Advance planning documents and federal cost allocation for HHS systems

Reference article · 6 min read

Health and human services systems are rarely paid for out of state funds alone. Federal programs administered by the Department of Health and Human Services, and by USDA for food assistance, pay a share of the cost to plan, build, and operate the systems that determine eligibility, process claims, manage child support, and support child welfare casework. That federal share comes with a review process. Before a state agency spends federal money on a significant system, the funding agency has to approve a document describing what the state intends to buy, why, what it will cost, and how much of that cost each program will carry.

That document is the advance planning document, or APD. The rules governing APDs for HHS-funded systems sit largely in 45 CFR Part 95, with parallel provisions for food assistance systems in USDA regulations, and they interact with the federal grant cost principles in the Uniform Guidance at 2 CFR Part 200. Specific thresholds, forms, and submission channels change over time and differ by program, so confirm current requirements with the funding agency and your grants counsel rather than relying on the version your office used on the last project.

The APD sequence

• Planning APD. A request for federal participation in the cost of figuring out what to build. It funds alternatives analysis, requirements definition, market research, cost and benefit analysis, and often the drafting of the procurement itself. It is comparatively small and short, and it is the right place to spend real time because its outputs become the substance of the next document.
• Implementation APD. The full request. It describes scope, schedule, cost by federal fiscal year, procurement strategy, staffing, risks, anticipated benefits, and the proposed allocation of costs across programs. Approval sets a cost ceiling and a period of performance that later spending is measured against.
• Annual update. Where required, a yearly report of actual against planned cost and schedule, plus the budget for the coming year.
• As-needed update. A mid-stream amendment triggered by material change: cost growth above a defined dollar or percentage threshold, schedule slippage beyond a set period, a change in system scope or procurement approach, or a change in how costs are allocated. Submitting one late is a common and avoidable finding.

Prior approval for acquisitions and contracts

APD approval covers the project. It does not by itself cover the paperwork used to buy the work. Federal regulation separately requires written prior approval of acquisition documents above defined thresholds, which typically means the solicitation before it is issued, the resulting contract before it is executed, and amendments that change cost or scope materially. Sole source and noncompetitive awards draw closer scrutiny.

Some acquisitions fall below the document review thresholds. That is not an exemption from the underlying obligations: competition requirements, record retention, and federal software license terms still apply, and the state remains accountable for the reasonableness of what it paid. Conditional approvals with comments are common, so plan on at least one round of questions and revisions rather than a clean signature.

Matching rates and what qualifies

Federal financial participation varies by program, by cost category, and by whether the system satisfies the funding agency's standards. Medicaid claims processing and eligibility systems have long carried enhanced rates, with a higher rate for design, development, and installation than for ongoing operations, conditioned on meeting CMS standards and conditions. Child support and child welfare systems draw on their own authorities, and enhanced rates authorized in earlier windows have in some cases expired, leaving the standard administrative rate. Treat the applicable rate as something to verify in writing for your program and your cost categories.

Two practical consequences follow. Costs incurred before approval are generally not matchable, so early work done at risk is usually state work. And costs that fall outside the approved scope stay with the state even when the project overall was approved.

Cost allocation for a shared platform

When one platform serves several programs, its cost has to be divided among the programs that benefit, on a basis that reflects relative benefit. For public assistance programs this is documented in a cost allocation plan submitted to the responsible HHS cost allocation office, and the plan must be amended when the system or the mix of programs changes.

• Choose a defensible basis. Caseload counts, transaction volumes, named user counts, or function-level mapping of modules to programs are all used. The test is whether the basis tracks benefit and whether the underlying data can be reproduced later.
• Keep the data. Preserve the source figures and the calculation for each period, not just the resulting percentages.
• Tie invoices to the plan in effect. Auditors typically ask for the approved plan, the methodology, and the numbers behind a specific invoice. A version history that links each billing period to the allocation then in force answers that quickly.
• Confirm current policy on exceptions. Time-limited exceptions have existed allowing certain eligibility systems to serve other programs without full allocation. Do not assume one is still available.

Building the schedule backward

Work the calendar in reverse from the award date:

1. Target contract award.
2. Federal approval of the contract, then negotiation and evaluation.
3. Solicitation open period, including questions and amendments.
4. Federal approval of the solicitation before release.
5. Implementation APD approval before the solicitation is submitted for review.
6. Planning APD and the analysis that produces the implementation APD content.

Treat each federal review as a range rather than a date, assume at least one round of comments, and avoid publishing a release date the agency does not control. Run state-level legal, IT, and budget reviews in parallel with federal review where policy allows.

What to require in the contract

• Federal license rights. Include the required language reserving federal rights in software developed with federal funds, and address how commercial components are treated.
• Cost reporting at the allocation level. Require invoices structured so costs map to APD budget lines and to allocation categories without manual reconstruction.
• Milestone-based payment. Tie payment to deliverables that correspond to approved APD milestones.
• Change control with a federal trigger. Require the vendor to flag any change that may require an as-needed APD update before work begins.
• Audit access and retention. Align with Uniform Guidance requirements and with your state's retention schedule, whichever is longer.
• Suspension and termination. Address what happens if federal approval or funding is withdrawn or delayed.

Ask prospective vendors how their pricing handles a shifted award date, whether their reporting can produce program-level cost detail, and how they have handled re-approval delays without idle billing.

HQT works with state and local agencies on systems engineering, procurement documentation, and software delivery for regulated program environments.

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