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Reasonable Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1763-DR-IA
ApplicantUniversity of Iowa
Appeal TypeSecond
PA ID#103-03027-00
PW ID#3702
Date Signed2014-06-24T00:00:00

Conclusion: The building contents are eligible for funding because they are necessary to make the temporary facility functional.  The parking lot repair is maintenance and such repairs are not eligible for funding.  Although the additional plumbing work was outside of the scope of the work of the contract, if it is eligible under the Public Assistance program, FEMA may fund reasonable costs for the work. 

Summary Paragraph

From May 25 through August 13, 2008, severe storms caused flooding at two buildings on the University of Iowa (Applicant) campus.   The Applicant had to lease a temporary facility while it completed the repairs to the two buildings.  The Applicant made improvements to the leased facility and purchased items for art instruction.  The Applicant submitted a request for cost overruns.  FEMA found some items related to the improvements ineligible, indicating that certain costs were related to maintenance, captured on more than one invoice, and costs that are normally considered part of general contractor overhead and profit.  The Applicant submitted a first appeal for some of the funding found ineligible, and the FEMA Region VII Regional Administrator partially approved the first appeal.  In its second appeal, the Applicant argues that costs associated with three items should be found eligible: (1) building contents; (2) parking lot repair; and (3) additional plumbing contract work.

Authorities and Second Appeals

  • 44 C.F.R. §13.43(a)(3).
  • OMB Circular A-87, 2 C.F.R. § 225.
  • DAP 9523.3, Provision of Temporary Relocation Facilities at 2-5.

Headnotes

  • Disaster Assistance Policy 9523.3, Provision of Temporary Relocation Facilities states that reasonable alterations of the temporary facility are allowable costs, if they are required to make the space functional and meet the pre-disaster needs of the applicant; and FEMA will not fund utilities (power, water, heat, etc.), maintenance, or operating costs at temporary facilities.
    • The building contents were necessary to make the facility functional.
    • The parking lot repair was maintenance and is ineligible. 
  • 44 C.F.R. §13.43(a)(3) and OMB Circular A-87 allow FEMA to look at the reasonableness of costs and make an eligibility determination even when an applicant fails to follow procurement procedures.
    • With regard to the additional plumbing work, although the additional work was outside of the scope of the work of the contract, if the work itself is eligible under the Public Assistance program, FEMA can fund reasonable costs for the work.


 

Appeal Letter

June 24, 2014

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 – University of Iowa, PA ID 103-03027-00, FEMA-1763-DR-IA, Project Worksheet (PW) 3702 – Reasonable Costs     

Dear Mr. Schouten:

This is in response your letter dated July 23, 2013, which transmitted the referenced second appeal on behalf of University of Iowa (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of its request for $201,233.16 for cost overruns for establishing a temporary facility.

As explained in the enclosed analysis, I have determined that the building contents for an amount of $26,795.56 and at least a portion of the additional plumbing work, up to $141,607.60, are eligible for reimbursement because the items were necessary to make the temporary facility functional.  At project closeout, the Applicant must submit documentation with regard to the eligibility of the additional plumbing work that demonstrates:

  • The work was necessary to make the facility functional, and
  • The cost to do so was reasonable.

The parking lot repair is considered maintenance and is ineligible for funding.  By copy of this letter, I am requesting the Regional Administrator to 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 C.F.R. § 206.206, Appeals.

Sincerely,

/s/

William W. Roche
Director
Public Assistance Division

Enclosure

cc:  Beth Freeman
      Regional Administrator
      FEMA Region VII

Appeal Analysis

Background

From May 25 through August 13, 2008, severe storms caused flooding to Art Building East and Art Building West, two buildings on the University of Iowa (Applicant) campus.  The flood waters inundated the two buildings to a depth of 10 feet, damaging walls, flooring, ceilings and building contents.  After the flooding, the buildings could not be occupied until repairs were made.  As an emergency measure to continue essential educational activities, the Applicant leased a temporary facility from a retail store and, in the lease, agreed that it would pay the building’s owner to make improvements to the facility to accommodate art studio classrooms.  In October 2008, FEMA obligated Project Worksheet (PW) 3702 for $57,500 to lease the facility for six months and $2,000,000 to complete leasehold improvements.  FEMA obligated additional funding to cover several extensions to the lease.  The Applicant performed the leasehold improvements for $5,889,269.60 and submitted a request for $3,889,269.60 in additional funding for cost overruns.  On February 8, 2012, FEMA obligated Version 5 of PW 3702, finding $663,914.69 for leasehold improvements to be ineligible, indicating that certain costs were related to maintenance, captured on more than one invoice, and costs that are normally considered part of general contractor overhead and profit.    

