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Part 6, Chapter 3:  Manual Exhibit 6-3-E

Standards for the Review and Approval
of
Contract Support Costs
in the
Indian Health Service



Office of Tribal Programs

PROPOSAL PREPARATION AND COST ANALYSIS OF
INDIAN SELF-DETERMINATION FUNDING REQUESTS GUIDELINES

  1. Introduction.  The Indian Health Service (IHS) has developed its contract support costs (CSC) policy with the active participation of Indian Tribes and interested Tribal representatives.  The IHS has always sought to maintain an openness concerning CSC issues and has consistently provided information, guidance, and technical assistance to Tribes in their development of CSC proposals.  The following documents are intended to clarify CSC.

    Tribes have requested that the IHS develop standards for CSC to be used in the review and approval of Indian Self-Determination (ISD) Fund requests.  The Office of Management and Budget (OMB) has also supported the development of CSC standards as a means of ensuring consistency in the review of Tribal ISD requests.  In order to help Tribes understand the Agency’s rationale for approving or disapproving Tribal CSC requests, it has become necessary to develop a set of consistent standards.  In fiscal year (FY) 2001, the IHS initiated the process of developing standards for CSC by creating a joint Tribal/Federal workgroup as part of the ongoing IHS/Tribal CSC Workgroup’s charge.  Consensus with Tribal representatives has been achieved on most items of cost.  On issues that have not been resolved, the Federal position is incorporated into the document and referenced.

    Adoption and dissemination of these standards are prerequisites for any delegation of ISD negotiation responsibilities to IHS Area Offices.  Area negotiators will also require some training in the application of these standards to ensure broad acceptance and consistent application of the standards.

    The Office of Tribal Programs has incorporated the development of these standards into a Government Performance and Result Act (GPRA) performance element aimed at supporting the efficient, effective, and equitable transfer of health-program management to Tribes who submit proposals or letters of intent to contract or compact IHS programs under the Indian Self-Determination and Education Assistance Act (ISDEAA).  This is being provided in an effort to achieve consistency in the review, negotiation, and approval of Tribal CSC.

  2. Statutory Background.  Public Law (P.L.) 93-638, “Indian Self-Determination and Education Assistance Act,” Sections 106(a)(1), (a)(2), (a)(3), (a)(5), and (a)(6), as amended, provide for funding of contract and compact awards for program costs and CSC.

    1. Section 106 (a)(1) states that the amount of funding available to a self-determination contract shall not be less than the Secretary would have provided for the operation of the program.

    2. Section 106(a)(2) requires the Secretary to add CSC to the amount of the program funds the Secretary provides.  Section 106(a)(2) states that CSC is the cost of activities either not carried out by the Secretary or carried out from resources other than those available under contract.

    3. Sections 106(a)(2) and (a)(3) define CSC that are eligible for reimbursement.  These costs include the following:

      1. Reasonable costs for activities that must be carried out by the Indian Tribe or Tribal organization as a contractor/compactor to ensure compliance with the terms of the contract and prudent management.

      2. Reasonable, necessary, and allowable costs of the contractor/compactor that are allocable to the contract/compact based on applicable Federal cost principles.

      3. Costs that are not provided for under the allocation of program funds available for the contract/compact as defined in P.L. 93-638, as amended, Section 106(a)(1).

      4. Costs that are treated as either direct or indirect by the contractor/compactor based on applicable cost principles and the contractor/compactor’s cost-allocation policy.

    4. Direct CSC. Direct CSC (DCSC) are both non-recurring and recurring.

      1. Non-recurring DCSC are those costs generally required for the program to begin operations.  These costs are also referred to as startup or pre-award costs.  They are not intended to be an additional category.  Costs for these activities are not contained in either the indirect-cost pool or the amount computed pursuant to Section 106(a)(1).

      2. Recurring DCSC are those costs which are associated directly with the operation of the program.

    5. Indirect-Costs.  Indirect-costs are not funded as direct program costs but rather are incorporated in the contractor/compactor’s indirect-cost reimbursement plan as negotiated annually with the cognizant Federal agency.  Indirect-costs (IDC) are:

      1. incurred for a common or joint purpose benefiting more than one contract objective, or

      2. not readily assignable to the contract/compact objectives specifically benefited without effort disproportionate to the results achieved.

    6. Programs Without Negotiated IDC Rates.  For programs without negotiated IDC rates, indirect type costs consist of those that are normally found in IDC pools of contractors with rates but are negotiated directly between the contractor/compactor and the IHS.  Generally, these amounts are negotiated as a lump-sum amount.  Both indirect and indirect type costs are awarded as non-recurring, as indirect amounts must be negotiated on an annual basis.  Indirect-costs generally fall into one of the following three categories:

      1. management and administration,

      2. facilities and equipment, and

      3. general services and expenses.

  3. Office of Management and Budget Circular A-87.  Office of Management and Budget (OMB) Circular A-87 contains cost principles for State, local, and Tribal governments.  Most Tribes and Tribal organizations have adopted OMB Circular A-87 as their applicable cost principles.  Circular A-87 is useful as it defines the allowability of costs under Federal awards by applying the following three criteria to costs: (1) allowable, (2) reasonable, and (3) allocable.  These criteria are incorporated herein and should be considered in terms of the allowability of CSC under IHS contracts and compacts.  The following is copied from OMB Circular A-87, Attachment A:

    1. Factors affecting allowability of costs.  To be allowable under Federal awards, costs must meet the following general criteria:

      1. Be necessary and reasonable for proper and efficient performance and administration of Federal awards.

      2. Be allocable to Federal awards under the provisions of this circular.

      3. Be authorized or not prohibited under State or local laws or regulations.

      4. Conform to any limitations or exclusions set forth in these principles (OMB Circular A-87), Federal laws, terms and conditions of the Federal award, or other governing regulations as to types or amounts of cost items.

      5. Be consistent with policies, regulations, and procedures that apply uniformly to both Federal awards and other activities of the governmental unit.

