Reduction of Reporting Requirements for the State Systems Advance Planning Document (APD) Process

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 95

RIN 0970-AB46

Reduction of Reporting Requirements for the State Systems Advance

Planning Document (APD) Process

AGENCY: Administration for Children and Families, HHS.

ACTION: Final rule.

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

SUMMARY: This final rule decreases the reporting burden on States

relative to the State systems advance planning document (APD) process

by increasing the threshold amounts above which APDs and related

procurement documents need to be submitted for Federal approval. The

APD process is the procedure by which States obtain approval for

Federal financial participation in the cost of acquiring automatic data

processing equipment and services. Additionally, this rule eliminates

the requirement for State submittal of biennial security plans for

Federal review.

EFFECTIVE DATE: July 31, 1996.

FOR FURTHER INFORMATION CONTACT: Bill Davis, State Systems Policy

Staff, 370 L'Enfant Promenade SW., Washington, DC 20447, telephone

(202) 401-6404.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

In accordance with the Paperwork Reduction Act (44 U.S.C. 3507),

information collection requirements relating to automated data

processing and information retrieval systems have been approved by OMB

Approval No. 0992-0005. The provisions of this rule do not contain any

additional reporting and/or recordkeeping requirements subject to OMB

approval.

Statutory Authority

These regulations are published under the general authority of

sections 402(a)(5), 452(a)(1), 1902(a)(4), and 1102 of the Social

Security Act (the Act).

Background and Description of Regulatory Provisions

State public assistance agencies acquire automatic data processing

(ADP) equipment and services for computer operations which support the

Aid to Families with Dependent Children, Adult Assistance, Child

Support Enforcement, Medicaid, Child Welfare, Foster Care and Adoption

Assistance, Job Opportunities and Basic Skills Training (JOBS), and

Refugee Resettlement programs. Conditions and procedures for acquiring

such systems are found at 45 CFR part 95. To reduce the reporting

burden on States and to provide better use of Federal resources, we

issued a notice of proposed rulemaking revising these requirements

which was published in the Federal Register July 24, 1995 (60 FR

37858). We received 23 letters of public comment regarding the proposed

rule from State agencies and other interested parties. Specific

comments and responses follow the discussion of regulatory provisions.

These comments did not generate any changes to the regulatory

provisions outlined in the proposed rule.

Currently any competitive acquisition over $500,000 or any sole

source acquisition over $100,000 in total State and Federal costs which

will be matched at the regular Federal financial participation (FFP)

rate, as defined in Section 95.605 of these rules, requires written

prior approval of an APD. Project cost increases of more than $300,000

require the submission of an APD Update. Also, most procurement

documents (Request for Proposals (RFPs) and contracts) over $300,000,

and contract amendments over $100,000 must be approved by the Federal

funding agencies.

As a first step toward reducing the reporting burden on States and

improving the use of Federal resources, we are raising the threshold

amounts for regular match acquisitions. We will continue to require

written prior approval for all equipment and services acquired at an

enhanced matching rate.

Accordingly, these rules revise 45 CFR 95.611(a)(1), which provides

that States must obtain prior written approval for ADP equipment or

services anticipated to have total acquisition costs of $500,000 or

more in Federal and State funds, to increase the $500,000 threshold

amount to $5 million or more. Similarly, paragraph (a)(4), which

requires prior written approval with respect to State plans to acquire

noncompetitively from a non-government source, ADP equipment and

services, with a total acquisition cost of greater than $100,000, is

revised to require that a State obtain prior written approval of its

justification for a sole source acquisition with total State and

Federal costs of more than $1 million but no more than $5 million and

to provide that noncompetitive acquisitions of greater than $5 million

continue to be subject to the requirements of paragraph (b), which

[[Page 39895]]

provides specific prior written approval requirements.

We are also eliminating paragraph (a)(3), which provides a separate

threshold amount for acquisitions in support of State Medicaid systems

funded at the 75 percent FFP rate. The Health Care Financing

Administration (HCFA) will apply the new thresholds to Title XIX funded

projects. Additionally, we are modifying paragraph (a)(2) to delete a

reference to paragraph (a)(3) and to redesignate paragraphs (a)(4)

through (a)(7) as paragraphs (a)(3) through (a)(6). We are also

revising paragraph (a)(4), as redesignated, to change the reference

from (a)(6) to (a)(5) and to update the office names from Office of

Information Management Systems to Office of State Systems and State

Data Systems Staff to State Systems Policy Staff to reflect a recent

organizational change. And we are correcting a typographical error in

paragraph (a)(6) so that ``ADP'' now reads ``APD''.

