[00:00:01] Speaker 02:
Case number 16-5150, Texas Neighborhood Services Appellant versus United States Department of Health and Human Services at L. Ms.

[00:00:10] Speaker 02:
Rosenblatt for the appellant, Mr. Kolsky for the appellees.

[00:00:43] Speaker 01:
Good morning, Your Honors.

[00:00:45] Speaker 01:
My name is Alexandra Rosenblatt, and I'm here with my colleagues, Edward Watters and Christopher Brazina.

[00:00:51] Speaker 01:
We represent Texas Neighborhood Services, or TNS, which operated a Head Start grant near Dallas, Texas, for over 40 years.

[00:01:00] Speaker 01:
The Departmental Appeals Board acted arbitrarily, capriciously, and contrary to law when it disallowed over 700 incentive payments, which totaled more than $1.3 million.

[00:01:12] Speaker 01:
Specifically, the Board, one, applied the wrong legal standard to evaluate whether the payments were reasonable.

[00:01:20] Speaker 01:
Two, violated a fundamental norm of administrative law to treat like cases alike when it refused to remand the case for further development of the record.

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And three, raised an evolving list of complaints which turned the burden of proof into an impossible standard.

[00:01:40] Speaker 01:
As to reasonableness, the cost principle provides that an incentive payment is allowable if total compensation paid to an individual is reasonable.

[00:01:52] Speaker 01:
In turn, total compensation paid to an individual is reasonable if it is comparable to wages for similar work in the grantees labor market.

[00:02:03] Speaker 01:
TNS produced a wage comparability study, which is basically an analysis

[00:02:09] Speaker 01:
of comparable wages in TNS's labor market.

[00:02:13] Speaker 01:
The study showed that the majority of TNS's employees were paid total compensation, including their incentive compensation, that was within the range of comparable wages.

[00:02:25] Speaker 01:
The cost principle is not at all concerned with the timing of compensation.

[00:02:31] Speaker 01:
It's concerned only with the amount.

[00:02:34] Speaker 01:
When the board analyzed the percentage of aggregate and individual compensation that was paid as an incentive, the board evaluated the wrong factors, and that's arbitrary.

[00:02:46] Speaker 01:
Even if the percentage of compensation paid as an incentive were relevant, the record contains only conclusory statements, no evidence.

[00:02:57] Speaker 01:
As a result, there's no rational connection between the facts in the record and the conclusions that the board drew, and that is also arbitrary.

[00:03:08] Speaker 01:
When it refused to remand the incentive payments to the agency, the board treated TNS differently than it treated Seaford, another Head Start grantee.

[00:03:21] Speaker 01:
In Seaford Community Action Agency, as in this case, the board found that Seaford had failed to prove that some of its incentive payments complied with its policy.

[00:03:32] Speaker 01:
Instead of disallowing those payments, as the board did here, the board remanded the case to the agency to, quote, give Seifert an opportunity to prove to ACF, close quote, that it had complied with its own policy.

[00:03:48] Speaker 01:
And this remand makes sense for a couple of reasons.

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First, the board's purpose is to review final decisions of the agency.

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The board is not an auditor in the first instance.

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When the board itself identified further questions that weren't part of the agency's final decision, the board should have remanded the disallowance so that the agency could revise its final decision.

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Second, as the board recognized in Seaford, the grantee as employer is the best judge of its own compensation policies.

[00:04:28] Speaker 01:
The agency must take into account the autonomy of a grantee to determine what expenditures it should make.

[00:04:38] Speaker 01:
The board raises new questions about the payments that weren't in the initial disallowance decision.

[00:04:44] Speaker 01:
And it says, without evidence or explanation, we think these look arbitrary, but then it refused to remand it so that T&S could develop that evidence and explanation.

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And that is ignoring important evidence.

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In fact, the most important evidence, as the board itself has held, and that's arbitrary.

[00:05:06] Speaker 01:
The board offers contradictory rationales for treating T&S differently than it did Seifert.

[00:05:13] Speaker 01:
In its decision on the motion for reconsideration, the board said that the basis for the disallowance in Seaford was that the grantee lacked a policy.

[00:05:23] Speaker 01:
And that's just factually incorrect.

