threshold adjusted for 
inflation using the Gross Domestic Price deflator is $135 million. 
Accordingly, we have not prepared a budgetary impact statement, 
specifically addressed the regulatory alternatives considered, or 
prepared a plan for informing and advising any significantly or 
uniquely impacted small governments.

Congressional Review

    This rule is not a major rule as defined in 5 U.S.C. chapter 8.

Assessment of Federal Regulations and Policies on Families

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 requires Federal agencies to determine whether a policy or 
regulation may affect family well-being. These regulations will not 
have an impact on family well-being as defined in the legislation.

Executive Order 13132

    Executive Order 13132 prohibits an agency from publishing any rule 
that has federalism implications if the rule either imposes substantial 
direct compliance costs on State and local governments and is not 
required by statute, or the rule preempts State law, unless the agency 
meets the consultation and funding requirements of section 6 of the 
Executive Order. We

[[Page 66336]]

do not believe the regulation has federalism impact as defined in the 
Executive Order.

List of Subjects in 45 CFR Part 95

    Administrative practice and procedure, Claims, Computer technology, 
Grant programs--health, Grant programs, Social programs.

    Approved: July 30, 2010.
Kathleen Sebelius,
Secretary of Health and Human Services.

0
For the reasons set forth above, 45 CFR Part 95 is amended as follows:

PART 95--GENERAL ADMINISTRATION--GRANT PROGRAMS (PUBLIC ASSISTANCE, 
MEDICAL ASSISTANCE AND STATE CHILDREN'S HEALTH INSURANCE PROGRAMS)

0
1. The authority citation for 45 CFR Part 95 is revised to read as 
follows:

    Authority: 5 U.S.C. 301, 42 U.S.C. 622(b), 629b(a), 652(a), 
652(d), 654A, 671(a), 1302, and 1396a(a).

Subpart A--Time Limits for States To File Claims

0
2. In Sec.  95.4 revise the definition of ``We, our, and us'' to read 
as follows:


Sec.  95.4  Definitions.

* * * * *
    We, our, and us refer to the HHS Centers for Medicare & Medicaid 
Services (CMS), and Administration for Children and Families (ACF), 
depending on the program involved.
0
3. In Sec.  95.31 revise paragraph (a) to read as follows:


Sec.  95.31  Where to send a waiver request for good cause.

    (a) A request which affects the program(s) of only one HHS agency, 
CMS or ACF and does not affect the programs of any other agency or 
Federal Department should be sent to the appropriate HHS agency.
* * * * *

Subpart E--Cost Allocation Plans

0
4. In Sec.  95.505 revise the definition of ``Operating Divisions'' to 
read as follows:


Sec.  95.505  Definitions.

* * * * *
    Operating Divisions means the Department of Health and Human 
Services (HHS) organizational components responsible for administering 
public assistance programs. These components are the Administration for 
Children and Families (ACF) and the Centers for Medicare & Medicaid 
Services (CMS).
* * * * *

Subpart F--[Amended]

0
5. Remove the authority citation for subpart F.

0
6. Revise Sec.  95.601 to read as follows:


Sec.  95.601  Scope and applicability.

    This subpart prescribes part of the conditions under which the 
Department of Health and Human Services will approve the Federal 
Financial Participation (FFP) at the applicable rates for the costs of 
automated data processing incurred under an approved State plan for 
titles IV-B, IV-D, IV-E, XIX or XXI of the Social Security Act. The 
conditions of approval of this subpart add to the statutory and 
regulatory requirements for acquisition of Automated Data Processing 
(ADP) equipment and services under the specified titles of the Social 
Security Act.

0
7. Amend Sec.  95.605 by:
0
a. Adding the definitions ``Acquisition Checklist,'' ``Alternative 
approach to APD requirements,'' ``Base contract,'' ``Commercial off the 
shelf software,'' ``Federal program office,'' ``Grantee,'' 
``Independent Verification and Validation,'' ``Noncompetitive,'' 
``Operational APD,'' ``Service Oriented Architecture'' and ``Software 
maintenance.''
0
b. Revising the definitions of ``Advance Planning Document,'' 
``Implementation APD,'' and ``Planning APD,'' and ``Advance Planning 
Document Update (APDU).''
0
c. Amending the definition of ``Acceptance Documents'' by removing the 
phrase ``written evidence'' and adding in its place ``a record''.
0
d. Revising the definition heading ``Automatic data processing'' to 
read ``Automated data processing.''
0
e. Revising the definition heading of ``Automatic data processing 
equipment'' to read ``Automated data processing equipment.''
0
f. Removing the definition of ``Approving component.''
0
g. Revising the definition of ``Project.''
0
h. Revising paragraphs (d), (e), and (f) under the definition of 
``Service agreement.''


