Item C36
BOARD OF COUNTY COMMISSIONERS
AGENDA ITEM SUMMARY
Meeting Date: August 18, 2004
Division Management Services
Bulk Item: Y es ~
No
Department Administrative Services
AGENDA ITEM WORDING:
Approval of a contract with KPMG to update the Fiscal Year 2005 and the Fiscal Year 2006 Full Cost
Allocation Plans and the OMB A-87 Cost Allocation plan.
ITEM BACKGROUND:
Full cost allocation reduces ad valorem taxes by recovering indirect costs from non-ad valorem revenue
funds and corrects for indirect cost subsidy to special taxing districts. These two cost allocation plans
will utilize fiscal year 2003 and fiscal year 2004 actual expenditures under a contract with the State of
Florida Department of Management Services (Consulting Services for Management Skills, contract
number 973-001-00-1)
PREVIOUS RELEVANT BOCC ACTION:
The BOCC approved implementation of full cost allocation in stages beginning with Fiscal year 1998.
Each year this plan is updated and adjusted to changing organizational and accounting needs.
CONTRACT/AGREEMENT CHANGES:
As in 2003, we are recommending that two plans be prepared simultaneously so that timing is not a
concern.
STAFF RECOMMENDATIONS:
Approval
TOTAL COST $29,000 for two plans
BUDGETED: Yes -X- No
COST TO COUNTY:
$29,000
SOURCE OF FUNDS: Ad Valorem
REVENUE PRODUCING: Yes
No
AMOUNTPERMONTH_ Year
APPROVED BY: County Atty _ OMB/Purchasing --X- Risk Management _
DIVISION DIRECTOR APPROVAL:
~ fi. A
V Q~~L../'
. Sheila A. Barker
DOCUMENTATION:
Included
To Follow_
Not Required_
DISPOSITION:
AGENDA ITEM #C--~ ~
MONROE COUNTY BOARD OF COUNTY COMMISSIONERS
CONTRACT SUMMARY
Contract #_
Contract with:KPMG Effective Date:August 18, 2004
Expiration Date:N/ A when two plans are complete
Contract Purpose/Description:To update the Fiscal Year 2005 and 2006 OMB A-87 and full cost
allocation plans. These cost allocation plans will utilize fiscal year 2003 and fiscal year 2004
actual expenditures.
Contract Manager: Salvatore Zappulla
(Name)
4444
(Ext.)
Administrative Services
(Department)
for BOCC meeting on 8/18/2004
Agenda Deadline: 8/03/04
CONTRACT COSTS
Total Dollar Value of Contract: $29,000
Budgeted? Yescg} No 0 Account Codes:
Grant: $
County Match: $_
Current Year Portion: $29,000
001-06001-530340-_-_
- -
--
-
--
ADDITIONAL COSTS
Estimated Ongoing Costs: $~yr For:
(Not included in dollar value above) (eg. maintenance, utilities, janitorial, salaries, etc.)
- - -
----
CONTRACT REVIEW
Division Director
Changes Date Out
Needed ~, . Review~~ '1~ ~/. /
YesDNo0". tl '#.A-/' -2!:7/0<
'< ,,/,\ (",~,., .',
.' '''}\C( ",' ,"". ", \. (: .( I) .~~(' i
'.. . ... . ''\ ,\ ',' 'I . .. I
~c I YesD NoGJ.J .j ! t.\l{fn;. uW;7.:::- 'C c {
, j '. (. "":)
- YesDNo~ ./tZJlf~u~
l~*rYesDNo[f("/ (5 -~....
7/29/a;
7f1c!'(
Date In
Risk Management
O.M.B.lPurchasing
County Attorney
Comments:
OMB Form Revised 9/ll!95 Mep #2
..
KPMG LLP
Suite 1600
111 North Orange Avenue
PO Box 3031
Orlando, FL 32802
Telephone 407 423 3426
Fax 407 648 8557
July 21,2004
Ms. Sheila A. Barker
Division Director - Management Services
100 Simonton Street
Room 2-268
Key West, Florida 33040
Dear Ms. Barker:
KPMG LLP (KPMG) is pleased to submit this proposal to Monroe County, Florida (the
County), for the provision of professional consulting services related to assisting with the
development and preparation of Full Cost and OMB Circular A-87 Allocation Plans for the
County for FYE 2003 and FYE 2004. Our standard Terms and Conditions are attached to this
letter, and-beCome-parf6fihe'agreement between KPMG LLP and Monroe County
government.
The OMB Circular A-87 plan will be prepared in accordance with Office of Management and
Budget Circular A-87, Cost Principles for State and Local Governments, as well as all other
applicable federal and state laws, regulations, and procedures, and will be used for charging
indirect costs to the County's federal grant programs. The second plan will be a "full-cost"
plan for use in allocating indirect costs to enterprise funds, internal service funds, and certain
special revenue funds that are supported by user fees. KPMG will submit the OMB Circular
A-87 Cost Allocation Plan to the County's federal cognizant agency, if requested by that
agency, and provide any necessary testimony or negotiation with state and federal agencies
regarding the plan. Please note that current OMB Circular A-87 regulations do not require
the County to submit its cost allocation plan for negotiation and approval unless specifically
requested by its federal cognizant agency.
In order to support charges to sponsored programs, the County is required to follow certain
federal regulations governing the charging of direct costs to federal programs. Furthermore,
in accordance with OMB Circular A-87, the County recovers a portion of its indirect costs via
indirect cost rates applied to sponsored programs conducted within its departments and
programs. The County is concerned with instituting an indirect cost recovery methodology,
which optimizes the reimbursement of indirect costs incurred in support of federal and state
grants and contracts.