[00:05:25] Speaker 01:
On the first page of the Seaford decision, it said this disallowance is ACF saying we cannot tell whether the payments complied with Seaford's written bonus policy.

[00:05:37] Speaker 01:
And that's exactly what happened here.

[00:05:40] Speaker 01:
Even if the board were correct,

[00:05:42] Speaker 01:
The board doesn't, that distinction doesn't justify why you should treat it differently.

[00:05:49] Speaker 01:
The distinction is that the record is missing evidence from the grantee about the incentive payments.

[00:05:58] Speaker 01:
And it's missing that evidence because it wasn't on notice it had to produce that evidence.

[00:06:03] Speaker 01:
These are new arguments raised by the board for the first time in its decision.

[00:06:09] Speaker 04:
You want to say something about your last point, about the changing standards?

[00:06:13] Speaker 01:
Yes.

[00:06:14] Speaker 01:
At every step in this proceeding, the agency and the board moved the goalposts.

[00:06:19] Speaker 01:
The audit finding and the disallowance were premised on allegedly missing plans of performance, which was the result, as the district court itself acknowledged, of a misinterpretation of the policy.

[00:06:32] Speaker 01:
The disallowance also cited a lack of documentation to indicate which employees received which grades and how much they were paid.

[00:06:40] Speaker 01:
So in response to that final decision of the agency, T&S produces or argues that this was a misreading of the policy.

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And two, here are the charts that show which employees received which grades and how much they were paid.

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Then the agency gets up and says, well, we want to see performance evaluations.

[00:07:01] Speaker 03:
Well, you're skipping a step, which is that I think they looked at the charts, and they did not really compute.

[00:07:06] Speaker 03:
There was a need for explanation, given the policy.

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One with a higher grade would get a higher bonus, and people with lower grades got higher bonuses.

[00:07:17] Speaker 03:
And there was just an inference that the chart supported that it was not, in fact, the result of a consistent application of the policy.

[00:07:27] Speaker 03:
The neighborhood services was on notice of that and give an opportunity to explain that and did not satisfactorily explain that in the board's view.

[00:07:36] Speaker 01:
Well, Texas Neighborhood Service wasn't on notice.

[00:07:39] Speaker 01:
That arbitrariness was not raised by the agency in briefing before the DAB or in its initial disallowance.

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That was not the basis of the agency's final decision.

[00:07:51] Speaker 01:
Instead, the board raises these issues suespante, and when TNS says, and the board even acknowledges,

[00:07:57] Speaker 01:
Without further evidence or explanation from the grantee, we can't tell whether these arbitrary payments comply with the policy.

[00:08:05] Speaker 01:
And TNS says, okay, remand it and let's go through this.

[00:08:09] Speaker 01:
There are over 700 incentive payments here.

[00:08:12] Speaker 01:
And to go through that record, we need a remand so that the agency can revise its disallowance to comply or revise its final decision.

[00:08:23] Speaker 04:
So by that, you mean disallow only the incentive payments that it thought didn't meet the policy.

[00:08:30] Speaker 01:
Right.

[00:08:30] Speaker 01:
And that's correct, Your Honor.

[00:08:31] Speaker 01:
And to also allow the grantee to explain why some payments appeared arbitrary.

[00:08:37] Speaker 04:
But maybe, in fact, aren't.

[00:08:39] Speaker 01:
Is that correct?

[00:08:40] Speaker 01:
That's correct, Your Honor.

[00:08:42] Speaker 04:
So I have sort of, Mrs. President, I have kind of a, maybe this is an extra record question.

[00:08:49] Speaker 04:
When I looked at your briefs and the government's brief, I mean, if you're right about this, you know, you've raised some pretty serious points.

[00:08:56] Speaker 04:
Is there something going on here that's not in the briefs or the record?

[00:09:00] Speaker 04:
Could you have an explanation for why Texas was treated this way?

[00:09:06] Speaker 04:
Is there something happening that we're missing?

[00:09:08] Speaker 01:
Sure.

[00:09:09] Speaker 01:
In Seaford, the board starts out by saying, look, it's important to point out that incentive payments are not per se unreasonable.

