Appendix F

Purchase of Service (POS) Bid Specifications and Guidance

As previously indicated, 801 CMR 21.00 applies to goods and services, including human and social services. This Policy refers to “commodities and services” when describing requirements applicable to all 801 CMR 21.00 procurements. Human and social service procurements, referred to as “purchase of service” or POS often include specialized and unique requirements. These POS-specific requirements and recommendations are summarized below. For the purposes of this Policy, POS refers to human and social services classified under the “MM3” or “M03” object codes in the Office of the Comptroller’s Expenditure Classification Handbook.

Note: Many POS contracts now are subject to rate setting pursuant to Chapter 257 of the Acts of 2008. For contracts subject to rate setting, certain of the considerations below will not apply.

Commonwealth Terms and Conditions for Human and Social Services

Most 801 CMR 21.00 transactions use the Commonwealth’s Terms and Conditions. Contracts for human and social services use the Commonwealth Terms and Conditions for Human and Social Services, located on the OSD Forms webpage. See CTR policy State Finance Law and General Requirements and Good and Services for additional details for contract execution (available on the CTR’s website).

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RFR-Specific POS Considerations

Additional Considerations regarding compensation:

If considering a compensation structure that uses risk sharing, Departments should consult with OSD and their Secretariat prior to using a risk-sharing structure. A waiver of regulation 808 CMR 1.00, Compliance, Reporting and Auditing for Human and Social Services, may be necessary.

Another tool available to determine the value of the outcomes is the analysis of the actual costs experienced by a group of similar programs through the use of the data contained in Uniform Financial Statements and Independent Auditor’s Reports (see the associated guidance entitled General Audit and Compliance Requirements via a link at the end of this document). In these instances, additional factors, such as differences between the services of similar programs and those services being procured, should be considered.

There are several other items that should be noted by human and social service Departments when developing a pricing system. Several of these common issues are discussed below. Other issues may arise, in addition to those identified below, as pricing structures are developed.

Utilization factor for unit rates: Departments may choose to consider anticipated program utilization when developing prices in a unit rate compensation structure. In effect, a slightly higher unit rate is developed to compensate for the fact that the program will not always operate at maximum (peak) capacity due to client absences or other reasons. Since an absence does not alleviate the program’s operating costs, a slightly higher unit rate will mitigate this potential loss. In many programs, a utilization factor may be appropriate if the Department recognizes that there may be vacancies in the program during the contract term which may impair the contractor’s ability to provide services to other consumers in the program. The exact utilization factor that is negotiated should be based on the program’s prior utilization history, if available, or the average for all programs of the same type.

The inclusion of a utilization factor in unit rate contracts may result in a situation where a specific contractor is serving consumers at a higher utilization level than negotiated or anticipated and thus reaches the maximum obligation of the contract (or “bills out”) before the end of the contract period. In this case, the contractor is required to provide services up to the total capacity purchased by the contract (see line 5 of POS Attachment 4: Rate Calculation/Maximum Obligation Calculation Page located on the OSD Forms webpage) for the remainder of the contract period with no additional funding. The application of a utilization factor does not result in the contractor delivering “free” services; rather, in these cases, the contractor has been fully reimbursed for the costs associated with the program in a period of time that is shorter than the full contract duration. Conversely, Departments may be able to reasonably project that a program may be fully utilized during the contract period, and the use of a utilization factor would not be appropriate. As a general rule, utilization factors of 85% to 100% are considered reasonable. Utilization factors of less than 85% are discouraged, except in exceptional circumstances.

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Commercial fees for for-profit contractors pursuant to 808 CMR 1.03(6): A number of human and social service contractors are organized on a for-profit basis. To avoid confusion and subsequent audit findings, Departments must be explicit in the contract about the amount of fees in excess of cost, if any, that may be earned by a for-profit contractor. Each contract executed between a Department and a for-profit contractor must either 1) explicitly indicate when a commercial fee has not been established by indicating that the earnings allowance is zero or 2) clearly indicate the amount of the negotiated earnings allowance, by percentage or dollar amount, in the contract. This requirement of explicitly stating either zero or the percentage or dollar amount negotiated applies to all available compensation structures and all types of POS contracts with the exception of cost reimbursement contracts.