Paragraph (b)(1)(iii), which provides that unless specifically

exempted by the Department, written approval must be received prior to

release of a Request for Proposal (RFP) or execution of a contract

where costs are anticipated to exceed $300,000, is revised to increase

the threshold to $5 million with respect to competitive procurements

and $1 million for noncompetitive acquisitions from nongovernment

sources.

With respect to contract amendments, 45 CFR 95.611(b)(1)(iv) is

revised to provide that prior written approval is needed, unless

specifically exempted by the Department, prior to execution of a

contract amendment involving cost increases of greater than $1 million

or time extensions of more than 120 calendar days. In addition, States

will be required to submit for written approval contract amendments

under these threshold amounts on an exception basis or if HHS

determines that the contract amendment was not adequately described and

justified in the APD.

As indicated, with respect to both changes to paragraph (b), HHS

retains the right to review and prior approve all RFPs, contracts, and

contract amendments, regardless of dollar amount, on an exception

basis.

Paragraph (c)(1), which provides specific approval requirements

with respect to regular FFP requests, is also revised to provide

increased thresholds. First, under paragraph (c)(1)(i), the $1 million

threshold with respect to the need for written approval from the

Department of Annual Advanced Planning Document Updates (APDU) is

increased to $5 million. In paragraph (c)(1)(ii)(A), the threshold with

respect to the requirement for approval of an ``as needed'' APDU of

projected cost increases is raised from the lesser of $300,000 or 10

percent of the project cost, to projected cost increases of $1 million

or more.

We are also changing the rules to provide prompt Department action

on State funding requests by providing that if the Department has not

provided a State written approval, disapproval, or a request for

information within 60 calendar days of issuing an acknowledgement of

receipt of a State's request, the request is deemed to have

provisionally met the prior approval requirements.

Accordingly, 45 CFR 95.611(d) is revised to provide that, if the

Department has not provided written approval, disapproval, or a request

for information within 60 calendar days of issuing an acknowledgement

of receipt of a State's request, the request will be provisionally

deemed to have met the prior approval requirements. As indicated in the

proposed rule, provisional approval does not absolve a State from

meeting all Federal requirements which pertain to the computer project

or acquisition. Such projects continue to be subject to Departmental

audit and review, and the determinations made from such audits and

reviews.

Finally, to further the goal of reduced burden and increased

efficiency, these rules amend 45 CFR 95.621(f)(6), by eliminating the

requirement that States submit biennial security reports for Federal

review and approval, to require simply that such reports be maintained

by States for on-site review by HHS. As such, States must continue to

perform security reviews and will be responsible for maintaining review

reports for inspection by HHS staff during on-site reviews.

Response to Comments

We received a total of 23 comments on the proposed rule published

in the Federal Register July 24, 1995 (60 FR 37858) from State agencies

and other interested parties. Specific comments and our responses

follow.

General Comments

1. Comment: Two commenters felt that the changes provided by the

proposed rule did not go far enough to provide significant relief from

the existing burden associated with the APD process. However, the

majority of commenters voiced support for the rule. In fact, 13 of the

respondents offered no other comment than to provide their support.

Response: We disagree. With this rule we are providing a ten-fold

increase in the prior approval threshold for APDs, an even greater

increase for RFPs and contracts, and other significant changes. This

rule will greatly reduce the State burden associated with the APD

process.

Increased Thresholds

1. Comment: Two commenters asked that the increased thresholds also

apply to systems funded at enhanced rates, or at a minimum to Request

for Proposals (RFPs) and contracts after approval of APDs for enhanced

funded projects.

Response: We do not agree with these suggestions. We are convinced

that enhanced funded projects, where the Federal Government pays up to

90 percent of costs, should be given greater attention and scrutiny

than regular match projects. HHS reviews RFPs and contracts to ensure

State plans as expressed in related APDs, and Federal requirements are

being met. Accordingly, thresholds for APDs, RFPs, and contracts for

enhanced funded projects will remain at current levels, even in cases

where enhanced funding becomes available after the beginning of the

project.

2. Comment: One commenter was concerned that the allowance for

review of documents by ``exception'' as stated in the proposed rule,

should truly be used on an exception basis and not become the norm. The

commenter suggested that criteria be developed for exercising the

option and be disseminated to States. The commenter also asked that

when the exception option is used, adequate notice be given to States.