      6. Be accorded consistent treatment.  A cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect-cost.

      7. Except as otherwise provided for in this circular (OMB Circular A-87), be determined in accordance with generally accepted accounting principles.

      8. Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal award in either the current or a prior period, except as specifically provided by Federal law or regulation.

      9. Be net of all applicable credits.

      10. Be adequately documented.

    2. Reasonable Costs.  A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.  The question of reasonableness is particularly important when governmental units or components are predominately federally-funded.  In determining reasonableness of a given cost, consideration shall be given to the following:

      1. Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award.

      2. The restraints or requirements imposed by such factors as:  sound business practices; arms-length bargaining; Federal, State and other laws and regulations; and, terms and conditions of the Federal award.

      3. Market prices for comparable goods or services.

      4. Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government.

      5. Significant deviations from the established practices of the governmental unit which may unjustifiably increase the Federal award’s cost.

    3. Allocable Costs.  A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with the relative benefits received.

      1. All activities which benefit from the governmental unit’s indirect-cost, including unallowable activities and services donated to the governmental unit by third parties, will receive an appropriate allocation of indirect-costs.

      2. Any cost allocable to a particular Federal award or cost objective under the principles provided for in this OMB Circular A-87 may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by law or terms of the Federal awards, or for other reasons.  However, this prohibition would not preclude governmental units from shifting costs that are allowable under two or more awards in accordance with existing program agreements.

      3. Where an accumulation of indirect-costs will ultimately result in charges to a Federal award, a cost allocation plan will be required as described in Attachments C, D, and E (of OMB Circular A-87).

  4. Conclusion.  In an effort to make CSC more understandable, the IHS is providing the following guidelines (standards) for CSC proposal development.  These are the standards that the IHS will use in reviewing Tribal CSC requests.  The guidelines are not intended to be read as regulations dictating allowable Tribal CSC.  The guidelines should be interpreted in such a way as to be consistent with the ISDEAA, its implementing regulations, and IHS CSC policy.


PROPOSAL PREPARATION AND COST ANALYSIS OF INDIAN
SELF-DETERMINATION FUND REQUESTS FOR PRE-AWARD AND STARTUP
SELF-DETERMINATION/CONTRACT SUPPORT COSTS GUIDELINES

Pre-award and Startup Contract Support Costs:  Both pre-award and startup costs are one-time costs incurred to plan, prepare for, and assume the operation of a program, function, service, and activity (PFSA).  Both categories are for similar types of costs, except pre-award costs are costs incurred prior to the award date of the contract, and startup costs are costs that are incurred after the award date but during the initial year of operation.  Neither type of cost is considered to be a recurring contract support cost (CSC) in the ongoing operation of the program.

Startup and pre-award costs usually represent a total of between 20 percent to 40 percent of the entire negotiated Indian Self-Determination (ISD) funding requirement for Tribes and Tribal organizations in the first year of program operation.  These costs are usually higher for new organizations or Tribes assuming Federal programs for the first time.  Because these costs are non-recurring, however, they represent a very small portion of any one year’s total CSC appropriation.  In addition, startup and pre-award costs can vary significantly from program to program depending on the existing capacity of the awardee and the size and scope of the proposed award.

Pre-award and startup costs must be reasonable and necessary and pay for activities that are not provided in the amount computed pursuant to Section 106(a)(1) or in the recurring direct or indirect CSC.

Section 106(a)(5) of the ISDEAA states: “...during the initial year that a self-determination contract is in effect, the amount required to be paid under paragraph (2) [Section 106(a)(2)] shall include startup costs consisting of the reasonable costs that have been incurred or will be incurred on a one-time basis pursuant to the contract necessary (A) to plan, prepare for, and assume operation of the program, function, service, or activity that is the subject of the contract; and (B) to ensure compliance with the terms of the contract and prudent management.”

Startup costs are costs that occur after the award of the contract.

Section 106(a)(6) of the ISDEAA states:  “Costs incurred before the initial year that a self-determination contract is in effect may not be included in the amount required to be paid under paragraph (2) [Section 106(a)(2)] if the Secretary does not receive a written notification of the nature and extent of the costs prior to the date on which such costs are incurred.”

Pre-award costs are costs that occur prior to the program start date covered by the award of the contract.

The Agency has determined that actual pre-award costs and estimated startup costs are not due until the contract is actually awarded.  If funds are not available to pay these costs in the year the contract is awarded, the Agency has determined, based on appropriation language, that they are statutorily prohibited from paying them in future years (i.e., the CSC requirement for pre-award and startup costs cannot carry over from a prior fiscal year).  If the awardee is not paid in the year the contract is awarded, the costs are never paid.

Pre-award costs are normally computed on the basis of actual expended costs (i.e., they are reimbursed); startup costs are awarded on the basis of a budget for costs submitted and negotiated with the Agency.

The Agency only becomes liable to reimburse the pre-award costs when the P.L. 93-638 contract or compact for the contemplated PFSA is actually awarded.  There is a risk to the Tribe that costs will be incurred in preparing for the contract that may not be reimbursed as pre-award costs if any of the following apply:

  1. The Tribe fails to notify the Agency in writing of the nature and extent of the costs before they are incurred.

  2. Congress fails to appropriate sufficient (or any) CSC to fully pay the costs, or Congress somehow prohibits the Agency from paying the costs from the CSC appropriation.

  3. The Tribe expends funds for activities or items that are not included in the description of the “nature” of the costs in the pre-award letter.

  4. The Tribe cannot provide documentation of the costs.

  5. The requested costs are found not to be reasonable and necessary by the Agency after they are incurred and submitted for reimbursement.

  6. The P.L. 93-638 contract proposal for which the costs are incurred is not awarded.

  7. The costs being requested have been provided to a Tribe in the assumption of a service unit or other program 106(a)(1) amount or have been paid under a Tribal management grant or other existing IHS grant or contract.