The amount of fees that a contractor may retain must be noted, for informational purposes only, on POS Attachment 3, Fiscal Year Program Budget. A commercial fee may not be added into the price (rate) paid by the Commonwealth. In those contracts where an Attachment 3 is not used, the amount of the commercial fee, if any, must be included within the contract specifications.

Departments may consider several approaches in developing a reasonable commercial fee. To arrive at a commercial fee, Departments may agree upon a fee based on the maximum obligation of the contract or the total payments made by the Department or a percentage of the surplus as defined in 808 CMR 1.03(6). In addition, when determining what is a reasonable fee, Departments may want to consider profit margins of the for-profit industry as a whole, if available, or the limitations on surplus funds generated by not-for-profit contractors of human and social service programs (see 808 CMR 1.03(7)).

It is important to remember that, regardless of the fees derived by the above methods prospectively, for-profit contractors may not retain a commercial fee from a contract with a deficit operating result. In addition, cost reimbursement contracts cannot, by their nature, have a commercial fee identified. Cost reimbursement contracts only pay for actual costs incurred by the provider, and, thus, do not allow for any surplus.

The provisions of the commercial fee also apply to Chapter 71B Approved Special Education Programs for which the Operational Services Division will prospectively negotiate a commercial fee with the private schools. Departments with questions as to an appropriate commercial fee are encouraged to contact OSD or their Secretariat.

Program budgets: Program budgets by their nature tend to focus attention on the level and type of resources needed to attain the anticipated outcomes of the program. However, primary emphasis should be placed on identifying and determining how to attain the desired outcomes and then on the resources that are necessary to accomplish those outcomes. During the RFR process, program budgets may provide important information to Departments in evaluating responses and consequently may be requested. Except for those budgets required as a result of a cost reimbursement compensation structure or for the services that will be paid for with federal funds, program budgets are not required to be attached to human and social service contracts. Contractors, consistent with good practice, should use program budgets to manage expenditures and to plan for the resources needed to accomplish the outcomes of the program.

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Compensation Structure Limitations: There are a few limitations on Departments’ ability to negotiate the compensation for human and social service programs. See also the associated guidance entitled General Audit and Compliance Requirements available via a link at the end of this document. Those limitations include:

  • Health care, special education, and other authorized rates: Departments must use prices for programs where those prices have been established pursuant to an independent price setting authority, such as the Division of Health Care Finance and Policy or, in the case of certain special education services, OSD. Under M.G.L. c. 118G, the Division of Health Care Finance and Policy is responsible for establishing rates of payment for “health care services” that include many services which traditionally have been procured by Departments through the Purchase of Service system. Departments must utilize the prices established by the Division of Health Care Finance and Policy for services or programs under its jurisdiction when executing a contract for those services or programs. Further, OSD authorizes, pursuant to 808 CMR 1.06, prices for M.G.L. c. 71B approved private school programs. Departments must utilize the prices authorized by OSD when buying slots in one of these approved programs.
  • The Commonwealth must receive the lowest price: Generally, the negotiated price may not be greater than the lowest price charged by the contractor for the same service to any other public or private purchaser (see 808 CMR 1.03 (4)).
  • No balance billing: The negotiated price must be accepted by the contractor as full payment (see 808 CMR 1.03 (5)).
  • Restrictions on the use of client funds or third-party payments: Any client resources or third-party payments not specifically anticipated in the price and defined in the contract must go to reduce the Department’s contract obligation (see 808 CMR 1.03(5)).
  • Prices may not include any non-reimbursable costs: Prices may not include items that are considered non-reimbursable under the provisions of 808 CMR 1.05.

Other RFR Specification considerations:

  • Incorporate an overview of the needs and characteristics of the individuals to be served.
  • Specific requirements including, but not limited to, staffing patterns and qualifications, hours of operation, linkages or affiliations, specialized equipment, training, supplies, or site requirements.
  • The Discharge Planning Specifications for Certain Procurements and the Employment and Training Specifications for Certain Procurements are required for selected human and social services. These specifications are available via links at the end of this document.
  • See OSD Update 08-03, Purchase-of-Service (POS) Capital Items Procurement Policy, via a link at the end of this section, for specific guidance on procurement of capital items of furnishings and equipment for human and social service programs.

