MEMORANDUM OPINION RE DOCUMENT NOS. 9, 14
RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE
Denying
Plaintiff's Motion for Summary Judgment; Denying
Defendants' Cross-Motion for Summary Judgment
I.
INTRODUCTION
The
Indian Self-Determination and Education Assistance Act
(“ISDEAA”), 25 U.S.C. §§ 5301-5423,
authorizes the federal government and Indian tribes to enter
into contracts that permit the tribes to provide to their
members federally funded services that the government would
have otherwise provided itself. Pursuant to the ISDEAA,
Plaintiff in this case, the Seminole Tribe of Florida, has
for years contracted with the Secretary of Health and Human
Services (“HHS”) so that the Tribe may operate
its own health program with federal dollars. For fiscal year
2018, the Tribe and the Secretary were able to reach an
agreement on the vast majority of federal funding that would
be transferred to the Tribe in support of this health
program. But the parties were not able to agree on one
category of funds. The Tribe therefore brought this lawsuit,
asking the Court to compel the Secretary to accept the
Tribe's final offer. Presently before the Court are the
parties' cross-motions for summary judgment. As explained
below, the Court denies both of these motions, because there
remain significant factual issues that the parties have not
yet addressed.
II.
BACKGROUND
A.
Statutory and Regulatory Background
Congress
passed the ISDEAA in 1975 in recognition of the right of
Indian tribes to self-govern. Pub. L. No. 93-638, § 3,
88 Stat. 2203, 2203-04 (1975); see also 25 U.S.C.
§ 5302(a). The Act gives tribes the option of entering
into “self-determination contracts” with the
Secretary of HHS and the Secretary of Interior, under which
the tribes become authorized to provide services to their
members that otherwise would have been provided by the
federal government- like education, law enforcement, or
healthcare. See 25 U.S.C. § 5321(a)(1).
Consistent with its broader purpose, the ISDEAA limits the
government's discretion to deny tribes the ability to
enter into a self-determination contract. After a willing
tribe submits “a proposal” for such a contract,
the relevant Secretary must approve the proposal within
ninety days, unless he “provides written notification
to the applicant” of “a specific finding that
clearly demonstrates that” at least one of five
enumerated grounds for rejection applies. Id. §
5321(a)(2).
Among
those grounds for rejection is the Secretary's conclusion
that “the amount of funds proposed under the”
tribe's submission “is in excess of the applicable
funding level for the contract.” Id. §
5321(a)(2)(D). The “applicable funding level, ”
the ISDEAA explains, is made up of two general categories of
money. The first category is what is often referred to as
“the Secretarial amount, ” meaning the amount
that “the appropriate Secretary would have otherwise
provided for the operation of the programs . . . for the
period covered by the contract.” Id. §
5325(a)(1). By requiring that the federal government provide
no less than this amount, the ISDEAA ensures that the tribes
receive funding equal to what the government would have spent
if it provided the services at issue itself. Id.
On top
of this base amount, however, the Secretary must also provide
a second category of funds: “contract support
costs” (“CSCs”). Id. §
5325(a)(2). These are “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 . . . normally are
not carried on by the respective Secretary in his direct
operation of the program . . . or . . . are provided by the
Secretary in support of the contracted program from resources
other than those under contract.” Id.
CSCs in
turn comprise two sub-categories of funds. One is direct
CSCs, which are, unsurprisingly, the “direct program
expenses for the operation of the Federal program that is the
subject of the contract, ” id. §
5325(a)(3)(A)(i), like unemployment taxes or workers
compensation payments. The other category is indirect CSCs,
which are “any additional administrative or other
expense[s] related to the overhead incurred by the tribal
contractor in connection with the operation of the Federal
program, ” id. § 5325(a)(3)(A)(ii).
Indirect CSCs generally make up the majority of CSCs; they
can include expenses for facilities, equipment, auditing, and
other financial management services. See Cherokee Nation
of Okla. v. Leavitt, 543 U.S. 631, 635 (2005).
The
ISDEAA provides no specific procedure for determining the
amount of indirect CSCs a tribal contractor will incur
related to a particular program in a given year. The Act
merely states, as noted above, that the costs must be
“reasonable . . . to ensure compliance with the terms
of the contract and prudent management, ” 25 U.S.C.
§ 5325(a)(2), and that they cannot duplicate any funding
already included in the Secretarial amount, id.
§ 5325(3)(A). Normally, however, the CSC amount
attributed to a particular program is calculated by applying
an “indirect cost rate” to a base amount of funds
already owed to the tribe. See 2 C.F.R. pt. 200,
app. VII, § C; Cherokee Nation, 543 U.S. at
635. The same indirect cost rate is generally used across all
of the tribal contractor's federal programs for two to
four years, see 2 C.F.R. pt. 200, app. VII,
§§ B.9, C.2.a, and it is determined through
negotiations with the Interior Business Center
(“IBC”), located within the Department of
Interior.