Tribes can reduce the risk associated with incurring pre-award costs by ensuring that a pre-award letter is received by the Agency before the costs are incurred, maintaining close communication with the Area Office regarding the reasonableness and nature of the costs being incurred, ensuring the estimated amount provided in the pre-award letter is sufficient to cover all the costs, and being aware of the total amount of CSC appropriated by Congress and the likely total amount of the requests expected to be received by the IHS during the year.  Tribes should ensure that the description of the nature of the activities to be preformed is inclusive enough to cover all potential activities needed to begin to operate the PFSA.

Two sample pre-award letters are attached.  These can be used as templates to assist Tribes in preparing their own pre-award letters.  A pre-award letter (see sample letter No.1) should address the unique needs of each Tribe as it contemplates what it will require in the planning, preparation, and assumption of the contract.  Tribes may provide additional letters if circumstances change or additional costs are anticipated (see sample letter No. 2).

The development of a proposal for pre-award and startup costs, and the evaluation guidelines for each type of cost are outlined on the following pages.  The guidelines are for the development and evaluation of a proposal under normal circumstances.  Some proposals will have unique circumstances that do not fit the criteria in these guidelines.  In such cases, one must review the statutory intent and the IHS CSC circular to determine if other costs will be required.  In these circumstances, however, the awardee should expect to be requested to provide thorough documentation of the amounts and justification for the amounts to reviewers at all levels of the Agency.


LINE ITEMS GENERAL GUIDELINES Examples of Allowable Costs DOCUMENTATION STANDARDS FOR REVIEW AND DUPLICATION
PRE-AWARD COSTS Section 106(a)(6) letter Pursuant to Section 106(a)(6) of the Indian Self-Determination Education and Assistance Act (ISDEAA), costs incurred before the initial year that a self-determination contract or compact is in effect are allowable only when the Secretary has been provided written notification of the nature and extent of the costs prior to the date on which such costs are incurred.

Tribes are encouraged to estimate their costs accurately.  Costs will not be disallowed in the event these costs otherwise found to be reasonable and necessary exceed the initial estimate.

For all pre-award costs, the Tribe or Tribal organization must provide to the Area Office written notification of the general nature of the types of costs the Tribe expects to incur and an estimate of such costs before they are incurred.  Actual costs claimed in excess of the amount provided in the pre-award letter should be allowable to the extent they are found to be reasonable and necessary for the operation of the programs, functions, services, or activities (PFSA) to be awarded.

When claiming costs as a part of an ISD request, the Tribe or Tribal organization must provide documentation that indicates the date the liability was incurred for any goods or services up to the date of negotiations and an estimate of the costs to be incurred up to the date of the proposed award of the contract.  The Tribe must show that the cost was reasonable and necessary to plan, prepare for, or assume operation of the program.

The Area Office, as the Agency representative, will review each pre-award letter from a Tribe or Tribal organization and will acknowledge receipt of each such request within 10 days.  Costs claimed under an ISD request will only be allowable to the extent such a notification is received and the costs actually claimed meet the statutory requirements of CSC at Section 106(a)(2), (3), (5), and (6) of the Act.

****See SAMPLE pre-award letters, copies attached.****

PRE-AWARD COSTS (No Award) Pre-award costs are only awardedable when an award of a PFSA is made. Same as pre-award costs above. No Pre-award Costs are awarded in the event the Tribe decides not to enter into a contract or compact for any of the PFSAs proposed.
PRE-AWARD COSTS - (Partial Award) Pre-award costs are only awardable when an award of a PFSA is made.  Costs directly attributable to a specific PFSA are allowable only when the specific PFSA is actually awarded. Same as pre-award costs above. Costs directly attributable to a specific PFSA are allowable only when the specific PFSA is actually awarded. 1
STARTUP COSTS Startup costs are authorized pursuant to Section 106(a)(5) of the ISDEAA.  They are costs that have been or will be incurred within the first year that the contract/compact is in effect and are necessary to plan, prepare for, or assume operation of the contract/compact.  Startup costs must be reasonable and necessary, and pay for non-recurring activities that normally are not carried on by the Secretary in the direct operation of the program or are provided by the Secretary in the support of the contracted program from resources other than those under contract.  In addition, to the extent that any of these startup costs are found to have been provided in the amount computed pursuant to 106(a)(1) or in the DCSC or indirect-cost amounts, these duplicated amounts will not be allowable.  Startup costs are generally provided to support the Tribe's administrative unit, which in turn supports the program to be contracted or compacted.  Startup costs cannot be used for costs that are otherwise provided for within program funding or for expanding program activities.

Varies based on the type of cost claimed. Review to determine that the cost is allowable pursuant to Section 106(a)(5) of the ISDEAA and not duplicative of DCSC or indirect-cost amounts or of costs provided in the 106(a)(1) amount.  Startup costs are not to be used for costs that are otherwise provided for within program funding or for expanding program activities.

Startup costs are not to be used to provide program equipment or other items of cost that are normally funded with 106(a)(1) funds. 2

PERSONNEL COSTS

Pre-award costs are allowable for personnel to plan, prepare for, and assume operation of the program.

Startup costs for personnel are allowable for Tribal employees in the first year of operations if the employee is assigned to activities necessary to begin the PFSAs under contract.

Generally pre-award costs are allowable for these activities whether carried out by consultants or Tribal employees, such as a Tribal administrator or planner (to the extent not already paid for with indirect-costs) who assists with the planning and negotiations for program assumption.

These costs are allowable for an administrator, planner, or other Tribal employee who is assigned to develop or improve management systems.

For all pre-award costs, the Tribe must provide to the Area Office written notification of the nature and extent of the costs prior to the time the cost is incurred.

The Tribe must also provide documentation that the costs were incurred and the date when they were incurred, or careful estimates of the costs to be incurred when they have not yet been incurred.  Tribes should keep careful financial records of these costs.  Types of data needed for review are:  dates of service, hourly rate, estimated or actual number of hours billed, and purpose of the service.