Sec.  95.605  Definitions.

* * * * *
    Acquisition Checklist means the standard Department checklist that 
States can submit to meet prior written approval requirements instead 
of submitting the actual Request for Proposal (RFP), contracts or 
contract amendments. The Acquisition Checklist allows States to self-
certify that their acquisition documents, which include RFPs, 
contracts, contract amendments or similar documents, meet State and 
Federal procurement requirements, contain appropriate language about 
software ownership and licensing rights in compliance with Sec.  
95.617, and provide access to documentation in compliance with Sec.  
95.615.
    Advance Planning Document (APD), Initial advance automated data 
processing planning or Initial APD means a recorded plan of action to 
request funding approval for a project which will require the use of 
ADP service or equipment. The term APD refers to a Planning APD, or to 
a planning and/or development and implementation action document, i.e., 
Implementation APD, or to an Advance Planning Document Update. 
Requirements are detailed in Sec.  95.610, paragraphs (a), (b), and 
(c).
    Advance Planning Document Update (APDU) is a document or record 
submitted annually (Annual APDU) to report project status and/or post 
implementation cost-savings, or, on an as-needed (As-Needed APDU) 
basis, to request funding approval for project continuation when 
significant project changes are anticipated; for incremental funding 
authority and project continuation when approval is being granted by 
phase; or to provide detailed information on project and/or budget 
activities as specified in Sec.  95.610(c).
    Alternative approach to APD requirements means that the State has 
developed an APD that does not meet all conditions for APD approval in 
Sec.  95.610, resulting in the need for a waiver under Sec.  95.627(a).
    Base contract means the initial contractual activity, including all 
option years, allowed during a defined unit of time, for example, 2 
years. The base contract includes option years but does not include 
amendments.
    Commercial-off-the-shelf (COTS) software means proprietary software 
products that are ready-made and available for sale to the general 
public at established catalog or market prices.
* * * * *
    Federal program office means the Federal program office within the 
Department that is authorized to approve requests for the acquisition 
of ADP equipment or ADP services. The Federal program offices within 
the Administration for Children and Families (ACF) are the Children's 
Bureau for titles IV-B (child welfare services) and IV-E (foster care 
and adoption assistance), the Office of Child

[[Page 66337]]

