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Second Appeal Analysis
PA ID# 000-92107-00; NC Department of Parks and Recreation
DSR ID# Multiple Dsrs; Debris Removal Monitoring/ Pre-Exisiting Damage
The North Carolina Division of Parks and Recreation (Applicant) sustained extensive damages as a result of Hurricane Fran (FEMA-1134-DR-NC; September 6, 1996). The Applicant requested assistance from the U.S. Department of Homeland Security’s Federal Emergency Management Agency (FEMA) for debris removal from various state parks and the repair of various facilities. This appeal addresses the debris removal from eight state parks and the repair of the Kerr Lake shoreline.
Initially, the United States Army Corps of Engineers (USACE), under a mission assignment issued by FEMA, led the debris removal from the eight state parks. USACE encountered difficulties in procuring a debris removal contractor, however, and after three months, the Applicant took over the debris removal responsibilities and proceeded with its bidding process to procure contractors for the debris removal. At that time FEMA indicated that lump sum contracts would be ineligible for reimbursement, and that time and materials contracts should be used. The Applicant had concerns over the level of monitoring required for time and materials contract; therefore, FEMA agreed to provide funding for a project management contractor to oversee the debris removal from the eight state parks.
On February17, 1997, the Applicant awarded a contract for the inspection and management of the debris contractors at a rate of 6.87% of the total cost of the debris removal contracts. The scope of services under the contract included assisting with the development of a scope of work for debris removal to secure contractors and providing oversight of the removal to include record keeping, quality assurance and reports to ensure compliance with FEMA requirements.
On February 28, 1997, FEMA obligated $1,177,169 for the estimated cost of debris removal under Damage Survey Reports (DSRs) 26802 (Medoc Mountain Park; $77,130), 26803 (Jordan Lake Park; $223,272), 26805 (Falls Lake Park; $261,027), 26806 (Morrow Mountain Park; $124,515), 26807 (Raven Rock Park; $64,530 ), 26808 (Cliffs of the Neuse Park; $166,086), 26809 (Kerr Lake Park; $59,730), and 11578 (William B. Umstead Park; $200,879). On March 19, 1997, FEMA obligated DSR 25762 for $122,895 for the project management of the debris removal contractors. On March 21, 1997, the Applicant awarded time and materials contracts to five contractors to remove the debris from the eight parks (three contractors were awarded contracts to remove debris from two parks).
On October 29, 1997, FEMA obligated DSR 77636 (also at issue under this appeal) for $972,173 to fund the restoration of the Kerr Lake Shoreline. Subsequent to the Applicant completing the project, FEMA obligated DSR 43329 for $2,315,083 to increase the eligible funding amount to $3,287,256 based on final, actual costs. FEMA also provided funding for $108,972 for work along Kerr Lake shoreline for repairs to boat ramps under DSR 91337.
Final Inspection – Debris Removal from Eight State Parks
Upon completion of the debris removal from the eight state parks, the Applicant submitted a request to FEMA for additional funding based on its final, actual costs. The Applicant claimed a total of $4,891,982 for the debris removal contract costs, an increase of $3,714,813, and a total of $335,355 for the project management contract costs, an increase of $212,460.
Due to the significant increase in costs above the estimates approved under the DSRs, FEMA requested assistance from a Technical Assistance Contractor (TAC) to review the work performed and the associated costs. Based on the review of the documentation, the TAC, in a report dated May 15, 1998, concluded that it was not possible to identify eligible versus ineligible debris removal. The report stated that the daily reports “did not adequately explain the need to perform debris removal on areas lying outside the scope of work…” According to the report, shortly after the commencement of debris removal efforts, the Applicant indicated that the approved scopes of work were inadequate to address all of the disaster related debris removal. The report states that FEMA identified debris removal that fell outside of the scopes of work as “secondary.” Further, FEMA instructed the Applicant that in order for FEMA to find this work eligible for funding, the work had to be both identified and documented as “secondary” and “represent a safety and health concern to the visiting public.”
The report also indicated that the direction provided by FEMA regarding the ineligibility of lump sum contracts contributed to the cost overruns. The amount of monitoring required for the time and materials contracts proved overwhelming for the Applicant’s forces and its contract project manager. The inadequate monitoring of the contracts contributed to the lack of documentation, documentation that was necessary to determine which debris removal activities performed were in fact eligible for FEMA funding. While FEMA, on March 4, 1997, notified the Applicant that lump sum contracts were, in fact, “a permissible alternative for removal of eligible debris in State Parks,” the Applicant indicated that changing the type of contract at that time would further delay the clean-up process.