Tribes must provide a budget and budget justification or a description of costs that are reasonable and necessary to plan, prepare for, and assume operation of the contract.

All costs must be reasonable and necessary to plan for or startup the proposed contract.  All pre-award costs must be incurred after notification and before the contract starts.

Costs may be considered duplicative if the costs being requested have been provided to a Tribe in the assumption of a service unit or other program 106(a)(1) amount or paid under a Tribal Management Grant or other existing IHS grant or contract.

Costs must be reasonable and necessary to assume operation of the PFSAs and must be incurred after the award date but during the initial year of the contract (i.e., all startup costs must be planned to be incurred in the first 12 months of operation).

SUPPLIES

Pre-award supply costs are allowable.

Startup costs for supplies are allowable to support the startup activities only.

This means supplies needed to support the activities necessary to plan, prepare for, and assume operation of the program.

Cost of supplies necessary to develop inventories of medical supplies, drugs, and other program supplies have not generally been allowed. 3

The costs of software or supplies necessary to support the implementation of the systems developed with startup resources are allowable.

Cost of supplies necessary to develop inventories of medical supplies, drugs and other program supplies have generally not been allowed.3

For all pre-award costs, the Tribe must provide to the Area Office written notification of the nature and extent of the costs prior to the time the cost is incurred.

The Tribe must also provide documentation that the costs were incurred and the date when they were were incurred, or careful estimates of the costs to be incurred when they have not yet been incurred.  Tribes should keep careful financial records of these costs.  Types of data needed for review are: dates of service, hourly rate, estimated or actual number of hours billed, and purpose of consultation.

Tribes must provide a budget and budget justification or a description of costs that are reasonable and necessary to plan, prepare for, and assume operation of the contract.

All costs must be reasonable and necessary to plan, prepare for, or assume the proposed contract.  All pre-award cost must be incurred after notification and before the contract starts.  All startup costs must be planned to be incurred in the first 12 months of operation.

Costs may be considered duplicative if the costs being requested have been provided to the Tribe in the assumption of a service unit or other program 106(a)(1) amount or paid under a Tribal Management Grant or other existing IHS grant or contract.

The IHS has considered all startup requests for program supplies to be a duplication of the 106(a)(1) amount. 4

TRAVEL

Pre-award travel costs are allowable for Tribal board members, Tribal personnel, and consultants to plan, prepare for, and assume operation of the program.

Startup travel costs for personnel are allowable.

This includes travel costs for staff, board members, and consultants to attend meetings and negotiations in preparation for program assumption.  Travel costs for education and orientation of new or existing Tribal staff may be allowable.

Startup travel costs may be allowable for education, training, and developmental activities for either board members or Tribal employees.

For all pre-award and startup costs, the Tribe must provide documentation of the expenditures including the name or position of the traveler, the purpose of the travel, and the costs and duration of the trip.

Tribes must provide a budget and budget justification or a description of costs that are reasonable and necessary to plan, prepare for, and assume operation of the contract.

All costs must be reasonable and necessary to plan for or to startup the proposed contract.  All pre-award cost must be incurred after notification and before the contract starts.

All startup costs must be planned to be incurred in the initial 12 months of operation.

Costs may be considered duplicative if the costs being requested have been provided to the Tribe in the assumption of a service unit or other program 106(a)(1) amount or paid under a Tribal Management Grant or other existing IHS grant or Contract.

EQUIPMENT

Pre-award - Costs of equipment to support the administrative unit of the Tribe are allowable as pre-award costs.

Startup - Costs of equipment to support the administrative unit of the Tribe are allowable as startup costs.

Costs of equipment to support the administrative unit of the Tribe are allowable as a pre-award costs.  These costs of administrative equipment to allow the Tribe to plan, prepare for, and assume operation of the program are allowable.

The cost of program equipment needed to carry out the contract/compact have generally not been allowed. 4

Costs must meet the CSC definition and are for use by the Tribe's administrative unit.

Costs of equipment to support the administrative unit of the Tribe are allowable as startup costs.  These costs of administrative equipment necessary to support the implementation of the systems developed with startup resources are allowable.

Cost of program equipment needed to carry out the contract/compact have generally not been allowed.  4 Costs must meet the CSC definition and be for the use of the administrative unit of the Tribe.

Costs incurred prior to the award of the contract/compact must be covered by the nature and extent references in the Tribe's pre-award letter.

Tribe should provide documentation showing what was purchased, when it was purchased, the total cost, the end user of the equipment, and how it was needed to plan, prepare for, and assume operation of the program.

Startup costs are a onetime non-recurring cost necessary to begin operation of the program.  Startup costs are to be incurred during the initial 12 months of operation of the program.

Tribes must provide a budget and budget justification or a description of costs that are reasonable and necessary to plan, prepare for, and assume operation of the contract.  This should include an identification of the equipment's end user.

All costs must be reasonable and necessary to plan for or startup the proposed contract.  All pre-award costs must be incurred after notification and before the contract starts.

Program equipment is considered duplicative because costs being requested have been passed on to the Tribe in the assumption of a service unit or other program 106(a)(1) amount, or are covered in the indirect-cost pool. 4

All costs must be reasonable and necessary to start up the proposed contract.  All startup costs must be incurred during the initial year of the program.

Costs supporting the central administrative unit of the Tribe are allowable.  Program equipment is considered duplicative because costs being requested have been passed on to a Tribe in the assumption of a service unit or other program 106(a)(1) amount. 4

CONSULTANTS

Pre-award costs are allowable for consultants needed to plan, prepare for, and assume operation of the program.

Startup costs are allowable when needed to ensure compliance with the terms of the contract.

Consultant activities are allowable for proposal planning, preparation, contract, compact and AFA development, negotiations, board training, management systems development, etc.

Startup activities are allowable for board training, management systems development, etc.

