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City of Lincoln

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DesastreFEMA-0983-DR
ApplicantCity of Lincoln
Appeal TypeSecond
PA ID#109-28000
PW ID#27421
Date Signed1998-07-22T04:00:00

Citation: FEMA-0983-DR-NE; City of Lincoln; DSR 27421

Cross Reference: Contract work; Legal responsibility; Disaster -related work

Summary: During March 1993, damages occurred at various locations along the Platte River and Salt Creek due to ice jams and flooding (DR-0983), including the City of Lincoln (subgrantee) Water System's Ashland water treatment facility (facility). Inspectors prepared DSR 27421 for $295,673 to cover re﷓installation of 1000 linear feet of 54﷓inch concrete pipe. Because a contractor was already performing improvements (Improvement Contract) to the facility at the time of the disaster, the subgrantee and contractor entered an agreement to perform the repairs under DSR 27421. On September 4, 1996, a court order required the subgrantee to pay to the contractor damages in the amount of $356,174. As such, the subgrantee has concluded that an additional $147,904 for third work crew labor, washed-out backfill, and dewatering measures are eligible for FEMA funding. The first appeal was denied because the subgrantee did not establish their legal responsibility for work and because additional damages must be reported, within 60-days of the initial inspection. In their second appeal, the subgrantee responds, "we just found out by court decision that the City would be responsible for additional costs and not the contractor." In addition, the subgrantee claims that the General Conditions of the Improvement Contract establishes its legal responsibility for the work.

Issues: 1. Was the subgrantee legally responsible for the worksite/improvements at the time of the disaster?2. Are costs associated with the contractor's third work crew eligible for assistance?

Findings: 1. No. The Improvement Contract supports the finding that the subgrantee (owner) did not assume legal responsibility for the worksite/improvements until, at least, substantial Completion had not occurred. At the time of the disaster, Substantial Completion had not occurred and, therefore, the subgrantee was not legally responsible for disaster-related damage/costs (lost backfill stockpile and dewatering).2. No. The costs incurred by the subgrantee's contractor for a third work crew are not related to the performance of eligible disaster work and are not, therefore, eligible for funding.

Rationale: 44 CFR 206.223(a)(3)

Appeal Letter

July 22, 1998

Francis A. Laden, Brigadier General
Acting Assistant Director
Nebraska Emergency Management Agency
1300 Military Road
Lincoln, Nebraska 68508
Dear Brigadier General Laden:
This letter is in response to your August 15, 1997, submittal of the City of Lincoln's second appeal of Damage Survey Report (DSR) 27421 under FEMA﷓0983﷓DR﷓NE. The subgrantee is requesting an additional $147,904 for backfill, dewatering measures, and an additional workcrewcosts. The subgrantee claims that these costs are eligible because they maintained legal responsibility for the work site at the time of the disaster and that they reported the damages as soon as they become aware of them.

I have reviewed the appeal and, as explained in the enclosed appeal analysis, I have determined that the subgrantee did not maintain legal responsibility for the work site at the time of the disaster and that costs for replacing the lost backfill and for dewatering measures are not eligible. I have also determined that the additional costs incurred by the contractor for an additional work crew are not related to the performance of eligible disaster work and are not eligible. The subgrantee's appeal is, therefore, denied.

Please inform the applicant of my determination. In accordance with the appeal procedure governing appeal decisions made on or after May 8, 1998, my decision normally would constitute the final decision on this matter. The current appeal procedure, amending 44 CFR 206.206, was published as a final rule on April 8, 1998. However, because of special circumstances in this case, FEMA has determined that the applicant may submit a third appeal to the Director of FEMA. The appeal must be submitted through your office and the Regional Director within 60 days of receipt of this determination.

Sincerely,

/S/

Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate
Enclosure
cc: John A. Miller
Regional Director
FEMA Region VII

Appeal Analysis

BACKGROUND
During March 1993, various damages occurred along the Platte River and Salt Creek due to ice jams and flooding (DR-0983). In particular, damage occurred to the City of Lincoln's Ashland water treatment (facility), located in Sarpy and Saunders Counties, Nebraska. On April 21, 1993, representatives from the Federal Emergency Management Agency (FEMA), the Nebraska Emergency Management Agency (NEMA), and the City of Lincoln (subgrantee) performed an inspection of the facility. The inspectors prepared damage survey report (DSR) 27421 for $295,673, including $247,000 for $295,673, including $247,000 for installation of 1000 linear feet of 54﷓inch concrete pipe, $27,025 for pipe bedding, and $21,648 for engineering services. The cost for this DSR was estimated based upon contract unit prices and FEMA Cost Curve "B" for engineering services.

