Call to Order and Roll Call
The 3rd meeting of the Government Nonprofit Contracting Task Force was held on Wednesday, September 7, 2016, at 1:00 PM, in Room 131 of the Capitol Annex. Senator Max Wise, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Max Wise, Chair; Representative Russ A. Meyer, Co-Chair; Senators Danny Carroll, and Stephen West; Representatives Dennis Horlander, and Addia Wuchner, Promod Bishnoi, Cyndee Burton, Danielle Clore, Samantha Davis, Andrew English, Tim Feeley, Robert Jones, Robin Kinney, Judy Piazza, and Michelle Sanborn.
Guests: Stacy Phillips, Cabinet for Health and Family Services, Linda Harney, Cabinet for Health and Family Services, Joan Graham, Finance and Administration Cabinet, Ron Parritt, Kentucky State Police, Savannah Wiley, Kentucky State Police, and Nikki James, Kentucky Department of Corrections.
LRC Staff: Judy Fritz, Van Knowles, Daniel Carter, and Jay Jacobs.
Representative Wuchner moved to approve the August 22, 2016 meeting minutes. Tim Feeley seconded the motion. The motion carried with a voice vote.
OMB Circulars and Uniform Guidance – Experience and Perspective from State Agencies
Stacy Phillips, Procurement Director with the Cabinet for Health and Family Services (CHFS), stated that much of the Uniform Guidance centers around the question of whether an agreement is between an agency and a subrecipient or contractor, but it only applies when the contract includes federal funds. Every CHFS contract involving federal funds will be with either a subrecipient or contractor under Uniform Guidance. Some CHFS contracts will never be subject to Uniform Guidance regulations. These include OIG, Medicaid, and Health Benefit Exchange programs, because those programs are executed in-house.
Mrs. Phillips included some background information about Uniform Guidance. The federal Office of Management and Budget (OMB) implemented Uniform Guidance on December 26, 2014. CHFS proactively reviewed the new policies by attending webinars and meetings held by different federal offices and nonprofit organizations. Uniform Guidance is the abbreviated name of 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and its Subparts.
Uniform Guidance offers two different types of awards: contracts and grants. Mrs. Phillips indicated that 99.9 percent of the funds CHFS deals with are considered grants.
Linda Harney, Certified Public Accountant with the Cabinet for Health and Family Services, described the Uniform Guidance and its subparts: Subpart A includes the definitions used within the regulation; Subpart B outlines general provisions that provide detailed information when the regulations apply; Subpart C discusses federal responsibilities and pre-award requirements; Subpart D focuses on the rules of receiving federal funds; Subpart E covers cost principles; and Subpart F outlines the audit requirements. As a recipient of grant awards, CHFS is most concerned with Subparts D, E, and F.
Mrs. Harney gave an overview of CHFS’s federally funded agreements and described the differences between subrecipients and contractors. The provisions of 2 CFR 200.330 establishes the criteria that determines whether an awardee is a subrecipient or a contractor. If the awardee is a subrecipient, characteristics which support the classification of the entity as a subrecipient include: the entity determines who is eligible to receive what federal assistance; the entity has its performance measured in relation to whether objectives of a federal program were met; the entity has responsibility for programmatic decision making; the entity is responsible for adherence to applicable federal program requirements specified in the federal award; and in accordance with its agreement, the entity uses the federal funds to carry out a program for a public purpose specified in the authorizing statute. A contractor provides goods and services within normal business operations, provides similar goods or services to many different purchasers, and the goods and services provided are ancillary to the federal program. Determining whether an awardee is a subrecipient or a contractor is necessary to comply with the auditing requirements outlined in the Uniform Guidance. Before procuring contracts for July 1 of this year, CHFS reviewed every contract to ensure that proper classifications were made.
Contractors and subrecipients are not subject to the same audit requirements under Uniform Guidance. If the agreement is with a contractor, the state agency and the contractor are not subject to the audit requirements in the Uniform Guidance. However, if the agreement is between a state agency and a subrecipient, both the state agency and the subrecipient must comply with the audit requirements.
The cost principles subpart of Uniform Guidance outline what costs are allowable for federal reimbursement and how many federal dollars should be spent. It requires state agencies to fund indirect costs that are related to the federal program. CHFS includes boilerplate language in its contracts that allow for federal indirect cost reimbursement pursuant to Uniform Guidance regulations.
Mrs. Phillips stated that CHFS cabinet level staff members work closely with the departments to ensure all federally mandated requirements are addressed and enforced. The boilerplate language in all of its contracts addresses Uniform Guidance requirements so the cabinet will be in compliance.
In response to a question by Mrs. Clore, Mrs. Phillips stated that 99.9 percent of the contracts are grants, not to subrecipients.
In response to a question by Mrs. Clore, Mrs. Harney stated that 80 percent of the money CHFS receives is from the federal government. Because the percentage of federal aid is high, the cabinet follows the Uniform Guidance on all contracts that have federal dollars. Mrs. Phillips added CHFS follows KRS Chapter 45A for contract procurement.
In response to a question by Mrs. Clore, Mrs. Phillips stated the biggest disadvantage of mirroring Uniform Guidance for contracts with state dollars would be cost, because agencies would have to reimburse awardees for indirect costs.
In response to a question by Mr. Jones, Mrs. Harney stated that, if there is an existing federally approved rate, it will apply for all federal dollars paid out under that contract.
In response to a question by Representative Wuchner, Mrs. Harney stated that mirroring Kentucky’s statutory language with the definitions in Uniform Guidance would be helpful. CHFS is mirroring their contract terms with Uniform Guidance definitions in their contracts. Mrs. Phillips added that each cabinet would have to work with the Finance and Administration Cabinet to make sure the statutory language is consistent.
