Advisory Opinion 2017-002
Does 45 C.F.R. Part 1630 permit LSC grantees to charge as an allowable cost to LSC funds the purchase price of gift cards as incentives to recruit client volunteers to test the grantee’s online intake system?
Yes. Part 1630 permits LSC grantees to charge the purchase price of such incentives to LSC funds as an allowable cost, where the cost of the incentives “does not exceed that which . . . a prudent person under the same or similar circumstances” would incur. 45 C.F.R. § 1630(b)(2). The incentive expenses can meet this standard if the grantee has documentation demonstrating that the use of incentives is an effective and efficient means of obtaining useful feedback from the eligible-client community. The facts presented appear to meet that standard, as could other situations in which grantees can document sufficient justification for using incentives to recruit client volunteers as part of usability testing of technologies or systems designed for client use.
An LSC Technology Initiative Grant (TIG) requires that the grantee conduct user testing of its new online intake application to evaluate its effectiveness and usability for people in the client-eligible population. This requirement is consistent with advice provided at LSC’s annual TIG conferences that grantees conduct user testing early and often before completing a technology system or other new process improvement. See, e.g., Legal Services Corporation, TIG 2016: User Centered Legal Design Opening Plenary, http://www.lsc.gov/media-center/galleries-multimedia/video/tig-2016-user-centered-legal-design-opening-plenary (last updated May 8 2017) (remarks of Margaret Hagan, Director of the Legal Design Lab at Stanford Law School, begin at 10:00 minute mark); Legal Services Corporation, 2017 Opening TIG Plenary on User Design in Today’s World – Lessons for the Legal Services Community from the Private Sector, Vimeo (March 2, 2017), https://vimeo.com/206471854#t=52:30 (remarks of Rajesh Kalindi of Microsoft, starting at 52:30 mark); Statewide Website Assessment Summary Report January 2017, 93-94 (discussing collecting and analyzing “user feedback to design experiences that are based on user’s needs.”).
To meet the user-testing grant requirement, the grantee made multiple efforts to recruit prospective low-income clients to test the online application without any incentives, but only a few people volunteered. The grantee consulted experts on testing usability for technology, and those experts recommended that the grantee offer a small incentive, such as a $5 or $10 grocery gift card. The experts advised that such incentives are a normal practice in these types of user evaluations. Based on its prior unsuccessful recruitment efforts, the grantee concluded that without incentives it would have to spend significantly more resources in the form of staff time to obtain sufficient volunteers for user testing.
Grantees’ expenditures are generally allowable if the costs are “reasonable and necessary” to perform the grant. 45 C.F.R. § 1630(a)(2). “A cost is reasonable if, in its nature and amount, it does not exceed that which . . . a prudent person under the same or similar circumstances” would incur. Id. at § 1630(b). One factor bearing on reasonableness is whether a cost “is of a type generally recognized as ordinary and necessary for the operation of the recipient or the performance of the grant or contract.” Id. at § 1630(b)(1).
The Office of Management and Budget (OMB) sets cost standards for most federal agencies and their grant programs. See OMB, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 C.F.R. Part 200. LSC treats OMB’s materials as “guidance for all allowable cost questions arising under [Part 1630] when relevant policies or criteria therein are not inconsistent with the [other LSC requirements].” 45 C.F.R. § 1630.3(i).
OMB has provided guidance to federal agencies regarding the use of incentives in information collection surveys. OMB, Questions and Answers When Designing Surveys for Information Collections, 68-71 (January 20, 2006). OMB identified incentives as a means to address problems with response rates and noted that “incentives have been used in the private sector without much controversy.” Id. at 69. OMB considered concerns about using taxpayer funds for such incentives and concluded that:
In keeping with these concerns, OMB’s guidelines on providing incentives to respondents follow a general conceptual framework that seeks to avoid the use of incentives except when the agency has clearly justified the need for the incentive and has demonstrated positive impacts on response and data quality by using an incentive.
Id. (internal references omitted).
OMB provided a list of factors that agencies should consider when preparing a justification for using incentives.
- Data Quality: Is there an improvement in data quality? Is there evidence that an incentive—rather than other means—will increase response rates and greatly improve validity and reliability?
- Burden on the respondent: Is there a need to pay a respondent for making “unusual effort or having an unusual reporting burden in responding” to the survey?
- Complex study design: Does the study require ongoing participation?
- Past experience: Is there “past survey experience, results from pretests or pilot tests, and evidence of attrition and/or poor prior response rates[?]”
- Improved coverage of specialized respondents, rare groups, or minority populations: Can the agency describe how important and difficult it is to get volunteers to participate in the study?
- Reduced survey costs: Is the cost of incentives less than the cost of extensive follow-up?
- Equity: Do the agencies treat all respondents equally as to incentives?
- Research into the effects of incentives: Does the proposal have “experimental designs that provide insight into incentive effects[?]”
Id. at 69–70.
The grant involved here requires user testing. Based on its repeated lack of success in attracting a sufficient number of client testers, the grantee has concluded that the cost of providing small incentives to attract client testers, such as a $5 or $10 gift card, would be less than the cost of staff time required to generate sufficient testers. Under these circumstances, a prudent person would conclude that incurring the cost of small incentives to save overall resources is reasonable. Where this is the case, the situation meets the requirement that costs be “reasonable and necessary” to perform the grant. 45 C.F.R. § 1630(a)(2).[fn]This opinion only addresses small incentives in this context. Other situations require analysis of the particular facts and circumstances. For example, LSC has generally not allowed grantees to use LSC funds for awards to private attorneys providing pro bono services.[/fn]
This conclusion is supported by OMB’s guidance that incentive payments for survey feedback are allowable uses of taxpayer funds when appropriately justified. The OMB memorandum provides useful guidance for LSC’s analysis of such situations. In particular, several of the factors identified by OMB appear to be germane here, including improving data quality by increasing the response rate, the grantee’s experience of low response rates absent an incentive, and the reduction in survey costs that can be realized by using small incentives in lieu of additional staff time.
The grantee should document its prior efforts to conduct user testing without incentives and the processes it followed to identify what incentives to use and to implement the incentives offered to testers.[fn]Prior, unsuccessful recruitment efforts are not always required to demonstrate the need for incentives; unsuccessful prior efforts are the facts presented here. Absent such experience, the grantee would have to provide a rationale demonstrating a reasonable basis for determining that making such attempts would be futile.[/fn] This would include how it determined the type and value of the incentives, how it provides the incentives, and how using incentives will improve the effectiveness and efficiency of the grant. Based on the information provided by this grantee, the cost of the incentives in this situation is likely to be allowable under Part 1630, if sufficiently documented.
LSC grantees may use LSC funds for gift cards used as incentives to recruit client volunteers to test the grantee’s online intake system, or other technologies or systems designed for client use, as long as (1) the cost is reasonable and necessary under the circumstances, and (2) the grantee documents the decision to use gift cards as incentives and the process by which the grantee provided them.
RONALD S. FLAGG
General Counsel & Vice President for Legal Affairs
Senior Associate General Counsel