[00:09:19] Speaker 04:
And I think that what we're... Aren't they permitted?

[00:09:25] Speaker 01:
Exactly.

[00:09:26] Speaker 01:
But I think that the board felt like it needed to remind the agency that paying these incentive payments is not unreasonable.

[00:09:33] Speaker 01:
And I think when you get here, there's that sense again that somehow we shouldn't be using federal grant money to pay these people.

[00:09:41] Speaker 01:
But really, a lot of these people were making below the reasonable range of their salaries in the first place.

[00:09:48] Speaker 04:
Under your client's standards, incentive payments can only be made if the operation for the year has been below budget.

[00:09:56] Speaker 01:
That's absolutely correct.

[00:09:58] Speaker 01:
And so there are several purposes for the incentive policy.

[00:10:01] Speaker 01:
One is that a grantee doesn't have money for unexpected expenses.

[00:10:06] Speaker 01:
It basically has what it budgeted for.

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And so in order to be fiscally prudent, it encourages its employees to spend conservatively.

[00:10:14] Speaker 01:
And then if they need a rainy day fund, they have it.

[00:10:18] Speaker 01:
But if they don't need that rainy day fund, those can be paid to the employees.

[00:10:23] Speaker 01:
And it's a way to bump up their salaries without giving a permanent wage increase that they may not have money for the following year.

[00:10:32] Speaker 03:
Isn't it the case that the record shows that in 2010, everyone got the same incentive payment?

[00:10:37] Speaker 03:
And how could that be an incentive payment?

[00:10:40] Speaker 01:
OK, so I think incentive payments can be based on cost reduction.

[00:10:44] Speaker 01:
So it can be an incentive to constrain costs and to spend conservatively.

[00:10:50] Speaker 01:
But beyond that, we really haven't pushed for the 2010 payments in our brief.

[00:10:57] Speaker 01:
And we're asking for a remand.

[00:10:59] Speaker 01:
And on remand, we would be focused on the 2011 and 2012 payments, because those did

[00:11:07] Speaker 01:
differ based on employee ranking?

[00:11:11] Speaker 03:
You argue that there should be a person by person review and I mean already it feels like there's a lot of micromanaging here.

[00:11:19] Speaker 03:
I mean there must be a lot of federal grants like this and the notion that there can be no disallowance if it looks like the system is just not a legitimate system or not being applied legitimately that they would have to go through with you and pick through every single employee.

[00:11:33] Speaker 03:
That just doesn't seem that workable to me.

[00:11:35] Speaker 01:
Right.

[00:11:35] Speaker 01:
So I want to back up.

[00:11:38] Speaker 03:
And there's a version of that argument that works in your favor too, which is why are they micromanaging even to this point?

[00:11:44] Speaker 03:
Exactly.

[00:11:45] Speaker 01:
But I'll also back up and say federal grantees are an open book.

[00:11:50] Speaker 01:
And auditors come in and they have total access to our books and records.

[00:11:55] Speaker 01:
And they came in in this case and they didn't say, well, these payments are arbitrary or you don't have the performance evaluation or the disciplinary record.

[00:12:03] Speaker 01:
The auditors came in and said, you're missing your plans of performance.

[00:12:06] Speaker 01:
And we don't know what grade was associated with which employee.

[00:12:10] Speaker 03:
Well, just to push back on that a little bit, you assign four different bands and you say we're going to grade people accordingly.

[00:12:16] Speaker 03:
And then you have a year when you don't appear to apply that whatsoever.

[00:12:20] Speaker 03:
And then you have other years where the payments are more individuated, but they appear

[00:12:25] Speaker 03:
to crisscross your own criteria.

[00:12:28] Speaker 03:
You don't come forward initially, your client don't come forward initially with an explanation of what this is about, criteria for why something that looks really quite inconsistent with the plan isn't that consistent.

[00:12:44] Speaker 03:
And so you can see why if they want to be looking, but they also don't want to be looking at every stitch,

[00:12:55] Speaker 03:
The decision might be, no, guys, you haven't met your burden to document.

[00:13:00] Speaker 01:
Right.

[00:13:00] Speaker 01:
And the burden, we have met our burden of proof as to at least some of the documents.