These
negotiations are generally guided by uniform cost principles
issued by the Office of Management and Budget
(“OMB”) that are applicable to all federal awards
to non-federal entities-not just to Indian tribes. See
generally 2 C.F.R. pt. 200; see also 2 C.F.R.
§ 200.100. Those principles instruct that the process
begins by taking the tribe's total costs associated with
all federal programs for a fiscal year and classifying them
as either direct or indirect. See 2 C.F.R. pt. 200,
app. VII, §§ B.9, E.2. The indirect costs are then
divided by a “distribution base, ” which is
usually either the total direct costs of all federal programs
contracted to the tribe, or the total salaries and wages
associated with all federal programs. See 2 C.F.R.
pt. 200, app. VII, § C.2.a, c. The product of that
division equation is the indirect cost rate-“the
percentage which the total amount of allowable indirect costs
bears to the base selected.” Id. § C.2.a.
Once
the IBC and the tribal contractor agree on an indirect cost
rate, they execute an “Indirect Cost Negotiation
Agreement.” Pl.'s Mot. for Summ. J., Ex. C, ECF No.
9-3. It is then presumed that the agreed-upon rate will be
used to allocate indirect costs to all of the tribal
organization's individual federal contracts-by
multiplying the rate by the base amount attributable to the
individual contract at issue. Id.; 2 C.F.R. pt. 200,
app. VII, § E.1. Thus, if, for example, the rate was
determined using a distribution base of total direct costs
for all federal programs, the indirect CSCs for a particular
program would be calculated by applying the rate to the total
direct costs for that particular program. See 2
C.F.R. pt. 200, app VII, §§ B.1, C.2.a. Because
total direct costs are certain to be a larger amount than
salaries and wages (which are themselves a portion of total
direct costs), indirect cost rates pegged to total direct
costs are likely to be lower percentages than those pegged to
salaries and wages. But everything should roughly even out
when the rate is multiplied by the corresponding base amount:
For total direct cost rates, a relatively low rate would be
applied to a relatively high base amount. For salary and wage
rates, a somewhat higher rate would be applied to a somewhat
lower base amount.
A
hypothetical example may make this easier to understand. Take
a fictional tribe with multiple federal contracts, which
together represent $10 million in total direct costs, of
which $8 million is spent on salaries and wages. On top of
these costs, the tribe also estimates $2 million in indirect
costs associated with all of its federal programs. To
calculate the tribe's indirect cost rate, it would first
choose the distribution base: either the total direct costs
of $10 million or the salaries and wages amount of $8
million. It would then divide the $2 million indirect costs
number by the chosen distribution base. So if the base was
total direct costs, the resulting indirect cost rate would be
2 million divided by 10 million-.2, or 20 percent. And if the
base was salaries and wages, the rate would be 2 million
divided by 8 million-.25, or 25 percent.
Once
one of these rates has been calculated, it is then used to
allocate the indirect costs across the fictional tribe's
federal awards. Assume that the tribe's federal health
program has total direct costs of $5 million, of which $4
million are salaries and wages. If the rate had been
determined using total direct costs, the 20 percent number
calculated above would be applied to $5 million, producing an
indirect cost award for the health program of $1 million. If,
on the other hand, the rate had been determined using
salaries and wages, the 25 percent number from above would be
applied to $4 million, producing the same indirect cost
award: $1 million.
Admittedly,
this example involves round numbers and evenly distributed
costs. In practice, the methodology would rarely be this
clean, and the ultimate indirect cost award could vary
slightly depending on whether the rate was pegged to total
direct costs or salaries and wages. But, as the Court said
earlier, the purpose of the methodology is to allocate
indirect costs across awards in a roughly even
manner-so that “each Federal award bear[s] a fair share
of the indirect costs in reasonable relation to the
benefits received from the costs.” 2 C.F.R. pt. 200,
app VII, § B.1 (emphasis added).
B.
Factual Background
This
case arises out of a dispute over the amount of recoverable
indirect CSCs related to a self-determination contract for
healthcare services. Such contracts for health care services,
as one might expect, fall within the purview of the Secretary
of HHS and are overseen by the Indian Health Services
(“IHS”), one of HHS's operating divisions.
Plaintiff, the Seminole Tribe of Florida, has for years
contracted with HHS and IHS to operate its own health
program. For fiscal year 2018, the parties were able to agree
on the Secretarial ...