Support Enforcement for title IV-D (child support enforcement), and the 
Centers for Medicare & Medicaid Services (CMS) for titles XIX 
(Medicaid) and XXI (the Children's Health Insurance Program) of the 
Social Security Act.
* * * * *
    Grantee means an organization receiving financial assistance 
directly from an HHS awarding agency to carry out a project or program.
    Implementation APD means a recorded plan of action to request 
Federal Financial Participation (FFP) in the costs of designing, 
developing, and implementing the system.
    Independent Verification and Validation--(IV&V) means a well-
defined standard process for examining the organizational, management, 
and technical aspects of a project to determine the effort's adherence 
to industry standards and best practices, to identify risks, and make 
recommendations for remediation, where appropriate.
* * * * *
    Noncompetitive means solicitation of a proposal from only one 
source, or after solicitation of a number of sources, negotiation with 
selected sources based on a finding that competition is inadequate.
    Operational APD--An operational APD is a record of no more than two 
pages to be submitted annually by State programs whose system is not in 
development. The Operational APD provides a short summary of the 
activities, method of acquisition, and annual budget for operations and 
software maintenance.
    Planning APD is a plan of action in a record which requests FFP, to 
determine the need for, feasibility, and cost factors of an ADP 
equipment or services acquisition and to perform one or more of the 
following: prepare a Functional Requirements Specification, assess 
other State's systems for transfer, to the maximum extent possible, of 
an existing system; prepare a request for proposal (RFP) and/or develop 
a General Systems Design (GSD).
    Project means a defined set of information technology related 
tasks, undertaken by the State to improve the efficiency, economy and 
effectiveness of administration and/or operation of one or more of its 
human services programs. For example, a State may undertake a 
comprehensive, integrated initiative in support of its Child Support, 
Child Welfare and Medicaid program's intake, eligibility and case 
management functions. A project may also be a less comprehensive 
activity such as office automation, enhancements to an existing system 
or an upgrade of computer hardware.
* * * * *
    Service Agreement * * *
* * * * *
    (d) Includes assurances that services provided will be timely and 
satisfactory; preferably through a service level agreement;
    (e) Includes assurances that information in the computer system as 
well as access, use and disposal of ADP data will be safeguarded in 
accordance with provisions of all applicable federal statutes and 
regulations, including Sec. Sec.  205.50 and 307.13;
    (f) Requires the provider to obtain prior approval pursuant to 
Sec.  95.611(a) from the Department for ADP equipment and ADP services 
that are acquired from commercial sources primarily to support the 
titles covered by this subpart and requires the provider to comply with 
Sec.  95.613 for procurements related to the service agreement. ADP 
equipment and services are considered to be primarily acquired to 
support the titles covered by this subpart when the human service 
programs may reasonably be expected to either: be billed for more than 
50 percent of the total charges made to all users of the ADP equipment 
and services during the time period covered by the service agreement, 
or directly charged for the total cost of the purchase or lease of ADP 
equipment or services;
* * * * *
    Service Oriented Architecture (SOA), also referred to as Service 
Component Based Architecture, describes a means of organizing and 
developing Information Technology capabilities as collaborating 
services that interact with each other based on open standards. Agency 
SOA artifacts may include models, approach documents, inventories of 
services or other descriptive documents.
    Software maintenance means routine support activities that normally 
include corrective, adaptive, and perfective changes, without 
introducing additional functional capabilities. Corrective changes are 
tasks to correct minor errors or deficiencies in software. Adaptive 
changes are minor revisions to existing software to meet changing 
requirements. Perfective changes are minor improvements to application 
software so it will perform in a more efficient, economical, and/or 
effective manner. Software maintenance can include activities such as 
revising/creating new reports, making limited data element/data base 
changes, and making minor alterations to data input and display screen 
designs.
* * * * *
0
8. Add Sec.  95.610 to read as follows:


Sec.  95.610  Submission of advance planning documents.

    Advance Planning Document (APD) refers to an Initial advance 
automated data processing planning document or Initial APD, providing a 
recorded plan of action to request funding approval for a project which 
will require the use of ADP services or equipment, including the use of 
shared or purchased services in lieu of State acquired stand-alone 
resources. Requirements are detailed in paragraph (a), (b) and (c) of 
this section.
    (a) Planning APD. (1) A separate planning effort and Planning APD 
is optional, but highly recommended, and generally applies to large 
statewide system developments and/or major hardware acquisitions. 
States with large, independent counties requesting funding at the 
regular match rate for county systems are strongly encouraged to engage 
in planning activities commensurate with the complexity of the 
projected ADP project and to submit a Planning APD to allow for time 
and to provide funding for its planning activities. Therefore, States 
must consider the scope and complexity of a project to determine 
whether to submit a Planning APD as a separate document to HHS or 
whether to combine the two phases of planning and implementation into 
one APD covering both the Planning APD and the Implementation APD 
requirements.
    (2) The Planning APD is a relatively brief document, usually not 
more than 6-10 pages, which must contain:
    (i) A statement of the problem/need that the existing capabilities 
can not resolve, new or changed program requirements or opportunities 
for improved economies and efficiencies and effectiveness of program 
and administration and operations;
    (ii) A project management plan that addresses the planning project 
organization, planning activities/deliverables, State and contractor 
resource needs, planning project procurement activities and schedule;
    (iii) A specific budget for the planning phase of the project;
    (iv) An estimated total project cost and a prospective State and 
Federal cost allocation/distribution, including planning and 
implementation;
    (v) A commitment to conduct/prepare the problem(s) needs 
assessment, feasibility study, alternatives analysis, cost benefit 
analysis, and to develop a Functional Requirements Specification and/or 
a General Systems Design (GSD);

[[Page 66338]]