[00:13:05] Speaker 01:
I think that that are some of the incentive payments.

[00:13:07] Speaker 01:
But beyond that, the agency itself has decided that line by line looking at the incentive payments is not unworkable.

[00:13:19] Speaker 01:
In Seaford, that's exactly what they did.

[00:13:21] Speaker 01:
They went line by line with the incentive payments.

[00:13:23] Speaker 01:
And the ones that were disallowed, the one that was disallowed, they disallowed, the allowable ones, they allowed, and then ones where they couldn't tell, you know, we think the grantee may have an argument here, we're not sure, agency, go back and take a look at it.

[00:13:37] Speaker 01:
So I think that the agency has agreed that an individual line-by-line analysis is appropriate.

[00:13:44] Speaker 01:
And it's important because federal grantees have federal money and they make expenditures and reliance on the cost principles

[00:13:52] Speaker 01:
And when you disallow allowable costs,

[00:13:56] Speaker 01:
So let's say there are allowable costs caught up with some potentially suspect payments, then you're basically enacting a penalty, levying a penalty.

[00:14:07] Speaker 03:
But no, doesn't that have to be your burden, though, to come forward and say, I mean, it's questioned the consistency of your application of your plan.

[00:14:14] Speaker 03:
It's questioned the question whether you're using a matrix.

[00:14:18] Speaker 03:
And you need to give comfort that we don't have to go into every little stitch because

[00:14:23] Speaker 03:
here's our logic, here's the final grid showing how we applied it, and it all computes.

[00:14:29] Speaker 03:
And the fact that you didn't do that, it's like, oh, then you want another chance and another chance and another chance.

[00:14:35] Speaker 03:
I mean, you could say, come on down, look further, but they want you to provide something where it all adds up at a medium, general level, and then they can say, okay, we're comfortable, and go away.

[00:14:48] Speaker 03:
And if you say, no, we're gonna just sort of give you a bunch of stuff that

[00:14:52] Speaker 03:
looks really inconsistent and that doesn't follow our published plan.

[00:14:57] Speaker 03:
And if you're not happy with that, then come on down and sit and visit with us.

[00:15:03] Speaker 03:
That's a little bit of a hard way to administer a federal grant program.

[00:15:07] Speaker 01:
I don't know that I agree that the charts look crazy.

[00:15:11] Speaker 01:
I mean, if you look at the 2011 charts, within the specific categories of who they are, like Head Start teachers, they're pretty consistent.

[00:15:19] Speaker 01:
That within Head Start teachers, the A's get whatever, the B's get whatever.

[00:15:23] Speaker 01:
But that's the kind of explanation that we could have offered.

[00:15:26] Speaker 01:
And I think it should be, and that we would offer on remand.

[00:15:31] Speaker 01:
I mean, and the point is that this issue wasn't raised until the board's decision.

[00:15:38] Speaker 01:
The agency did not complain about the inconsistency of the payments other than 2010 prior at all.

[00:15:48] Speaker 01:
And so when we ask for a remand, and it also differs from what the agency's final decision was.

[00:15:56] Speaker 03:
Well, in their brief to the board, I believe it's in their brief to the board, they talked about the failure to provide adequate documentation and said that the plan had not been implemented consistently and that, for example, they rewarded employees with C grades.

[00:16:12] Speaker 03:
It's not consistent with the policy where the stated objective is to reward people with exemplary performance.

[00:16:18] Speaker 03:
So there was the type of issue that we're debating now about

[00:16:25] Speaker 03:
Was the logic of the plan borne out by the matrices?

[00:16:29] Speaker 03:
That issue was raised before the board's decision, wasn't it?

[00:16:33] Speaker 01:
I agree that they were raising issues as to whether discrete payments violated the policy.

[00:16:39] Speaker 01:
And the TNS could have made some kind of decision that, look, these payments may not have complied with the policy.

[00:16:50] Speaker 01:
We're willing to concede those.

[00:16:51] Speaker 01:
But there's a vast majority of payments here that did comply.

[00:16:55] Speaker 01:
And as to the documentation, we provided the exact documentation that the disallowance asked for.

[00:17:06] Speaker 01:
And then we provided it.

