540.001 Sanctions Imposed Upon a Contractor for Non-Compliance with Contracts Involving State/Federal Funds

Policy Number  540.001
Effective Date  December 18, 1997
Revision Date  April 3, 2008
Approval Authority  TB/HIV/STD Section Director

1.0 Purpose

This policy establishes the process for imposing sanctions on an organization (Contractor) which contracts with the Texas Department of State Health Services (DSHS) TB/HIV/STD Section (Section) and is found to be out of compliance with contract requirements. The policy also outlines what optional actions may be taken by the Section before imposing a sanction; the reasons for imposing sanctions; how the Section imposes a sanction, and the time frame for imposing a sanction. Finally, the policy explains how the Contractor responds to either a required action or a sanction and the recourse available to a Contractor regarding that action or sanction.
 

2.0 Background

The Section administers state and federal funds to accomplish its mission of preventing and treating the spread of HIV/STD diseases in Texas. The Section enters into contracts with various Contractors across the state to administer programs and provide services to people who are infected or affected by these diseases. The Section is responsible for reviewing and monitoring how each Contractor administers the services and allotted funds to insure that the services are appropriately provided and that the Contractor properly accounts for the funds. To fulfill this responsibility, Section or DSHS staff monitor the completion of required Contractor reports and voucher requests, conduct standard Contractor compliance reviews, or investigate complaints against a Contractor. As a result, it may be necessary to take action against a Contractor who is not in compliance with the contract terms or who may be jeopardizing the health or safety of persons receiving services. Such action may also be necessary to ensure that funds are being administered according to the contract terms.
 

3.0 Authority

Rider 13 of the General Appropriations Act of the 75th Legislature; DSHS Contracting Guide for Client Services; Uniform Grant and Contract Management Act (UGCMA); Uniform Grant Management Standards (UGMS) as amended by revised federal circulars 74-4, A-122, A-128 and A-133; Texas Health and Safety Code, § 85.043; Texas Administrative Code, Title 25, §1.51-1.55, §98.23, §98.27-98.3
 

4.0 Definitions as Applied to this Policy

Accelerated monitoring - A temporary status in which more frequent or extensive monitoring is conducted than would routinely be done and monitoring visits may be announced or unannounced.

Contract - A legally enforceable agreement by which goods, services, property or property rights are provided in return for considerations.

Contractor - A legal entity under contract with DSHS to provide goods or services to people who are infected or affected by HIV, AIDS or STDs, or to implement goals supporting the Section's mission.

Corrective action - An action required of a Contractor to develop a detailed plan to correct a deficiency found by a reviewer or by staff who are monitoring Contractor activities. The plan could include what will be done, who will do it, expected results, how progress will be monitored, and how long it will take to resolve the deficiency.

Emergency actions - Immediate actions imposed on a Contractor because:

  1. there is a high potential of danger to clients;

  2. Contractor action or inaction presents a high possibility that serious harm or injury to patients or clients could occur, has already occurred or may well occur again if clients are not protected or the threat removed;

  3. the Contractor is not meeting a performance measure;

  4. the Contractor is being reimbursed for expenditures which are not in accordance with federal and/or state laws and regulations or contract provisions, or

  5. the Contractor is spending funds inappropriately.

Noncompliance - A finding by a DSHS reviewer or other DSHS staff wherein a Contractor fails to perform or inadequately performs contract provisions that may result in emergency actions, corrective actions and/or sanction(s).

Probation - A sanction in which the Contractor may be placed on accelerated monitoring for a period not to exceed six months by which time items of noncompliance must be resolved or substantial improvements shown.

Reviewer - A member of the DSHS or Section staff who conducts a site visit to audit or review Contractor operations and/or administration of contract funds. The term also includes Section or DSHS staff who monitor Contractor reporting requirements or financial accounting activities.

Sanction - An intervention or adverse action taken by the Section or DSHS against or toward a Contractor due to noncompliance with contract provisions, program performance, or an inability/unwillingness to resolve legitimate, substantiated complaints.
 

5.0 Noncompliance with Contract Terms

Each Contractor receiving funds through the Bureau signs a contract which outlines tasks or requirements associated with receiving the funds. In signing the contract, the Contractor agrees to perform those tasks or requirements. Noncompliance results when a discrepancy is found in the administration of a program or a service, or an irregularity is found in the way the Contractor is spending and/or accounting for the funds. The discrepancy may be found during a compliance review or it may be found by staff responsible for monitoring Contractor compliance with reporting or financial accounting activities. The Contractor may also be found in noncompliance for failing to cooperate with the investigation of a complaint or failing to respond to adverse findings resulting from a complaint filed against the Contractor.

