Direct Administrative Costs

Appeal Brief

Appeal Letter

Appeal Analysis

Background

On September 6, 2011, straight-line winds, heavy rains, and severe flooding from Tropical Storm Lee (FEMA-4030-DR-PA) damaged a building owned by the Central Bradford Progress Authority (Applicant).  The first floor of the three-story building was flooded with five and a half feet of water.  On October 18, 2011, the Applicant entered into an agreement with Scion Management Solutions Inc. (Scion) for technical assistance services.  On March 16, 2012, Scion entered into an agreement with the Louis Berger Group (Louis Berger) to provide professional services.  FEMA prepared three project worksheets for emergency protective measures and permanent repairs to the building and the Applicant requested direct administrative costs (DAC) incurred by the Applicant’s contractor on each PW.[1] 

PW 768 addressed dewatering and cleaning the building, testing and treating the building for mold, and debris removal.  The Applicant claimed $163,800.00 in DAC, but FEMA did not include any DAC in Version 0 because the Applicant did not include sufficient detail to allow FEMA to determine the reasonableness of the hours claimed.  FEMA stated that DAC would be included on a future version.  FEMA wrote Version 1 to include $13,500.00 in DAC as actual DAC could not be determined due to ineligible work and unreasonable hours claimed by the Applicant.[2]  During closeout, the Applicant claimed $181,655.47 in DAC.  FEMA could not determine if the claimed costs were eligible.  As a result, in Version 2 FEMA obligated an additional $2,700.00 in DAC for closeout activities, for a total of $16,200.00 in DAC.

PW 775 addressed permanent repairs to the building.  FEMA has not yet performed a closeout of this PW.  The scope of work stated that the Applicant requested DAC.  FEMA indicated in Version 0 that DAC were included in the CEF cost estimate.  FEMA did not include DAC as a separate line item in Version 1. 

PW 5418 addressed the provision of seven generators.  The Applicant claimed $161,429.92 in DAC, but FEMA did not include any DAC in Version 0 because the Applicant did not include sufficient detail to allow FEMA to determine the reasonableness of the hours claimed.  At closeout, FEMA included $13,500.00 in DAC in Version 1.

On February 8, 2013 the Applicant provided a report entitled Direct Administrative Cost (DAC) Tropical Storm Lee DR#4030 (hereinafter DAC report), which included a spreadsheet, invoices with a broad description of work performed during the invoice period, cancelled checks, and contracts.

First Appeal

In a first appeal letter submitted December 5, 2013, the Applicant appealed FEMA’s denial of DAC for PWs 5418, 768, and 768-1[3] and requested a meeting with FEMA to present documentation justifying reimbursement of the DAC.  The Applicant did not indicate a specific monetary amount in the appeal letter.  On December 16, 2013, the Pennsylvania Emergency Management Agency (Grantee) submitted the first appeal for PWs 768 and 5418 and stated that it would meet with the Applicant to receive additional supporting documentation.  On January 31, 2014, the Region III Regional Administrator (RA) returned the first appeal to the Grantee and advised that the submittal was not in conformance with 44 C.F.R. § 206.206 because it did not “contain documented justification supporting the appellant’s position, specifying the monetary figure in dispute and the provisions in Federal law, regulation or policy with which the appellant believes the initial determination was inconsistent.”[4]  On March 17, 2014, the Grantee responded with a letter accompanied by a spreadsheet that listed hours worked by PW, day, and employee, and provided a brief description of the activity performed. 

On April 23, 2014, the RA issued a final Request for Information (Final RFI) for PWs 768 and 5418 in which it requested “documentation that is sufficiently detailed and descriptive to enable FEMA to determine that any of the contracted DAC are eligible or reasonable”[5] and a clarification of the total amount of DAC being claimed in the appeal letter.  On May 16, 2014, the Applicant, through Scion, provided the Grantee with additional information about the DAC on three PWs – 768, 775, and 5418.  The Applicant provided a SMS 4030 Invoice Balance Sheet cost summary listing the appealed costs on each PW, an example of a report showing DAC that were approved in FEMA Region I, weekly summary reports providing descriptions of tasks and meetings, and a spreadsheet listing tasks performed by person and PW.  On May 21, 2014, the Grantee sent several questions to the Applicant regarding the Final RFI response.  The Applicant responded on May 23, 2014 and clarified specific line items on the spreadsheet and provided a Category B PW written by Scion as an example of work completed.  In its Final RFI response, the Applicant indicated that it was requesting $603,639.20 in DAC for all three PWs.  On June 2, 2014, the Grantee forwarded the Final RFI response and clarifying questions and answers to FEMA.