[00:17:08] Speaker 01:
And then they said provide the personnel evaluations.

[00:17:11] Speaker 01:
We provided it.

[00:17:12] Speaker 01:
And then the next thing we turn around and they're questioning something else.

[00:17:16] Speaker 01:
And that may be OK, but we need an opportunity to be able to respond.

[00:17:21] Speaker ?:
OK.

[00:17:29] Speaker 00:
May it please the court, I'm Josh Kolski and I represent the Appellees in this matter.

[00:17:34] Speaker 00:
This court should uphold the board's decision, because TNS failed to meet its burden to show that its incentive compensation payments were adequately documented, made pursuant to its compensation plan, and reasonable.

[00:17:47] Speaker 00:
During the initial monitoring review, TNS told the agency that the relevant documentation, which it described as plans of performance, that's not from the agency, it said the relevant documentation was missing and unable to be located.

[00:18:02] Speaker 00:
And at that time, it provided only a two-page scoring matrix to substantiate its more than $1.3 million in incentive payments.

[00:18:12] Speaker 00:
Now, after the agency issued its monitoring report, TNS had an opportunity to correct the deficiencies that the agency had found, but it failed to do so.

[00:18:21] Speaker 00:
So the agency issued the disallowance letter, again noting the lack of documentation.

[00:18:27] Speaker 00:
Then, on appeal to the board, TNS provided only summary spreadsheets to justify the over $1.3 million in incentive payments.

[00:18:37] Speaker 03:
Where was the earliest place where the agency made clear precisely what type of documentation was being sought?

[00:18:47] Speaker 00:
I think I would answer that by

[00:18:50] Speaker 00:
by saying that the agency can't specify particular types of documents.

[00:18:55] Speaker 00:
It wasn't able to specify, you need to produce all of your forms 51, because that's not how it works.

[00:19:01] Speaker 00:
It's the grantees' policy.

[00:19:03] Speaker 00:
They drafted the policy.

[00:19:05] Speaker 00:
They produce documentation when they presumably apply the policy.

[00:19:09] Speaker 00:
They know what documentation they maintain.

[00:19:12] Speaker 00:
So the agency isn't able to come in and say, we need all of your XYZ reports.

[00:19:17] Speaker 00:
But at the time, and again, initially,

[00:19:20] Speaker 00:
The grantee provided no documentation other than a two-page scoring matrix.

[00:19:26] Speaker 04:
But their point is, I think their argument is that once they responded with these spreadsheets which showed exactly what the original letter said was missing, that the agency changed the rules and it said that's not enough.

[00:19:44] Speaker 04:
You need to have performance evaluations.

[00:19:47] Speaker 04:
And then they say, OK, here are our performance evaluations.

[00:19:51] Speaker 04:
The board said that wasn't enough, that it needed disciplinary records and discretionary points.

[00:19:57] Speaker 04:
In other words, their argument is that every step of the way, they provided what was asked for, and then the response was, well, that's not enough.

[00:20:08] Speaker 04:
That's their argument.

[00:20:10] Speaker 04:
It's like a moving target.

[00:20:12] Speaker 00:
And there's only so much specificity that the agency can provide when they're not getting information from T&S.

[00:20:20] Speaker 04:
No, that's not the point.

[00:20:21] Speaker 04:
The point is that when they responded with information that the agency wanted, instead of saying, okay, this is the information, the agency said, well, this is not enough, we need more.

[00:20:36] Speaker 04:
And they did that at each step of the way.

[00:20:39] Speaker 04:
And then in the end, when they said, well, OK, reconsider it so we can respond to this, the agency said no.

[00:20:49] Speaker 00:
That's their argument.

[00:20:50] Speaker 00:
On the reconsideration issue, I would urge the court to look at TNS's motion for reconsideration for the board.

[00:20:57] Speaker 00:
It's in the joint appendix.

[00:20:58] Speaker 00:
And it says very little about a remand.

[00:21:02] Speaker 00:
It just says that the board should have remanded to the extent that there were allowable and unallowable payments.

[00:21:09] Speaker 00:
If you remand, we can show you this.

[00:21:11] Speaker 00:
It doesn't say, we have these documents, which we will produce on remand.