.... KPMG LLP, a us limited liability partnership, is the US
member firm of KPMG International, a Swiss cooperative
~
Why should Monroe County choose the KPMG Team to provide indirect cost
consulting assistance in the development of the County's Cost Allocation Plans? The
KPMG Team has the professional qualifications, experienced staff resources, and
automated systems necessary for the development of cost allocation plans which will
identify and allow recovery of all of the County's indirect costs attributable to federal
programs and enterprise activities. The KPMG Team maintains the following capabilities
critical to the success of this engagement:
. The most experienced cost allocation team in Florida;
. The most experience with Federal OMB Circular A-87;
. The only cost allocation system designed by CPA's; and
. Commitment to continuity of assigned staff.
The most experienced cost allocation team in Florida. The KPMG Team assembled has
had extensive experience in conducting cost allocation studies for cities and counties. All
team members have prepared numerous cost allocation plans and have experience
negotiating indirect cost rates. These qualifications are extremely important since the
County is undertaking a significant cost accounting project.
The most experience with Federal OMB Circular A-87. KPMG resources include Mr.
Norwood "Woody" Jackson, a former high level Federal official who literally "wrote the
book" on OMB Circular A-87, the cost principles for state and local government. Also in
KPMG are former officials who were responsible for the review and approval of thousands
of indirect cost allocation plans. No other firm has this knowledge or experience relative to
OMB Circular A-87.
The only cost allocation system designed by CPA's. Our user friendly, PC based Cost
Determination Model (CDM) is the most advanced cost allocation system available in the
government marketplace. CDM schedules tie back to the financial statements and provide
an easy to read format to facilitate plan audit and review. We routinely provide a complete
set of working papers that tie to the CDM schedules.
Commitment to continuity of assigned staff. KPMG believes that the time involvement
of County staff related to this project should be kept to a minimum as is reasonably
necessary for project completion. An important step in meeting this goal should be that the
County should not have to "retrain" new staff each year. Therefore, KPMG commits to
having the same people assist the County with the preparation of the plans for the entire
duration of the contract (including renewals), unless requested otherwise by the County.
KPMG will commit to completing the plans, including printing of the reports, within 90
calendar days of initiation of fieldwork. Furthermore, draft results will be furnished to the
-
County within 75 calendar days of initiation of fieldwork. This time frame is, of course,
dependent upon the timeliness of requested information to be furnished by the County.
Our fees for professional services are based on the time and staffing requirements of the
engagement, and include all expenses incurred by us, Our total contract costs to perform
the professional consulting services for the FYE 2003 and FYE 2004 plans will not exceed
$29,000. The engagement fee will be billed to the County as follows: 50% of the fee thirty
days after the initiation of fieldwork, 25% upon delivery of the draft plans, and 25% upon
delivery of the final plans.
KPMG is currently contracted with the State of Florida Department of Management
Services (Consulting Services for Management Skills, contract number 973-001-00-1) that
the County may use in lieu of a formal request for proposal. To confirm acceptance of this
renewal letter and your authorization to procees with this project, please sign one original in
the space provided and return to me at your earliest convenience.
We appreciate the opportunity to present this proposal to Monroe County. We look
forward to discussing our proposal with you and especially to performing these important
services for the County. If you should have any questions, please contact me at
(404) 222-3629.
Very truly yours,
KPMG LLP
r!~~
Don Carter
Senior Manager
Accepted:
~~..:., '~':1'~"<"~'~'~1
.. ....... . '. ,J '.. I .... ,I l. ~ .
<'';' ..'zv:;; .fFr' /~_;~_
,"">-<~?i"~' ,., !.l:n'~ni'l
L -.).:. .,,,,,, ...."...
.'11:"" ''-'...../ ~'.-...Tnp'..:"
;'j0V""I...,
/
Title:
Date:
PUBLIC ENTITY CRIME STATEMENT
"A person or affiliate who has been placed on the convicted vendor list
following a conviction for public entity crime may not submit a bid on a
contract to provide any goods or services to a public entity, may not submit
a bid on a contract with a public entity for the construction or repair of a
public building or public work, may not submit bids on leases of real
property to public entity, may not be awarded or perform work as a
contractor, supplier, subcontractor, or consultant under a contract with any
public entity, and may not transact business with any public entity in excess
of the threshold amount provided in Section 287.017, for CATEGORY
TWO for a period of36 months from the date of being placed on the
convicted vendor list."
~
ASSISTANCE IN PREPARING
FULL COST AND OMB CIRCULAR A-87
COST ALLOCATION PLANS
MONROE COUNTY, FLORIDA
CONTENTS
I. Scope of Work and Detailed W orkplan .............................................................. 1
II. KPMG Software Capabilities ............................................................................ 7
Appendix A. Standard Terms and Conditions
~
I. SCOPE OF WORK
Engagement Objective
The objective of this engagement is to maximize the potential recovery of indirect costs from
special revenue fund (including federal and state grants), enterprise fund, and internal service fund
programs operated by Monroe County and to ensure, through the rate development process, that the
County equitably distributes its costs and develops rates to ensure a reasonable cost recovery. To
meet this objective, KPMG proposes to assist the County as follows:
· Phase I - Development and preparation of the County's OMB Circular A-87 Cost
Allocation Plan based on actual data in accordance with the provisions of OMB Circular
A-87. The Plan will contain a determination of total costs for providing each supporting
service (e.g.: Purchasing, County Attorney, Finance, Human Resources, Facilities
Management, etc.)
