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Sewer Treatment Plant Effluent Pond

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1646-DR
ApplicantSpanish Flat Water District
Appeal TypeSecond
PA ID#055-UP3ZT-00
PW ID#173
Date Signed2012-05-22T04:00:00

Citation:         FEMA-1646-DR-CA, Spanish Flat Water District, Sewer Treatment Plant Effluent Pond, Project Worksheet (PW) 173

Cross-

Reference:      General Eligibility, Reasonable Cost, Hazard Mitigation 

Summary:      Due to heavy rain in April 2006, rapid runoff from surrounding hillsides damaged a portion of the levees for the Spanish Flat Water District sewer treatment plant effluent pond.  FEMA prepared a PW for $113,061 to repair the damage and included a Section 406 hazard mitigation proposal for $36,000 to install soldier piles in the levee to protect against future levee damage. During close-out, FEMA noted that the Applicant made significant changes to the scope of work at a total project cost of $352,839 and determined that the project was an Improved Project.  FEMA capped the funding.  FEMA also determined that the hazard mitigation scope of work, as approved, was not completed and de-obligated the funding.

In the first appeal, the Applicant appealed the Improved Project determination. FEMA Region IX concurred that the project was not an Improved Project and the scope of work had expanded due to geological site conditions and the need to excavate deeper than originally anticipated.  However, the Region determined that the Applicant had used a cost plus percentage contract for the expanded scope of work, and limited funding to only the portion of work completed under the fixed price contract, $81,786, plus other eligible costs of $35,449, for a total of $117,234.

                        In the second appeal, the Applicant is appealing the determination that they used a cost plus percentage contract and requests that FEMA reimburse them for the full cost of the contract work, $316,971, plus other eligible costs of $35,449, for a total of $352,839. They also maintain that they mitigated future damage by properly installing the levee, but without the use of soldier piles.

Issues:             1. Was a cost plus percentage contract used to complete the repair work?

                        2. Are the Applicant’s costs under the cost plus percentage contract reasonable?

                        3. Did the Applicant complete the approved hazard mitigation scope of work?

Finding:          1. Yes.

                        2. Yes.

                        3. No.

Rationale:       44 CFR §13.36(f)(4) Procurement. Contract cost and price; Disaster Assistance Policy DAP9526.1, Hazard Mitigation Funding Under Section 406 (Stafford Act) dated August 13, 1998.

Appeal Letter

May 22, 2012

Mr. Mark Ghilarducci

Secretary

California Emergency Management Agency

3650 Schriever Avenue

Mather, California  95655

Re:     Second Appeal—Spanish Flat Water District, PA ID 055-UP3ZT-00, Sewer Treatment Plant Effluent Pond, FEMA‑1646‑DR‑CA, Project Worksheet (PW) 173

Dear Mr. Ghilarducci:

This letter is in response to a letter from your office dated June 11, 2009, which transmitted the referenced second appeal on behalf of the Spanish Flat Water District (Applicant).  The Applicant is appealing the Department of Homeland Security's Federal Emergency Management Agency's (FEMA) denial of funding for a portion of the contract repairs to the effluent pond levee.

As explained in the enclosed analysis, I have determined that the cost plus percentage contract used by the Applicant is not allowed.  However, the work performed is eligible and the contractor’s costs of $316,971 are reasonable.  Accordingly, I am granting this appeal for a total PW amount of $352,420 which includes $35,449 in other eligible costs (geotechnical services, force account labor, fencing, and trucking services).  By copy of this letter, I am requesting that the Regional Administrator take appropriate action to implement this determination.

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:    Nancy Ward

        Regional Administrator

        FEMA Region IX

Appeal Analysis

Background

In April 2006, heavy rain saturated the soil and caused rapid runoff from surrounding hillsides into the Spanish Flat Water District (Applicant) sewer treatment plant effluent pond, damaging a portion of the pond’s levee and causing wastewater to flow into Lake Berryessa.  FEMA prepared PW 173 for $113,061 to repair the breach in the pond levee.  The original scope of work included removing and replacing 889 cubic yards of fill, replacing 2,000 square feet of protective fabric, installing 28 tons of rip-rap on the inward part of the levee wall, and replacing 100 linear feet of damaged chain link fence.  The PW also included a Section 406 hazard mitigation proposal for $36,000 to install soldier piles in the damaged levee to protect against future damage.