    (vi) A commitment to define the State's functional requirements, 
based on the State's business needs which may be used for the purpose 
of evaluating the transfer of an existing system, including the 
transfer of another State's General System Design that the State may 
adapt to meet State specific requirements;
    (vii) Additional Planning APD content requirements, for enhanced 
funding projects as contained in Sec.  307.15 and Sec. Sec.  1355.50 
through 1355.57; and
    (viii) An acquisition summary for the upcoming year or development 
phase that provides the following information on proposed acquisitions:
    (A) Type and scope of contract
    (B) Procurement strategy
    (C) Estimated cost or not to exceed amount
    (D) Timeframe of contract
    (E) A statement or certification that the proposed acquisition will 
comply with all State and Federal requirements including the retention 
of software ownership rights specified in Sec.  95.617.
    (b) Implementation APD. The Implementation APD shall include:
    (1) The results of the activities conducted under a Planning APD, 
if any;
    (2) A statement of problems/needs and outcomes/objectives;
    (3) A requirements analysis, feasibility study and a statement of 
alternative considerations including, where appropriate, the use of 
service-orientated architecture and a transfer of an existing system 
and an explanation of why such a transfer is not feasible if another 
alternative is identified;
    (4) A cost benefit analysis;
    (5) A personnel resource statement indicating availability of 
qualified and adequate numbers of staff, including a project director 
to accomplish the project objectives;
    (6) A detailed description of the nature and scope of the 
activities to be undertaken and the methods to be used to accomplish 
the project;
    (7) The proposed activity schedule for the project;
    (8) A proposed budget (including an accounting of all possible 
Implementation APD activity costs, e.g., system conversion, vendor and 
state personnel, computer capacity planning, supplies, training, 
hardware, software and miscellaneous ADP expenses) for the project;
    (9) A statement indicating the duration the State expects to use 
the equipment and/or system;
    (10) An estimate of the prospective cost allocation/distribution to 
the various State and Federal funding sources and the proposed 
procedures for distributing costs;
    (11) A statement setting forth the security and interface 
requirements to be employed and the system failure and disaster 
recovery/business continuity procedures available or to be implemented; 
and
    (12) Additional requirements, for acquisitions for which the State 
is requesting enhanced funding, as contained at Sec. Sec.  1355.54 
through 1355.57, Sec.  307.15 and 42 CFR subchapter C, part 433.
    (c) Advance Planning Document Update (APDU). (1) The Annual APDU, 
which is due 60 days prior to the expiration of the FFP approval, 
includes:
    (i) A reference to the approved APD and all approved changes;
    (ii) A project activity report which includes the status of the 
past year's major project tasks and milestones, addressing the degree 
of completion and tasks/milestones remaining to be completed, and 
discusses past and anticipated problems or delays in meeting target 
dates in the approved APD and approved changes to it and provides a 
risk management plan that assesses project risk and identifies risk 
mitigation strategies;
    (iii) A report of all project deliverables completed in the past 
year and degree of completion for unfinished products and tasks;
    (iv) An updated project activity schedule for the remainder of the 
project;
    (v) A revised budget for the entirety of the project's life-cycle, 
including operational and development cost categories;
    (vi) A project expenditures report that consists of a detailed 
accounting of all expenditures for project development over the past 
year and an explanation of the differences between projected expenses 
in the approved APD and actual expenditures for the past year;
    (vii) A report of any approved or anticipated changes to the 
allocation basis in the APD's approved cost allocation methodology; and
    (viii) An acquisition summary for the upcoming year or development 
phase that provides the following information on proposed acquisitions:
    (A) Type and scope of contract
    (B) Procurement strategy
    (C) Estimated cost or not to exceed amount
    (D) Timeframe of contract
    (E) A statement or certification that the proposed acquisition will 
comply with all State and Federal requirements including the retention 
of software ownership rights specified in Sec.  95.617.
    (2) The As-Needed APDU is a document that requests approval for 
additional funding and/or authority for project continuation when 
significant changes are anticipated, when the project is being funded 
on a phased implementation basis, or to clarify project information 
requested as an approval condition of the Planning APD, Annual APDU, or 
Implementation APD. The As-Needed APDU may be submitted any time as a 
stand-alone funding or project continuation request, or may be 
submitted as part of the Annual APDU. The As-Needed APDU is submitted:
    (i) When the State anticipates incremental project expenditures 
(exceeding specified thresholds);
    (ii) When the State anticipates a schedule extension of more than 
60 days for major milestones;
    (iii) When the State anticipates major changes in the scope of its 
project, e.g., a change in its procurement plan, procurement 
activities, system concept or development approach;
    (iv) When the State anticipates significant changes to its cost 
distribution methodology or distribution of costs among Federal 
programs; and/or,
    (v) When the State anticipates significant changes to its cost 
benefit projections. The As-Needed APDU shall provide supporting 
documentation to justify the need for a change to the approved budget.
    (vi) Changes to the acquisition summary in the following areas:
    (A) Type and scope of contract
    (B) Procurement strategy
    (C) Estimated cost or not to exceed amount
    (D) Timeframe of contract
    (E) A statement or certification that the proposed acquisition will 
comply with all State and Federal requirements including the retention 
of software ownership rights specified in Sec.  95.617.
    (F) New acquisitions not summarized in the Annual APDU.
    (3) The Operational Advance Planning Document Update (OAPDU) is an 
annual submission of no more than two pages, including:
    (i) Summary of activities;
    (ii) Acquisitions; and,
    (iii) Annual budget by project/system receiving funding through the 
programs covered under this part.