First Appeal

In a first appeal letter submitted April 16, 2012, the Applicant agreed that some costs are ineligible but challenged FEMA’s determination regarding $405,164.44.  The Applicant argued that these costs were either direct expenses incurred by the contractor or expenses generally related to construction.  The Applicant provided its lease agreement, an affidavit, and other documents in support of its appeal. 

The FEMA Region VII Regional Administrator (RA) partially granted the first appeal on March 19, 2013.  The RA determined that the building’s owner sold the property to a general contractor after a “cost plus structure” contract was signed, and that the same general contractor did not follow the bid process stipulated in the lease agreement because there was no evidence of competitive bidding.  The RA indicated, that as a result of the sale, FEMA, in the initial analysis of the cost overrun, questioned items that exceeded the bid contract and determined those items ineligible.  As it relates to the Applicant’s request for costs associated with replacing certain building contents[1], the RA determined that those purchases were not required for the leasehold improvements but were to replace those contents/supplies lost at the damaged facilities.  As such, the RA indicated that those costs should be presented at project closeout for building contents project worksheets for the damaged facilities.  With regard to parking lot repairs, the RA determined that a parking lot repair made on November 18, 2008 was eligible but a repair made in July 2009 was not.  The RA considered the latter repair to be routine maintenance.  The RA also found that the Applicant’s request for costs associated with additional plumbing contract work were ineligible because the additional work was not agreed upon in the original contract and was not competitively bid in accordance with lease contract terms.[2]  Based on documentation provided with the appeal, the RA found $171,154.05 eligible and obligated funding in that amount; the RA found $234,010.39 ineligible.

Second Appeal

The Applicant maintains in a second appeal letter dated May 24, 2013, that it is entitled to reimbursement for three costs found ineligible on first appeal: (1) building contents; (2) parking lot repairs; and (3) contractor plumbing expenses.  The Applicant asserts that it purchased the building contents for use in the temporary facility not as permanent replacement items for those lost in the flooded buildings.  As such, the Applicant states that these contents were necessary to make the temporary facility functional and requests $26,812.65 in reimbursement.  Further, the Applicant asserts that the parking lot repair ($32,830) was not maintenance, as the RA concluded, but an essential repair to enable bus service to continue at the temporary facility.  The Applicant stated that the first two parking lot repairs, which FEMA found eligible, were to repair pavement damage and that the most recent repair involved removing and replacing pavement, which would allow the parking lot to handle the new weight and traffic volume at the temporary facility.  The Applicant also states that the contracted plumbing work was necessary to make the temporary facility functional and operational.  The Applicant attached the plumbing invoices, totaling $141,607.60, and a plumbing plan outlining the work.   

Discussion

The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) Section 403 authorizes FEMA to “provide assistance essential to meeting immediate threats to life and property resulting from a major disaster” and allows for temporary facilities for schools, which includes higher education facilities.[3]  Disaster Assistance Policy DAP9523.3 Provision of Temporary Relocation Facilities, which was in effect at the time of the disaster, states that the capacity of the temporary facility must be comparable to the pre-disaster capacity of the facility that housed the displaced services.[4]  The policy also indicates that FEMA will not fund certain costs associated with temporary facilities, including utilities (power, water, heat, etc.), maintenance, or operating costs, nor will FEMA fund the differential should these costs increase.[5]  FEMA considers reasonable alterations of the temporary facility to be eligible work if they are required to make the space functional and meet the pre-disaster needs of the applicant.[6]  

Building Contents

In accordance with DAP9523.3 § (F)(1), relocation costs are costs associated with the transfer of the eligible pre-disaster service and costs for rent, purchase or construction of the temporary facility itself.  One allowable cost is reasonable alterations of the temporary facility that are required to make the space functional and meet the pre-disaster needs of the applicant.[7]  While the Applicant may have to permanently replace these same items in the two damaged art buildings, these items were also necessary to make the temporary facility functional for art instruction and the cost of the items ($26,795.56) [8]is eligible for reimbursement.  After the temporary facility closes, the Applicant must follow Disaster Assistance Policy DAP9525.12 Disposition of Equipment, Supplies and Salvageable Materials to dispose of equipment and residual unused supplies and, if required, compensate FEMA with the fair market value of the cost of the items no longer being used at the temporary facility.   