Response: We would like to assure the commenter that we fully

intend that this option will only be exercised on an exception basis.

While we have not developed an exhaustive list of criteria for use of

the exception, as provided in the preamble to the proposed rule, the

criteria ``* * * could include instances where new program requirements

or technology are involved, as in electronic benefits transfer, or when

adequate description and justification has not been provided in the

APD.'' However, States will always receive written notification when

documents must be submitted for review.

3. Comment: One commenter suggested that after Federal review of an

APD, the RFPs and contracts should not be reviewed by HHS.

Response: We do not agree with this suggestion. We will continue to

review RFPs and contracts, in accordance with revised thresholds, to

ensure that State

[[Page 39896]]

plans as expressed in related APDs, and Federal requirements are being

met.

4. Comment: One commenter suggested that HHS should limit its

review of State ADP acquisitions to new development efforts. This

commenter stated that ongoing operations, equipment upgrades, and

systems enhancements should be exempt from Federal review.

Response: We do not agree with this recommendation. Equipment

upgrades and systems enhancements, above the threshold limits, will

continue to be subject to prior approval.

5. Comment: Three commenters recommended that large States should

have higher thresholds than other States. The commenters believe that

because the systems activities of large States are proportionally

larger and more costly than those of other States, large States should

have proportionally more of their systems expenditures exempt from HHS

prior approval.

Response: In establishing the dollar thresholds under which a State

need not obtain HHS' prior approval for an ADP acquisition, HHS sought

to achieve a balance between exercising its responsibility and

providing States a measure of flexibility. HHS is responsible under

Federal law and regulation for ensuring that it provides Federal

matching funds for purposes which are necessary for effective and

efficient program operations. At the same time, however, HHS seeks to

provide flexibility to States who manage and carry-out these ADP

projects.

In establishing a $5,000,000 threshold, HHS is making a ten-fold

increase to the current threshold. We believe that at this time the

increased threshold provides an appropriate balance between its

responsibility for assuring the effective use of Federal dollars and

providing States flexibility of action.

While it is true that large States have commensurately large

systems expenditures, such large expenditures should appropriately

receive a higher level of review to reduce the risk to taxpayers.

6. Comment: One State commenter suggested that HHS should not

review any RFPs, contracts and contract amendments, asserting that

Federal agencies micro-manage State projects and cause delays in nearly

every case where approval is requested. The commenter included a list

of State procedures and approvals required for ADP acquisitions, which

the commenter believes makes Federal approval procedures redundant. The

commenter asserts that Federal review causes delays in nearly every

case.

On the other hand, a commenter from another State could not recall

ever having been delayed by the Federal review process.

Response: As these comments indicate, States are not of a single

mind as to whether the requirement for prior Federal approval delays

States in developing ADP projects. Underlying the first commenter's

assertion is the suggestion that HHS rely on State procedures and

officials to meet its responsibilities for assuring that the

expenditure of Federal funds on State systems is necessary for

effective and efficient operation of the programs.

With the information received through the APD procedures,

accountable HHS officials are able to meet their responsibilities for

assuring that the expenditure of Federal funds on State systems is

necessary for the effective and efficient operation of the programs. As

stated in response to another commenter, HHS intends to continue to

review RFPs, contracts and contract amendments, subject to applicable

dollar thresholds, to ensure that programmatic requirements are being

met.

7. Comment: One commenter noted that the regulation now includes

the Medicaid 75 percent match rate in the regular match category and

noted that now all Medicaid 75 percent acquisitions will require prior

approval.

Response: We believe the commenter misunderstood this provision of

the regulation. The revision now puts Medicaid 75 percent funding in

the $5 million threshold category. HCFA will further clarify this in a

revision to Chapter 11 of the Medicaid Management Manual, which deals

with Medicaid Management Information System requirements.

8. Comment: One State was confused by our statement that some RFPs

and contracts under the threshold amounts would require prior approval.

The commenter was concerned as to how they would know if approval was

required.

Response: Approval of RFPs, contracts, and contract amendments will

be required, on an exception basis, for projects utilizing new

technology, such as Electronic Benefits Transfer (EBT), and in those

cases in which the procurement is not well defined in the approved APD.

States will know when approval of these documents is required because

HHS will inform them, in writing, when these documents must be

submitted for approval.

