Contract Support Costs Contract Support Costs April 17, 2009

Contract Support Costs Consists of Indirect Costs, Direct Contract Support Costs, and Start Up Section 106(a)(2): “There shall be added to the amount required by paragraph (1) contract support costs which shall consist of an amount for the reasonable costs for activities which must be carried on by a tribal organization as a contractor to ensure compliance with the terms of the contract and prudent management, but which – (A) normally are not carried on by the respective Secretary in his direct operation of the program; or (B) are provided by the Secretary in support of the contracted amount from resources other than those under contract”. Section 106(a)(3)(A): “The contract support costs that are eligible costs for the purposes of receiving funding under this Act shall include the costs of reimbursing each tribal contractor for reasonable and allowable costs of – (i) direct program expenses for the operation of the Federal program that is the subject of the contract, and (ii) any additional administrative or other expenses related to the overhead incurred by the tribal contractor in connection with the operation of the Federal program, function, service, or activity pursuant to the contract, except that such funding shall not duplicate any funding provided under section 106(a)(3)(A)”. Section 106(a)(5): “Subject to paragraph (6), during the initial year that a self-determination contract is in effect, the amount required to be paid under paragraph (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”.

Contract Support Costs P.L Contract or Compact IndirectCSCDirectProgramFunds ISDF (Start Up) DirectCSC Sec. 106(a)(1)Sec. 106(a)(2) Sec. 106(a)(5) Sec. 106(a)(3)(A)

Start-Up Costs  One time costs incurred either prior to or after an award to plan, prepare for, and assume the operation of a Program, Function, Service, or Activity (PFSA).  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 Awardee’s recurring direct or indirect contract support costs.

Indirect Costs  Indirect costs are those: (a) incurred for a common or joint purpose benefiting more than one cost objective, and (b) not readily assignable to the cost objectives specifically benefited, without effort disproportionate to the results achieved. Generally negotiated with the DOI National Business Center. Ex. accounting, purchasing, HR  Awardees Without Negotiated IDC Rates. A lump sum amount (lump sum agreement) for “indirect types of costs” may be computed for an awardee that does not have a formally negotiated IDC agreement.

Direct CSC  Direct Contract Support Costs (DCSC) pay for activities that are not contained in either the IDC pool (or indirect type cost budget) or the amount computed pursuant to Section 106(a)(1). DCSC amounts are awarded on a recurring basis and need not be justified each year. They are more like direct program dollars than an indirect dollars.  Examples:  Unemployment taxes on direct program salaries  Workers compensation insurance on direct program salaries  Cost of retirement for converted Civil Service salaries  Facilities support costs  Training required to maintain certification requirements

CSC Policy IHS and BIA  Since FY 2006, both BIA and IHS have very similar CSC policies.  The policies both allow the payment of Direct Contract Support Costs (DCSC) in addition to the payment of Indirect Contract Support Costs (IDC) and Start Up Funds.

Policy for Allocating Funding Available for CSCs CSC funding is composed of three “pools”  The first pool (Pool No. 1) is composed of any funding appropriated for CSCs associated with new and expanded awards (the “ISD Fund”).  The second pool (Pool No. 2) is composed of the total amounts awarded by the BIA in the prior year for direct and indirect CSCs (the prior year’s “CSC base”).  The third pool (Pool No. 3) is composed of amounts, if any, appropriated for increases on the prior year “CSC base” to pay additional CSC requirements (“CSC increase”).  The SHORTFALL REPORT is critical. Under this system, each tribe receives a stable amount for DCSC and indirect costs, an amount which can increase up to the full CSC requirement.  Only Congress can appropriate full CSC Funding.

Contract Support Cost Funding  IHS– Shortfall for 2009 estimated to be of just under $160 million. Currently, Tribes are funded at an estimated 68% of need.  BIA—Shortfall for 2008 (2009 estimates are not yet complete) are estimated at just under $54 million. The level of need funded is approximately 71.8%

Frequently Asked Questions  Question # 3 and Question # 5: Why do Tribes require CSCs?  Answer: An ISDA Contract does not include all of the support services an Agency has at its disposal such as financial management, human resources, or OGC. Additionally, Tribes incur costs that Agencies do not have such as insurance and annual audits.

Frequently Asked Questions  Question # 8: What happens when a Tribe is not paid its Contract Support Costs?  Answer: Since CSCs are fixed costs that a Tribe must incur, they typically either: 1) reduce funds budgeted for direct services in order to cover the shortfall; 2) Divert Tribal funds to subsidize the federal contract; or 3) a combination of these two approaches.

Frequently Asked Questions  Question 40: Why has the ISDA initiative slowed down so severely?  Answer: Contracting activities have slowed down primarily because of the enormous backlog in contract support costs. For a while, IHS demanded that Tribes waive their statutory rights to CSC as a condition to taking on any new programs.  UPDATE: Currently, the biggest impediment on both the IHS and BIA side is a lack of full funding. Start-up funding is a problem for new IHS and BIA contractors for different reasons. IHS has administratively elected not to allocate CSC funds to Start-up while BIA does not have budget authority for recurring start-up CSC funds.