Based on geotechnical investigations, the Applicant’s engineer of record recommended repair included the use of a key-way with compacted soils and sloping in order to prevent slippage of the levee.  The engineer also estimated that stable soils necessary to complete this repair would be reached at a depth of not more than 10 feet.  The Applicant solicited bids based on the engineer’s design and awarded the contract for repairs to the lowest responsive bidder, G. D. Nielson Construction, Inc., (Nielson) for a lump sum amount of $123,386.  When the Applicant’s contractor began excavation to complete the repairs, the contractor discovered unstable soil at which point, the Applicant issued a stop work order.  Upon further investigation, the Applicant’s engineer-of-record reported that there was a need to increase the excavation depth to reach stable soils.  The Applicant’s project manager called the California Governor’s Office of Emergency Services (now California Emergency Management Agency (Cal EMA)) on May 8, 2007 to inform them of the expanded work and increased cost.  Cal EMA advised the Applicant to proceed with the deeper excavation, but there is no record that FEMA was advised of the change in scope at that time.  The contractor continued work following a letter from the Applicant notifying them to proceed.  Soldier piles, as approved in the Section 406 hazard mitigation proposal, were not used in the repair of the levee.

During final inspection and close-out, FEMA determined that the Applicant made significant changes to the scope of work for the levee repairs at a total project cost of $352,839 and determined that the project was an Improved Project.  FEMA also determined that the hazard mitigation work approved in the PW was not completed and de-obligated the funding.  FEMA capped the funding at $77,061, the original repair estimate less hazard mitigation funding. 

First Appeal

The Applicant appealed the Improved Project determination in a letter dated May 13, 2008, and requested funding for the entire project cost of $352,839.  FEMA issued its first appeal decision on February 5, 2009, and agreed that the Applicant’s levee repair project was not an Improved Project.  FEMA’s analysis noted that the scope of work was eligible, and due to site conditions and the new depths required to reach stable soils, the quantities of excavation and fill, and therefore costs, had increased.  However, FEMA also determined that the Applicant’s expanded scope of work was accomplished using a cost-plus-percentage-of-cost (CPPC) contract and that “[p]ursuant to 44 CFR Part 13, cost plus percentage of costs contracts are not eligible.”  Based on this determination, FEMA limited funding to $117,235, which included $81,786 for the portion of work completed under the fixed price contract (through May 18, 2007) and $35,449 in other eligible costs (geotechnical services, force account labor, fencing, and trucking services).

Second Appeal

In its second appeal, the Applicant maintains that hazard mitigation work was performed by properly installing the levee, rather than using soldier piles as originally proposed, and that they should therefore receive funding ($123,061) for the extra work required to secure the new levee installation to bedrock.  Alternatively, the Applicant requests funding for $316,971, the entire amount invoiced by the contractor.  The Applicant states that upon discovering the need for the expanded scope of work, it “issued a cost plus change order and went beyond the norm to monitor and control costs as the work was being performed.”  The Applicant claims that the actual work performed was cost effective.  In addition, the Applicant argues that “[t]he Nielson Change Order was a Time and Materials plus indirect costs and not a Time & Materials plus percentage contract.”   

Discussion

The scope of work completed by the contractor to repair the levee is eligible, as it does not change the location, footprint or function of the facility.  The quantities and costs associated with the project increased significantly during repairs due to unstable soil conditions encountered during construction.  Based on input from the geologists and engineer of record, the increased depth of excavation and backfill was necessary to stabilize the hillside.  For the purposes of responding to the appeal issues, this discussion is presented in three sections: 1) Contract Analysis, 2) Reasonable Cost Analysis, and 3) Hazard Mitigation Analysis.

Contract Analysis

The documentation for this appeal contains a March 1, 2007, contract between the Applicant and Nielson, to perform the levee repairs which are identified in PW 173.  The record does not include any separate contract or contract amendment that was executed between the Applicant and Nielson after the stop work order.  On May 18, 2007, the Applicant sent a letter to Nielson acknowledging the greater scope of work and authorizing the contractor to proceed with the extra work.  This letter appears to have served as the “Notice to Proceed” for the contractor’s expanded scope of work.