In a letter dated June 25, 2014, the RA denied the first appeal for $603,639.20 in DAC, travel expenses, and project management costs on PWs 768, 775, and 5418.[6]  After reviewing timesheets, weekly summary reports, invoices, and the DAC Report and spreadsheet, the RA determined that the contractor misidentified indirect costs as DAC, and did not provide sufficient detail to determine if the hours claimed for DAC activities were reasonable.  The RA cited specific instances in which labor hours worked were claimed as DAC even though the description of work was clearly not associated with a specific PW for the Applicant.  The RA also described many instances in which multiple individuals worked extensive hours doing the same vague task for the same PW, but documentation lacked enough detail to indicate the actual work accomplished.  While the Applicant claims that Scion spent many hours preparing PWs, the RA stated that all three PWs submitted in EMMIE were written by FEMA and the Applicant was only able to provide one draft PW that was written by Scion.  The RA further determined that the Applicant claimed several hours for a mitigation project that was previously determined to be not eligible, and therefore the associated DAC are ineligible.

The RA determined that the DAC costs awarded at closeout for PWs 768 and 5418 were reasonable based on the September 8, 2009 memorandum from the FEMA Assistant Administrator [hereinafter DAC Memo], and when closing PW 775, the RA stated that she will evaluate DAC and will consider project management activities.  The RA determined that the travel expenses were not associated with a specific PW and were therefore not eligible.  The RA also determined that DAC associated with the ineligible mitigation proposal was ineligible.

Second Appeal

On August 29, 2014, the Applicant forwarded a second appeal written by Scion on behalf of the Applicant in the amount of $603,639.20.[7]  The Applicant is claiming $60,813.60 in DAC for PW 768, $285,456.00 in DAC for PW 775, $67,305.60 in DAC for the Hazard Mitigation Proposal (HMP) for PW 775, and $71,180.00 in DAC for PW 5418, for a total of $484,755.20 in DAC and $9,900 in DAC for an unwritten PW for parking lot damages.  The Applicant also requests $112,500.00 in travel reimbursement and $6,384.00 in project management costs.

The Applicant explains that Scion, on behalf of the Applicant, wrote five PWs, with three of them ultimately being accepted by FEMA.  FEMA determined that PWs 5418, 775, and 768 contained eligible work.  FEMA did not accept draft PW 775-406-MIT and a draft PW for parking lot damages because they did not contain eligible work.  The Applicant is requesting reimbursement for DAC for all five PWs.

The Applicant explains that the extensive work hours that it is claiming as DAC on each PW were due to delays and a lack of communication from FEMA and the Grantee.  The Applicant notes that PW 5418 was initially rejected by FEMA and had to be re-drafted by Scion, resulting in more hours worked, and an exorbitant number of work hours were spent on a hazard mitigation proposal and benefit cost analysis (BCA) that FEMA ultimately deemed ineligible.

The Grantee forwarded the second appeal to FEMA Region III on September 5, 2014, supporting the appeal.  On September 18, 2014, FEMA Region III transmitted the second appeal to FEMA Headquarters.