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Debriefings and Appeals

Debriefings: Departments must provide an opportunity for debriefing to non-successful Bidders. Non-successful Bidders must request and participate in a debriefing as a prerequisite to filing an administrative appeal. The SSST must specify the individual to whom requests for debriefings should be directed. To facilitate the exchange of information in a timely manner, SSSTs also must identify timeframes for both receipt of debriefing requests (within 14 days of the notification of contract execution) and scheduling of debriefing meetings (within 14 days of the receipt of the request). These timeframes may be modified at the discretion of the SSST. Written documentation of who attended and what was discussed at the debriefing must be placed in the procurement file.

Department Appeals: Pursuant to 801 CMR 21.06(15), non-successful Bidders may, after a debriefing, submit a formal appeal to the SSST or procuring Department. Each SSST is responsible for the development of appeal procedures that are designed to promote and protect the principles of fundamental fairness, as well as to minimize the administrative burden on both SSSTs and Bidders.

The initiation of an appeal by a Bidder may introduce an element of uncertainty into the competitive process for the selected Bidder, the SSST, other purchasers of the service, families, and the individuals being served. For that reason, SSSTs are encouraged to develop procedures for hearing procurement appeals that are streamlined and expeditious. Pending appeals at the Department level shall not prohibit the Department from proceeding with procurement activities and executing contracts. Appeal procedures, must at a minimum, include the following information:

  • The person within the Department to whom requests for an appeal should be directed.
  • Any time limitations for requesting an appeal.
  • Specific grounds for appeal.

Department bids must state that appeals will be considered only when they allege that either:

  • The Department failed to comply with applicable purchase of service regulations and guidelines. These would be limited to the requirements of 801 CMR 21.00 or any successor regulations, the procurement policies and procedures in this Handbook, other policies and procedures issued by OSD, and the specifications of the RFR; or
  • There was a fundamental unfairness in the procurement process.

Administrative appeals are not subject to the formal procedures specified in the State Administrative Procedures on Adjudicatory Procedures and Appeals (M.G.L. c. 30A, s. 10 and s. 11). However, OSD does encourage Departments to provide an opportunity for a hearing or meeting between the parties, as appropriate. Departments may reject appeal requests based on grounds other than those stated above. Information on procedures for appeals to OSD must be included in the RFR (see RFR – Required Specifications for Purchase of Service (POS), on the OSD Forms webpage). All documentation pertaining to appeals must be placed in the procurement file.

Supplier Diversity Plan

See the Supplier Diversity Program (SDP) Form for Purchase of Service (POS) form on the OSD Forms webpage.

POS Attachments

Six contract attachments have been developed specifically to document programmatic and fiscal specifications for human and social service procurements. Instructions for completion and a detailed explanation of the content of each attachment may be found in the associated guidance entitled Purchase of Service Attachment Instructions for Human and Social Services available via a link at the end of this section.

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Required Forms/Use of POS Attachments

Commonwealth Terms and Conditions for Human and Social Services

Required attachment to the RFR.

Departments must:

  1. For electronic responses: Inform Bidders the form is included for informational purposes only and will be required at contract execution (if the form is not already on file with CTR); or
  2. For hardcopy responses: Require Bidders to execute as part of the response (if the form is not already on file with CTR).

Purchase of Service Attachments:

  • Attachment 1: Program Cover Page
  • Attachment 2: Performance Measures
  • Attachment 3: Fiscal Year Program Budget
  • Attachment 4: Rate Calculation/Maximum Obligation Calculation Page
  • Attachment 5: Non-Reimbursable Cost Program Offset Schedule
  • Attachment 6: Capital Budget

Optional attachments to the RFR.

Departments have the option to require Bidders to complete as part of their response or complete at time of contract execution.

Attachment 1 is required at contract execution.

Attachment 2 may be required at contract execution.

Attachments 3, 4, 5, and 6 may be required at contract execution, depending on specific requirements.

 


Associated Policy and Guidance Links:

Date of issue: July 14, 2016

Last revision date: July 14, 2016

Version 1

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