The Section has various options it may take in regard to contract noncompliance. The options include emergency action, corrective action or imposition of a sanction. The decision to require corrective action or to impose a sanction depends on the severity of the finding or if similar or recurring problems have been found in the past.
 

6.0 Emergency Action

The Section is authorized to take an immediate emergency action when a reviewer determines that a finding of noncompliance warrants such action.
 

6.1 Time frame and method for notifying Contractor of emergency action

The reviewer, after conferring with appropriate Section management staff, gives a verbal notice on-site to the Contractor to immediately discontinue the action or process. The reviewer provides written notice of the required emergency action by certified mail within 10 calendar days.
 

6.2 Time frame for the Contractor to respond to emergency action

The Contractor must immediately discontinue the action or process that has prompted the required emergency action. In addition, the Contractor must provide an acceptable action plan in a time frame specified by the Section to ensure that the circumstances or conditions which caused noncompliance will not recur.
 

6.3 Section action when the Contractor fails to respond to the emergency action notice

The Section will decide what additional actions or recourse may be needed in order to effectively stop the noncompliant action or process. Recourse may include the imposition of any of the corrective actions listed in this policy and/or imposition of any of the sanctions described in this policy or any combination thereof. The Section may also refer the matter to the Office of General Counsel for appropriate action.
 

6.4 DSHS communication regarding emergency action

When emergency action is required, Section programs must notify the Associate Commissioner for Disease Control and Prevention and the Office of Intergovernmental Policy through appropriate agency channels. The Section Manager or division or program managers make the decision when notification should be carried out.
 

6.5 Discontinuing emergency action

Emergency action is discontinued when the condition causing the Section to take emergency action has been eliminated and the Section is reasonably sure that the condition will not recur. Compliance will be determined by accelerated monitoring or other appropriate DSHS or Section procedures. The Section notifies the Contractor in writing that the condition which elicited the emergency action(s) has been resolved and additional action is not required.
 

7.0 Corrective Action

When possible, Section staff will require the Contractor to remedy adverse findings by recommending that the contractor take certain corrective action(s) before imposing a sanction(s). When corrective action is recommended, the Contractor is subject to the following Section actions:

  • announced or unannounced compliance reviews to determine the cause(s) of noncompliance;

  • technical assistance/training from other divisions and programs to assist the Contractor in rectifying certain noncompliant areas of service delivery or administration;

  • follow up site visits, and

  • accelerated monitoring.

The decision to require corrective action or to impose a sanction depends on the severity of the finding or if similar or recurring problems have been found in the past.
 

7.1 Time frame and method for notifying the Contractor of required corrective action

Within 45 calendar days of finding Contractor irregularities the Section sends the Contractor a written notice requiring corrective action to resolve the irregularities. The notice may be part of the site visit report or it may be a letter relating findings from contract monitoring activities. The notice informs the Contractor of the need to develop an action plan to address the irregularities that were found, the expected time frame for resolving the irregularities and the time frame for responding to the corrective action requirement.
 

7.2 Time frame for the Contractor to respond to the corrective action

The Contractor has 35 calendar days from the date of the letter to respond to the corrective action requirement by outlining the action that has been taken or will be taken to address the findings. A time frame for completing the action plan and how the Contractor will determine the effectiveness of the action plan should be included.
 

7.3 Section action when the Contractor fails to respond to the corrective action notice

The Section will decide whether or not to issue a formal sanction if, by the end of 35 calendar days after the date of the letter, the Contractor fails to respond by providing the proposed action plan.
 

7.4 Section action when the Contractor responds to the corrective action notice

Section staff which directed the use of a corrective action reviews the Contractor's response and evaluates it. Within 30 calendar days or less from receipt of the plan, the following alternatives are available:

  1. When the corrective action is acceptable, Section staff reply in writing acknowledging receipt of the response and that it is accepted.

  2. When the corrective action is unacceptable, staff informs the Contractor in writing that additional action or information is needed. The Contractor must respond within 35 calendar days of the date of the letter. Staff may discuss unacceptable portions of the corrective action plan with the Contractor over the telephone. Any agreements of changes from those discussions should be documented in the Contractor’s file. The Section may decide to impose a formal sanction if the Contractor fails to negotiate a satisfactory corrective action plan.
     

7.5 Section action when corrective action fails to resolve noncompliance

When corrective action has been required and the Contractor is still not in compliance or will not comply, the Section may then decide to impose a sanction. Staff involved in the finding and their division or program director determine what sanction is appropriate for the finding.
 