Discussion of Advantages and Disadvantages of mirroring OMB Guidance Regulations in Kentucky
Representative Wuchner would like the state statutory language to mirror the terms and definitions used in the Uniform Guidance.
Mrs. Clore would like the state to follow the Uniform Guidance in regards to paying indirect costs, saying it would be beneficial to streamline reporting and data collection.
Contract Processes in Kentucky
Joan Graham, Procurement Director with the Finance and Administration Cabinet gave an overview of the contract process in Kentucky.
The Office of Procurement Services is divided into four general divisions to assist agencies with purchasing and procurement questions. Nonprofit contracts typically fall under the Professional Services and Training Division. The Office of Procurement Services has boilerplate language for Memoranda of Agreement, Personal Service Contracts, and University Contracts for agencies to use.
There are three types of contracts that are handled in Professional Services: Personal Service Contracts, Memoranda of Agreement, and University Contracts. Personal Service Contracts are competitively negotiated through the requests for proposal process; Memoranda of Agreement are non-competitive; and University Contracts are contracts between a state agency and a university. Nonprofit contracts with the state are usually Memoranda of Agreement because the nonprofits are usually performing work that is a governmental function under KRS 45A.690 (1)(d). If a nonprofit is not carrying out a governmental function then the nonprofit would enter into the competitive process and the contract would be a Personal Service Contract.
An overview of the typical agency contract process was given as well as the required contract documentation needed from the nonprofits. Each agency has a slightly different internal contracting process, but they try to maintain a consistent process once the contract reaches the Finance and Administration Cabinet. The cabinet would like to see an option for some of the required documents to be uploaded to the vendor customer record in eMARS. The agency could use the vendor customer record and retrieve the documents contained in the vendor record.
An explanation of the approval process was given as well as details of the focus of the Government Contract Review Committee as it looks at the contracts.
In response to a question by Mrs. Burton, Mrs. Graham stated that “agencies” include any state agency that has a need for a programmatic service.
The scope of work to be done is written into the agreement and is a total manifestation of everything agreed upon by the agency and the nonprofit. The scope of work should be fully explained in simple language; all terms should be explained and defined; acronyms and department lingo should be avoided; usage of the word “shall” should be utilized when requirements are mandatory; and the word “may” should be used when requirements are optional or discretionary.
In response to questions by Mrs. Clore, Mrs. Graham stated that if the contract involves a governmental function then the agency is not required to place it for bid and that eMARS does not have the capability to allow nonprofits to upload documents. In 2018, a future update to eMARS may allow for this functionality. Mrs. Graham stated that not all agencies use eMARS, but it would be helpful if all agencies did.
In response to a question by Mrs. Clore, Mrs. Graham stated that her office does not provide information for grants but the Finance and Administration Cabinet may provide some guidance.
In response to questions by Representative Wuchner, Mrs. Graham stated that in 2009 legislation exempted nonprofits that provide a governmental function from the competitive bid process. Mrs. Graham suggested that competitive bidding is a good practice in contracting for any service, but state agencies do not have to place contracts for nonprofits for bid unless they are not providing a governmental function.
In response to a question by Senator Carroll, Mrs. Graham stated that she does not know the policy behind the legislative change.
In response to a question by Mr. English, Mrs. Graham stated that it is a struggle within the Finance and Administration Cabinet to determine whether a contract is for a governmental function and that they rely on the agencies to make that determination.
In response to a question from Mrs. Clore, Mrs. Graham stated that if a contract with an error was overlooked by the cabinet, a member of the Government Contract Review Committee could pull and review the contract.
Savannah Wiley, Procurement Officer with the Kentucky State Police (KSP), stated that their scope of dealing with nonprofit contracts is very small. KSP deals with Universities in a Memorandum of Agreement format and the funds are federal grants and agency funds.
Nikki James, Internal Policy Analyst with the Department of Corrections, gave an overview of its internal practices. The program requirements determine the need for services and the scope of work. Pricing is negotiated when applicable and some services are provided at a flat fee. An issue the department encounters with vendors is no receipt of original documents. Some nonprofits want to sign and scan the documents, but the program requires that the document the department keeps must have the original signature. Mrs. James acknowledged there are a lot of reviews to get a contract approved and the process is time consuming.
In response to a question by Mrs. Clore, Mrs. James stated that there are a lot of processes that could be streamlined. Being able to add documents to the customer vendor file in eMARS would be helpful.
In response to a question by Mr. Jones, Mrs. James stated that it would be helpful for nonprofits that are also special governmental units, to be able to retrieve documents from the Department of Local Government.
Representative Wuchner stated that it would be beneficial for procurement officers to get together and to work out a plan to streamline the process and present that plan to the task force at a future meeting. Mrs. Clore stated that she thinks nonprofits should be included in those discussions.
In response to a question by Mrs. Clore, Mr. Jones stated that there is a complete set of documents for special governmental units that are filed with the Department of Local Government. Even though some of the same documents are filed and maintained in a database with the department, nonprofits have to fill out the forms again when dealing with other agencies for contractual purposes.
Discussion of Advantages and Disadvantages of mirroring OMB Guidance Regulations in Kentucky
Representative Wuchner stated that she would like to understand the change in the KRS that no longer requires nonprofits to compete if they provide a governmental function.
Mrs. Clore stated that the ability to add a document to eMARS would be helpful and she further stated that all agencies should be required to use EMARS.
Senator Wise said that the next task force meeting will be Monday, September 26th, 2016, at 11 a.m.
A copy of the PowerPoint presentation and other meeting materials are a part of official record in the Legislative Research Commission Library. There being no further business, the meeting was adjourned at 2:28 p.m.