[00:21:16] Speaker 00:
It doesn't say, in fact, it doesn't even argue that they can explain the inconsistencies.

[00:21:22] Speaker 00:
It doesn't say, you know, you would think if there were some good explanation for these inconsistencies, that they would have argued in motion for reconsideration.

[00:21:29] Speaker 00:
They would have said, you know what, board?

[00:21:32] Speaker 00:
You found what appear to be inconsistencies.

[00:21:34] Speaker 00:
We have a good explanation for that.

[00:21:35] Speaker 00:
This is it.

[00:21:36] Speaker 00:
And if you remand, we can provide documents

[00:21:38] Speaker 04:
But come back to this other point.

[00:21:42] Speaker 04:
The original letter just said, we can't tell who's getting these and how much they are, right?

[00:21:49] Speaker 04:
And when the agency got all that information, it kept saying, like for example, when they gave these sample evaluations, the board again demanded something that the original letter had not asked for, which is disciplinary records and these discretionary points.

[00:22:11] Speaker 00:
And, Your Honor, and that's because... Yeah, why is that?

[00:22:14] Speaker 00:
That is because the next to nothing was produced initially.

[00:22:17] Speaker 00:
So, and as information was produced by TNS, then the agency could be more specific.

[00:22:26] Speaker 00:
I see.

[00:22:27] Speaker 00:
So as to the... Your Honor mentioned the performance evaluations.

[00:22:29] Speaker 00:
So those are identified in the 2007 policy.

[00:22:33] Speaker 00:
So once that policy was produced, the agency looked at it and said, well, your own policy says you need to keep performance evaluations on file in order to make these payments.

[00:22:43] Speaker 00:
And so why haven't you produced those?

[00:22:46] Speaker 00:
In response with their reply brief to the board, TNS produced evaluations for one employee.

[00:22:51] Speaker 00:
Now, performance evaluations were only one of several factors that went into the ratings, and there was no documentation produced or proffered as to these other factors.

[00:23:02] Speaker 00:
So, again, I think they characterized it as escalating demands for documentation.

[00:23:08] Speaker 00:
That's because they were producing

[00:23:13] Speaker 00:
They were producing new information, which was allowing the agency to be more specific at times.

[00:23:19] Speaker 03:
And raising new questions, I gather.

[00:23:21] Speaker 03:
Rather than resolving all the questions, they seemed to raise new questions in an iterative way.

[00:23:30] Speaker 03:
I mean, I think this is tough, because on the one hand, this is federal money.

[00:23:34] Speaker 03:
On the other hand, these are employee bonuses, which the documentation for which, at least in my limited experience, in and out of government, tends to be rather limited.

[00:23:45] Speaker 03:
They're somewhat discretionary.

[00:23:47] Speaker 03:
Criteria are put out.

[00:23:48] Speaker 03:
Somebody in an evaluative position makes a call, and the bonus gets paid.

[00:23:54] Speaker 03:
And it also seems like it might be an area in which guidance would be helpful from the agency.

[00:24:02] Speaker 03:
You don't want this to become a slush fund and a source of corruption, obviously, and we respect that that's why you're here.

[00:24:10] Speaker 03:
On the other hand,

[00:24:12] Speaker 03:
These are early learning centers, are they not?

[00:24:15] Speaker 03:
I mean, this is some of the lowest paid people in the economy, and they don't have sophisticated personnel offices, I'm guessing.

[00:24:24] Speaker 03:
And so, you know, some kind of guidance on what would suffice, how to keep the records, and, you know, what to produce might forestall this, no?

[00:24:39] Speaker 00:
I think I would contrast this case with an industry, a highly regulated industry.

[00:24:44] Speaker 00:
The court heard a FERC appeal this morning.

[00:24:46] Speaker 00:
And in a different industry, there may be regulations that say, as to particular policies, every entity has to have the same policy.

[00:24:55] Speaker 00:
And there have to be specific record-keeping requirements for everyone in the

[00:25:00] Speaker 00:
in regulated, every one of the regulated entities.

[00:25:03] Speaker 00:
This is different.

[00:25:05] Speaker 00:
The grantees have the freedom to draft their own policy.

