Regulated Asbestos Containing Material (RACM) Demolition and Debris Removal

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1763-DR-IA
ApplicantCity of Cedar Rapids
Appeal TypeSecond
PA ID#113-12000-00
PW ID#10433, 10523, 10524, 10525, and 10445
Date Signed2013-12-19T00:00:00

Citation:  FEMA-1763-DR-IA, City of Cedar Rapids, Regulated Asbestos Containing Material (RACM) Demolition and Debris Removal, Project Worksheets (PW) 10433, 10523, 10524, 10525, and 10445

Cross-Reference:  Reasonable Cost, Procurement, Insurance

Summary:  In June 2008, severe storms and flooding impacted the Applicant and caused extensive damage to the Sinclair Warehouse Complex (Sinclair).  FEMA prepared PWs 10433, 10445, 10523, 10524, and 10525 to document disaster-related damage and eligible work at the facility.  The Applicant’s Request for Bids (RFB) specified that the debris was to be disposed of at the Cedar Rapids/Linn County Solid Waste Agency Landfill Site Number 1(Site No. 1).  The Applicant received sealed bids with unit prices ranging from $65 per ton to $173 per ton for removal and disposal of debris.  The Applicant rebid the project on March 5, 2010, and maintained the requirement for disposal at Site No. 1.  In response to the second RFB, the Applicant received ten bids, ranging from $117 per ton to $135 per ton.  This unit price now included the cost for demolition in addition to debris removal and disposal.  The Applicant awarded the lowest bid to D.W. Zinser Company at $117 per ton, which included demolition, removal, and disposal of the RACM debris at Site No. 1.

FEMA determined that the Applicant’s procurement process violated Federal regulations, including that the Applicant’s requirement to dispose of the debris at Site No. 1 constituted a prohibited geographic preference.  FEMA limited reimbursement to $65 per ton for removal and disposal of debris, based on the lowest price per ton in the initial bid proposals.  FEMA denied the first appeal, citing these non-compliance issues.  The Applicant’s second appeal requested reimbursement at the rate of $117 per ton, or alternatively, additional funding for demolition not included in the $65 per ton unit cost and additional monitoring costs that it claimed it would have incurred by utilizing the farther landfill.

Issues:   1.  Did the Applicant’s use of Landfill Site No. 1 constitute a prohibited geographic preference?

               2.  Does the appeal documentation demonstrate eligible project costs?                       

Findings:   1.  No.

                   2.  The appeal documentation demonstrates that the additional $1.3 million for demolition are eligible.  It does not demonstrate that the higher rate above the $65 per ton for debris removal approved in the first appeal is reasonable and is therefore not eligible.

Rationale:  44 CFR §13.36(c), Competition; 44 CFR §13.43, Enforcement; and 44 CFR §206.206(b), Levels of Appeal.


 

Appeal Letter

December 19, 2013

Mark Schouten
Administrator
Iowa Homeland Security and Emergency Management Division
7105 NW 70th Avenue
Camp Dodge, Bldg. W-4
Johnston, Iowa 50131-1824

Re: Second Appeal—City of Cedar Rapids, PA ID 113-12000-00, Regulated Asbestos Containing Material (RACM) Demolition and Debris Removal, FEMA-1763-DR-IA, Project Worksheets (PW) 10433, 10523, 10524, 10525, and 10445

Dear Mr. Schouten:

This letter is in response to a letter from your office, dated June 15, 2012, which transmitted the referenced second appeal on behalf of the City of Cedar Rapids (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) reduction of funding for demolition, removal, and disposal of RACM debris.

As explained in the enclosed analysis, I have determined that the Applicant has not substantiated the unit price of $117 per ton for debris removal to be reasonable, and that the Regional Administrator’s determination in the first appeal that $65 per ton was reasonable is consistent with Public Assistance Program regulations and policies.  I have also determined that the additional $1.3 million requested for the cost of demolition work to be eligible.  Therefore, I am partially approving the Applicant’s second appeal, with final eligible costs to be determined at project closeout when the Applicant has provided documentation substantiating eligible work completed.