Documentation of actual costs for consultants, including the service to be performed, hourly rate, number of hours, and date cost was incurred, are required for all pre-award costs.

Budget and budget justification are required in the ISD/CSC proposal, including estimates or bids from consultants for the work to be performed.  Estimates should include the rate and time involved for each task to be performed.

All costs must be reasonable and necessary to plan for or to start up the proposed contract.  All pre-award costs must be incurred after notification and before the contract starts.  All startup costs must be planned to be incurred in the first 12 months of operation.

Costs may be considered duplicative if costs being requested have been provided to a Tribe in the assumption of a service unit or other program 106(a)(1) amount or paid under a Tribal Management Grant or other existing IHS grant or contract.

OTHER

Pre-award costs are allowable for other types of costs if those costs are necessary to support the activities needed to assume operation of the program.

Startup costs are allowable when needed to plan for and implement activities necessary to assume the contract.

Tribes may incur other costs necessary to support the activities needed to plan for and to start up the contract.  These costs should be documented with a detailed description of the type, quantity, and unit cost of the items and the justification for the costs. For all pre-award costs, documentation is required in support of actual costs.  The date the cost was incurred is required for all pre-award costs.

Budget and budget justification is required in the ISD/CSC proposal including estimates of the reasonable and necessary costs needed to support the startup activities.

All costs must be reasonable and necessary to plan for or to start up the proposed contract and not duplicated in the 106(a)(1) amount or in the IDC or DCSC-funded amount.

Costs may be considered duplicative if costs being requested have been provided to a Tribe in the assumption of a service unit or other program 106(a)(1) amount or paid under a Tribal Management Grant or other existing IHS grant or contract.


PROPOSAL PREPARATION AND COST ANALYSIS OF ISD REQUESTS FOR
DIRECT CONTRACT SUPPORT COST GUIDELINES

Direct contract support costs (DCSC) are one of three types of contract support costs (CSC).  They pay for ongoing activities that are not contained in either the amount computed pursuant to Section 106(a)(1) or the indirect-cost (IDC) pool or an “indirect type” cost budget. DCSC amounts are awarded on a recurring basis based on the initial ISD proposal.  The IHS provides inflationary increases on DCSC based on the OMB non-medical cost inflation rate, to the extent appropriations are available.  Other than for inflationary costs, a change in DCSC requirements entails a renegotiation of the amounts required with the Area Office.  This may be requested on an annual basis if the awardee feels circumstances warrant renegotiating these costs.

The determination of DCSC requires a proposal from the awardee.  Awardees who do not submit a proposal that includes DCSC will not establish a DCSC requirement and will not be funded for these costs.  A DCSC proposal requires adequate detail and documentation for the IHS to determine if the costs requested are allowable as DCSC and are not duplicated in the Section 106(a)(1) amount or in the IDC amounts requested.  For a DCSC proposal, this normally includes the salary of the Federal employees transferred and the Federal fringe benefits paid on that salary by category.  In addition the awardee must provide the personnel budget of the tribally operated program and the detailed fringe benefit costs of the awardee’s benefit package.  The awardee must also provide justification for costs in other budget categories for which DCSC is requested.

To compute the DCSC requirement, the awardee and the IHS must negotiate the total cost to the awardee of the activities to be supported with CSC (see Section 6(2)(b) of IHS CSC policy.  After this requirement is determined, the Agency will deduct any funds that may have been provided to the awardee in the Section 106(a)(1) amount for this activity to avoid duplication of costs.  The amount provided in support of these functions included in the Section 106(a)(1) amount is determined by the past expenditures of the Agency for the activities included in the DCSC that are provided in support of the PFSAs to be transferred.  In cases where the amount of the expenditure of the prior year does not represent the amount the Secretary would have expended due to one-time distortions in expenditures, a multi-year average of past expenditures may be used.  In circumstances where the Agency has never operated the PFSA, such as new programs or new appropriations for expanded programs, the Agency will compute the amount the Secretary would have provided for the DCSC activities from a “profile” developed from other, similar Agency programs.  To prepare the DCSC proposal, the awardee should request the amounts the Agency has provided in support of the PFSAs to be transferred.  In cases where the PFSA has not been operated by the Agency, the awardee should request the cost “profile” from the Agency to determine what the Section 106(a)(1) amount would have been.

The majority of DCSC is usually composed of certain fringe costs on Federal employees that are not received in the Section 106(a)(1) amount.  These costs continue to be paid by the Federal Government on IPA/MOA employees, and DCSC for these employees are not due until the employee or position transfers to direct Tribal hire.  Awardees should carefully maintain historical data on IPA/MOA transfers.  These positions become eligible for DCSC as they become vacant and are not expected to be replaced with another IPA/MOA.  The awardee must submit an ISD/CSC request or renegotiate the DCSC to ensure these costs are included in the DCSC requirement.

The Agency has determined that to be eligible for DCSC, the Federal positions to be transferred must be supported from directly appropriated dollars in the 106(a)(1) amount.  Fringe benefit costs not included in the 106(a)(1) amount for Federal employees supported with Medicaid and Medicare or other third-party resources have not been approved for DCSC when they transfer to Tribal hire 5.

The Agency is required to determine that amounts requested in the DCSC proposal are not duplicated in either the Section 106(a)(1) amount or in the indirect contract support amount.  Agency review will include a careful analysis of this potential duplication and the deduction of any duplicated amounts from the DCSC requirement approved for the awardee.  In addition, the costs must be for activities that must be carried out by the Tribal organization as a contractor to ensure compliance with the terms of the contract and prudent management, but which normally are not carried out by the Agency in the direct operation of the program.

On a national basis, the total DCSC requirement averages about 6 percent of the total Section 106(a)(1) amount under contract. DCSC represents about 21 percent of the entire negotiated CSC requirement for Tribes and Tribal organizations.  DCSC can vary significantly depending on the type of service and service delivery modality selected by the Tribe.  In general, DCSC is composed mostly of costs computed on the salaries of the directly hired Tribal employees.  Therefore, contracts that do not have large personnel components (like contract health services) or contracts operated primarily with IPA/MOA employees normally require smaller amounts of DCSC when calculated as a percentage of the total award.