8.0 Sanctions That May be Imposed by the Section

A list of possible sanctions is found in the DSHS contract which both parties sign. One or more sanctions may be imposed depending on the extent of the problem, the impact on the clients being served and/or the seriousness of the problem. For the purposes of this policy, sanctions are shown in three different levels depending on the seriousness of the action to be taken.
 

8.1 Level I Sanctions

One or more of the following Level I sanctions may be imposed:

  1. accelerated monitoring;

  2. requiring the provider to accept technical/management assistance or training;

  3. disallowing claims for payment or reimbursement on expenditures and expenditures for which prior approval was required but not obtained;

  4. requiring additional, more detailed, programmatic reports;

  5. requiring additional prior approvals for expenditure of funds, and/or

  6. referral to the DSHS Grants Management Division or Internal Audit for monitoring.
     

8.1.1 Imposing the level I sanction

Staff of the program finding noncompliance may impose the Level I sanction. Staff should follow any division or program procedures when imposing a level I sanction.
 

8.1.2 Time frame for Contractor sanction notification

The Section provides written notice by certified mail to the Contractor within 30 calendar days of finding noncompliance.
 

8.1.3 Content of the sanction notice and method of calculating response time

Section staff issues a written notice to the Contractor telling the Contractor that this is the official notice imposing the sanction. The sanction is effective upon receipt of the notice. The notice must contain the following:

  1. the area(s) found to be in noncompliance;

  2. any references to previous correspondence;

  3. a narrative outlining what must be done to achieve compliance;

  4. the expected time frame for reaching compliance, and

  5. the deadline for the Contractor to reply.

The time frame for the Contractor's response begins with the receipt date on the return receipt or the date delivery was attempted whichever comes first. That date is considered day zero.

NOTE: When accelerated monitoring is one of the sanctions, a notice may not be sent prior to performing the monitoring.
 

8.1.4 Contractor action in response to a notice of sanction

The Contractor has 30 calendar days from the date the sanction notice is received to respond in writing to the findings. The written response is sent to the person imposing the sanction and must include the following:

  • acknowledgment of receiving the notice;

  • a narrative telling how the area(s) of noncompliance will be corrected, and

  • specific time frames for achieving compliance.

The Contractor may also ask for reasonable technical/management assistance or training to correct the area of noncompliance. The division or program will decide if the request is reasonable and within the capability of the Section to provide the requested assistance.
 

8.1.5 Section action when the Contractor fails to respond to the Level I sanction notice

The Section will decide whether or not to issue additional sanctions if, by the end of 30 calendar days, the Contractor fails to respond by providing the proposed action plan.
 

8.1.6 Action required of the Section when a Contractor responds to the sanction

The Section program which imposed the sanction evaluates the response to determine if the actions to be taken are appropriate and acceptable. The following alternatives are available:

When the response is acceptable, the division or program acknowledges receipt of the response in writing and informs the Contractor that it is accepted.

When the response is unacceptable, the division director or program director (or their designee) and the employee who issued the sanction, may negotiate directly with the Contractor to agree on an acceptable response or impose additional sanctions.

All decisions and agreements are reduced to writing and sent to the Contractor for authorized approval signatures.
 

8.1.7 Lifting the sanction

A sanction is lifted when the area(s) of noncompliance has been brought into compliance. Compliance may be determined by monitoring through normal DSHS or Section procedures. DSHS or the Section notifies the Contractor in writing that the sanction is lifted.

Should a contract with a Contractor expire, the sanction remains active until the Contractor has, if necessary, made restitution or has been prosecuted. In addition, according to the general provisions of contracts signed by DSHS and its Contractors, DSHS may delay contract execution with a Contractor while proposed or actual sanctions are pending resolution. The Section Manager and staff imposing the sanction will determine what action, if any, will be taken on the new contract.

All correspondence, notices and other pertinent documentation about the sanction become a permanent part of the Contractor's file.
 

8.1.8 DSHS communication regarding sanctions

Information regarding sanctions may be shared with other programs in DSHS. Staff may send a copy of the sanction notice to other staff or verbally advise other staff of the sanction. Staff, at the direction of their supervisor, may notify the Associate Commissioner for Disease Control and Prevention and the Office of Intergovernmental Policy through regular agency channels if appropriate. Appropriate regional staff should always be notified about sanctions that are imposed on Contractors in the region. Regional staff should also be involved, as appropriate, in determining if and when sanctions are to be imposed or lifted.
 

