DPHHS business and financial services asks for procurement staff as contracts, indirect costs and compliance demands rise

The Department of Public Health and Human Services told an appropriations subcommittee that contracting volume, changing cybersecurity insurance requirements and complex federal-cost-allocation rules have increased workload in its Business and Financial Services Division (BFSD) and prompted a request to convert two modified procurement positions to permanent status.

Corinne Kyler, BFSD division administrator, said the division oversees central accounting, procurement, accounts payable/receivable, facility billing and the department’s cost-allocation activities. BFSD is budgeted at 56 position-base (PB) units with a base budget the department described as approximately $14.3 million and a requested fiscal-year 2026 amount of roughly $15.1 million.

Kyler told the committee BFSD executed close to 1,500 contracts and managed roughly 4,000 active contracts and amendments in fiscal 2024. She said the division processed more than 100,000 vouchers for business payments in 2024 and collected about $285 million through accounts-receivable work during the year.

The department provided a breakdown of contracting and subgrant spending: in 2024, contracted services billed as in-state totaled about $38 million (largely federal funds) while out-of-state contracted services were about $22 million. BFSD staff said those totals do not capture certain benefit payments (for example, some out-of-state placements can appear in benefit lines) and that cross-system data matching remains difficult.

Kyler said the procurement office is one of the hardest roles to fill and that temporary staff and overtime were used to handle spikes in demand. “In the last biennium through 2025, the agency has accrued over 61,000 in overtime services to meet the demands of the high contract volume,” she said.

Officials cited two near-term drivers of contracting workload: (1) a higher cyber-insurance threshold for vendors — the transcript cites a rise from $2 million to $6 million effective July 1, 2024 — which required more vendor negotiation and documentation, and (2) increased IT contracting tied to system design and implementation work (the department reported roughly $65 million in IT contracting in 2024). Both factors require closer review by the Department of Administration (DOA) and the state’s SITSD unit, increasing review time for each procurement.

The division asked the committee to convert two modified procurement PBs to permanent FTE. BFSD said the governor’s budget and the Legislative Fiscal Division show two additional procurement positions, although one narrative line mistakenly listed only one. LFD analysts confirmed the requested total of two positions.

Committee members asked for detail on sole-source procurements, and the department said sole-source requests are reviewed by DOA and must follow delegated authority limits: executive-branch agencies have delegated procurement authority up to a specified threshold, while DOA handles procurements above that threshold and reviews sole-source justifications. The department said it will provide the subcommittee the sole-source request forms that DOA uses.

On cost allocation, BFSD staff explained the Public Assistance Cost Allocation Plan (PAW CAP) used to distribute indirect administrative costs to benefiting federal programs. Mikayla Aiken and Corinne Kyler said the department runs approximately $180 million per year through indirect cost pools; large cost pools include eligibility determination (Human and Community Services), child welfare (Child and Family Services), and technology services.

Kyler outlined allocation methods the department uses: random moment time studies (RMTS) for worker time allocation in eligibility and child-welfare programs; claims counts for Medicaid claims-processing modules; and computer counts or time-and-effort measures for some IT and general-ledger activities. The department said it moved from monthly to quarterly allocation during recent business-process improvements to allow additional quality control time.

Legislators asked whether Montana can build preference for in-state vendors into solicitations. Department officials and committee members said state procurement law restricts preferences; counsel for the Department of Administration previously indicated resident-preference rules apply primarily to public-works and goods contracts and that services procurements generally fall under different code sections. The department said it would seek formal clarification from DOA counsel and share it with the committee.

The presentation closed with requests for additional data: committee members asked for a breakdown of DFHHS contract spending over time, the number of sole-source contracts and justifications, a facility-by-facility and payer-source breakdown of collections and billings, and copies of the PAW CAP and FFATA reporting summaries.

Ending — The subcommittee did not vote on the staffing request at the hearing; members asked the department for follow-up documentation on sole-source justifications, procurement staffing history, and more granular contract and accounts-receivable data.