Discussion

Direct Administrative Costs – Documentation

Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, describes grant management and administrative costs that are eligible under the Public Assistance Program.  The policy states that “FEMA will reimburse direct administrative costs incurred by grantees and subgrantees that are properly documented and directly chargeable on a PW for a specific project.”[8]  Direct administrative costs include costs that can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspections and preparation of a PW.[9]  Eligible DAC must be in compliance with 44 C.F.R. § 13.22, and, by extension, OMB Circular A-87.  “Such costs cannot be assumed eligible if the costs are not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.”[10]  “To allow FEMA to evaluate DAC, Grantees and subgrantees must provide information about each activity performed in sufficient detail (e.g., site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection and dissemination, travel expenses, etc.).”[11]  “Such information enables the skill level of each person performing the activities, the suitability of that skill level to the activity in question, and the level of effort required to complete the activity to be assessed.”[12] 

The spreadsheet provided by the Applicant contains descriptions of several tasks performed by the contractor.  As explained in the first appeal decision, the spreadsheet misidentifies work related to indirect costs as work related to DAC and fails to provide sufficient detail to determine if the work hours claimed are reasonable.[13]  The first appeal decision states that the RA was unable to award DAC for vague references to activities that lack detail to indicate the actual work accomplished and multiple individuals worked extensive hours doing the same vague task for the same PW on the same days.[14]  Several examples of this are included in the first appeal decision.

As part of the second appeal process, FEMA further analyzed the Applicant’s DAC claims for each PW.  As the Regional Administrator found on first appeal, the work descriptions provided by the Applicant are not detailed enough for FEMA to determine what work the contractor performed, its eligibility and its reasonableness.  In many instances, the Applicant listed several very different eligible and ineligible tasks together during the same time period without providing a way to allocate hours by each task.  For instance, Scion spent approximately 20 hours working on the damage description and scope of work for the HMP project for PW 775,[15] which was determined to be ineligible.  Similarly, Scion spent over 200 hours on project formulation, fact finding, PW description development, reviewing eligibility and documents for PW 5418 and PW 775, although it is not clear what work was completed or how it differed from damage description and scope of work development that was separately claimed.  Furthermore, Scion claimed DAC for hours worked on a HMP for PWs 5418 and PW 768, but these PWs did not include any eligible HMP work.  In sum, the method the Applicant used to capture and document DAC is not in compliance with OMB Circular A-87 or DAP 9525.9, which makes it impossible for FEMA to determine what work and costs are eligible. 

During closeout, the Region identified the Applicant’s noncompliance with documentation requirements and limited reimbursement of DAC to $13,500.00 on PW 5428 and $16,200.00 on PW 768 as an enforcement action.  Pursuant to 44 C.F.R. § 13.43(a), Remedies for Noncompliance, “if an Applicant materially fails to comply with any term of an award, whether stated in a Federal statute or regulation, an assurance, in a State plan or application, a notice of award, or elsewhere, FEMA may take a number of actions.”  FEMA’s options include: temporarily withholding cash payments pending correction of the deficiency, disallowing all or part of the cost of the activity or action not in compliance, wholly or partly suspending or terminating the current award for the grantee’s or subgrantee’s program, withholding further awards for the program, or taking other remedies that may be legally available.[16]  As discussed above, the Applicant did not comply with the documentation requirements provided in OMB Circular A-87 or DAP 9525.9.  At closeout, the Region appropriately limited the Applicant’s DAC claim to $13,500.00 on PW 5428 and $16,200.00 on PW 768 pursuant to its enforcement authority under 44 C.F.R. § 13.43(a) and as a means to address the Applicant’s particular noncompliance.

Direct Administrative Costs – Ineligible Work

Generally, costs that can be directly tied to the performance of eligible work are eligible for FEMA reimbursement.[17]  However, these costs must, among other things, be reasonable and necessary to accomplish the work, comply with applicable federal, state, and local laws, regulations and procurement requirements, and be adequately documented.[18]  DAC, if incurred and properly documented, would only be eligible for funding if the associated work is eligible.  There are many instances in which the Applicant is claiming DAC for work that was determined to be ineligible.  Even if FEMA was able to determine eligible DAC from the Applicant’s documentation, DAC relating to ineligible work is still ineligible.

Travel Costs

The DAC Memo provides additional guidance on implementing DAP 9525.9 and states that “[t]ravel and per diem costs for contractor employees that work on eligible Public Assistance projects are eligible as direct costs if such costs can be and are attributed to individual projects.”[19]  The Applicant is appealing $112,500.00 in travel costs.  In the second appeal letter, the Applicant refers to the “SMS 4030 Invoice Balance Sheet” to document travel expenses.  This document lists the number of days each associate worked, and the total travel costs at a rate of $300.00 per day.  The Applicant did not provide any further documentation showing what these travel costs are comprised of, invoices, or actual travel costs with descriptions of each trip and the PW to which they pertain.  Therefore, FEMA is not able to determine what actual travel costs were incurred or allocate them to a specific PW.  Consequently, FEMA determines these costs to be ineligible.