0
9. In Sec.  95.611, revise paragraphs (a), (b)(1)(iii) and (iv), 
(b)(2)(iii) and (iv), (c)(1)(i), (c)(2)(ii)(A), and (d); and add 
paragraphs (b)(1)(v) and (vi) and (e) to read as follows:


Sec.  95.611  Prior approval conditions.

    (a) General acquisition requirements. (1) A State shall obtain 
prior approval from the Department which is reflected

[[Page 66339]]

in a record, as specified in paragraph (b) of this section, when the 
State plans to acquire ADP equipment or services with proposed FFP at 
the regular matching rate that it anticipates will have total 
acquisition costs of $5,000,000 or more in Federal and State funds. 
States will be required to submit an Operational APDU only if they 
exceed the threshold requiring Federal approval, and only upon the 
receipt of a submission request, which is reflected in a record, from 
the Department. See definition of software maintenance under Sec.  
95.605.
    (2) A State shall obtain prior approval from the Department which 
is reflected in a record, as specified in paragraph (b) of this 
section, when the State plans to acquire ADP equipment or services with 
proposed FFP at the enhanced matching rate authorized by Sec.  205.35, 
Part 307, Sec.  1355.52 or 42 CFR part 433, subpart C, regardless of 
the acquisition cost.
    (3) A State shall obtain prior approval from the Department, which 
is reflected in a record, for a sole source/non-competitive 
acquisition, of ADP equipment or services with a total State and 
Federal acquisition cost of $1,000,000 or more.
    (4) Except as provided for in paragraph (a)(5) of this section, the 
State shall submit multi-program requests for Department approval, 
signed by the appropriate State official, to the Department's Secretary 
or his/her designee. For each HHS agency that has federal funding 
participation in the project, an additional copy must be provided to 
the applicable Federal program office and respective Regional Offices.
    (5) States shall submit requests for approval which affect only one 
approving component of HHS (CMS, OCSE, or Children's Bureau), to the 
applicable Federal program office and Regional Administrator.
    (6) The Department will not approve any Planning or Implementation 
APD that does not include all information required in Sec.  95.610.
    (b) Specific prior approval requirements. The State agency shall 
obtain approval of the Department in a record, prior to the initiation 
of project activity.
    (1) * * *
    (iii) For acquisition documents, an exemption from prior Federal 
prior approval shall be assumed in the approval of the Planning, Annual 
or As-Needed APDU provided that:
    (A) The acquisition summary provides sufficient detail to base an 
exemption request;
    (B) The acquisition does not deviate from the terms of the 
exemption; and
    (C) The acquisition is not the initial acquisition for a high risk 
activity, such as software application development. Acquisitions, 
whether exempted from prior Federal approval or not, must comply with 
the Federal provisions contained in Sec.  95.610(c)(1)(viii) or 
(c)(2)(vi) or submit an Acquisition Checklist.
    (iv) For noncompetitive acquisitions, including contract 
amendments, when the resulting contract is anticipated to exceed 
$1,000,000, States will be required to submit a sole source 
justification in addition to the acquisition document. The sole source 
justification can be provided as part of the Planning, Annual or As-
Needed APDU.
    (v) If the State does not opt for an exemption or submittal of an 
Acquisition Checklist for the contract, prior to the execution, the 
State will be required to submit the contract when it is anticipated to 
exceed the following thresholds, unless specifically exempted by the 
Department:
    (A) Software application development--$6,000,000 or more 
(competitive) and $1,000,000 or more (noncompetitive);
    (B) Hardware and Commercial Off-the-Shelf (COTS) software--
$20,000,000 or more (competitive) and $1,000,000 or more 
(noncompetitive);
    (C) Operations and Software Maintenance acquisitions combined with 
hardware, COTS or software application development--the thresholds 
stated in Sec.  95.611(b)(1)(v)(A) and (B) apply.
    (vi) For contract amendments within the scope of the base contract, 
unless specifically exempted by the Department, prior to execution of 
the contract amendment involving contract cost increases which 
cumulatively exceed 20 percent of the base contract cost.
    (2) * * *
    (iii) For the acquisition solicitation documents and contract, 
unless specifically exempted by the Department, prior to release of the 
acquisition solicitation documents or prior to execution of the 
contract when the contract is anticipated to or will exceed $500,000.
    (iv) For contract amendments, unless specifically exempted by the 
Department, prior to execution of the contract amendment, involving 
contract cost increases exceeding $500,000 or contract time extensions 
of more than 60 days.
* * * * *
    (c) * * *
    (1) * * *
    (i) For an annual APDU for projects with a total cost of more than 
$5,000,000, and projects with a total estimated cost of less than 
$5,000,000 only if requested by the Department.
* * * * *
    (2) * * *
    (ii) * * *
    (A) A projected cost increase of $300,000 or 10 percent of the 
project cost, whichever is less;
* * * * *
    (d) Prompt action on requests for prior approval. The Department 
will promptly send to the approving Federal program offices the items 
specified in paragraph (b) of this section. If the Department has not 
provided approval, disapproval, or a request for information which is 
reflected in a record, within 60 days of the date of the Departmental 
letter acknowledging receipt of a State's request, the Department will 
consider the request to have provisionally met the prior approval 
conditions of paragraph (b) of this section.
    (e) Acquisitions not subject to prior approval. If the Department 
has not specifically requested in a record, the submittal of additional 
acquisition documentation for those acquisitions summarized in the APD, 
the approval of the Planning, Annual or As-Needed APDU will constitute 
an exemption of the acquisition documents from prior Federal approval. 
States will be required to submit acquisition documents, contracts and 
contract amendments under the threshold amounts on an exception basis 
if requested to do so in a record by the Department.