· Phase II - Development and preparation of the County's Full Cost Allocation Plan
based on actual data. The Plan will be prepared in accordance with the full costing
concepts, which recognizes and incorporates all central service expenditures of County
departments and offices, including "general government" costs.
· Phase III - Provide any necessary assistance and/or testimony to the County in
negotiating the OMB Circular A-87 Cost Allocation Plan with the County's federal
cognizant agency.
\V ork Plan Approach
The phases and related tasks described in this section outline the approach the KPMG Team will
initiate to meet the engagement objective. It is anticipated that one week of on-site fieldwork at the
County's offices will be required for this project. Interviews conducted with County personnel
during this time are typically 30 to 45 minutes for each central service department identified for
allocation in the plan.
Phase I.A - Development of the County's OMB Circular A-87 Cost Allocation Plan
Task 1: Meet with appropriate representatives of County departments that are charged indirect
costs in order to obtain feedback on the allocations used in the County's previous cost
allocation plan. (Week 1)
Task 2: Organize a project team comprised of KPMG Team personnel and at least one County
staff member. This staff member will be required to provide liaison services with all
Page I
~
other County departments, which will entail scheduling appointments and introductions
with interviewees. (Week 1)
Task 3: Provide the County with a list of suggested allocation statistics before the
commencement of fieldwork to expedite the data collection process related to the plan.
(Week 1)
Task 4: At the County's request, conduct a workshop for the County's central service
departments to assist them in understanding the purposes of the study and the types of
data needed for the project. (Week 2)
Task 5: Review the County's current methodology to developing the Cost Allocation Plan. A
review will be made regarding the accumulation and allocation of all central service and
departmental administrative costs. (Week 2)
Task 6: Identify all direct operating cost centers, classify various services performed, products
delivered, etc., and determine the contribution of central services to their support.
(Weeks 2 through 3)
Task 7: Review the County's previous methodology of distributing costs to determine
appropriateness and to identify areas that may be improved to maximize recovery. We
will also investigate strategies and procedures previously implemented by the County
that may be superior, in terms of potential recovery, to strategies and procedures that
would otherwise be implemented. (Weeks 2 through 4)
Task 8: Conduct interviews with appropriate central service departments to determine the
services being provided to County departments. (Week 2)
Task 9: Prepare work paper formats in order to secure the financial data necessary to develop the
central service indirect cost pools. (Weeks 2 through 5)
Task 10: Analyze County expenditures to determine the costs which comprise the indirect cost
pools. (Weeks 2 through 6)
Task 11: Determine the allowable costs for providing each supporting service. Supporting
services include such departments as: Purchasing, Legal Counsel, Finance, Human
Resources, Facilities Management, etc. (Weeks 2 through 6)
Task 12: Determine the appropriate statistical allocation bases to be utilized based on
reasonableness and maximum potential recovery. We will prepare work papers in order
to collect the appropriate statistical data to be used as bases of allocation for the indirect
cost pools. The selection of an allocation base is unique to the type of cost being
distributed. Major allocation bases may include:
Direct Assignment
Page 2
~
. Square Footage
. Full-time Equivalent Personnel
. Number of Accounting Transactions
. Actual Percentage of Effort
. Insured Employees and Insurance Values
. Actual Billings and Purchase Orders
(Weeks 2 through 6)
Task 13: Review the accumulation of central services costs, indirect cost pools, and statistical
allocation bases for appropriateness, (Weeks 2 through 6)
Task 14: Prepare a final cost allocation plan methodology to develop the County's OMB Circular
A-87 Allocation Plan. (Week 7)
Phase I.B - Preparation of the County's OMB Circular A-87 Cost Allocation Plan
Task 1: Prepare all data that must be entered into KPMG's Cost Determination Model (CDM)
system. (Weeks 7 through 9)
Task 2: Enter the County's financial data into the CDM system. (Week 8)
Task 3: Review the reconciliation to the financial statements utilized in the Cost Allocation
Plan. (Week 8)
Task 4: In accordance with OMB Circular A-87, prepare any adjustments necessary to distribute
direct and indirect costs to the appropriate categories. (Week 8)
Task 5: Enter the allocation base statistical information into the CDM system. (Week 9)
Task 6: After entering all necessary data into the CDM system, the model will perform a step-
down allocation using the double apportionment methodology and develop the
associated supporting schedules necessary to prepare the County's indirect cost rates.
(Week 10)
Task 7: Prepare the County's OMB Circular A-87 Cost Allocation Plan, including financial and
statistical schedules, and all necessary narratives and explanations. The Plan will
include the following:
!II An organization chart showing all divisions and units of the County.
1m Financial and statistical schedules identified as follows:
Page 3
~
Total Costs Report that identifies the total operating costs of the County by
fund category and agrees to the County's financial statements.
- Unallowable Costs Report which identifies the total unallowable costs of the
County by fund category per the applicable provisions of OMB Circular A-87,
- Allowable Costs Report which identifies the total allowable costs of the
County.
Stepdown Allocation Report that identifies the portion of indirect costs
allocated to each direct cost objective and indirect cost pool using the double
apportionment methodology.
Summary of Allocation Bases that identifies the allocation base statistical data
associated with each indirect cost pool.
Apportionment Reports that identify the total costs of each indirect cost pool
and their allocation to benefiting direct and indirect activities.
Reconciliation Reports that identify the total financial statement costs of the
indirect cost pools, the addition of use allowances, and the deduction of
unallowable costs by category.