8.2 Level II Sanctions

The following are the Level II sanctions which may be imposed by the Section:

  1. Probation for a time period specified by the Section

  2. Temporarily withholding a portion of funds

  3. Other actions the DSHS deems to be appropriate
     

8.2.1 Parties responsible for the sanction decision

Staff finding noncompliance involving Level II Sanctions submits a written report to their supervisor. Program staff, their supervisor, program or division director, and the Section Manager determine what sanction(s) to impose.
 

8.2.2 Time frame for the Contractor sanction notification

The Section provides written sanction notice by certified mail to the Contractor within 30 calendar days of finding noncompliance.
 

8.2.3 Content of the sanction notice and method of calculating response time

Section staff issues a written notice to the Contractor telling the Contractor that this is the official notice imposing the sanction. The sanction is effective upon receipt of the notice. The notice must contain the following:

  1. the area(s) found to be in noncompliance;

  2. any references to previous correspondence;

  3. a narrative outlining what must be done to achieve compliance;

  4. the expected time frame for reaching compliance, and

  5. the deadline for the Contractor to reply.

The time frame for the Contractor's response begins with the receipt date on the return receipt or the date delivery was attempted whichever comes first. The date of receipt or attempted delivery is considered day zero.

NOTE: When accelerated monitoring is one of the sanctions or used as a method of determining compliance, a notice may not be sent prior to performing the monitoring.
 

8.2.4 Contractor action in response to a notice of sanction

The Contractor has 30 calendar days from the date the sanction notice is received to respond in writing to the findings. The written response is sent to the person imposing the sanction and must include the following:

  1. acknowledgment of receiving the notice;

  2. a narrative telling how the area(s) of noncompliance will be corrected, and

  3. specific time frames for achieving compliance.

The Contractor may also ask for reasonable technical/management assistance or training to correct the area of noncompliance. The division or program will decide if the request is reasonable and within the capability of the Section to provide the requested assistance.
 

8.2.5 Section action when the Contractor fails to respond to the Level II sanction notice

The Section will decide whether or not to issue an additional sanction if, by the end of 30 calendar days, the Contractor fails to respond by providing the proposed action plan.
 

8.2.6 Action required of the Section when a Contractor responds to the sanction

  1. When the response is acceptable, the division or program acknowledges receipt of the response in writing and informs the Contractor that it is accepted.

  2. When the response is unacceptable, the division director or program director (or their designee) and the employee who issued the sanction, may negotiate directly with the Contractor to agree on an acceptable response or may impose additional sanctions.

All decisions and agreements are reduced to writing and sent to the Contractor for authorized approval signatures.
 

8.2.7 Departmental communication regarding sanctions

Internal communication between branches, programs, divisions and regional offices is essential when noncompliance is found and a Level II sanction is imposed or lifted. Noncompliance in one area can affect other DSHS programs. When a decision is reached and a notice is sent to the Contractor, the program manager notifies other program managers by sending them a copy of the notice. The Section Manager may share findings with other appropriate DSHS departments or instruct the program or division director to share the findings. Send a copy of all sanction notices to appropriate regional offices.

When a Contractor is given a Level II sanction, Bureau divisions or programs notify the Associate Commissioner for Disease Control and Prevention and the Office of Intergovernmental Policy through appropriate agency channels.
 

8.2.8 Lifting the sanction

A sanction is lifted when the area(s) of noncompliance has been brought into compliance. Compliance may be determined by monitoring through normal DSHS or Section procedures. The Section notifies the Contractor in writing that the sanction is lifted.

When the contract with a Contractor expires, the sanction remains active until the Contractor has, if necessary, made restitution or has been prosecuted. In addition, according to the general provisions of contracts signed by DSHS and its Contractors, DSHS may delay contract execution with a Contractor while proposed or actual sanctions are pending resolution. The Section Director and staff imposing the sanction will determine what action, if any, will be taken on the new contract.

All correspondence, notices and other pertinent documentation about the sanction become a permanent part of the DSHS Contractor's file.
 

8.3 Level III Sanctions and Final Notice of Permanently Withholding Cash Payments

One or more of the following Level III sanctions may be imposed:

  1. Termination of all or part of the contract.

  2. Suspension of all or part of the DSHS contract.

  3. Denial of contract renewal or future contract awards for a period not to exceed five years.

  4. Reduction of contract funding amounts if the Contractor is not:

    1. achieving or maintaining the proposed level of service, or

    2. spending funds appropriately and at a rate which will make full use of the award,
      or

    3. providing services as set out in the contract.

  5. Contract amendments resulting from noncompliance.

In addition to these sanctions, this process also applies to a final notice of permanently withholding cash payments.
 

8.3.1 Parties responsible for a decision to impose a sanction

Staff finding noncompliance involving Level III Sanctions submit a written report to their supervisor. Program staff, their supervisor, program manager, and the Section Director determine what sanction(s) to impose.
 