0
10. Revise Sec.  95.612 to read as follows:


Sec.  95.612  Disallowance of Federal Financial Participation (FFP).

    If the Department finds that any ADP acquisition approved or 
modified under the provisions of Sec.  95.611 fails to comply with the 
criteria, requirements, and other activities described in the approved 
APD to the detriment of the proper, efficient, economical and effective 
operation of the affected program, payment of FFP may be disallowed. In 
the case of a suspension of the approval of a Child Support APD for 
enhanced funding, see Sec.  307.40(a). In the case of a suspension of 
the approval of an APD for a State Automated Child Welfare Information 
System (SACWIS) project, see Sec.  1355.56.

0
11. In Sec.  95.613, revise paragraph (a) to read as follows:


Sec.  95.613  Procurement Standards.

    (a) General. Procurements of ADP equipment and services are subject 
to the procurement standards prescribed by Part 92 regardless of any 
conditions

[[Page 66340]]

for prior approval. The Department retains the authority to provide 
greater oversight including requiring a State to comply with Sec.  
92.36(c) if the Department determines that the State procurement 
process is an impediment to competition that could substantially impact 
project cost or risk of failure.
* * * * *

0
12. Revise Sec.  95.615 to read as follows:


Sec.  95.615  Access to systems and records.

    The State agency must allow the Department access to the system in 
all of its aspects, including pertinent state staff, design 
developments, operation, and cost records of contractors and 
subcontractors at such intervals as are deemed necessary by the 
Department to determine whether the conditions for approval are being 
met and to determine the efficiency, economy and effectiveness of the 
system.

0
13. In Sec.  95.617 revise paragraph (c) to read as follows:


Sec.  95.617  Software and ownership rights.

* * * * *
    (c) Proprietary software. Proprietary operating/vendor software 
packages which are provided at established catalog or market prices and 
sold or leased to the general public shall not be subject to the 
ownership provisions in paragraphs (a) and (b) of this section. FFP is 
not available for proprietary applications software developed 
specifically for the public assistance programs covered under this 
subpart.

0
14. In Sec.  95.621 revise paragraphs (d) and (e) to read as follows:


Sec.  95.621  ADP reviews.