The TAC presented a variety of options to FEMA for addressing the Applicant’s request for additional funding. FEMA determined that all of the debris removal activities were in fact eligible, and obligated DSR 36859 on January 7, 1999, for $3,927,273, to fund the cost overruns for all eight debris removal contracts and the project management contract.
After FEMA completed the closeout of all of the Applicant’s projects, the Office of Inspector General (OIG) conducted an audit of the Applicant’s fifteen large projects. Audit Report Number DA-33-04, dated August 14, 2004 (Audit Report), recommended deobligation of $7,313,956—$3,917,728 in debris removal costs and $3,396,228 for the repairs along the Kerr Lake shoreline.
Of the $3,917,718 related to debris removal, the OIG determined that the Applicant made excessive payments of $3,857,996 to contractors including the project management contractor. The remaining $59,732 is related to a mathematical error made during the final inspection and subsequent obligation of DSR 36859.
The OIG’s determination that the Applicant made excessive payments for debris removal is based on three main points:
1. The Applicant awarded eight fixed price contracts for debris removal and processed contractor invoices for payment as though the contracts were cost reimbursement rather than fixed price. The total fixed ceiling price for the eight contracts was $1,212,913; however, the Applicant made payments in the amount of $4,867,994—$3,655,081 in excess of the fixed amount.
3. The Applicant made payments to contractors for work above and beyond the FEMA approved scopes of work. In its report, the OIG summarized the descriptions of unauthorized work performed in six of the eight state parks.
5. The Applicant approved payments to its project management contractor in excess of the not-to- exceed amount established by contract. The not-to-exceed amount established by contract was $132,440; however, the Applicant approved $335,355 in payments to the contractor—$202,915 more than authorized under the contract.
Regarding the OIG’s determination for the costs claimed for the Kerr Lake shoreline restoration and repairs to boat ramps at Kerr Lake, the OIG stated that documentation (November 1995 state budget submission and March 1996 Hazard Mitigation grant application) showed that the damages addressed under DSRs 77636 and 91337 existed prior to the disaster. The OIG recommended deobligating all funding provided under these DSRs (total of $3,396,228).
meby the invoices, payment records, or contract payments reviewed during the audit.
By letter dated June 30, 2005, FEMA informed the North Carolina Division of Emergency Management (NCDEM) that it agreed with the OIG’s recommendation to disallow $7,313,956. However, FEMA previously received a $715,305 reimbursement stemming from a criminal investigation of one of the debris removal contractors; therefore, it deobligated $6,598,651.
First Appeal - Audit
In a letter dated October 13, 2005, the Applicant submitted a “second appeal” of the audit to NCDEM, and NCDEM transmitted it to FEMA on October 14, 2005. The Applicant requested to allow the costs questioned by the OIG. As this appeal was actually the first appeal submitted by the Applicant regarding the audit, it was treated as such by FEMA Region IV.
With its appeal, the Applicant submitted documentation to support the $108,972 claimed under DSR 91337. Further, the Applicant argued that although erosion along the Kerr Lake shoreline was evidenced prior to the disaster, the disaster caused “additional tremendous damage.” The Applicant asserted that it has not claimed costs for work performed to repair pre-disaster damage; only damages related to Hurricane Fran.
With regard to the debris removal contracts, the Applicant asserted that it did not use lump sum contracts for the debris removal, but rather time and materials contracts based on FEMA’s direction provided at the time. The contracts did not contain not-to-exceed clauses and contractually, payments would be made on a cost reimbursement basis. The Applicant also addressed each of the OIG descriptions of unauthorized work performed by the debris removal contractors. These descriptions are addressed by statements made by the Applicant’s personnel involved in managing or inspecting the debris removal as it occurred. The Applicant claimed that no funding was requested for ineligible debris removal activity.
In a letter dated March 1, 2006, FEMA denied the first appeal of the audit. FEMA stated that although the Applicant submitted documentation in support of the $108,972 funded under DSR 91337, this funding was ultimately deobligated because it was related to repairs of preexisting damage. In its letter, FEMA concluded that the Applicant did not clearly identify the damage to the Kerr Lake shoreline or the boat ramps as disaster related. Further, FEMA determined that the Applicant did not follow the requirements of its contracts when it authorized payments to debris removal contractors in excess of the not-to-exceed amounts. Finally, FEMA stated that the debris contractors exceeded the scope of work of some DSRs and removed ineligible debris.
