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Second Appeal Analysis
PA ID# 071-99071-00; Henderson County
PW ID# 1524 v2; Emergency Levee Repairs and Dewatering
As a result of severe storms and flooding in June and July 2008, a 2,000 foot breach in the Henderson County levee occurred on July 17, 2008, flooding areas of Henderson County, the Village of Gulfport, and portions of U.S. Route 34. Flooding also occurred at the Drainage District Number 2 Pump Station damaging two pumps with a combined capacity of 110,000 gallons per minute (GPM), leaving the district with only one pump with a capacity of 100,000 GPM.
FEMA proposed to the Applicant that the U.S. Army Corp of Engineers (USACE) perform dewatering in Henderson County under a mission assignment. This would have been at no cost to the Applicant, as FEMA and the State paid the cost of the mission assignment at a 90 percent Federal and 10 percent State cost share respectively. USACE estimated the cost to dewater Henderson County at $2.4 million. The Applicant opted to enter into a sole-source, non-competitive, time and materials contract with a private contractor (JESCO), and JESCO subsequently billed the Applicant for dewatering services totaling over $29 million. USACE was later mission assigned to complete the dewatering after the Applicant terminated the JESCO contract.
FEMA made several attempts to assist the Applicant with identifying and gathering the appropriate cost documentation for the levee repair and dewatering work that JESCO performed. FEMA asked the Applicant to provide a detailed Scope of Work (SOW) and cost estimates in order to prepare a project closeout PW using actual costs. FEMA determined that the Applicant’s contract with JESCO did not have a clearly defined SOW, nor did it contain a cost ceiling for labor and equipment estimated costs. FEMA also determined that many of the costs submitted by JESCO were unreasonable and were not supported with adequate cost documentation. Because the documentation was insufficient, FEMA used RS Means, USACE hydrological data, as well as local retail merchants’ prices to develop estimated costs for the dewatering project at $2,628,525 and that amount was provided in PW 1524 v0.
The Applicant submitted additional documentation with final project costs totaling $13,208,692. The support documentation consisted of spreadsheets, invoices, time sheets, hotel bills, equipment logs, phone bills, and various receipts from the contractor, subcontractors and vendors. FEMA approved an additional $4,295,777 in PW 1524 v1. However, following a FEMA quality control review of the Applicant’s cost documentation and in consultation with the State, FEMA determined there was only documentation for $2,721,712 in total costs. As a result, $4,202,591 was de-obligated for costs not supported by documentation and PW 1524 v2 was obligated in the amount of $2,721,712.
In its first appeal dated October 1, 2010, the Applicant argued that the sole-source contract was valid, that labor and equipments rates were reasonable, that mobilization time periods were not adequate, and that documentation requirements were confusing to both FEMA and the State. The Applicant did not appeal for a specific amount of funding, nor did it submit the documentation to support the first appeal. The State forwarded the first appeal to FEMA on October 13, 2011. The State’s recommendation letter stated that it, as well as FEMA, continuously stressed to the Applicant that all large project costs must be supported with actual costs documentation and that all claimed costs must be related to work and to costs approved in the PW SOW. The State recommended that the appeal be denied because the costs claimed by the Applicant and the contractor were unreasonable.
In a letter dated January 12, 2011, FEMA’s Deputy Regional Administrator cited 44 CFR §13.42, Retention and access requirements for records, and stated that the applicant must retain the proper support documentation that provides evidence that work was completed in accordance with that specified in the project worksheet. The first appeal was denied because the Applicant failed to provide adequate support documentation and the Applicant did not submit any new information in support of its appeal.
The Applicant submitted a second appeal requesting funding for an additional $25,890,305 in costs for dewatering operations of flooded areas in Henderson County and the Village of Gulfport. The State transmitted the appeal to FEMA on April 8, 2011. The State does not support the Applicant’s second appeal. In its second appeal, the Applicant raises issues with regard to the procurement of the contract, the scope of work, and costs associated with the contract.
Applicants seeking reimbursement under the Public Assistance Program must comply with the Federal procurement requirements contained in Office of Management and Budget (OMB) Circular A-87,(C)(2), Reasonable costs, 44 CFR §13.22, Allowable costs, and in 44 CFR §13.36, Procurement. In addition, applicants must describe in sufficient detail the scope of work for which they seek reimbursement. The Applicant chose to enter into a sole-source, non-competitive, time and materials contract with a private contractor. Prior to work performance, FEMA proposed that the USACE perform the work. The applicant disregarded this recommendation and went into a contract that had no clear scope of work or cost ceilings for labor and equipment costs. The Applicant’s contract with JESCO did not comply with applicable Federal procurement requirements.