* * * * *
    (d) Acquisitions not subject to prior approval. Reviews will be 
conducted on an audit basis to assure that system and equipment 
acquisitions costing less than $200,000 or acquisitions exempted from 
prior approval were made in accordance with Part 92 and the conditions 
of this subpart and to determine the efficiency, economy and 
effectiveness of the equipment or service.
    (e) State Agency Maintenance of Service Agreements. The State 
agency will maintain a copy of each service agreement in its files for 
Federal review.
* * * * *

0
15. In Sec.  95.623, revise the heading, introductory text, and 
paragraph (b) to read as follows:


Sec.  95.623  Reconsideration of denied FFP for failure to obtain prior 
approval.

    For ADP equipment and services acquired by a State without prior 
approval, which is reflected in a record, the State may request 
reconsideration of the disallowance of FFP by written request to the 
head of the Federal program office within 30 days of the initial 
written disallowance determination. In such a reconsideration, the 
agency may take into account overall federal interests. The Department 
may grant a request for reconsideration if:
* * * * *
    (b) The State requests reconsideration of a denial by submitting in 
a record information that addresses the following requirements:
    (1) The acquisition must be reasonable, useful and necessary;
    (2) The State's failure to obtain prior approval, which is 
reflected in a record, must have been inadvertent (i.e., the State did 
not knowingly avoid the prior approval requirements);
    (3) The request was not previously denied by HHS;
    (4) The acquisition must otherwise meet all other applicable 
Federal and State requirements, and would have been approved under Part 
95, Subpart F had the State requested in a record, prior 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 approval in a record, of 
its automatic data processing acquisitions (i.e., submissions under 
these procedures, from States that have failed in the past to acquire 
prior approval which is reflected in a record, in accordance with Part 
95, Subpart F, may be denied);

0
16. In Sec.  95.624, revise the introductory text, paragraph (a), 
introductory text and paragraph (b)(2) to read as follows:


Sec.  95.624  Consideration for FFP in emergency situations.

    For ADP equipment and services acquired by a State after December 
1, 1985 to meet emergency situations, which preclude the State from 
following the requirements of Sec.  95.611, the Department will 
consider providing FFP upon receipt of a request from the State which 
is reflected in a record. In order for the Department to consider 
providing FFP in emergency situations, the following conditions must be 
met:
    (a) The State must submit a request to the Department, prior to the 
acquisition of any ADP equipment or services. The request must be 
reflected in a record, and include:
* * * * *
    (b) * * *
    (2) Inform the State in a communication reflected in a record, that 
the Department recognizes that an emergency exists and that within 90 
days from the date of the State's initial request, the State must 
submit a formal request for approval which includes the information 
specified at Sec.  95.611 in order for the ADP equipment or services 
acquisition to be considered for the Department's approval.
* * * * *

0
17. Add Sec.  95.626 to read as follows:


Sec.  95.626  Independent Verification and Validation.

    (a) An assessment for independent verification and validation 
(IV&V) analysis of a State's system development effort may be required 
in the case of APD projects that meet any of the following criteria:
    (1) Are at risk of missing statutory or regulatory deadlines for 
automation that is intended to meet program requirements;
    (2) Are at risk of failing to meet a critical milestone;
    (3) Indicate the need for a new project or total system redesign;
    (4) Are developing systems under waivers pursuant to sections 
452(d)(3) or 627 of the Social Security Act;
    (5) Are at risk of failure, major delay, or cost overrun in their 
systems development efforts;
    (6) Fail to timely and completely submit APD updates or other 
required systems documentation.
    (7) State's procurement policies put the project at risk, including 
a pattern of failing to pursue competition to the maximum extent 
feasible.
    (8) State's failure to adequately involve the State program offices 
in the development and implementation of the project.
    (b) Independent Verification and Validation efforts must be 
conducted by an entity that is independent from the State (unless the 
State receives an exception from the Department) and the entity 
selected must:
    (1) Develop a project workplan. The plan must be provided directly 
to the Department at the same time it is given to the State.
    (2) Review and make recommendations on both the management of the 
project, both State and vendor, and the technical aspects of the 
project. The IV&V provider must give the results of its analysis 
directly to the federal agencies that required the IV&V at the same 
time it reports to the State.
    (3) Consult with all stakeholders and assess the user involvement 
and buy-in regarding system functionality and the system's ability to 
support program business needs.
    (4) Conduct an analysis of past project performance sufficient to 
identify and

[[Page 66341]]

make recommendations for improvement.
    (5) Provide risk management assessment and capacity planning 
services.
    (6) Develop performance metrics which allow tracking project 
completion against milestones set by the State.
    (c) The acquisition document and contract for selecting the IV&V 
provider (or similar documents if IV&V services are provided by other 
State agencies) must include requirements regarding the experience and 
skills of the key personnel proposed for the IV&V analysis. The 
contract (or similar document if the IV&V services are provided by 
other State agencies) must specify by name the key personnel who 
actually will work on the project. The acquisition documents and 
contract for required IV&V services must be submitted to the Department 
for prior written approval.

