Improved Project

Appeal Brief

Summary Paragraph

An ice storm damaged the power lines serviced by Clarke Electric Cooperative (Applicant).  FEMA approved $5,400,844.25 in six Project Worksheets (PWs) to rebuild and repair the damaged lines and approved the Applicant’s request for improved projects to upgrade the capacity of the power lines for all six PWs.  The Applicant requested additional funding for a final aggregate cost of $7,442,239.85 for the six PWs, a cost overrun of $2,041,395.60.  The Applicant claimed that the additional costs were for work to restore the utility to pre-disaster condition and were distinct from the costs of the improvements.  FEMA Region VII determined a portion of the costs claimed was for work associated with improvements, but approved an additional $1,177,719.80 based on revised cost estimates for the approved scopes of work in the six PWs.  The Applicant submitted a first appeal claiming it separated costs of the improvements from the costs to restore the facility to pre-disaster condition.  The Regional Administrator denied the appeal because the documentation did not demonstrate the additional funding requested was for work necessary to restore the facility to its pre-disaster condition.  The Applicant submitted a second appeal, requesting $528,170.76 for cost overruns for the six PWs, a decrease from its original requests.  The Applicant developed new cost estimates for the work that would have been required to restore the facility to pre-disaster condition and based its adjusted funding request on these new cost estimates.

Authorities and Second Appeals

• 44 C.F.R. § 206.203(d)(1), 
  § 206.204(e).
• PA Guide, at 110.

Headnotes

• According to 44 C.F.R. § 206.203(d)(1),  federal funding for improved projects is limited to the federal share of the approved estimate of eligible costs.
• The Public Assistance Guide provides that an applicant may appeal the approved funding amount if approved costs are tracked separately from improvement costs.
  • The Applicant provided documentation that distinguished the actual costs incurred for restoring the facility to its pre-disaster condition from those related to the improvements to the facility.

Appeal Letter

Appeal Analysis

After identifying issues with FEMA’s cost estimates, the Applicant developed  revised cost data for the work that would have been required to restore the facility to pre-disaster condition and based its adjusted funding request on it.  The information submitted with the second appeal includes scopes of work with more detail than those in the PWs. Specifically, the scopes of work described each line item required to restore the facility’s pre-disaster design, function, and capacity.  The costs used are based on actual unit costs for labor and materials, as well as actual determination of the number of poles and assemblies required and the actual distance of the completed project.  On May 6, 2013, the Grantee transmitted the second appeal to FEMA.  On July 19, 2013, the Region VII Regional Administrator forwarded the second appeal to FEMA Headquarters.

Discussion

The Applicant requested and FEMA approved improved projects for all six of the PWs at issue under this appeal.  Federal funding for improved projects is limited to the federal share of the approved estimate of eligible costs.[2]  However, “if eligible repair or replacement costs exceed the original estimate and costs can be separately documented (i.e., if approved costs can be tracked separately from improvement costs), the applicant may appeal the amount of the grant.”[3]

FEMA Region VII did not concur with the Applicant’s position that its documentation submitted in support of its request for additional funding was sufficient to distinguish the actual costs of the eligible scopes of work from those of the improvements.  However, FEMA Region VII did recognize that based on the actual contract costs, the Applicant would have incurred additional costs regardless of the improvements and approved additional funding by applying a new per-mile cost estimate for a three-phase line ($51,004.25 per mile).  FEMA calculated this unit cost based on the approved scopes of work in the PWs and by applying actual contract unit costs to those approved scopes of work.  In calculating the final approved cost estimate for the approved scopes of work, FEMA also used the per-mile cost estimate for single-phase lines approved in the initial PWs ($42,345.60 per mile) and added actual contract costs for tree trimming and engineering services.  Contrary to the Applicant’s understanding, FEMA did not develop a new cost estimate for single-phase lines.  The revised cost estimates resulted in a total increase of $1,177,719.80 in eligible funding for the six PWs.  FEMA Region VII took this approach, because the documentation submitted by the Applicant up through the first appeal did not sufficiently separate out the actual costs of the improvements.

As part of the second appeal, the Applicant submitted a new methodology for determining the eligible cost.  Given the actual unit costs and actual scope of work, the Applicant developed new cost data for what the cost of the unimproved work would have been.   These included minor adjustments to distances, number of poles, assembly requirements, and other factors.  The Applicant requested that the cost data submitted as part of the second appeal be used in lieu of FEMA’s per-mile cost estimates to determine the cost of the unimproved work; these costs were much more detailed than those provided with previous submittals.  The Applicant then calculated the difference between the cost of the actual work completed and the new estimated cost of the unimproved work.  This difference is referred to as the “improved work credit.”  In the second appeal, the Applicant asserts that the total eligible project cost should be taken as the total overall cost of the project (i.e. the sum of the cost of all six PWs in question) less the calculated improved work credit.

FEMA consulted a professional engineer (PE) regarding the validity of the Applicant’s approach.  FEMA determined that the approach would be acceptable if: (1) the cost data submitted for the unimproved scope of work were reasonable and (2) the calculation of the improved work credit was reasonable. 

The Applicant’s cost data were assessed on two bases:  reasonableness of unit costs and alignment with the original (unimproved) scope of work.  Material and labor unit costs were evaluated against RS Means and other industry costs.  Material and labor unit costs were evaluated for conductors, poles, and assemblies.  In each case, the Applicant’s unit costs were verified against independent references.

To evaluate the scope of work, the scope of work used in the Applicant’s estimate was compared to the original scope of work listed in the six PWs (Versions 0) for each work order in question.  The Applicant’s scope of work was taken to be the paragraphs at the beginning of each work order estimate.  The PW scope of work was taken to be a combination of the narrative “Scope of Work” section in the PW and tables included as attachments listing specific segments, pre-disaster phasing and conductor type, and the replacement phasing and conductor type.  FEMA considered the Applicant’s scope of work to be “verified” if the phasing and conductor type listed in the Applicant’s scope of work matched the phasing and conductor type listed in the relevant PW.  Differences in segment distances and numbers of poles were considered minor changes and are to be expected between a preliminary estimate and the completion of work.  Based on this methodology, FEMA was able to substantiate that the Applicant’s unit costs were reasonable and that the scopes of work the Applicant used to complete their cost estimates aligned with the original, unimproved scope of work.[4]

Given that the Applicant’s estimates of the cost of the unimproved work were reasonable, FEMA then considered the question of the improved work credit.  According to the Applicant’s explanation, the improved work credit for each work order was equal to the difference between the actual cost of work and the estimated cost of the unimproved work.  The total improved work credit was equal to the sum of the improved work credits for each work order.[5]

While FEMA was able to recreate the Applicant’s improved work credit for PWs 619, 620, 621, and 622, it could not do so for PWs 617 and 624.  For those, no documentation provided by the Applicant accounts for the significant differences between the improved work credit calculated by FEMA based on the Applicant’s cost estimates and the improved work credit reported by the Applicant.  As such, the total improved work credit was found to be $9,824.01 higher than reported by the Applicant and therefore a corresponding reduction of $9,824.01 in the total amount to be approved is required.[6]

Conclusion

The Applicant is requesting additional funding for six PWs that FEMA approved as improved projects.  In order to appeal the amount of approved funding for an improved project, the Applicant must separately document and track that the incurred costs for eligible work exceeded the original cost estimate.  In this case, the Applicant has provided sufficient documentation to support that an additional $518,346.73 is reasonable and associated with the approved scopes of work in the six PWs, and therefore, is eligible.