Prior to IHS Circular No. 2001-01, ”Contract Support Costs,” dated January 20, 2000, the IHS used an estimate of 15 percent of all salaries to compute the DCSC due on ISD requests.  The recent IHS circular requires more accurate Tribal budget and cost data from the Agency to compute the ISD due on the PFSAs to be transferred.  Fringe costs continue to make up the majority of the approved DCSC requirement.

In addition to certain fringe benefit costs, the IHS has approved some other costs as DCSC.  This has included mail, phone, and printing costs in some cases.  These costs have been approved in the past because the IHS centrally managed the costs, and the funds were not transferred to Tribal contractors under the Section 106(a)(1) program base.  These costs have recently been transferred to the Area Offices and should now be available for inclusion in the Section 106(a)(1) amount.  These costs are no longer being approved by the IHS as DCSC.  Reasonable costs for legal fees and general liability insurance (when not included in the IDC pool) are additional examples of costs that have been found to be allowable, as these are costs that the Agency either does not pay or are paid from resources other than those under contract.

The development of a DCSC proposal and the evaluation guidelines for each type of cost are outlined in the following pages.  The guidelines are meant for the development and evaluation of a DCSC proposal under normal circumstances.  Some DCSC proposals will have unique circumstances that do not fit the guidelines.  In these cases, one must review the statutory intent and the IHS CSC Circular to determine if other DCSC will be required.  In these circumstances, however, the awardee should expect to be requested to provide thorough documentation of the amounts and reasons for the amounts to reviewers at all levels within the Agency.


LINE ITEMS GENERAL GUIDELINES Examples of Allowable Costs DOCUMENTATION STANDARDS FOR REVIEW AND DUPLICATION
SALARIES

In general, salaries 6 and wages for personnel have been completely disallowed for DCSC.

Budgets for direct-salary costs are required for most DCSC proposals to accurately compute the requested fringe-benefit costs.

Awardees with or without indirect-cost rates can be paid direct-salary costs for administrative employees as part of CSC; however, these costs should be categorized and negotiated as "indirect type costs," not DCSC, even though they are paid directly and not through the indirect-cost mechanism

Although costs for direct salaries are generally disallowed, costs for certain fringe benefits on direct salaries are the primary components of DCSC.  The awardee must provide sufficient salary detail to determine if the fringe-benefit costs requested are reasonable and necessary.

Direct salary costs of employees are generally not allowed as DCSC.

Tribal budgets are required from awardees with a detailed salary listing for each position funded from the Section 106(a)(1) amount.

The Agency has considered all salary requests a duplication of the Section 106(a)(1) amount or an expansion of the negotiated 106(a)(1) amount.
FRINGE BENEFITS

- Federal Insurance Contributions Act (FICA)

- Life, Health, and Disability Insurance

- Retirement (401k, 403b, etc.)

(All fringe benefits except workers compensation costs and unemployment insurance)

Workers compensation insurance.

Unemployment insurance.

Fringe benefits have historically constituted the majority of all DCSC.  The Agency reviews the documented amounts requested by the awardee and deducts the amount provided as part of the Section 106(a)(1) amount to the awardee.  The awardee should request that the Agency provide a detailed breakout of each component of the fringe amount when providing the total Section 106(a)(1) amount available for the PFSAs to be contracted.

Funding for workers compensation costs is not transferred as part of the Section 106(a)(1) amount.

Unemployment insurance is not provided as part of the 106(a)(1) amount.

Documentation of fringe benefits should include the awardee's rate for each type of fringe benefit for which DCSC is requested.

For a new awardee, written quotes for costs should be provided to support the costs claimed.

Awardees should provide documentation for workers compensation costs.

Awardees should provide documentation of State Unemployment Insurance costs.

The Agency totals the amount provided in the Section 106(a)(1) amount for FICA, health, life and disability insurance, and retirement.  To the extent the budgeted Tribal costs are determined to be reasonable and necessary and these costs exceed the amounts the Agency provides for these costs in the Section 106(a)(1) amount, the difference is allowed as a DCSC requirement for the PFSAs transferred.6

Costs of workers compensation insurance are allowed as a DCSC requirement.

Costs of State Unemployment Insurance are allowed as a DCSC requirement. 7

Example of the fringe benefits calculation:


ITEM TRIBAL AMOUNT IHS AMOUNT DIFFERENCE
FICA 1,000 900 ---
Retirement 2,000 1,250 ---
Insurance (Life, Health, Disability) 750 1,000 ---
Sub-Totals 3,750 3,150 600
Workers Comp. 200 --- 200
Unemployment 400 --- 400
TOTALS 4,350 3,150 1,200