Parking Lot Repair

The lease between the Applicant and the building owner lists “repair and resurfacing of the existing parking lot” as one of the leasehold improvements for the temporary facility.  FEMA provided funding for two parking lot repairs: one in August 2008 consisting of temporary repairs and the second in November of 2008 to cover 4660 square feet of the parking lot with eight inches of asphalt.  The third repair, which is the subject of this appeal, occurred in July 2009 and consisted of placing rocks in a trench and patching two parts of the parking lot.  Due to the nature of the repair, FEMA finds that this repair was maintenance and not a full resurfacing of the parking lot.  Pursuant to DAP9523.3, FEMA does not fund maintenance at temporary facilities.   Since this third repair is maintenance, the work is not eligible for public assistance funding.

Contract Plumbing Work

The RA determined that the Applicant did not comply with competitive bidding regulations found in Title 44 Code of Federal Regulations (CFR) §13.36(c); the Applicant did not provide a reason or explanation for noncompliance.  44 CFR §13.43(a)(3) states that when an applicant for federal funding fails to comply with procurement procedures, FEMA may “wholly or partly suspend or terminate the current award.”  The Public Assistance Guide explains that FEMA implements this provision by evaluating project costs to determine reasonableness, and FEMA may reimburse reasonable costs for eligible work.[9]  In accordance with OMB Circular A-87, FEMA evaluates reasonable costs based on the standard “that a cost 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 cost.”[10]  Upon review of the invoices the Applicant provided with its second appeal, it appears as though at least a portion of the $141,607.60[11] of additional contract plumbing work was necessary to make the temporary facility functional for art instruction.  Although the additional work was outside of the scope of the work of the contract, if the work itself is eligible under the Public Assistance program, FEMA can fund reasonable costs for the work.  At project closeout, the Applicant must demonstrate that the actual costs of the work performed were necessary to make the temporary facility functional and will analyze the reasonableness of the actual costs claimed.  

Conclusion

The building contents are eligible for public assistance funding because the building contents were necessary to make the temporary facility functional.  With regard to the additional plumbing work, the Applicant should submit documentation with its request for project closeout to support the eligibility of the plumbing work performed as it relates to the necessity of making the facility functional and the reasonableness of the costs.  The third parking lot repair is ineligible for funding as that repair was maintenance, which is ineligible for temporary facilities.     


[1] The RA indicated that the Applicant submitted sixty nine invoices for the purchase of fire extinguishers, first aid items, eye wash stations, a spray booth, refrigerator, shelving, display cases, wire, and other miscellaneous items.

[2] The ineligible costs noted here are not the only costs found ineligible in the first appeal response.  These are the only costs discussed because they are the only costs the Applicant is appealing on second appeal.

[3] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, §403 (a), 42 U.S.C. § 5170b (a) (2006); 44 C.F.R. § 206.221(a)(3) & (e)(1) (2001).

[4] Disaster Assistance Policy DAP9523.3, Provision of Temporary Relocation Facilities at 2 (July 16, 1998).

[5] Id at 4.

[6] Id at 5.

[7] Id.

[8] The Applicant states that it is appealing contents costs in the amount of “$26,795.56 and $17.09,” but the Applicant did not provide any documentation to support the $17.09.  FEMA will not find the $17.09 to be eligible as it is not linked to the building contents costs.

[9] Public Assistance Guide, FEMA 322 at 53 (June 2007).

[10] Office of Mgmt. & Budget, Exec. Office of the President OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments (2013) (codified at 2 C.F.R. § 225).

[11] Invoices 6963 ($12,907.51), 6971 ($30,364.75), 6984 ($22,254.30), 6987 (25,464.45), 6993 ($14,499.04), 6995 ($5,800.00), 7004 ($13,717.55), 7027 ($1,500.00), 7029 ($12,000.00), and 7032 ($3,100.00).