0
18. Add Sec.  95.627 to read as follows:


Sec.  95.627  Waivers.

    (a) Application for a waiver. A State may apply for a waiver of any 
requirement in Subpart F by presenting an alternative approach. Waiver 
requests must be submitted and approved as part of the State's APD or 
APD Update.
    (b) Waiver approvals. The Secretary, or his or her designee, may 
grant a State a waiver if the State demonstrates that it has an 
alternative approach to a requirement in this chapter that will 
safeguard the State and Federal Governments' interest and that enables 
the State to be in substantial compliance with the other requirements 
of this chapter.
    (c) Contents of waiver request. The State's request for approval of 
an alternative approach or waiver of a requirement in this chapter must 
demonstrate why meeting the condition is unnecessary, diminishes the 
State's ability to meet program requirements, or that the alternative 
approach leads to a more efficient, economical, and effective 
administration of the programs for which federal financial 
participation is provided, benefiting both the State and Federal 
Governments.
    (d) Review of waiver requests. The Secretary, or his or her 
designee, will review waiver requests to assure that all necessary 
information is provided, that all processes provide for effective 
economical and effective program operation, and that the conditions for 
waiver in this section are met.
    (e) Agency's response to a waiver request. When a waiver is 
approved by an agency, it becomes part of the State's approved APD and 
is applicable to the approving agency. A waiver is subject to the APD 
suspension provisions in Sec.  95.611(c)(3). When a waiver is 
disapproved, the entire APD will be disapproved. The APD disapproval is 
a final administrative decision and is not subject to administrative 
appeal.

0
19. Add Sec.  95.635 to read as follows:


Sec.  95.635  Disallowance of Federal financial participation for 
automated systems that fail to comply substantially with requirements.

    (a) Federal financial participation at the applicable matching rate 
is available for automated data processing system expenditures that 
meet the requirements specified under the approved APD including the 
approved cost allocation plan.
    (b) All or part of any costs for system projects that have a major 
failure to comply with an APD approved under applicable regulation at 
Sec.  95.611, or for the Title IV-D program contained in Part 307, the 
applicable regulations for the Title IV-E and Title IV-B programs 
contained in Chapter 13, subchapter G, Sec.  1355.55, or the applicable 
regulations for the Title XIX program contained in 42 CFR Chapter 4 
Subchapter C, Part 433, are subject to disallowance by the Department.

Subpart G--Equipment Acquired Under Public Assistance Programs

0
20. In Sec.  95.705, revise paragraph (a) to read as follows:


Sec.  95.705  Equipment costs--Federal financial participation.

    (a) General rule. In computing claims for Federal financial 
participation, equipment having a unit acquisition cost of $25,000 or 
less may be claimed in the period acquired or depreciated, at the 
option of the State agency. Equipment having a unit acquisition cost of 
more than $25,000 shall be depreciated. For purposes of this section, 
the term depreciate also includes use allowances computed in accordance 
with the cost principles prescribed in part 92.
* * * * *

0
21. In Sec.  95.707, revise paragraphs (a) and (b) introductory text to 
read as follows:


Sec.  95.707  Equipment management and disposition.

    (a) Once equipment, whose costs are claimed for Federal financial 
participation (i.e., equipment that is capitalized and depreciated or 
is claimed in the period acquired), has reached the end of its useful 
life (as defined in an approved APD), the equipment shall be subject to 
the property disposal rules in Sec.  92.32, Equipment.
    (b) The State agency is responsible for adequately managing the 
equipment, maintaining records on the equipment, and taking periodic 
physical inventories. Physical inventories may be made on the basis of 
statistical sampling. The following requirements apply to the 
disposition of this equipment:
* * * * *
[FR Doc. 2010-26727 Filed 10-27-10; 8:45 am]
BILLING CODE P


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