Indirect Cost Rate Reports that identify the calculated indirect cost rate for
each direct cost objective,
· Narratives and explanations that identify the nature and extent of services provided
by each indirect cost pool.
(Week 10)
Task 8: Submit a draft copy of the plan to appropriate County personnel for review. Delivery of
the draft report will occur no later than 75 days after initiation of fieldwork. (Week 10)
Task 9: At the County's request, conduct a workshop for County departments that will be
charged indirect costs to assist with their understanding of the indirect cost charge
calculations. This workshop will also allow these departments to critique the plan,
which will result in greater acceptance of their indirect cost charges. (Week 11)
Task 10: Incorporate changes recommended by County personnel and provide six copies of the
final report, including the appropriate indirect cost rate schedules. Delivery of the final
rep0l1 will occur no later than 90 days after initiation of fieldwork. (Week 12)
Page 4
~
Task 11: Draft a letter for use by the County in notifying the County's federal cognizant agency
that the cost allocation plan has been completed for the appropriate fiscal year and is
available for review. (Week 12)
Phase II-Development and Preparation of the County's Full Cost Allocation Plan
KPMG will follow the tasks outlined in Phase I, as required. In this phase, however, we will
develop and prepare the Plan in accordance with full costing concepts that recognize and
incorporate all central service expenditures of the County, including "general government"
expenditures (which are only unallowable for purposes of claiming indirect costs related to federal
grants).
Phases II and I as identified in this section of our proposal will be provided to the County in the
order that is deemed most appropriate by County officials. The required steps for the development
of both cost allocation plans are quite similar in scope.
Phase III - Negotiation of the County's OMB Circular A-87 Cost Allocation Plan (if required
by the County's federal cognizant agency).
Task 1: We will provide technical support as needed and answers to federal/state reVIew
questions prior to negotiations. (As Needed)
Task 2: We will meet with County personnel from the Finance Department responsible for
negotiating the indirect cost rate to discuss negotiation strategy, (As Needed)
Task 3: We will provide any necessary testimony or negotiations to satisfy State and Federal
agencies regarding the cost allocation plan for a period of three years, (As Needed)
Phase I1.A
Development of Full
Cost Allocation Plan
Phase LA
Phase Description
Development of
OMB Circular A-87
Cost Allocation Plan
Preparation of OMB
Circular A-87 Cost
Allocation Plan
Phase LB
Phase I1.B
Preparation of Full
Cost Allocation Plan
Page 5
~
Negotiation of OMB
Phase III Circular A -87 Cost As Needed Upon Completion of Plans
Allocation Plan
Adduionalconsiderations
It has been our experience that the County's participation is necessary for this type of engagement
to be successful. It is imperative that we receive timely cooperation regarding requested data so
that effective use may be made of KPMG and County resources, as well as the CDM system. We
will also require temporary office space and telephone services for local calls while on-site.
Additionally, we understand that it is our responsibility to provide our own computer hardware and
software, supplies, clerical support, and data entry support, and that no County staff or equipment
will be provided for this project except as interviewees.
The majority of work to be performed will take place on-site at the County or at our Orlando office.
Initially, we will gather financial and statistical information from the County on-site which will
then be taken to our KPMG offices for further evaluation. The computer capabilities of our office
are extensive and specifically tailored for the design and implementation of cost allocation plans
and indirect cost rate proposals.
At the conclusion of the engagement, KPMG will provide the County with a final document
detailing the source data, methodology, and results of the Cost Allocation Plans, The document
will include a summary of any major changes (if applicable) from the previous year's plans,
including, but not limited to, changes due to OMB rule changes, changes in the components to be
allocated, changes in allocation criteria, or any major differences in methodology.
Page 6
~
II. KPMG SOFTWARE CAPABILITIES
Cost Determination Model
Each year, in order to recover indirect costs applicable to federal grants and contracts, as well as to
identify costs incurred in support of special revenue (including federal and state grants), enterprise,
and internal service fund activities, state and local governments must develop a cost allocation plan
for submission to its cognizant federal/state agency. The cost allocation plan requires extensive
data gathering and analysis and does not lend itself to quality review and testing if manually
prepared. In response to this time-consuming analytical effort, KPMG has developed an automated
indirect cost allocation model, the Cost Determination Model (CDM), CDM allows the user to
create different costing scenarios without expending a great deal of time, It is designed to be an
effective management tool by providing essential information during the preparation and
negotiation of indirect cost proposals. Specific exclusive features of CDM include the following:
· Reconciliation - Enters and adjusts financial statement data, creates allocation format,
and establishes indirect cost pools and direct cost objectives.
· Automated Worksheet - Accumulates and calculates statistics for the allocation of
indirect costs.
· Step-down Analysis - Performs the allocation of costs using the single or double
apportionment methodologies and generates necessary reports,
· Indirect Cost Pools Rate Analysis - Calculates appropriate departmental and fringe
benefit rates.
· "What - Ir' Analysis - Permits the reformatting of information to test new sets of
variables without affecting the original information, such as use of alternative allocation
statistics in determining optimum benefits.
In addition to the preparation of a state or local government's indirect cost rates, the CDM system
can be used to perform the following:
· Comprehensive Cost Plans - Cost allocation plans can be initially prepared consistent
with federal regulations or reformatted to conform with full costing principles which
consider all central service expenditures.
~ Contribution Analysis - Governmental entities may use the system to determine the
relative performance of a program or project by generating reports that analyze the
revenues and expenditures of the entity by each program or project and their operating
contribution.