Please inform the Applicant of my decision.  This determination is the final decision on this matter pursuant to 44 CFR §206.206, Appeals.

Sincerely,

/s/

Deborah Ingram
Assistant Administrator
Recovery Directorate

Enclosure

cc:  Beth Freeman
      Regional Administrator
      FEMA Region VII

 

 

Appeal Analysis

Background

In June 2008, severe storms and flooding impacted the Applicant and caused extensive damage to the Sinclair Warehouse Complex (Sinclair).  The Sinclair Complex is the former location of the Wilson-Sinclair/Farmstead Foods food processing plant.  The Applicant purchased the site in 2007 and leased portions of the facilities for use as commercial warehouse and office space.  Due to its proximity to the Cedar River, the Sinclair Complex experienced high velocity flooding and significant inundation from flood waters.  After the flood, local building officials determined that the damaged facilities at the Sinclair Complex were unsafe, pursuant to Cedar Rapids Municipal Code, and issued a notice and order to demolish the structures in December 2009. 

The Applicant requested FEMA assistance for demolition and disposal of Regulated Asbestos Containing Material (RACM) debris from Sinclair.  FEMA prepared PWs 10433, 10445, 10523, 10524, and 10525 to document disaster-related damage and eligible work at the facility.  The Applicant prepared a Request for Bids (RFB) on December 31, 2009, for demolition and disposal of the RACM debris from Sinclair.  In the RFB, the Applicant specified that the debris was to be disposed of at the Cedar Rapids/Linn County Solid Waste Agency Landfill Site Number 1(Site No. 1).  Site No. 1 is 1.5 miles from Sinclair. The original RFB did not contain an estimate of the quantity of debris.  In addendums to the RFB, the Applicant estimated the debris at 100,000 tons and later at 65,000 tons.  The Applicant also amended the RFB to reduce the requirement on performance and payment bonds from 100 percent to 75 percent of the contract price. 

On January 15, 2010, the Applicant received 11 sealed bids.  Unit prices ranged from $65 per ton to $173 per ton for removal and disposal of debris.  Demolition and utility disconnects were bid as separate line items.  The Applicant considered the lowest bid to be non-responsive to its RFB because the contractor proposed to take the debris to an alternate landfill approximately 90 miles from Sinclair to Milan, Illinois.  The Applicant rejected all bids and rebid the project on March 5, 2010, and maintained the requirement for disposal at Site No. 1.  Prior to the second bid, the Solid Waste Agency reduced its tipping fee from $120 per ton to $90 per ton.  In response to the second RFB, the Applicant received ten bids, ranging from $117 per ton to $135 per ton, which also included the cost for demolition in addition to debris removal and disposal.  The Applicant awarded the lowest bid to D.W. Zinser Company (Zinser) at $117 per ton, which included demolition, removal, and disposal of the RACM debris at Site No. 1.

The contract was subsequently amended through fifteen change orders.  These amendments addressed increases to the scope of work, including additional debris quantities and additional water and sewer disconnects, as well as environmental testing.  The Applicant also had a monitoring contract with Beck Disaster Recovery, Inc., now called Science Applications International Corp. (SAIC), which is documented for work under PWs 10433, 10445, and 10525.  The scopes of work, contract amendments, and monitoring contract apportionment for each PW are shown in the attached spreadsheet.

In a letter dated June 15, 2011, FEMA stated that the Applicant’s procurement process violated several regulations.  FEMA determined that the Applicant’s requirement to dispose of the debris at Site No. 1 constituted a geographic preference restricted by 44 CFR §13.36(c)(2).  FEMA also stated that reducing the debris estimate from 100,000 tons to 65,000 tons may have influenced competition, violating 44 CFR §13.36(c)(1).  Additionally, FEMA determined that the Applicant’s action to reduce the performance and payment bond requirement from 100 percent to 75 percent violated 44 CFR §13.36(h)(2).  FEMA limited reimbursement to $65 per ton for removal and disposal of debris, based on the lowest price per ton in the initial bid proposals, from Rachel Contracting (Rachel).