The March 1, 2007, contract contains a provision under the heading “Change Orders” which reads:  “Whenever practicable, changes in Contract price resulting from extra work will be determined by a mutually agreed upon lump sum price.  The Contractor’s proposal for such changes shall include a detailed breakdown of labor and materials to be performed by his forces or the forces of his subcontractors or material suppliers.  The breakdown shall include labor surcharges and sales tax cost.”  At the end of this typed provision of the original contract there is a handwritten notation which reads “plus contractors fee of 15%” (emphasis added).  This provision was not implemented with regard to the extra work performed by the contractor.  The Applicant stated that they “would not be able to determine the depth of soils excavation as a fixed price contract amendment.”

The provision of the contract that was used is under the heading “Time and Expense Change Orders” in the March 1, 2007, contract which reads:  “Payment to the Contractor for extra work performed on a time and expense basis shall consist of the actual necessary expense for doing the work, plus an allowance of 15 percent of labor, material and equipment rental for overhead, general superintendence and profits, plus one percent for bonds.”  The contract did not include a “ceiling” or “not to exceed” amount.  Furthermore, upon review of the Daily Extra Work Reports (DEWR) submitted by Nielson, FEMA found an allowance of 20 percent for overhead and 5 percent profit was added to labor, material, and equipment rental costs.  There is no explanation for this difference between actual invoices and the provisions in the signed contract documents.

It is clear from the above-quoted references in the March 1, 2007 contract to “contractor’s fee of 15 percent” and “plus an allowance of 15 percent” that this is a CPPC contract.  Pursuant to 44 CFR §13.36(f)(4), “[t]he cost plus a percentage of cost and percentage of construction cost methods of contracting shall not be used.”  However, since the work performed by the Applicant’s contractor is considered eligible, FEMA can independently determine a reasonable cost. 

Cost Reasonableness Analysis

To determine a reasonable cost for this work, FEMA reviewed the scope and unit costs originally approved in PW 173, Nielson’s competitively bid fixed price unit costs, and the DEWRs submitted by Nielson for the cost plus percentage of costs portion of the work (after

May 18, 2007).   

Upon review, the unit costs contained in Nielson’s original fixed price construction bid were found reasonable as the contract was competitively bid and the unit costs compare favorably with the unit costs estimated for PW 173.  For example, the original bid unit cost for excavating and replacing the levee materials was broken down into two line items: excavate ($22.85 per cubic yard) and backfill and compact ($12.20 per cubic yard) for a total of $35.05 per cubic yard.  When compared to PW 173, which approved “removing and replacing selective fill for the levee wall” at $34.78 per cubic yard, the contractor’s unit cost from the original bid is considered reasonable.  This unit cost to excavate and backfill the levee constitutes the majority of the costs for the levee work.

To estimate the reasonable cost for all work performed under this contract, FEMA used the unit costs from the original fixed price construction bid multiplied by the actual quantities of work performed, as reported in the DEWRs.  Because of the additional depth required to excavate in order to reach stable soils, the quantities of materials and number of labor hours increased significantly from the original bid.  The following table (Table 1) outlines estimated costs for this project as derived from the competitively bid fixed price unit costs and the increased quantities reported in the contractor’s DEWR’s.  As shown in Table 1, the estimate derived using the original unit costs was approximately 4.9% higher than the total contract cost invoiced by Nielson.  Accordingly, the Applicant has demonstrated that the actual cost to perform the eligible work was reasonable.

Table 1

Description

Unit

Quantity

Total

Unit Cost*

 Total

Actual Invoice

Prior to 5/18/07

Post 5/18/07

Mobilization

LS

$20,148.16

$2,757.34

-

-

$22,905.50

 

Excavate

CY

1,800

4,010

5,810

 $22.85

$132,758.50

 

Haul to Stockpile

CY

1,500

4,010

5,510

$4.57

$25,180.70

 

Excavate & Haul Borrow Material

CY

-

1,260

1,260

$27.42

$34,549.20

 

Cut key-way

CY

133

**

133

 $20.17

$2,682.61

 

Backfill & Compact

CY

900

6,410

7,310

 $12.20

$89,182.00

 

Place 4" drain pipe, drain rock, backfill

LF

-

100

100

 $9.18

$918.00

 

Place N140 Fabric (14 SF per LF of drain pipe)

SF

-

1,400

1,400

 $8.80

$12,320.00

 

Restoration

LS

-

-

-

 -

$12,833.20