Page 7
~
· Program Costing - CDM allows governmental entities to fully cost, according to their
own definitions, a program, project, division, etc.
· Budgeting - The system will accept actual or budget data. This allows for the capability
of analyzing the impact of changes in the budget or budget statistics easily and
effectively.
· Pricing Analysis - Cost data generated by CDM can be used to analyze procedures for
user or service fees. Price structures would be developed from the same comprehensive
and integrated database used to compute the indirect cost proposal.
Specific features of CDM to support detail cost analysis and allocations related to the development
of user fees or internal billing rates allow for the following:
· Functionalization of a department into specific cost centers or subunits,
· Performance of discrete analysis and costing of each cost center or subunit.
· Distribution of specific incoming costs to applicable cost centers or subunits, thereby
not requiring all cross allocated edits to be distributed on a single basis.
· Separate identification and distribution of general department administration to
applicable cost centers or subunits on a desired basis.
KPMG's CDM system was developed using a Relational Data Base Management System (DBMS)
called Advanced Revelation. The relational DBMS environment provides the end user with a user-
friendly system in a versatile and flexible environment and allows the user to generate additional
reports by using simple English commands.
KPMG will use the CDM system as an aid in the preparation and development of the County's cost
allocation plans.
Page 8
KPMG LLP
Standard Terms and Conditions
Advisory Services
I. Services. It is understood and agreed that KPMG's
services may include advice and recommendations; but
all decisions in connection with the implementation of
such advice and recommendations shall be the
responsibility of, and made by, Client. References
herein to Client shall refer to the addressee of the
Proposal or Engagement Letter to which these Standard
Terms and Conditions are attached (the "Engagement
Letter") .
2. Payment of Invoices. Client agrees to pay properly
submitted invoices within thirty (30) days of the invoice
date, or such other due date as may be indicated in the
Engagement Letter. KPMG shall have the right to halt
or terminate entirely its services under the Engagement
Letter until payment is received on past due invoices.
All fees, charges and other amounts payable to KPMG
under the Engagement Letter do not include any sales,
use, excise, value added or other applicable taxes, tariffs
or duties, payment of which shall be Client's sole
responsibility, excluding any applicable taxes based on
KPMG's net income or taxes arising from the
employment or independent contractor relationship
between KPMG and its personnel.
3. Term. Unless terminated sooner in accordance with its
terms, the engagement shall terminate upon the
completion of KPMG's services under the Engagement
Letter. In addition, either party may terminate the
Engagement Letter at any time by giving written notice
to the other party not less than 30 calendar days before
the effective date of termination.
4. Ownership.
(a) KPMG ProoertY. KPMG has created, acquired,
owns or otherwise has rights in, and may, in
connection with the performance of services under
the Engagement Letter, employ, provide, modify,
create, acquire or otherwise obtain rights in,
various concepts, ideas, methods, methodologies,
procedures, processes, know-how, and techniques,
models, templates; software, user interfaces and
screen designs; general purpose consulting and
software tools, utilities and routines; and logic,
coherence and methods of operation of systems
(collectively, the "KPMG Property"). KPMG
retains all ownership rights in the KPMG Property.
Client shall acquire no right or interest in such
property, except for the license expressly granted
in the next paragraph. In addition, KPMG shall be
free to provide services of any kind to any other
party as KPMG deems appropriate, and may use
the KPMG Property to do so. KPMG
acknowledges that KPMG Property shall not
include any of Client's confidential information or
tangible or intangible property, and KPMG shall
have no ownership rights in such property.
Page 1
(b) Ownershio of Deliverables. Except for KPMG
Property, and upon full and final payment to
KPMG under the Engagement Letter, the tangible
items specified as deliverables or work product in
the Engagement Letter including any intellectual
property rights appurtenant thereto (the
"Deliverables") will become the property of Client.
If any KPMG Property is contained in any of the
Deliverables, KPMG hereby grants Client a
royalty-free, paid-up, non-exclusive, perpetual
license to use such KPMG Property in connection
with Client's use of the Deliverables.
5. Limitation on Warranties. THIS IS A SERVICES
ENGAGEMENT. KPMG WARRANTS THAT IT
WILL PERFORM SERVICES UNDER THE
ENGAGEMENT LETTER IN GOOD FAITH,
WITH QUALIFIED PERSONNEL IN A
COMPETENT AND WORKMANLIKE MANNER
IN ACCORDANCE WITH APPLICABLE
INDUSTRY STANDARDS. KPMG DISCLAIMS
ALL OTHER WARRANTIES, EITHER EXPRESS
OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6. Limitation on Damages. Except for each party's
indemnification obligations as set forth below, neither
Client nor KPMG shall be liable to the other for any
actions, damages, claims, liabilities, costs, expenses or
losses in any way arising out of or relating to the
services performed under the Engagement Letter for an
aggregate amount in excess of the fees paid or owing to
KPMG for services rendered by KPMG under the
Engagement Letter. In no event shall either party be
liable for consequential, special, indirect, incidental,
punitive or exemplary damages, costs, expenses, or
losses (including, without limitation, lost profits and
opportunity costs). The provisions of this Paragraph
shall apply regardless of the form of action, damage,
claim, liability, cost, expense, or loss, whether in
contract, statute, tort or otherwise.