Second Appeal - Audit
By memo dated April 27, 2006, FEMA Region IV transmitted the Applicant’s appeal to FEMA Headquarters, Recovery Division for analysis as a second appeal. The memo states that “the State and the Applicant have verbally indicated they have no additional information to provide to justify their position” and request that the first appeal be considered as the second appeal.
The discussion below is divided to address the two major issues under appeal: the debris removal contracts and the Kerr Lake shoreline restoration.
Debris Removal and Project Management Contracts
Based on a review of the documentation, the eight debris removal contracts were awarded as time and materials contracts, not as lump sum contracts. Each of the eight contracts state that the Applicant “shall pay the Contractor at the rate specified in the contractor’s response for a total amount projected to be …” While each contract specified a “projected amount,” the contracts did not contain not-to-exceed clauses.
According to the project management contract, payment was not to exceed 6.87% of the total cost of the debris removal contracts. Although the contract did state that “total support from FEMA funds will not exceed $119,196,” there is no fixed price amount set forth in the contract.
In its appeal, the Applicant acknowledged that these types of contracts are inappropriate for debris removal activities, and it states that it now only uses lump sum contracts. At the time that FEMA directed the Applicant to use time and materials contracts for the debris removal, the Applicant argued that daily monitoring and inspection would be required and that it suspected that cost overruns would occur. The Applicant asserts that it should not solely be held responsible for the overruns.
The Applicant was fully aware of the difficulties with managing time and materials contracts and hired a project manager to perform the necessary duties to document all work to ensure compliance with FEMA requirements. However, the necessary level of monitoring and documentation did not occur. Due to the lack of adequate documentation, neither the TAC who performed the Final Inspection nor the OIG was able to determine exactly what portion of the debris removal activities performed was in fact eligible for FEMA funding. Monitoring and documenting the debris removal activities was the responsibility of the Applicant, and the Applicant was fully aware of this responsibility.
The Applicant argues that the option presented in the Final Inspection Report that FEMA used to determine the eligible amount of funding is the “most appropriate resolution” of the contract issues. The report states that “since it is impossible to distinguish eligible and ineligible debris removal and [the Applicant] asserts that all debris removed eliminated an immediate threat to health, life and safety, FEMA management could assume that all of the debris removal performed in state parks fell within the eligible scope of work.” While FEMA decided to make that assumption at the time of the Final Inspection, the OIG reviewed documentation that proved otherwise. Some amount of debris removal performed by the contractors was not included in the approved scopes of work of the eight debris removal DSRs.
In its appeal, the Applicant states that “authorized work was documented prior to payment by the use of FEMA Damage Survey Reports…The Damage Survey Report (DSR) became the approval document from FEMA, approving both the work and the dollar amount associated with debris cleanup.” Prior to DSR 36859 (which was obligated as the result of the Final Inspection), the only DSRs approved by FEMA detailing the eligible scopes of work were the eight original DSRs prepared for debris removal from the eight parks: DSRs 26802, 26803, 26805, 26806, 26807, 26808, 26809, and 11578.
The scope of work as approved under those eight DSRs includes:
Remove and dispose of incident related debris in maintained areas which are defined park roads, park trails, and picnic group cabin, and camping areas. The boundaries for these facilities extend up to 15 feet beyond the public use area for that facility, or if one exists, 15 feet beyond its perimeter trail.
The OIG noted several instances where reference to the performance of work outside of the approved scopes of work was documented. For example, in three of the parks, debris was removed up to 30 feet on each side of the roads, trails, and picnic areas; in two parks, debris was removed from deep inside of the park’s wooded areas; and in one park, debris was removed from creeks and streams.
In its appeal, the Applicant addresses each of the OIG descriptions of unauthorized work performed by the debris removal contractors. These descriptions are addressed by statements made by the Applicant’s personnel involved in the management of the debris removal operations. In summary, in all instances, while the 15-foot limit was exceeded on occasion, the Applicant’s personnel assert that only debris causespoApplicant’s personnel state that the work was addressed under DSRs other than those at issue.