Under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, FEMA has the authority to reimburse eligible applicants for their efforts in responding to and recovering from major disasters and emergencies. Applicants must substantiate through documentation the work they or their contractors conducted. In the second appeal, the Applicant raised issues with regard to the total amount of water that was to be removed, the amount of water extracted by the Applicant’s undamaged pump, the amount of water extracted by the contractor’s pumps, the flow rate of water removed as a result of the de-watering breach in the levee, and labor hours necessary for the de-watering operation. The funding in PW 1524 v2 was based on documentation that was provided by the Applicant for actual costs that were incurred and demonstrated in the documentation. Revising estimates of water to be extracted, water extracted by the Applicant’s pump, the flow rate of water from the de-watering breach in the levee, the size and flow rates of the contractor’s pumps, and labor hours to conduct the water extraction, as requested by the Applicant, would not alter funding levels, as reimbursement is based on the actual cost documents the Applicant provided for the de-watering work. FEMA can only reimburse those allowable and reasonable costs of eligible work that was actually performed and that can be substantiated through documentation. The Applicant did not provide further documentation with the second appeal to support its request for additional funding. Ultimately, the USACE was engaged under mission assignment from FEMA to complete the emergency pumping necessary to finish the emergency de-watering work.
With regard to the reimbursement of costs for eligible work, FEMA may reimburse costs that are attributed to the performance of eligible work and that are reasonable and necessary to accomplish the work. Such costs must be substantiated through proper documentation. As part of the second appeal, the Applicant made requests for additional funding for a number of items of work, as follows:
· The Applicant requested additional funding for mobilization and demobilization costs related to the contractor’s work at contractor stand-by rates. FEMA may reimburse for equipment mobilization provided those costs are supported with actual cost documentation. Leased equipment relegated to standby time is ineligible for cost reimbursement. The Applicant did not provide documentation to support the request for reimbursement of mobilization costs charged at standby time rates.
· The Applicant requested additional funding for equipment used for the water extraction project. However, the Applicant did not provide adequate, verifiable documentation to support the request for additional equipment costs. Exhibits #12 and #22 in the second appeal list additional equipment that the Applicant identified based on interviews with its contractor and the project monitors. However, no itemized receipts of the additional equipment costs were submitted with the second appeal.
· The Applicant requested additional funding based on pricing for the pumps. The Applicant states that FEMA did not recognize or allow the costs for standard overhead, profit, or direct and indirect costs incurred by subcontractors, and that these costs were incorporated in the invoicing price for the pumps. However, during project development, FEMA cost estimates included overhead and profit for work awarded to contractors.
· The Applicant requested additional funding to reflect all build-up costs associated with the equipment. FEMA’s determination with regard to reimbursement of the build-up costs and direct administrative costs for this project were based on the actual costs incurred, as documented by the Applicant and in accordance with OMB Circular A-87, and 44 CFR §13.22, Allowable costs.
· The Applicant requested additional funding based on the contractor and sub-contractors mark-ups for the work. FEMA determined that costs with mark-ups claimed by the contractor and sub-contractor were not reasonable. The Applicant did not provide additional information to further support the increased level of these costs.
Applicants that seek reimbursement under the Public Assistance Program must comply with the Federal procurement requirements contained in 44 CFR §13.36, Procurement and in OMB Circular A-87. 44 CFR §13.36, Procurement requires a price analysis be performed to determine reasonable costs of eligible work when applicants award non-competitive contracts. In addition, OMB Circular A-87 Section (C)(e) and(j), Basic Guidelines states that allowable costs under Federal awards “must be consistent with policies, regulations and procedures that apply uniformly to both Federal awards and other activities of the governmental unit… and be adequately documented.” Further, OMB Circular A-87 Section (C)(2), Reasonable costs, states that “a costs 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 costs.”
The Applicant did not comply with these requirements. Additionally, the Applicant requested changes to the scope of work for the project that were not supported by documentation. Lastly, the Applicant also requested additional funding for certain items of work, however the Applicant did not provide documentation to substantiate costs. Therefore, the requested additional costs are not eligible for Public Assistance funding.