7. Infringement.
(a) KPMG hereby agrees to indemnify, hold harmless
and defend Client from and against all claims,
liabilities, losses, expenses (including reasonable
attorneys' fees), fines, penalties, taxes or damages
(collectively "Liabilities") asserted by any third
party against Client to the extent such Liabilities
result from the infringement by the Deliverables of
any third party's patents issued as of the date of the
Engagement Letter, trade secrets, trademarks or
copyrights. The preceding indemnification
provision shall not apply to any infringement
arising out of the following:
Revised 5/4/04
KPMG LLP
Standard Terms and Conditions
Advisory Services
(i) use of the Deliverables other than in
accordance with applicable documentation or
instructions supplied by KPMG or other than
in accordance with Paragraph 8(b);
(ii) any alteration, modification or revision of the
Deliverables not expressly agreed to in writing
by KPMG; or
(iii) the combination of the Deliverables with
materials not supplied or approved by KPMG.
(b) In case any of the Deliverables or any portion
thereof is held, or in KPMG's reasonable opinion is
likely to be held, in any such suit to constitute
infringement, KPMG may, within a reasonable
time, at its option either:
(i) secure for Client the right to continue the use
of such infringing item; or
(ii) replace, at KPMG's sole expense, such item
with a substantially equivalent non-infringing
item or modify such item so that it becomes
non- infringing.
In the event KPMG is, in its reasonable discretion,
unable to perform either of options described in (i)
or (ii) above, Client shall return the Deliverable to
KPMG, and KPMG's sole liability shall be to
refund to Client the amount paid to KPMG for such
item; provided that the foregoing shall not be
construed to limit KPMG's indemnification
obligation set forth in Paragraph 7(a) above.
(c) The provisions of this Paragraph 7 state KPMG's
entire liability and Client's sole and exclusive
remedy with respect to any infringement or claim
of infringement.
8. Indemnification.
(a) Each party agrees to indemnify, hold harmless and
defend the other party from and against any and all
Liabilities for physical injury to, or illness or death
of, any person or persons regardless of status, and
damage to or destruction of any tangible property,
which the other party may sustain or incur, to the
extent such Liabilities result from the negligence or
willful misconduct of the indemnifying party.
(b) Except as otherwise required by law, as permitted
by the Engagement Letter, or as provided in
Paragraph 13(e) below with respect to any
proposed or completed transaction, Client
acknowledges and agrees that any advice,
recommendations, information or work product
provided to Client by KPMG in connection with
Page 2
this engagement is for the confidential use of
Client, may not be relied upon by any third party
and Client will not disclose or permit access to
such advice, recommendations, information or
work product to any third party or summarize or
refer to such advice, recommendations, information
or work product or to KPMG's engagement under
the Engagement Letter without, in each case,
KPMG's prior written consent. In furtherance of
the foregoing, Client will indemnify, defend and
hold harmless KPMG from and against any and all
Liabilities suffered by or asserted against KPMG in
connection with a third party claim to the extent
resulting from such party's use or possession of or
reliance upon KPMG's advice, recommendations,
information or work product as a result of Client's
use or disclosure of such advice, recommendations,
information or work product.
(c) The party entitled to indemnification (the
"Indemnified Party") shall promptly notify the
party obligated to provide such indemnification
(the "Indemnifying Party") of any claim for which
the Indemnified Party seeks indemnification. The
Indemnifying Party shall have the right to conduct
the defense or settlement of any such claim at the
Indemnifying Party's sole expense, and the
Indemnified Party shall cooperate with the
Indemnifying Party. The party not conducting the
defense shall nonetheless have the right to
participate in such defense at its own expense. The
Indemnified Party shall have the right to approve
the settlement of any claim that imposes any
liability or obligation other than the payment of
money damages.
9. Cooperation; Use ofInformation.
(a) Client agrees to cooperate with KPMG in the
performance of the services under the Engagement
Letter and shall provide KPMG with timely access
to and use of Client's personnel, facilities,
equipment, data and information to the extent
necessary for KPMG to perform the services under
the Engagement Letter. The Engagement Letter
may set forth additional obligations of Client in
connection with this engagement. Client
acknowledges that Client's failure to assign Client
personnel having skills commensurate with their
role with respect to this engagement could
adversely affect KPMG's ability to provide the
services under the Engagement Letter.
(b) Client acknowledges and agrees that KPMG may,
in performing its obligations pursuant to this
Agreement, use data, material, and other
information furnished by Client without any
independent investigation or verification and that
KPMG shall be entitled to rely upon the accuracy
Revised 5/4/04
KPMG LLP
Standard Terms and Conditions
Advisory Services
and completeness of such information In
performing the services under the Engagement
Letter.
10. Force Majeure. Neither Client nor KPMG shall be
liable for any delays resulting from circumstances or
causes beyond its reasonable control, including, without
limitation, fire or other casualty, act of God, strike or
labor dispute, war or other violence, or any law, order or
requirement of any governmental agency or authority.
II. Limitation on Actions. No action, regardless of form,
arising out of or relating to this engagement, may be
brought by either party more than one year after the
cause of action has accrued, except that an action for
non-payment may be brought by a party not later than
one year following the date of the last payment due to
such party under the Engagement Letter.
12. Independent Contractor. It is understood and agreed
that each of the parties hereto is an independent
contractor and that neither party is or shall be
considered an agent, distributor or representative of the
other. Neither party shall act or represent itself, directly
or by implication, as an agent of the other or in any
manner assume or create any obligation on behalf of, or
in the name of, the other.
