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Second Appeal Analysis
PA ID# 069-UO9JS-00; Kennett Board of Public Works
PW ID# 622; Reconductoring Design Services
In January 2009, severe winter storms in the State of Missouri caused ice encumbered limbs and trees to damage sections of the City of Kennett’s electrical distribution system. In the storm’s aftermath, 23 mutual-aid entities assisted the Kennett Board of Public Works (Applicant) in conducting emergency repairs. Based on a recommendation by representatives of one of the mutual-aid cities, the Applicant entered into a sole source, time and materials contract on March 2, 2009, with Olsson Associates (Contractor) to assess the damage, document the system and develop a plan for completing permanent repairs to the electrical distribution system. The contract initially placed a cost ceiling of $37,600 on the scope of services to be completed by the Contractor. The ceiling was subsequently increased by written amendment to $78,600 on May 6, 2009, when the Contractor discovered that the extent of damage to the system exceeded initial assumptions.
The Applicant submitted the Contractor’s invoices, totaling $77,659.51, to FEMA for reimbursement. The invoices included line items for personnel, travel expenses, and private airfare as shown in the Table 1 below. FEMA prepared PW 542 for the power restoration work completed by force account and through mutual aid, and awarded the PW on August 4, 2009, for a total of $4,127,759. FEMA also prepared PW 622 on July 1, 2009, for the permanent work to reconductor 55.58 miles of the Applicant’s electrical distribution system. FEMA awarded PW 622 on October 19, 2009, for $5,468,664.50 based on a Cost Estimating Format estimate that did not include the Contractor’s invoiced costs. FEMA noted in PW 622’s project notes that based on a per mile comparison, the Applicant’s costs to assess and document damage to the electrical power distribution system were more than 2.7 times greater than a neighboring jurisdiction. It is important to note, that the Project Specialist divided the Contractor’s labor costs by 2.5 to reflect the personnel’s base salary and removed the airfare costs before the developing the cost comparison. If the labor rates and travel costs were left unadjusted, the invoiced costs of $77,659.51 distributed over the 55.58 miles of damaged lines results in a cost of $1,397 per mile, which is over 12 times greater than the $110 per mile that the Project Specialist calculated to be reasonable for a damage assessment.
Table 1 – Contractor Invoiced Costs
The State forwarded the Applicant’s first appeal to FEMA on March 1, 2010. In the appeal letter, the Applicant claimed that in addition to assessing and documenting damage, the Contractor assisted in the development of the scope of work, analyzed the grouping of projects, and planned the reconductoring construction sequence. The State reiterated the Applicant’s argument that the invoiced costs were not only for a thorough damage assessment but for preparing the documents that underpin the eligible scope of work. Although neither the Applicant’s appeal letter, nor the State’s transmittal letter identify the amount of funding in dispute, the State noted that invoices 125061 ($7,233.20) and 126862 ($15,170.89) were approved under PW 542. This would seem to indicate that the Applicant sought reimbursement for the difference of $55,255.42 for the remaining invoices.
The Regional Administrator denied the Applicant’s first appeal in a letter dated January 5, 2011. Based on the documentation provided, FEMA could not make a determination whether the work completed was eligible, because the submitted invoices did not provide details regarding the specific work performed. Moreover, the Contractor traveled from Lincoln, Nebraska to Kennett, Missouri on several occasions. The Applicant did not provide documentation to establish that the travel costs were reasonable.
The Applicant submitted a second appeal on March 10, 2011, and reiterated that the engineering services rendered by the Contractor were necessary to establish the eligible scope of work for the permanent repair of the system. Furthermore, the Applicant asserts that it retained the Contractor per the guidance in FEMA Fact Sheet DAP 9580.6 Electric Utility Repair, whereby the condition of an electrical distribution system should be certified and the damaged elements evaluated by a professional engineer. To address the deficiencies in information identified in FEMA’s first appeal response regarding the details of the work performed by the Contractor, the Applicant outlined the deliverables produced by the Contractor, including, a damage inventory, a map of the entire system illustrating the locations of the 353 damage sites, and areas in need of reconductoring. The Applicant pointed out that these products were consistent with the “Scope of Services” section of the contract it had previously submitted to FEMA.
With respect to the travel costs to attend meetings, the Applicant included a cost analysis to demonstrate that the each round trip flight from the Contractor’s office in Lincoln to Kennett was $2,378.60 less than the costs of driving and associated lodging. The Applicant added that they initially had reservations about retaining the Contractor due to the distances involved, but determined that the costs were acceptable by virtue of the Contractor’s experience in scoping projects for reimbursement from FEMA and the lack of local engineering firms with experience in damaged electrical systems. Finally, the Applicant explained that they were actually eight invoices for a total of $88,726.21; of which, two invoices (125061 and 126862) were funded under PW 542. Consequently, the Applicant states that they are requesting approval of the remaining six invoices for $66,322.12. The State supported the Applicant’s claim and forwarded the second appeal to FEMA on April 11, 2011.
Generally, costs that are directly tied to the performance of eligible work can be funded under FEMA’s Public Assistance Program. The Public Assistance Guide, FEMA 322, dated June 2007, states that, in order for costs to be reasonable, they must be:
· reasonable and necessary to accomplish the work;
· compliant with Federal, State and local requirements for competitive procurement (including 44 CFR Part 13); and
· reduced by all applicable credits, such as anticipated insurance proceeds and salvage values.
A cost is reasonable, if in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.
Reasonable and necessary contractor costs for engineering and design service work may be eligible if the work is specifically completed for the design, final design, or construction inspection of the disaster-damaged elements of the Applicant’s facility, and if these services are required to complete the work. The documentation submitted by the Applicant provides sufficient evidence that the contracted engineering services were necessary for the repair of the Applicant’s electrical distribution system. Due to the extensive damage to the system and the complexity of the reconductoring, the reasonable costs of engineering services per unit would be expected to exceed reasonable per unit costs for damage assessment.
Additionally, the reasonable costs for the Contractor to accomplish eligible work including travel, meals and expenses are eligible for reimbursement. As the cost analysis of the Contractor’s travel expenses demonstrates that the airfare was more cost effective than driving these costs can be considered reasonable. While the Applicant claims, in the second appeal, that the Contractor billed a total of $88,726 with eight invoices, the documentation submitted consists of only the five invoices shown in Table 1, for a total of $77,660. Per the pertinent contract, the Contractor’s invoiced charges were not to exceed neither documented nor justified those costs. The Applicant has, however, sufficiently justified $55,255 in eligible costs for the three invoices covering the Contractor’s services from May 12 to July 4, 2009, under PW 622.
The Applicant retained the Contractor to assess, evaluate, and map the extensive damage to their electrical distribution system. Per the pertinent contract, the Contractor’s invoiced charges were not to exceed $78,600. The Applicant has demonstrated that the $77,659.51 were reasonable and necessary to develop a complete and accurate scope of work for the repair and reconductoring of nearly 56% of the system. The remaining $55,255.42 for engineering services that were directly related to the permanent repair of the Applicant’s system is eligible for reimbursement under PW 622.