First Appeal

In a letter dated August 12, 2011, the Applicant submitted its first appeal related to the contract costs captured in PWs 10433, 10523, 10524, 10525, and 10445.  The Applicant argued that the landfill requirement did not constitute a prohibited geographic preference, that this is compliant with Iowa Code Chapter 28E, and that if it is a geographic preference, it is authorized under Section 307 of the Stafford Act.  Additionally, the Applicant disagreed with the premise that the reduced debris estimate impeded competition for the project, arguing that the higher estimates and associated bonding requirements would preclude some contractors from bidding for the project.  The Applicant also stated that although the Applicant did not require it in the RFB, its contractor provided 100 percent performance and payment bonds in compliance with 44 CFR §13.36(h)(2).  As to the cost reasonableness, the Applicant argued that the $90 tipping fee at Site No. 1 was reasonable, based on market conditions and other landfill tipping fees of $120 for similar nearby projects.  The Applicant stated that its use of the local landfill is in accordance with the Comprehensive Environmental Response Compensation Liability Act (CERCLA) in that a closer landfill is safer for management of hazardous waste.  Finally, the Applicant argues that the bonding requirements of 44 CFR §13.36(h)(2) do not apply to this project because it is not a “construction or facility improvement contract.” 

The Applicant requested an additional $6,500,000, which represents the difference in the rate charged by Zinser ($117 per ton) and the rate that FEMA determined to be reasonable ($65 per ton), and the tonnage removed at the time of the appeal (125,000 tons).  The State supports the Applicant’s appeal, and further states that if the appeal is denied, FEMA should provide funding to the Applicant in the amount of $650,000 for increased monitoring costs that it claims it would have incurred if the Applicant had used the Milan landfill.  The State also claimed that FEMA should provide an additional $1,300,000 for demolition costs included in the original Rachel bid, which was a separate line item cost from the $65 per ton cost for debris removal and disposal. 

FEMA denied the appeal in a letter dated February 15, 2012.  FEMA stated that although the Applicant did not give advantage to bidders based on their location, the landfill requirement imposed a sole source purchasing preference on the bidders, and this eliminated costs savings that could have been achieved through the use of alternate landfills which charged lower tipping fees.  FEMA also stated that Section 307 of the Stafford Act, which encourages preference to be given to private organizations, firms, and individuals in the area affected by a major disaster or emergency, does not override 44 CFR §13.36 and the need for reasonable project costs.  In response to the Applicant’s argument regarding CERCLA compliance, FEMA stated that the Applicant’s contract appropriately placed liability on the contractor for management of hazardous waste, regardless of the transport distance.  Finally, FEMA stated that the bonding regulations do apply to this project because the use of construction contracts for demolition projects is standard in the industry.

Second Appeal

In a letter dated April 19, 2012, the Applicant submitted its second appeal, citing only PWs 10433, 10523, 10524, and 10525 (not citing PW 10445), and reiterating its arguments from the first appeal.  In a letter dated May 24, 2012, the Applicant requested for these second appeals to be combined with what it refers to as the first appeal of PW 10445, which was submitted to FEMA Region VII on May 3, 2012.  The issue in this referenced first appeal of PW 10445 is the reduction of funding related to mandatory National Flood Insurance Program (NFIP) reductions and insurance proceeds following a fire at this facility in December 2009.  The fire insurance proceeds were applied to PW 10445.  That appeal is currently being reviewed at the Regional level as a first appeal pursuant to 44 CFR§206.206(b), Levels of Appeal, and therefore the issue of fire insurance reduction is not being decided in this appeal.  NFIP reductions that were applied to PW 10445 and PW 10524 were adjudicated in the second appeal of PW 10502 published July 30, 2012, and are addressed below.  The State’s second appeal transmittal letter, dated prior to the second appeal decision for PW 10502, also argues that these insurance reductions are in error and supports the Applicant’s second appeal.