13. Confidentiality.
(a) "Confidential Information" means all documents,
software, reports, data, records, forms and other
materials obtained by one party (the "Receiving
Party") from the other party (the "Disclosing
Party") in the course of performing the services
under the Engagement Letter: (i) that have been
marked as confidential; (ii) whose confidential
nature has been made known by the Disclosing
Party to the Receiving Party; or (iii) that due to
their character and nature, a reasonable person
under like circumstances would treat as
confidential. Notwithstanding the foregoing,
Confidential Information does not include
information which: (i) is already known to the
Receiving Party at the time of disclosure by the
Disclosing Party; (ii) is or becomes publicly known
through no wrongful act of the Receiving Party;
(iii) is independently developed by the Receiving
Party without benefit of the Disclosing Party's
Confidential Information; (iv) relates to a U.S.
federal corporate income tax strategy offered or
proposed to be offered by KPMG as further
described in Paragraph 13(e) below or (v) is
received by the Receiving Party from a third party
without restriction and without a breach of an
obligation of confidentiality.
(b) The Receiving Party will deliver to the Disclosing
Party all Confidential Information of the Disclosing
Page 3
Party and all copies thereof when the Disclosing
Party requests the same, except for one copy
thereof that the Receiving Party may retain for its
records. The Receiving Patty shall not use or
disclose to any person, firm or entity any
Confidential Information of the Disclosing Party
without the Disclosing Patty's express, prior
written permission; provided, however, that
notwithstanding the foregoing, the Receiving Party
may disclose Confidential Information to the extent
that it is required to be disclosed pursuant to a
statutory or regulatory provision or court order or
to fulfill professional obligations and standards.
(c) Each party shall be deemed to have met its
nondisclosure obligations under this Paragraph 13
as long as it exercises the same level of care to
protect the other's information as it exercises to
protect its own confidential information but in no
event less than reasonable care, except to the extent
that applicable law or professional standards
impose a higher requirement.
(d) If the Receiving Party receives a subpoena or other
validly issued administrative or judicial demand
requiring it to disclose the Disclosing Party's
Confidential Information, the Receiving Party shall
provide prompt written notice to the Disclosing
Party of such demand in order to permit it to seek a
protective order. So long as the Receiving Party
gives notice as provided herein, the Receiving
Party shall be entitled to comply with such demand
to the extent permitted by law, subject to any
protective order or the like that may have been
entered in the matter.
(e) Notwithstanding anything to the contrary set forth
herein, no provision in the Engagement Letter or
these Standard Terms and Conditions is or is
intended to be construed as a condition of
confidentiality within the meaning of Internal
Revenue Code sections 6011, 6111, 6112 or the
regulations thereunder, or under any similar or
analogous provisions of the laws of a state or other
jurisdiction. Client (and each employee,
representative, or other agent of Client) may
disclose to any and all persons, without limitation
of any kind, the tax treatment and tax structure of
any transaction within the scope of this
engagement that reduces or defers federal tax and
all materials of any kind (including opinions and
other tax analyses) that are provided to Client
relating to such tax treatment and tax structure. If a
state or other jurisdiction adopts provisions that are
similar or analogous to those in IRC sections 6011,
6111, or 6112 or the regulations thereunder, the
authorization to disclose in the preceding sentence
also shall apply to any transaction within the scope
Revised 5/4/04
KPMG LLP
Standard Terms and Conditions
Advisory Services
of this engagement that is subject to such
provisions of that state or other jurisdiction.
14. Survival. The provisions of Paragraphs 1,2,4,6,7,8,
11,13,15,16,17,18 and 19(a) hereof shall survive the
expiration or termination of this engagement.
15. Assignment. Neither party may assign, transfer or
delegate any of its rights or obligations without the prior
written consent of the other party, such consent not to be
unreasonably withheld. Notwithstanding the foregoing,
to the extent any of the services under the Engagement
Letter will be performed in or relate to a jurisdiction
outside of the United States, Client acknowledges and
agrees that such services, including any applicable tax
advice, may be performed by the member firm of
KPMG International practicing in such jurisdiction.
Accordingly, Client agrees that KPMG may share data
and information received from Client with such member
firm as may be required to complete this engagement.
16. Severability. In the event that any term or provision of
this Agreement shall be held to be invalid, void or
unenforceable, then the remainder of this Agreement
shall not be affected, and each such term and provision
of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
17. Governing Law. The Engagement Letter and these
Standard Terms and Conditions shall be governed by
and construed in accordance with the laws of the State
of New York, without regard to the conflict of laws
provisions thereof.
18. Alternative Dispute Resolution.
(a) Any dispute or claim arising out of or relating to
the Engagement Letter between the parties, the
services provided thereunder, or any other services
provided by or on behalf of KPMG or any of its
subcontractors or agents to Client or at its request
(including any dispute or claim involving any
person or entity for whose benefit the services in
question are or were provided) shall be resolved in
accordance with the dispute resolution procedures
set forth in Exhibit A attached hereto, which
constitute the sole methodologies for the resolution
of all such disputes. By operation of this provision,
the parties agree to forego litigation over such
disputes in any court of competent jurisdiction.
Mediation, if selected, may take place at a location
to be designated by the parties. Arbitration shall
take place in New York, New York. Either party
may seek to enforce any written agreement reached
by the parties during mediation, or to confirm and
enforce any final award entered in arbitration, in
any court of competent jurisdiction.
Page 4
(b) Notwithstanding the agreement to such procedures,
either party may seek injunctive relief to enforce its
rights with respect to the use or protection of (i) its
confidential or proprietary information or material
or (ii) its names, trademarks, service marks or
logos, solely in the courts of the State of New York
or in the courts of the United States located in the
State of New York. The parties consent to the
personal jurisdiction thereof and to sole venue
therein only for such purposes.