[00:25:08] Speaker 00:
There are requirements that they keep adequate documentation to justify their costs.

[00:25:12] Speaker 00:
But it's really, it's incumbent upon them

[00:25:16] Speaker 00:
to know what documentation they have, because it's their policy.

[00:25:20] Speaker 00:
It's not that the agency is saying, this is the policy.

[00:25:22] Speaker 03:
But do you really want every employee's individual performance appraisal, or do you want a number, a column on their grid that says, yes or no, discipline in the past, whatever it was, 90 days, ultimate qualitative bottom line of performance appraisal?

[00:25:42] Speaker 03:
Maybe if they had a matrix that was better calibrated to their policy and the apparent inconsistencies of which were explained, you'd be happy, no?

[00:25:52] Speaker 00:
Oh, I understand your Honor's point.

[00:25:54] Speaker 00:
And I think I would respond by saying it depends on probably the stage of the administrative process.

[00:26:02] Speaker 00:
So certainly at the initial audit, I'm not saying that they would have had to produce every single performance evaluation.

[00:26:09] Speaker 00:
I'm sure that a sampling would be appropriate at that point, and maybe some summary of the payments, assuming there were no inconsistencies.

[00:26:20] Speaker 00:
But once they say, our records are missing and unable to be located, then yes, they do have to produce the record.

[00:26:29] Speaker 03:
So you're saying that this is a situation in which you went in, somebody physically went in and sat down with people, and we need to look at your records?

[00:26:37] Speaker 00:
Yeah, the ACF monitoring report describes interviews with the CFO about the compensation problem.

[00:26:45] Speaker 03:
And it just really raised alarms, and that's why the process becomes more formalized, and that's why the extent of documentation that's demanded is more detailed.

[00:26:56] Speaker 00:
And that's correct.

[00:26:57] Speaker 00:
And not only was there the initial monitoring review, but that report states that the grantee had 120 days to correct the deficiencies after that.

[00:27:05] Speaker 00:
They certainly could have provided documentation then.

[00:27:08] Speaker 00:
If they weren't sure what to provide, they could have gone to ACF and said, you know what, it turns out we do have documents.

[00:27:14] Speaker 00:
What would you like to see?

[00:27:15] Speaker 00:
They didn't do that.

[00:27:16] Speaker 00:
And that's why the disallowance letter

[00:27:18] Speaker 00:
was issued.

[00:27:19] Speaker 00:
And then they had another opportunity with their briefs to the board where they could have provided additional documentation.

[00:27:24] Speaker 00:
And that's when they provided the summary spreadsheets.

[00:27:28] Speaker 00:
The board looked at it and said, well, these show these inconsistencies.

[00:27:32] Speaker 00:
They don't show compliance with your policy.

[00:27:34] Speaker 00:
They show non-compliance with the policy.

[00:27:36] Speaker 00:
And there's no source documentation.

[00:27:39] Speaker 00:
Issues were pointed out by ACF.

[00:27:41] Speaker 04:
Well, see, the point about the source documentation is that that was a new request.

[00:27:47] Speaker 00:
I don't think that was a new request.

[00:27:49] Speaker 04:
No one had asked us for that before.

[00:27:51] Speaker 00:
Well, they hadn't specifically used the term source documentation.

[00:27:55] Speaker 00:
Although board precedent does say once a cost is questioned as lacking documentation, it's the responsibility of the grantee to provide source documentation.

[00:28:05] Speaker 00:
So it shouldn't have come as any surprise to T&X.

[00:28:09] Speaker 03:
Would you oppose a remand for them to provide documentation, and if they fully provided documentation to, it's his satisfaction, would that end the matter?

[00:28:24] Speaker 00:
We would oppose, we do oppose a remand, and there needs to be finality to the administrative process, and also... Well, it would be over after that.

[00:28:33] Speaker 00:
It would, but it would also be futile.

[00:28:36] Speaker 00:
Because for the first time in this litigation, in TNS's appellate briefs to this court, we see their apparent justification for these inconsistencies.

[00:28:47] Speaker 00:
What they say is they imply that some positions have a reasonably low or usually low base salary, that certain positions are inherently difficult and also tough to fill.