Project Management Costs

The PA Guide defines project management as the “oversight of an eligible project from the design phase to the completion of work.”[20]  “Eligible project management activities are those activities that the applicant would have performed in the absence of Federal funding such as:  direct management of projects in the concept and design stages that are being designed by an applicant’s in-house staff, or by an architectural/engineering firm retained to analyze and design the repair or replacement of damaged facilities; procurement activities for architectural/engineering services and performance of work; review and approval of the project design regardless of who performs the design work; and management of construction work by contractors.”[21]  In accordance with 44 C.F.R. § 13.20, grantees and applicants must maintain documentation to support all costs they request for reimbursement.[22] 

The Applicant is appealing $6,384.00 in project management costs on PW 775.  In the first appeal response, the RA stated that project management costs will be reviewed and considered at closeout.[23]  FEMA HQ concurs with the RA’s decision as it preserves the Applicant’s appeal rights on the matter.

Procurement Considerations for Future Obligations

The enforcement action upheld by this decision resolves the matters of noncompliance for the DAC appealed by the Applicant.  The Region, however, should consider the following procurement issues before reimbursing the Applicant for additional work not reflected in this appeal.  If appropriate, the Region may take enforcement actions on future obligations to remedy any areas of noncompliance.

Pursuant to 44 C.F.R. § 13.36(b), Procurement Standards, when procuring services under a Federal grant, subgrantees use their own procurement procedures which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable Federal Law and the standards identified in section 13.36.  Consistent with 44 C.F.R. § 13.36(b), grantees and subgrantees must maintain records sufficient to detail the significant history of a procurement.[24]  These records must include the rationale for the method of procurement, selection of contract type, contractor selection and rejection, and the basis for the contract price.[25] 

In addition, all procurement transactions have to be conducted in a way that provides “full and open competition.”[26]  The Applicant did not provide any documentation showing that it competitively procured the services of Scion or Louis Berger and instead noted that the Pennsylvania Municipal Authorities Act allows it to waive the public notice requirement if an emergency exists.[27]  According to 44 C.F.R. § 13.36(d)(4)(i), “[p]rocurement by noncompetitive proposals may be used only when the award of a contract is infeasible under small purchase procedures, sealed bids or competitive proposals and one of the following circumstances applies: (A) The item is available only from a single source; (B) The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation; (C) The awarding agency authorizes noncompetitive proposals; or (D) After solicitation of a number of sources, competition is determined inadequate.”[28]  Further, “[c]ost analysis, i.e., verifying the proposed cost data, the projections of the data, and the evaluation of the specific elements of costs and profits, is required.”[29]  While the Applicant has provided a declaration of a state of emergency,[30] it has not explained how the award of a contract was infeasible under small purchase procedures, sealed bids, or competitive proposals.  The Applicant also failed to perform a cost analysis for the contracts.  While the Pennsylvania Municipal Authorities Act may allow the Applicant to waive the public notice requirement in some circumstances, it does not waive Federal procurement standards, which apply when Federal funds are used.

Conclusion

The Applicant did not provide sufficiently detailed and descriptive documentation to demonstrate that the costs incurred for DAC and travel are eligible costs.  FEMA provided the Applicant with several opportunities to furnish the required information, including a January 31, 2014 letter, a conference call on first appeal, and an April 23, 2014 Final RFI on first appeal, but the Applicant was not able to provide any new information or explain the discrepancies, ineligible costs, and excessive hours noted in the documentation provided.  During closeout, the Region identified the Applicant’s noncompliance with documentation requirements and appropriately limited reimbursement of DAC to $13,500.00 on PW 5428 and $16,200.00 on PW 768 as an enforcement action.  In closing PW 775, Region III should conduct a similar analysis of DAC and evaluate project management costs.