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Second Appeal Letter
PA ID# 037-91025; Los Angeles County Deprtment of Health Services
DSR ID# DSR 98116 and 60503; San Fernando Health Center
August 12, 2008
Acting Governors Authorized Representative
Governors Office of Emergency Services
Response and Recovery Division
3650 Schriever Avenue
Mather, California 95655
Re: Second AppealLos Angeles Department of Health Services, PA ID 037-91025,San Fernando Health Center
, FEMA-1008-DR-CA, Disaster Survey Report (DSR) 98116 and 60503
Dear Mr. McCarton:
This letter is in response to your letter dated December 11, 2007, which transmitted the referenced second appeal on behalf of Los Angeles County Department of Health Services (Applicant). The Applicant is requesting that the Department of Homeland Securitys Federal Emergency Management Agency (FEMA) reconsider its treatment of costs for construction administration for the San Fernando Health Center as project management soft costs. Recharacterization of the costs as hard costs would result in a $48,127 increase in Public Assistance Grant Acceleration Program (GAP) project cost overruns ($41,489 in hard costs plus $6,638, the 16 percent allowance for project management soft costs attributable to the increase in hard costs) that could be offset by underruns from another eligible GAP project.
Following the Northridge earthquake on January 17, 1994, the Applicant accepted a GAP offer in the amount of $1,785,334 to replace the San Fernando Health Center, which was approved under DSR 98116 on September 14, 1999. FEMA, through subsequent funding adjustments and GAP underrun transfers, increased that amount to $4,118,945.
On February 6, 2007, the Applicant appealed FEMAs closeout decision to deny its request to treat $42,835 in costs as hard costs, $41,489 for Architecture and Engineering (A&E) construction administration services and $1,346 for bid advertisement expenses. The Applicant argued that FEMA mischaracterized the $42,835 as project management soft costs when the costs were directly related to construction design and engineering services (hard costs). The total amount in dispute was $49,689 ($42,835 in hard costs plus $6,854, the 16 percent project management allowance). The Deputy Regional Administrator denied the appeal on July 27, 2007, because pursuant to the Instructional Guide for Cost Estimating Format (CEF) and the documentation submitted, the costs associated with construction and administration and bid advertising were project management (soft) costs and not hard costs.
The Applicant filed its second appeal on October 16, 2007, reducing the requested amount to $48,127 ($41,489 for hard costs plus $6,638, for the allowable 16 percent project management mark-up attributed to the hard costs expense). The Applicant maintained the additional costs should not be categorized as project management (soft costs), but treated as eligible hard costs associated with the design and engineering of the project. The Applicants support documents included a copy of the San Fernando Health Centers project closeout worksheet and additional excerpts from the A&E Services Agreement. The closeout worksheet lists categories of work with corresponding vendor names, job invoice numbers and service fees. However, the Applicant did not provide vendor invoices that identify the actual A&E (hard costs) services performed and the fees associated with those services to support its claim.
The Applicant also cites guidance from the CEF Guide Part H.2, Architecture & Engineering Design Contact Costs,
which states that certain expenses associated with A&E design contract costs may be classified as hard costs. The certain expenses include work on the actual design and engineering of a project, i.e., preparation of engineering calculations, architectural and/or engineering plans or drawings that are necessary to implement the eligible repairs. The Applicant failed to show that the A&E costs listed in its second appeal are the same A&E costs it cites from the CEF guide.
We have reviewed all information submitted with the second appeal and have determined that questioned costs are appropriately characterized as project management soft costs pursuant to GAP guidelines and the documentation submitted. Therefore, I am denying the second appeal.
Please inform the Applicant of my decision. This determination constitutes the final decision on this matter pursuant to 44 CFR §206.206.
Carlos J. Castillo
Disaster Assistance Directorate
cc: Nancy Ward
FEMA Region IX