9. Comment: One commenter noted that contract amendments that are

funded at the regular FFP rate and exceed the $1 million threshold, or

contract time extensions of more than 120 days require prior approval.

The commenter suggested that since a project that costs $1 million will

usually have a duration of more than one year, the number of days

should be changed to 365.

Response: The commenter implies a necessary connection, with which

we do not agree, between increased project cost and the duration of a

project. There are two different issues here. A contract amendment

which exceeds $1 million in cost requires prior approval. Additionally,

a contract amendment for a time extension of more than 120 days

requires prior approval. For example, the cost of a project may

increase with no change in project time frame. Similarly, the time

frame for a project may increase with no increase in project cost.

Federal Response Deadline

1. Comment: One commenter expressed concern that the definition and

use of ``provisional approval'' in the proposed rule was unclear.

Specifically, the commenter noted that the phrases ``deemed to have

provisionally met the prior approval requirements'' and ``provisionally

met the prior approval requirements'' were used interchangeably, but

was concerned that they may in fact have different meanings.

Response: These phrases were not intended to have different

meanings. We use the term ``provisional approval'' rather than

``approval'' to make it clear that States are still subject to all

Federal requirements (other than prior approval). These are the same

requirements, such as those listed in 45 CFR part 74, which States must

comply with for any acquisition in which Federal financial

participation is requested. As stated in the preamble to the proposed

rule, ``Even written prior approval by the Department does not

guarantee absolutely that there will be no subsequent determination of

violation of the pertinent Federal statutes and regulations.''

The proposed rule preamble further states that ``States which are

confident that their project is in compliance would be able, however,

to proceed after the 60-day period has expired without further delay

awaiting Federal approval.'' However, if it is subsequently determined

that the State's project does not meet Federal requirements,

appropriate changes will be necessary.

2. Comment: One commenter suggested that establishing 60 days as

the standard response time may have the effect of lengthening the

response

[[Page 39897]]

time in all situations to a full 60 days. This commenter suggested that

the standard be between 30 and 40 days.

Response: We are not establishing 60 days as the standard response

time. In fact, the Department of Health and Human Services considers

responses to State requests to be ``overdue'' in 30 days. Sixty days is

the outside time period at which point a request will be considered

``provisionally approved.'' If the State has not received a response

within 60 days and is confident that a request meets Federal

requirements, this provision permits the State to proceed as if it had

prior written approval.

3. Comment: One commenter was concerned that we might delay sending

out an acknowledgement letter to effectively increase the 60-day

response time limit.

Response: We would like to assure the commenter that this will not

happen. We will continue our policy of promptly acknowledging State

requests.

Security Review Reports

1. Comment: One commenter suggested that the requirement for

biennial security reports be eliminated.

Response: This regulation eliminates the requirement for States to

submit the biennial security reports to HHS for review. However, the

requirement to conduct the bi-annual reviews and maintain the reports

will remain in place as a minimal requirement to assist States in

assuring the security of their data processing assets and systems.

These reports must be available for review by HHS staff during site

visits to States to assist in assessing the security status of

Federally funded data processing activities.

Other

1. Comment: One commenter stated that the Federal depreciation

requirements should be changed.

Response: Federal depreciation requirements are not set by the

Department of Health and Human Services but by the Office of Management

and Budget under OMB Circular A-87 and thus are not within the purview

of this final rule. However, the Department of Health and Human

Services previously agreed to exempt data processing equipment costing

no more than $5,000 from the depreciation requirements.

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

rule is consistent with these priorities and principles. No costs are

associated with this rule as it merely decreases reporting burden on

States.

Regulatory Flexibility Act

Consistent with the Regulatory Flexibility Act (Pub. L. 96-354),

which requires the Federal Government to anticipate and reduce the

impact of rules and paperwork requirements on small businesses and

other small entities, the Secretary certifies that this rule has no

significant effect on a substantial number of small entities.

Therefore, a regulatory flexibility analysis is not required.

List of Subjects in 45 CFR Part 95

Claims, Computer technology, Grant programs--health, Grant

programs, Social programs, Social Security.

(Catalog of Federal Domestic Assistance Program 93.645 Child Welfare

Services--State Grants; 93.658, Foster Care Maintenance; 93.659,

Adoption Assistance; 93.563, Child Support Enforcement Program;

93.174, Medical Assistance Program; 93.570, Assistance Payments--

Maintenance Assistance)

Dated: January 23, 1996.

Mary Jo Bane,

Assistant Secretary for Children and Families.