[00:29:03] Speaker 00:
And they suggest that that's the reason for the inconsistencies.

[00:29:06] Speaker 00:
The problem with that, if that's their explanation, that's not consistent with the policy either.

[00:29:10] Speaker 00:
If they were paying people higher incentive payments because of a position's inherent difficulty, that's not spelled out in the policy.

[00:29:18] Speaker 00:
So if that's what they would show on remand, that would be futile.

[00:29:22] Speaker 00:
There's no reason to go through that exercise.

[00:29:26] Speaker ?:
OK.

[00:29:27] Speaker 00:
Thank you.

[00:29:28] Speaker 04:
Thanks.

[00:29:29] Speaker 04:
Did Ms.

[00:29:30] Speaker 04:
Rosenblatt have any more time?

[00:29:37] Speaker 01:
Thank you, Your Honors.

[00:29:39] Speaker 01:
I'd like to respond just to the last point that what we offered as potential explanations is not consistent with our policy.

[00:29:48] Speaker 01:
Our policy had two goals.

[00:29:50] Speaker 01:
One was to reward superior performance, and the other was to ensure that we had comparable wages.

[00:29:56] Speaker 01:
So for people who had inappropriately low base compensation, increasing their pay with a one-time bump was completely consistent with the policy.

[00:30:05] Speaker 01:
Also, I want to make it clear that when the auditors come in and look at our records, we don't say a bunch of documents are missing.

[00:30:12] Speaker 01:
We say the plans of performance are missing because there's a misunderstanding of what they're asking for.

[00:30:18] Speaker 01:
And that's what the auditors base their disallowance on.

[00:30:21] Speaker 03:
There isn't any such thing as plans of performance.

[00:30:24] Speaker 01:
That's exactly right.

[00:30:25] Speaker 01:
And that was the problem is that they were asking for plans

[00:30:29] Speaker 01:
We don't know what they're talking about, and we say, well, I guess we don't have the plans of performance.

[00:30:34] Speaker 01:
And then that's the basis for the disallowance.

[00:30:37] Speaker 01:
And when we disprove that, then it should be sent back.

[00:30:41] Speaker 01:
Because really, they flipped.

[00:30:43] Speaker 01:
We flipped the process on its head.

[00:30:46] Speaker 01:
The process is that the auditor comes in.

[00:30:49] Speaker 01:
They're paging through documents, looking through files to see what's going on.

[00:30:54] Speaker 01:
They make the basis for the disallowance.

[00:30:58] Speaker 01:
The board, then, is just looking to see whether the auditors got it right or not.

[00:31:04] Speaker 01:
The board is not itself paging 3,000s of documents.

[00:31:08] Speaker 01:
And lastly, I'll just say that this is federal money, but there is a standard that keeps these payments reasonable.

[00:31:16] Speaker 01:
And that is, are they within the reasonable range?

[00:31:20] Speaker 03:
Now, isn't your position that that's kind of a safe harbor?

[00:31:24] Speaker 03:
if they're within a reasonable range, case closed or not?

[00:31:29] Speaker 01:
Well, it is in the sense that to the extent that the agency was using the completely wrong standard, then that's overwhelming evidence that the decision was arbitrary.

[00:31:39] Speaker 01:
Because the cost principle says this is what you look at, and the agency refused to abide by that cost principle.

[00:31:45] Speaker 03:
And is it that your position that's sort of an independent basis for a remand that they

[00:31:51] Speaker 03:
were pushing aside the general compliance with the standard compensation and comparable jobs?

[00:32:00] Speaker 01:
Yes, that it was arbitrary for them to ignore the standard.

[00:32:05] Speaker 01:
And I want us to keep in mind that the initial reason that we're all here today, the district court found was inaccurate.

[00:32:17] Speaker 01:
There are no plans for up performance.

[00:32:21] Speaker 01:
require the agency, the TNS then, to come in and disprove every single thing, no matter how many times it changes or whether we have notice of it, is simply a burden of proof that is an impossible standard, and that is arbitrary.

[00:32:38] Speaker 04:
Okay.

[00:32:38] Speaker 04:
Thank you.

[00:32:39] Speaker 04:
Case is submitted.