Discussion

The main issues to be resolved in this appeal are: 1) whether the landfill requirement constituted a prohibited geographic preference; 2) eligible reasonable costs and scope of work; and 3) the correct application of the NFIP reductions resolved in the disposition of PW 10502. 

  1. Prohibited Geographical Preference

Applicants are generally prohibited from using geographic preferences for contractors pursuant to 44 CFR §13.36(c)(2), which states that, “[g]rantees and subgrantees will conduct procurements in a manner that prohibits the use of statutorily or administratively imposed in-State or local geographical preferences in the evaluation of bids or proposals, except in those cases where applicable Federal statutes expressly mandate or encourage geographic preference.”  This term is not defined in 44 CFR Part 13, but generally applies to location-based preference given to contractors in the bidding process, and not to a specification within the contract such as the landfill.  Therefore, the Applicant’s requirement for contractors to use Site No. 1 in its RFB is not a prohibited geographic preference.

  1. Reasonable Costs and Scope of Work

The Applicant rejected the first round of bidding because it considered the lowest bid (Rachel) to be non-responsive due to its proposal to use the Milan Landfill rather than Site No. 1.  The Applicant claimed that it was required to dispose of debris “in a landfill operated by an agency created by agreement between the City of Cedar Rapids and Linn County,” which is Site No. 1.  The Applicant then re-bid the project; however, this procurement action indicated that the estimated quantity of demolition debris was 65,000 tons as opposed to the original estimate of 100,000 tons.  The Applicant intentionally bid the project at almost half the estimated debris quantity in order to allow contractors to avoid acquiring performance and payment bonds for the higher contract cost of the higher quantity of debris.  Because the Applicant underrepresented the scope of work to facilitate bidders’ ability to obtain a performance bond, it did not comply with Federal procurement requirements.  Specifically, 44 CFR §13.36(d)(2)(i)(A) states that sealed bidding is feasible when “A complete, adequate, and realistic specification or purchase description is available.”  In addition, 44 CFR §13.36(d)(2)(ii) (B) states when sealed bids are used, “The invitation for bids, which will include any specifications and pertinent attachments, shall define the items or services in order for the bidder to properly respond.”  Soliciting bids on a scope of work intentionally represented as approximately half of the estimated quantity does not fulfill the requirements to provide a complete, adequate and realistic specification and does not properly define the services to be procured. 

Though the contract for $117 per ton was not properly procured due to the intentional underrepresentation of the debris tonnage, FEMA may evaluate reasonableness of costs pursuant to 44 CFR §13.43, Enforcement.  44 CFR §13.43(a)(2) states in relevant part that “If a grantee or subgrantee materially fails to comply with any term of an award, whether stated in a Federal statute or regulation…the awarding agency may…Disallow (that is, deny both use of funds and matching credit for) all or part of the cost of the activity or action not in compliance.”  Because the scope of work approximately doubled the specifications that were stated in the original bid, and the Applicant did not re-compete the contract, FEMA is not able to determine whether the requested cost of $117 per ton is reasonable for the actual scope of work of the project.  Generally, such an increase causes unit costs to decrease.  Therefore, the rate that FEMA determines to be a reasonable cost for this project was the original lowest bid of $65 per ton.    

As indicated by the Applicant and the State in the second appeal, the $65 per ton figure does not include the cost of demolition, and the line item cost for demolition associated with this bid was $1.3 million.  As the demolition of the damaged structures is eligible work, the additional cost for demolition not included in the per tonnage rate is an eligible cost.  The Applicant also requested additional funding for monitoring costs it claimed it would have incurred by using the farther landfill associated with the original lowest bid.  The request for additional monitoring costs is not eligible because these costs were not actually incurred by the Applicant. 

