[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Rules and Regulations]
[Pages 39894-39898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19488]


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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.

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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