The Applicant acknowledged in its appeal that the DSR is the document that approves eligible work, yet it argues that FEMA should fund work other than that approved under the eight DSRs at issue. The Final Inspection Report states that the Applicant indicated shortly after the commencement of the debris removal efforts that the approved scopes of work were inadequate to address all of the disaster-related debris removal. The report also states that the Applicant did not adequately document the work performed that was defined by FEMA as “secondary,” or work performed above and beyond what was approved under the DSRs. Had the Applicant documented this work performed outside of the scopes of work approved under the DSRs, FEMA would have been able to perform an eligibility review of the work. The Applicant was not able to produce such documentation during the Final Inspection, the OIG Audit, or with its appeal.
Based on a review of all relevant documents, it appears that the Applicant removed more eligible disaster-related debris than the amounts identified in the scopes of work for the original DSRs. Although the Applicant originally estimated the cost to remove eligible debris from the parks to be $2.26 million, FEMA approved $1.3 million for this effort. FEMA developed its estimate before it mission assigned the U.S. Army Corps of Engineers (USACE) to remove the debris. When USACE determined that it could not contract for the work, the Applicant agreed to contract for the work. FEMA did not review its initial estimate for debris removal after the Applicant agreed to contract for the work, and obligated funds for debris removal based on its original estimate. Based on all available information, we believe that the Applicant’s estimate of $2.26 million more accurately reflected the cost of removing eligible debris from the parks. Therefore, we have determined that the total eligible cost for removing debris from the parks is $2.26 million. Accordingly, we will obligate an additional $960,000 for debris removal.
Kerr Lake Shoreline Restoration
As set forth in 44 CFR §206.223, to be eligible, an item of work must be required as the result of the major disaster event. Documentation reviewed during the OIG audit revealed that the Kerr Lake shoreline was damaged prior to the disaster. The Applicant acknowledges that erosion along the shoreline was evidenced prior to Hurricane Fran; however, the Applicant disagrees with the OIG’s determination that all costs associated with the Kerr Lake shoreline and boat ramp repairs are ineligible. “Erosive events are by nature repetitive until shorelines are protected and stabilized. These events may happen over time, but in this instance Hurricane Fran caused additional tremendous damage.”
The Applicant questions the OIG’s reference to a March 1996 Hazard Mitigation application because its application was initially prepared in December 1996. In the application, the Applicant references lake levels from 1952-1995 to address the repetitive nature of the hazard event and includes an estimate of $15 million in damages since 1959. The Applicant asserts that the OIG took this information out of context when the OIG determined that the Applicant claimed funding under DSRs 77636 and 91337 for repairs to preexisting damage. The Applicant does not claim that preexisting damage never existed; however, it states that its request for funding under DSRs 77636 and 91337 was only for repairs to damage related to Hurricane Fran.
The Applicant refers to a re-inspection that FEMA performed of the Kerr Lake shoreline and used to determine the eligible scope of work for the Kerr Lake restoration. Based on the documentation, this re-inspection focused on identifying the locations of only improved areas (picnic areas, campgrounds, etc.) and documenting the damage at those locations that could be considered eligible for repair. FEMA determined that some sites that were re-inspected were ineligible “due to existing bedrock shoreline.” There is no discussion or documentation in the DSRs addressing preexisting damage or that the Applicant and FEMA established what damage was preexisting versus what was related to Hurricane Fran.
It is clear that Hurricane Fran caused damage to the Kerr Lake shoreline. It is also clear that there is nothing in the record that establishes the pre-disaster condition or design of the shoreline. The fact that the Applicant may have requested funds from the legislature to perform repairs along the shoreline does not refute the fact that Hurricane Fran caused additional damage. The issue is how much of the damage to the shoreline was caused by Hurricane Fran. While we must consider the pre-disaster condition of the shoreline when determining the eligible amount of assistance, that condition should not preclude the applicant from eligibility for any assistance. When an applicant performs work beyond the repair of disaster-related damages, we consider the project to be an “improved project.” Eligible assistance for improved projects is limited to the estimated cost of repairing the disaster-related damages. After reviewing all material submitted with the appeal, we have determined that the Kerr Lake shoreline repair project was an improved project. Therefore, the amount of eligible assistance is $972,173, the amount estimated in the initial DSR.
For the reasons discussed above, we approve $960,000 in additional costs for debris removal and $972,173 for repair of disaster-related damages to the Lake Kerr shoreline. Accordingly, the appeal is partially approved.