  1. Insurance Reductions

As stated above, the Applicant’s appeal of PW 10445 and the reduction of funding related to the Applicant’s fire insurance proceeds is currently being reviewed at the first appeal level.  FEMA Region VII will make the initial determination on this issue, in accordance with
44 CFR §206.206(b), Levels of Appeal.  NFIP reductions that were applied to PW 10445 and PW 10524 were adjudicated in the second appeal of PW 10502, which was published on July 30, 2012.  In that appeal, the application of NFIP reductions was reevaluated.  In PW 10524 and PW 10445, initial NFIP reductions of $27,526 and $1,100,279, respectively, were applied.  These were reinstated in full in Version 1 to each PW following the second appeal of PW 10502.  FEMA obligated PW 10524 Version 1 on September 5, 2012, and PW 10445 Version 1 on September 11, 2012.  Therefore, this issue has already been resolved.

Conclusion

For reasons set forth in this response, the unit cost above the previously approved $65 per ton for debris removal is not substantiated as reasonable and is therefore not eligible for funding.  While the requirement to use Site No. 1 does not constitute a prohibited geographical preference, the Applicant’s procurement practices did not otherwise comply with Federal procurement regulations because the applicant procured its contract based on an intentionally inaccurate representation of the scope of work.  Though FEMA may evaluate reasonable costs, due to the project not being competitively bid once the scope of work doubled, FEMA is not able to evaluate reasonable costs for the increase in scope of work.  The additional $1.3 million for demolition not included in that unit cost is for eligible work and is therefore eligible for funding.  Additional costs for potential monitoring of the transportation of debris to disposal sites is not eligible for funding.  Final eligible costs will be determined at project closeout when the Applicant has provided documentation substantiating the total eligible debris quantities demolished and removed.

 

FEMA-1763-DR-IA

City of Cedar Rapids Sinclair Facility RACM Project Worksheets

PW

Current Version

SOW Currently Captured in PW

Cost Breakdown

Total Currently Obligated

10433

1

11 buildings—Non-historic RACM

  • 75,562.27 tons @ $65 per ton
  • DAC
  • Utility water disconnects

(original contract—2 x $1,500)

  • Utility sewer disconnects

(original contract—3 x $500)

  • Backfill

(original contract—15,000CY x $7.70)

  • Amendment 1—additional unknown sewer disconnects (9 x $500)
  • Amendment 9—only the portion for additional backfill (45,000CY x $7.70) (Amendment 9 totals $7,366,500 but not captured here)
  • Amendment 10—Abandon unknown wells (Lump Sum)
  • Amendment 15—DNR testing (Lump Sum)
  • Monitoring-62 percent of Beck contract

 

$4,911,548

$28,750

 

$3,000

 

$1,500

 

$115,500

 

$4,500

 

 

$346,500

 

$44,850

$14,194

$180,819

$5,651,161

10523

1

Fire hall, Guard House, and Gates—Historic Non-RACM

  • Demo/debris removal estimate
  • DAC
  • MOA-Mitigation Measures (booklet)

 

 

$18,350

$489

$30,000

$48,839

10524

1

Electrical Substation—Non-historic RACM

  • Demo/debris removal estimate
  • DAC

 

$27,526

$576

$28,102

10525

0

Smokestack—Historic RACM

  • Amendment 5-Crane/Demolish Smokestack
  • Amendment 6-Labor
  • Amendment 7-Remove Smokestack-

299.88 tons @ $65 per ton

  • MOA-Mitigation Measures
  • DAC
  • Monitoring-2 percent of Beck contract

 

$81,852

$80,818

 

$19,492

$100,000

$1,312

$5,597

$288,801

10445

1

7 buildings—Historic RACM

  • 54,399.63 tons @ $65 per ton
  • Monitoring-36 percent of Beck contract
  • Amendment 8-Building #4 Abatement and Additional Fill (Lump Sum)
  • Amendment 13-Additional Fill (Lump Sum)
  • DAC
  • Fire Insurance Deduction (Building #4)

 

$3,535,976

$104,799

 

$11,750

$947,755

$23,750

($3,500,000)

$1,124,029

 

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