ACF Home      Children's Bureau      Law & Policies       Child Welfare Policy Manual  

Search the Child Welfare Policy Manual

Policy Area

Select Policy Areas










8.3B.1 TITLE IV-E, Foster Care Maintenance Payments Program, Payments, Allowable costs
Items with a star (*) and gray background have been modified from previous record.
Question Number 5:
11/02/2016 - Current
Question
What is an acceptable profit margin for a for-profit child-care institution that services title IV-E eligible children?
Answer
When contracting for goods or services with a profit-making enterprise, there is a presumption that a certain amount of profit is included in the price offered. While there are no Federal guidelines limiting the amount or percentage of profit that may be included in such a contracted price, States are required to obtain the most beneficial pricing by adhering to the "Procurements by states" mandated by 45 CFR 75.326 and the cost principles at 45 CFR PArt 75.403, that "...(t)o be allowable under Federal awards, costs must ... (a)Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles."

In defining "reasonable costs", 45 CFR Part 75.404 provides the following guidance:

"... A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost ...In determining reasonableness of a given cost, consideration shall be given to: Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award; The restraints or requirements imposed by such factors as - sound business practices, arm's-length bargaining, Federal, State and other laws and regulations, and, terms and conditions of the Federal award; Market prices for comparable goods or services for the geographic area; Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government; Whether the non-Federal entity significantly deviates from the established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award's cost."

Accordingly, when States are awarding contracts to for-profit child-care institutions under title IV-E, it is whether the price itself is reasonable under the 45 CFR Part 75 Subpart E cost principle standards that will be used to determine the allowability of that cost, not the amount of profit which a contractor may be making under that contract.

Note: This answer previously referenced 45 CFR Part 92 and OMB Circular A-87. 45 CFR Part 75 supersedes 45 CFR Part 92 and OMB Circular A-87 effective December 26, 2014 (79 FR 75871, Dec. 19, 2014).

Source/Date
*ACYF-CB-PA-97-01 (7/25/97) (revised 11/2/2016)
Legal and Related References
Social Security Act - sections 472 and 473; PL 104-193; 45 CFR Part 75; 79 FR 75871, Dec. 19, 2014. ; 81 FR 3022, Jan. 20, 2016

Back to top


11/01/2016 - 11/02/2016
Question
What is an acceptable profit margin for a for-profit child-care institution that services title IV-E eligible children?
Answer
*When contracting for goods or services with a profit-making enterprise, there is a presumption that a certain amount of profit is included in the price offered. While there are no Federal guidelines limiting the amount or percentage of profit that may be included in such a contracted price, States are required to obtain the most beneficial pricing by adhering to the "Procurements by states" mandated by 45 CFR 75.326 and the cost principles at 45 CFR PArt 75.403, that "...(t)o be allowable under Federal awards, costs must ... (a)Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles."

In defining "reasonable costs", 45 CFR Part 75.404 provides the following guidance:

"... A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost ...In determining reasonableness of a given cost, consideration shall be given to: Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award; The restraints or requirements imposed by such factors as - sound business practices, arm''s-length bargaining, Federal, State and other laws and regulations, and, terms and conditions of the Federal award; Market prices for comparable goods or services for the geographic area; Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government; Whether the non-Federal entity significantly deviates from the established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award''s cost."

Accordingly, when States are awarding contracts to for-profit child-care institutions under title IV-E, it is whether the price itself is reasonable under the 45 CFR Part 75 Subpart E cost principle standards that will be used to determine the allowability of that cost, not the amount of profit which a contractor may be making under that contract.

Note: This answer previously referenced 45 CFR Part 92 and OMB Circular A-87. 45 CFR Part 75 supersedes 45 CFR Part 92 and OMB Circular A-87 effective December 26, 2014 (79 FR 75871, Dec. 19, 2014).

Source/Date
*ACYF-CB-PA-97-01 (7/25/97) (revised 10/2016)
Legal and Related References
*Social Security Act - sections 472 and 473; PL 104-193; 45 CFR Part 75; 79 FR 75871, Dec. 19, 2014. ; 81 FR 3022, Jan. 20, 2016

Back to top


06/13/2005 - 11/01/2016
Question
What is an acceptable profit margin for a for-profit child-care institution that services title IV-E eligible children?
Answer
*When contracting for goods or services with a profit-making enterprise, there is a presumption that a certain amount of profit is included in the price offered. While there are no Federal guidelines limiting the amount or percentage of profit that may be included in such a contracted price, States are required to obtain the most beneficial pricing by adhering to the "Procurement Standards" mandated by 45 CFR 92.36 and the requirements of OMB Circular A-87, that "...(t)o be allowable under Federal awards, costs must ... (b)e necessary and reasonable for proper and efficient performance and administration of Federal awards."

In defining "reasonable costs", A-87 provides the following guidance:

"... A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost ...In determining reasonableness of a given cost, consideration shall be given to: Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award; The restraints or requirements imposed by such factors as - sound business practices, arms length bargaining, Federal, State and other laws and regulations, and, terms and conditions of the Federal award; Market prices for comparable goods or services; Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government; Significant deviations from the established practices of the governmental unit which may unjustifiably increase the Federal award''s cost."

Accordingly, when States are awarding contracts to for-profit child-care institutions under title IV-E, it is whether the price itself is reasonable under the A-87 standards that will be used to determine the allowability of that cost, not the amount of profit which a contractor may be making under that contract.

Source/Date
ACYF-CB-PA-97-01 (7/25/97)
Legal and Related References
Social Security Act - sections 472 and 473; PL 104-193; OMB Circular Number A-87

Back to top


10/01/2000 - 06/13/2005 (Original Record)
Question
What is an acceptable profit margin for a for-profit child-care institution that services title IV-E eligible children?
Answer
When contracting for goods or services with a profit-making enterprise, there is a presumption that a certain amount of profit is included in the price offered. While there are no Federal guidelines limiting the amount or percentage of profit that may be included in such a contracted price, States are required to obtain the most beneficial pricing by adhering to the "Procurement Standards" mandated by 45 CFR 74.40 through 74.48 and the requirements of OMB Circular A-87, that "...(t)o be allowable under

Federal awards, costs must ... (b)e necessary and reasonable for proper and efficient performance and administration of Federal awards."

In defining "reasonable costs", A-87 provides the following guidance:

"... A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost ...In determining reasonableness of a given cost, consideration shall be given to: Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the Federal award; The restraints or requirements imposed by such factors as - sound business practices, arms length bargaining, Federal, State and other laws and regulations, and, terms and conditions of the Federal award; Market prices for comparable goods or services; Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the governmental unit, its employees, the public at large, and the Federal Government; Significant deviations from the established practices of the governmental unit which may unjustifiably increase the Federal award''s cost."

Accordingly, when States are awarding contracts to for-profit child-care institutions under title IV-E, it is whether the price itself is reasonable under the A-87 standards that will be used to determine the allowability of that cost, not the amount of profit which a contractor may be making under that contract.

Source/Date
ACYF-CB-PA-97-01 (7/25/97)
Legal and Related References
Social Security Act - sections 472 and 473; PL 104-193; OMB Circular Number A-87

Back to top


 

Home Back Top

Please send all comments and Web feedback to Feedback.