19. Miscellaneous.
(a) Except as otherwise set forth in the Engagement
Letter, in accepting this engagement, Client
acknowledges that completion of this engagement
or acceptance of Deliverables resulting from this
engagement will not constitute a basis for Client's
assessment or evaluation of internal control over
financial reporting and disclosure controls and
procedures, or its compliance with its principal
officer certification requirements under Section
302 of the Sarbanes-Oxley Act of2002 (the "Act").
This engagement shall not be construed to support
Client's responsibilities under Section 404 of the
Act requiring each annual report filed under
Section 13( a) or 15( d) of the Securities Exchange
Act of 1934 to contain an internal control report
from management.
(b) KPMG may communicate with Client by electronic
mail or otherwise transmit documents in electronic
form during the course of this engagement. Client
accepts the inherent risks of these forms of
communication (including the security risks of
interception of or unauthorized access to such
communications, the risks of corruption of such
communications and the risks of viruses or other
harmful devices) and agrees that it may rely only
upon a final hardcopy version of a document or
other communication that KPMG transmits to
Client.
(c) For engagements performed in California or where
the services provided by KPMG fall under the
jurisdiction of California law, rule or regulation,
Client acknowledges that certain of KPMG's
personnel that have an ownership interest in the
partnership and who may provide services in
connection with this engagement may not be
licensed as certified public accountants under the
laws of any of the various states.
20. Entire Agreement. These terms, and the Engagement
Letter including Exhibits hereto and thereto, constitute
the entire agreement between KPMG and Client with
respect to this engagement and supersede all other oral
and written representation, understandings or
agreements relating to this engagement.
Revised 5/4/04
Exhibit A
Dispute Resolution Procedures
The following procedures are the sole methodologies to be used to resolve any controversy or claim ("dispute"). If any of these
provisions are determined to be invalid or unenforceable, the remaining provisions shall remain in effect and binding on the
parties to the fultest extent permitted by law.
Mediation
Any party may request mediation of a dispute by providing a written Request for Mediation to the other party or parties. The
mediator, as welt as the time and place of the mediation, shalt be selected by agreement of the parties. Absent any other
agreement to the contrary, the parties agree to proceed in mediation using the CPR Mediation Procedures (Effective April I,
1998), with the exception of paragraph 2 which shalt not apply to any mediation conducted pursuant to this agreement. As
provided in the CPR Mediation Procedures, the mediation shalt be conducted as specified by the mediator and as agreed upon by
the parties. The parties agree to discuss their differences in good faith and to attempt, with facilitation by the mediator, to reach
a consensual resolution of the dispute. The mediation shall be treated as a settlement discussion and shall be confidential. The
mediator may not testify for any party in any later proceeding related to the dispute. No recording or transcript shall be made of
the mediation proceeding. Each party shall bear its own costs in the mediation. Absent an agreement to the contrary, the fees
and expenses of the mediator shall be shared equally by the parties.
Arbitration
Arbitration shall be used to settle the following disputes: (I) any dispute not resolved by mediation 90 days after the issuance by
one of the parties of a written Request for Mediation (or, if the parties have agreed to enter or extend the mediation, for such
longer period as the parties may agree) or (2) any dispute in which a party declares, more than 30 days after receipt of a written
Request for Mediation, mediation to be inappropriate to resolve that dispute and initiates a Request for Arbitration. Once
commenced, the arbitration will be conducted either (I) in accordance with the procedures in this document and the Rules for
Non-Administered Arbitration of the CPR Institute for Dispute Resolution ("CPR Arbitration Rules") as in effect on the date of
the engagement letter or contract between the parties, or (2) in accordance with other rules and procedures as the parties may
designate by mutual agreement. In the event of a conflict, the provisions of this document and the CPR Arbitration Rules will
control.
The arbitration will be conducted before a panel of three arbitrators, two of whom may be designated by the parties using either
the CPR Panels of Distinguished Neutrals or the Arbitration Rosters maintained by any JAMS Office in the United States. If the
parties are unable to agree on the composition of the arbitration panel, the parties shall follow the screened selection process
provided in Section B, Rules 5, 6, 7, and 8 of the CPR Arbitration Rules. Any issue concerning the extent to which any dispute
is subject to arbitration, or any dispute concerning the applicability, interpretation, or enforceability of these procedures,
including any contention that all or part of these procedures are invalid or unenforceable, shall be governed by the Federal
Arbitration Act and resolved by the arbitrators. No potential arbitrator shall be appointed unless he or she has agreed in writing
to abide and be bound by these procedures.
The arbitration panel shall issue its final award in writing. The panel shall have no power to award non-monetary or equitable
relief of any sort. Damages that are inconsistent with any applicable agreement between the parties, that are punitive in nature,
or that are not measured by the prevailing party's actual damages, shall be unavailable in arbitration or any other forum. In no
event, even if any other portion of these provisions is held to be invalid or unenforceable, shall the arbitration panel have power
to make an award or impose a remedy that could not be made or imposed by a court deciding the matter in the same jurisdiction.
Discovery shall be permitted in connection with the arbitration only to the extent, if any, expressly authorized by the arbitration
panel upon a showing of substantial need by the party seeking discovery.
All aspects of the arbitration shall be treated as confidential. The parties and the arbitration panel may disclose the existence,
content or results of the arbitration only as provided in the CPR Arbitration Rules. Before making any such disclosure, a party
shall give written notice to all other parties and shall afford such parties a reasonable opportunity to protect their interests.
The award reached as a result of the arbitration wilt be binding on the parties, and confirmation of the arbitration award may be
sought in any court having jurisdiction.
Page 5
Revised 5/4/04