Approved: April 18, 1996.

Donna E. Shalala,

Secretary.

For the reasons set forth in the preamble, 45 CFR Part 95 is

amended as follows:

PART 95--GENERAL ADMINISTRATION--GRANT PROGRAMS (PUBLIC ASSISTANCE

AND MEDICAL ASSISTANCE)

1. The authority citation for Part 95, Subpart F continues to read

as follows:

Authority: Secs. 402(a)(5), 452(a)(1), 1102, and 1902(a)(4) of

the Social Security Act, 42 U.S.C. 602(a)(5), 652(a)(1), 1302,

1396a(a)(4); 5 U.S.C. 301 and 8 U.S.C. 1521.

2. Section 95.611 is amended by removing paragraph (a)(3);

redesignating paragraphs (a)(4) through (a)(7) as (a)(3) through

(a)(6); revising paragraphs (a)(1), (a)(2), newly redesignated

paragraphs (a)(3), (a)(4) and (a)(6); paragraphs (b)(1)(iii),

(b)(1)(iv), (c)(1)(i), (c)(1)(ii)(A) and (d); and republishing newly

redesignated paragraph (a)(5) to read as follows:

Sec. 95.611 Specific Conditions for FFP.

(a) * * *

(1) A State shall obtain prior written approval from the Department

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.

(2) A State shall obtain prior written approval from the Department

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 45 CFR 205.35, 45 CFR part 307 or 42 CFR

part 433, subpart C, regardless of the acquisition cost.

(3) A State shall obtain prior written approval from the Department

of its justification for a sole source acquisition, when it plans to

acquire noncompetitively from a nongovernmental source ADP equipment or

services, with proposed FFP at the regular matching rate, that has a

total State and Federal acquisition cost of more than $1,000,000 but no

more than $5,000,000. Noncompetitive acquisitions of more than

$5,000,000 are subject to the provisions of paragraph (b) of this

section.

(4) Except as provided for in paragraph (a)(5) of this section, the

State shall submit requests for Department approval, signed by the

appropriate State official, to the Director, Administration for

Children and Families, Office of State Systems. The State shall send to

ACF one copy of the request for each HHS component, from which the

State is requesting funding, and one for the State Systems Policy

Staff, the coordinating staff for these requests. The State must also

send one copy of the request directly to each Regional program

component and one copy to the Regional Director.

(5) States shall submit requests for approval which involve solely

Title XIX funding (i.e., State Medicaid Systems), to HCFA for action.

(6) The Department will not approve any Planning or Implementation

APD that does not include all information required as defined in

Sec. 95.605.

(b) * * *

(1) * * *

(iii) For the Request for Proposal and Contract, unless

specifically exempted by the Department, prior to release of the RFP or

prior to the execution of the contract when the contract is anticipated

to or will exceed $5,000,000 for competitive procurement and $1,000,000

for noncompetitive acquisitions from nongovernmental sources. States

will be required to submit RFPs and contracts under these threshold

amounts on an exception basis or if the procurement strategy is not

adequately described and justified in an APD.

[[Page 39898]]

(iv) For contract amendments, unless specifically exempted by the

Department, prior to execution of the contract amendment involving

contract cost increases exceeding $1,000,000 or contract time

extensions of more than 120 days. States will be required to submit

contract amendments under these threshold amounts on an exception basis

or if the contract amendment is not adequately described and justified

in an APD.

* * * * *

(c) * * *

(1) * * *

(i) For an annual APDU for projects with a total acquisition cost

of more than $5,000,000, when specifically required by the Department.

(ii) For an ``As Needed APDU'' when changes cause any of the

following:

(A) A projected cost increase of $1,000,000 or more.

* * * * *

(d) Prompt action on requests for prior approval. The ACF will

promptly send to the approving components the items specified in

paragraph (b) of this section. If the Department has not provided

written approval, disapproval, or a request for information within 60

days of the date of the Departmental letter acknowledging receipt of a

State's request, the request will automatically be deemed to have

provisionally met the prior approval conditions of paragraph (b) of

this section.

3. Section 95.621 is amended by revising paragraph (f)(6) to read

as follows:

Sec. 95.621 APD reviews.

* * * * *

(f) * * *

(6) The State agency shall maintain reports of their biennial ADP

system security reviews, together with pertinent supporting

documentation, for HHS on-site review.

[FR Doc. 96-19488 Filed 7-30-96; 8:45 am]

BILLING CODE 4184-01-P