LINE ITEMS
GENERAL GUIDELINES Examples of Allowable Costs
DOCUMENTATION
STANDARDS FOR REVIEW AND DUPLICATION
TRAVEL/VEHICLE
LEASE
These are generally not provided as allowable DCSC.  Again, travel costs in support of administrative functions normally included in an IDC cost pool (such as board of directors' travel cost) can be paid directly to the Tribe when the Tribe or Tribal organization does not have an IDC rate.  In this situation, however, these types of costs are categorized as "indirect type costs" Travel costs are not generally allowed by the Agency as DCSC requirements. The Agency has considered most requests for travel duplicative of the Section 106(a)(1) amount or as an activity that would normally be carried on by the Agency in the direct operation of the program.
SUPPLIES AND DRUGS These are generally not provided as allowable DCSC. Supply costs are not generally allowed by the Agency as DCSC requirements. The Agency has considered most requests for supplies and drugs duplicative of the Section 106(a)(1) amount or as an activity that would normally be carried on by the Agency in the direct operation of the program.
INSURANCE
General Insurance (property, fire, general liability)
The Office of General Counsel (OGC) has advised the Agency that the Government is self-insured.  Therefore, reasonable insurance costs for activities that the Federal Torts Claim Act (FTCA) does not cover, such as property insurance on buildings and vehicles, and general liability insurance supplemental to the FTCA, can be considered reasonable. A detailed estimate of costs of insurance for property, vehicles, and general liability is to be provided.  It is important to document that the costs are not included in the IDC pool where an IDC rate is used. The Agency reviews insurance coverage to determine that it is not included in the Tribe's indirect-cost pool or indirect-type cost agreement and that it does not cover risks covered by the FTCA.  Insurance activities that are covered in the Tribe's negotiated indirect-cost rate or indirect-type cost agreement are duplicative.
MALPRACTICE LIABILITY INSURANCE
Professional Liability Insurance
Malpractice liability insurance is allowable to the extent that it does not duplicate FTCA coverage.  Medical malpractice insurance covering the employees of a Tribe or Tribal organization (including those assigned under Intergovernmental Personnel Act agreement (IPA) or memorandum of agreement (MOA) status) when performing duties authorized under a contract or compact pursuant to the ISDEAA (P.L. 93-638, as amended) is not necessary due to the expansion of applicability of the FTCA to Tribes and Tribal organizations contracting and compacting under the Act.  Malpractice liability insurance is allowable, however, in the case of personal service contractors carrying out the terms of a contract/compact when operating outside of an IHS facility.  Malpractice liability may also be allowable to cover torts brought in Tribal courts that may not be covered in the FTCA.  General liability wraparound insurance is allowable.

Because malpractice liability insurance is allowable only to the extent that it does not duplicate coverage provided by the FTCA, awardees will be required to provide a written quote or cost estimate from an insurance broker and must indicate that the insurance costs claimed do not duplicate coverage provided by the FTCA. Malpractice liability insurance is allowable to the extent that it does not duplicate FTCA coverage.
POSTAGE This cost is borne by IHS programs in the general course of doing business.  Funds for these costs have been transferred to Area Offices, and this cost is not allowable as CSC. These costs are not allowable based on the May 10, 2002, decision of the Director, IHS. This is considered duplicative of the Section 106(a)(1) amount.
PRINTING AND DUPLICATION This is generally not included in the DCSC requirement. This is not generally allowed by the Agency. This is generally considered to be duplicative of the Section 106(a)(1) amount.
COMMUNICATIONS Long-distance phone charges and/or leased data-line charges are costs that are borne by IHS programs in the general course of doing business.  Funds for these costs have been transferred to Area Offices, and this cost is not allowable as CSC. These costs are not allowable based on the May 10, 2002, decision of the Director, IHS. This is considered duplicative of the Section 106(a)(1) amount.
TRAINING
Discipline-specific Training:
This is generally included in the DCSC requirement to the extent the awardee must provide training to comply with requirements not applicable to the Government and, therefore, not transferred in the Section 106(a)(1) amount.

Awardees should provide details on the cost and purpose of the training. This is duplicative to the extent it is provided in the Section 106(a)(1) amount.
TRAINING
Long-term Training:
The IHS made available all Federal dollars supporting long-term career training costs in the Section 106(a)(1) amount.  Federal sites provide for long-term training from within their operational budgets.  No additional funds are made available for this cost from CSC. Not applicable. This is duplicative. Funding is provided as a part of the Section 106(a)(1) amount.
EQUIPMENT PURCHASE AND MAINTENANCE This is generally not included in the DCSC requirement.  Funds for equipment purchase should be included in the Section 106(a)(1) amount or in the startup or pre-award amount for administrative equipment. Not applicable. This is considered duplicative because costs being requested have been passed on to a Tribe in the assumption of a service unit or other program Section 106(a)(1) amount, or are covered in the indirect-cost pool.
RENT/UTILITIES This is generally not included in the DCSC requirement.  It has been allowed in extremely rare circumstances when the awardee did not receive the funds in the Section 106(a)(1) amount because the facility in question continued to be used to operate IHS or other Tribally operated programs. This is allowable when a program is being divided and space currently used in the delivery of the program cannot be divided and provided to the awardee due to ownership or lease restrictions. This is considered duplicative if costs being requested have been passed on to a Tribe in the assumption of a service unit or other program Section 106(a)(1) amount, or are covered in the indirect-cost pool.
OTHER DCSC The IHS recognizes that Tribes differ in the types and extent of costs included within their indirect-cost pools.  The IHS will recognize as CSC any item of cost that meets the definition of CSC at Section 106(a)(2) but is not already included in the awardee's IDC pool (or the Section 106(a)(1) amount).  Contract Support Costs is not, however, to be considered as available to expand program activities or to address deficiencies created by the loss of economies of scale that may occur as a result of contracting or compacting.

These costs will generally be treated as IDC-type costs for funding purposes.

Awardees are to provide a detailed description and justification of costs showing they should be allowable pursuant to Section 106(a)(2). Documentation should show that the costs are neither included in the IDC pool nor generally included in the Section 106(a)(1) amount. Each cost must meet the definition of CSC at Section 106(a)(2) of the ISDEAA, must not be included in the IDC pool or indirect type costs of the Tribe, and must not be duplicative of the costs available in Section 106(a)(1) amount.


