Preparing an IDC Proposal and Impact on Contract Support Costs Steve Osborne, Hobbs Straus Rebecca Patterson, Sonosky Chambers April 2, 2019

CSC Background What are CSC? “Reasonable costs for activities which must be carried on by a tribal organization as a contractor to ensure compliance with terms of the contract and prudent management, but which— normally are not carried on by the respective Secretary in his direct operation of the program, or are provided by the Secretary… from resources other than those under contract.”

CSC Background For decades, both IHS and BIA underfunded CSC IHS argued that ISDEAA contracts were different and they did not need to honor the statutory provision requiring full payment of CSC Later IHS argued it did not need to pay full CSC because there was a cap on the CSC appropriation Two Supreme Court cases: (1) Cherokee Nation and (2) Ramah holding the agencies must pay full CSC

CSC Background Since Ramah Congress decided to pay in full Both IHS and BIA convened CSC workgroups and developed new policies Differences between BIA and IHS policies

CSC Background Starting in 2014, Congress fully funded CSC Part of the general IHS appropriation IHS had to reprogram funds to pay the full CSC need Since 2016, Congress made CSC a separate and indefinite appropriation No more shortfalls (“such sums as may be necessary”) Continuous reconciliations and agency closeout

CSC Major Issues and Litigation Update: CITC Case Main issue: duplication of facilities costs IHS position: if IHS paid any funds for a certain category of costs, no matter how insufficient, IHS owes no more Tribe position: duplication is a dollar-for-dollar offset November 2018: Court agrees with the Tribe IHS will appeal Second case (besides Sage) where IHS had lost on its duplication position

CSC Major Issues and Litigation Update: Norton Sound Health Corp Main Issue: What is the “full” amount of CSC owed and how does that factor into the duplication question? NSHC invokes 97/3 option for service unit duplication IHS revokes 97/3 option, rejects final offer IHS conducts consultation on 97/3 option IHS and NSHC settle case But fate of 97/3 option still officially unresolved

CSC Major Issues and Litigation Update: Sage Two major issues: 1) Whether a Tribe can recover CSC on the third-party revenue funded portion of its health program 2) Duplication: whether the statute refers to duplicating amounts or duplicating categories of funding District court found in favor of the Tribe IHS dropped appeal to 10th Circuit Both issues raised again in other cases (Swinomish, CITC)

CSC Major Issues and Litigation Update: Seminole Tribe Main issue: reallocation authority and salary cap Tribe proposes to allocate 98.93% of program funding to salaries, wages, and fringe IHS imposes 80% cap on allocation of appropriated dollars to salaries/fringe (IHS expends 71% on salaries/fringe in direct service) IHS argues Tribe’s reallocation authority under ISDEAA, for purpose of CSC calculation, is limited by “reasonableness” requirement Decision last week: both parties’ motions for summary judgment denied

CSC Major Issues and Litigation Update IHS reconciliation process Wants to closeout each year’s CSC calculations Requests Tribes sign bilateral amendments WARNING: do not sign any amendment including a waiver due to potential for claims on third-party revenue-funded portion of program

Issues to Consider When Preparing Your IDC Proposal: Exclusions IHS looks to Tribe’s indirect cost rate proposal when determining exclusions for purpose of calculating indirect CSC owed Rate = IDC pool/(TDC – exclusions) Higher exclusions in proposal lower denominator, raise rate But exclusions will also lower direct cost base when IHS applies “rate-times-base” for purpose of determining ICSC Effect of rate on BIA award? Other grants? Consider direct cost base of salaries rather than total direct costs?

Issues to Consider When Preparing Your IDC Proposal Multiple rates May be a passthrough rate May be a special ISDEAA or IHS-only rate Why do it? Health program has additional administrative costs that other departments do not have Keep rate lower for other programs, since they may be funding indirect costs using program funds

Issues to Consider When Preparing Your IDC Proposal Closeout and reconciliation IHS wants to use final rates IHS wants to reconcile to final passthroughs and exclusions May trigger a duplication review If the indirect cost pool expands by over 5% due to the addition of new types of costs Review is supposed to be limited to new types of costs