8.3.2 Time frame for Contractor sanction notification

The Section provides written notice by certified mail to the Contractor within 30 calendar days of finding noncompliance.
 

8.3.3 Content of the sanction notice and method of calculating response time

Section staff issues a written notice to the Contractor telling the Contractor that this is the official notice imposing the sanction, or that this is the final notice of permanently withholding cash payments. The sanction or the permanent withholding of cash payments is effective upon receipt of the notice. The notice must contain the following:

the area(s) found to be in noncompliance;

  1. any references to previous correspondence;

  2. a narrative outlining what must be done to achieve compliance;

  3. the expected time frame for reaching compliance, and

  4. the deadline for the Contractor to reply.

The time frame for the Contractor's response begins with the receipt date on the return receipt or the date delivery was attempted, whichever comes first. The receipt date or the attempted delivery date is considered day zero.
 

8.3.4 Contractor response to Level III sanction(s) or final notice of permanently withholding cash payments (25 TAC § 1.51-1.55)

When the Contractor wishes to protest the Level III sanction or final notice, a response requesting a due process hearing must be sent to the Section within 20 calendar days of receiving the sanction notice or final notice of permanently withholding cash payments. The response is addressed to the person who sent the notice and must be mailed or hand delivered.

The Contractor may also include the following:

  1. a copy of the notification letter from DSHS;

  2. a written summary outlining the grounds upon which the Contractor bases the request;

  3. a written description of the issue or issues to be resolved;

  4. a written statement of the relevant facts;

  5. documentation in support of the Contractor's position, and

  6. a statement and listing of authorities who support the Contractor's position.
     

8.3.5 Section action when the Contractor fails to respond

After the 20 calendar days have elapsed, the Section sends a certified letter notifying the Contractor that the sanction is being enforced immediately.
 

8.3.6 Section response to the Contractor's due process hearing request

Within 10 working days after receiving the due process hearing request, the Section will ask the Office of General Counsel (OGC) to appoint a hearing officer to conduct the due process hearing. No action is taken on the sanction until the due process hearing is completed.
 

8.3.7 Due process hearing

The due process hearing allows the person requesting the hearing to:

  1. prove that the basis of the proposed action is incorrect,

  2. offer verbal and written testimony about the circumstances involved, and

  3. question appropriate DSHS representatives about the proposed action.

The hearing officer prepares a written recommendation for decision and a reason for the recommendation upon completion of the hearing. The recommendation is provided to both parties who may then file exceptions with the hearing officer. The recommendation and any exceptions are submitted to the Commissioner of Health, or a person designated by the Commissioner, for a final decision. A final decision is required as soon as possible, but no longer than 60 calendar days from the date the hearing is closed.

When the decision is to enforce the sanction, the Section informs the Contractor by certified mail that the sanction will be imposed immediately. When the decision is not to allow the sanction, all Section actions regarding that sanction are discontinued.
 

8.3.8 Departmental communication regarding sanctions

Internal communication between Section branches, programs, divisions and regional offices is essential when noncompliance is found and a Level III sanction is imposed. Noncompliance in one area can affect other programs. When a decision is reached and a notice is sent to the Contractor, the program manager notifies other appropriate program managers by sending them a copy of the notice. The Section Manager may share the findings with other appropriate DSHS departments, or instruct the program or division director to share the findings. Send a copy of the sanction notice to the appropriate regional office.

When a Contractor is given a Level III sanction, Section divisions or programs notify the Associate Commissioner for Disease Control and Prevention and the Office of Intergovernmental Policy through appropriate agency channels.
 

8.3.9 Lifting the sanction

A sanction is lifted when the area of noncompliance has been brought into compliance. Compliance may be determined by monitoring through normal DSHS or Section procedures. DSHS or the Section notifies the Contractor in writing that the sanction is lifted.

When the contract with a Contractor is canceled or expires, the sanction remains active until the Contractor has, if necessary, made restitution or has been prosecuted. In addition, according to the general provisions of contracts signed by DSHS and its Contractors, DSHS may delay contract execution with a Contractor while proposed or actual sanctions are pending resolution.

All correspondence, notices and other pertinent documentation about the sanction becomes a permanent part of the DSHS Contractor's file.
 

9.0 Revision History

Date Action Section
9/1/2017 Changed "TB/HIV/STD Unit" to "TB/HIV/STD Section" to reflect new program designation -
9/19/2014 Converted format (Word to HTML) -
11/13/2002 Numerous changes All
Converted format (WordPerfect to Word) -
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