GUIDELINES FOR PROPOSAL PREPARATION AND COST ANALYSIS OF ISD
REQUESTS FOR INDIRECT CONTRACT SUPPORT COSTS

INDIRECT CONTRACT SUPPORT COSTS.  This document does not currently address indirect contract support costs (IDC) or indirect-type costs.  Most Tribes and Tribal organizations have indirect-cost rates that are negotiated with their cognizant Federal agency.  The cognizant Federal agency for most Tribes is the Office of Inspector General at the Department of Interior.  For some Tribal organizations who primarily contract or compact with the IHS only, their cognizant Federal agency for determining an IDC rate is the Division of Cost Allocation under the Department of Health and Human Services. The respective addresses and phone numbers are as follows:

U.S. Department of Interior
Office of the Secretary
National Business Center
Acquisition and Property Management
Indirect Cost Section
Attn: Inge Montich, IDC Coordinator
2180 Harvard Street, Suite 430
Sacramento, CA 95815
Phone (916) 566-7111
FAX (916) 566-7110
U.S. Department of Health and Human Services
Division of Cost Allocation
Attn: David S. Low, Director
50 United Nations Plaza, Room 347
San Francisco, CA 94102
Phone (415) 437-7820
http://rates.psc.gov/

http://www.nbc.gov/icshome.html

Tribes are encouraged to refer to OMB Circular A-87 for guidance with indirect-cost rates.  This document is accessible on the Internet at:

http://www.whitehouse.gov/omb/circulars/a087/a027-all.html

For assistance with indirect-type costs, please refer to OMB Circular A-87 and contact your local Area Office.


SAMPLE PRE-AWARD LETTER # 1 - Area Director

Dear Area Director

Please accept this letter as notification that the ****Tribe**** will begin to incur pre-award costs necessary to plan, prepare for, and assume operation of the ****PFSA(s)**** program.  We anticipate providing a proposal in accordance with the Indian Self-Determination and Education Assistance Act (ISDEAA) and the associated regulations at 25 CFR Part 900 in the near future; however, we must first do some preliminary work in order to ensure a successful contracting effort.

The ****Tribe**** has reviewed the “Standards for the Review and Approval of Contract Support Costs in the IHS.” We understand that this document provides guidance concerning the typical costs Tribes might expect to incur in undertaking contracting or compacting under the ISDEAA, but we do not believe that this document limits the types of costs we might expect to incur.  Initially, we will incur costs associated with assessing the feasibility of contracting, developing the contract proposal and contract document, and negotiating the contract with the IHS.  We anticipate incurring costs for consultants, attorneys, and other professional staff to assist us.  The costs may also include the costs of special training or meetings of the governing board, travel by current Tribal staff and other costs incurred in developing the proposal and negotiating the contract award.  The Tribe may also assign staff to this project to assist with this contracting effort.

The Tribe estimates the amounts necessary to complete the tasks needed to plan, prepare for, and assume the above PFSAs to be **** fifty thousand ($50,000) **** dollars.  We will monitor these costs, however, and we will notify the IHS if the costs can be expected to exceed this amount.  It is our understanding that this amount is an estimate and does not limit the extent to which our costs might ultimately be found to be reasonable and necessary to assume operation of the contract.

Please confirm receipt of this letter and notify us of the date of your receipt of this pre-award letter.  We look forward to working with the ****Area Office**** and to the successful contracting of the above PFSA(s) Thank you.

Sincerely,

****Authorized Tribal Signature****

Cc:
Headquarters, OTP
Headquarters, OTSG (****when compacting under Title V****).


SAMPLE PRE-AWARD LETTER # 2 - Area Director

Dear Area Director

On ****date of initial notification**** the ****Tribe**** notified you that we would begin incurring costs associated with the assumption of ****PFSAs****.  While planning and preparing that contracting effort, we realized we would need to improve our accounting and management systems in order to successfully administer the [additional] PFSAs proposed.  Therefore, we now anticipate incurring additional costs for the acquisition of IT equipment and systems and other management systems necessary to support the contract.  Professional services necessary to implement these systems will also be required.  The costs may also include the costs of special training of existing Tribal staff on the new systems.  This is in addition to those costs identified in our earlier letter.

The Tribe estimates the amounts necessary for these additional costs to be **** one-hundred and twenty thousand ($120,000)**** dollars.  Additionally, our earlier letter estimated other pre-award costs at **** fifty thousand ($50,000)**** dollars; however, it appears that due to some unanticipated circumstances and the complexity of negotiations, this amount will probably be closer to **** eighty thousand ($80,000)**** dollars.  Therefore total pre-award costs are now estimated at **** two hundred thousand ($200,000)**** dollars.  As previously stated, this amount is an estimate and does not limit the extent to which our costs might ultimately be found to be reasonable and necessary to assume operation of the contract.

Please confirm receipt of this letter and notify us of the date of your receipt of this pre-award letter.  We look forward to working with the ****Area Office**** and to the successful contracting of the above PFSAs

Sincerely,

****Authorized Tribal Signature****

Cc:
Headquarters, OTP
Headquarters, OTSG (****when compacting under Title V****).


Footnotes:

  1. In cases where a partial contract is awarded, both Tribes and the Agency agree that pre-award costs are to be paid if any PFSA is contracted for, unless it can be demonstrated that certain pre-award costs benefit only the PFSAs not contracted.

  2. Some Tribes believe that the ISDEAA does not preclude the purchase of program equipment or supplies under startup or pre-award costs.

  3. Some Tribal representatives feel that the cost of medical program supplies should be allowed if the contract divides a program, the inventory is not transferred with the program, and the Tribe must build up an inventory of program supplies (or drugs) to operate the program.

  4. Some Tribal representatives feel that the cost of program-related equipment should be allowed if the contract divides a program, the equipment is not transferred with the program, and the Tribe must have the equipment to operate the program.  The IHS has declined requests for these costs.

  5. Tribal representatives disagree with the Agency's interpretation of the statute on this point.  Fringe benefit costs on Federal employees not included in the Section 106(a)(1) amount are obviously paid with Federal dollars regardless of the source of funds for the employee's salary.

  6. Tribal representatives also feel that direct salaries can be included in DCSC in situations where it is allowable as an IDC-type cost but the awardee has an IDC cost-allocation plan that specifically excludes these costs.  It has not, however, been the Agency's practice to allow salary costs as DCSC.

  7. The IRS has determined that Tribes and Tribal instrumentalities are not subject to Federal Unemployment Tax.  Therefore, this cost will not be allowed in those instances.


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