At the time of the disaster (March 7 - March 21), H.R. Bookstrom Construction (contractor) was performing improvements to the facility (Improvement Contract, October 18, 1991). The Improvement Contract was originally scheduled for a completion date of September 30, 1992. Due to high water conditions in the Salt Creek during late 1991 and early 1992, the subgrantee granted several time extensions to the contractor. At the time of the disaster, the approved substantial completion date was January 31, 1993, and the approved final completion date was April 30, 1993. It is noted that the contractor had notified the subgrantee in December 1992 that substantial completion would be delayed by three months. The subgrantee did not, however, grant the contractor additional time extensions. The subgrantee also increased the amount of the retainage it held apparently in anticipation of the liquidated damages it felt would be owed by the contractor for its failure to complete the work in a timely manner. In the response to these actions, the contractor committed another (third) work crew to the work being performed under the Improvement Contract.

Following the March 1993 flooding and because the contractor was already performing work on the site at the time of the disaster, the contractor and subgrantee agreed that the contractor would undertake the disaster-related restoration work. Though the timing is somewhat unclear, it appears that the subgrantee and the contractor entered into Change Orders 4 and 5 for the disaster-related restoration work (disaster contract) subsequent to FEMA's approval of DSR 27241. Due to the additional work required under the disaster contract, the contractor requested yet another time extension for the Improvement Contract. The subgrantee granted a time extension, but only for the work required under the disaster contract was completed in August 1993.

On or around February 6, 1995, the contractor filed a lawsuit against the subgrantee in the District Court of Lancaster County, Nebraska claiming it was entitled to additional costs under the Improvement Contract. By order dated September 6, 1996, the court awarded the contractor $356,174 for "damages and extra costs" due to the "breaches and improper actions of the City [subgrantee]." On October 3, 1996, the subgrantee submitted the court to FEMA and requested additional funding in the aggregate of $147,904. The amount of funding requested from FEMA breaks down as follows:



$ 54,335.54- third work crew labor
92,377.00- Backfill (obtaining and compacting)
1,172.00- Dewatering
$147,904.00

As is typically the case when an appeal has been submitted, FEMA reviews all relevant information, including prior determinations and the reasons therefore. Our review indicates that while most of the findings and supporting references set forth in FEMA's prior determinations are correct, at issue there are two principal underlying reasons for determining that the costs for which the subgrantee seeks funding are not eligible. This analysis clarifies these reasons.

As discussed more thoroughly below, the relevant determinations are (1) the subgrantee, although financially liable to pay damages to the contractor, was not legally responsible for the worksite or the improvements at the same time of the disaster, and (2), the third crew was not associated with the performance of eligible disaster-related work.
First Appeal
On February 18, 1997, NEMA forwarded the subgrantee's first appeal to the Regional Director. The subgrantee requested that FEMA reconsider funding for a third work crew, replacing a backfill stockpile, and dewatering measures. The subgrantee stated that it was "legally liable for the cost of repairs to this 1993 Flood site" under state law and the terms of the Improvement Contract. In response to the appeal, the Regional Director determined that the subgrantee did not establish that the requested work was eligible for Public Assistance.
Second Appeal
The subgrantee submitted a second appeal to NEMA on June 26, 1997. Again it is requesting $147,902 for the third crew, backfill and de-watering. In its appeal, the subgrantee responds point by point to the First Appeal Analysis. In its transmittal letter, NEMA states that the Regional Director's March 11, 1997, letter denying the first appeal, "remains the defining document," but requests that FEMA reconsider its determinations concerning (1) the subgrantee's failure to notify FEMA of these costs within the time required under 44 CFR 206.202(d), and (2) the subgrantee's legal responsibility for the worksite/improvements. In support of it's request for reconsideration, the subgrantee has provided the following information.

1. With respect to its failure to identify and advise FEMA of disaster damages within the 60-day regulatory timeframe, the subgrantee notes that its April 23, 1993, letter to FEMA states that "[o]f course they [labor, backfill,dewatering] are additional [costs], since we just found out by court decision that the city would be responsible for the additional costs and not the contractor."

2. The subgrantee claims that the work site was its legal responsibility, as established by Section 14.2 of their General Conditions of the Improvement Contract that states, "Contractor warrants and guarantees that title to all work, materials and equipment covered by an Application for Payment, whether incorporated in the Project or not, will pass to owner at the time of payment." As such, the subgrantee claims that because payment had been made to the contractor, it owned they were the destroyed work. Additionally, the subgrantee cites its need to obtain a `404 permit ' from the U.S. Army Corps of Engineers (USACE) as evidence of its legal responsibility for the site at the time of the disaster.

DISCUSSION
Reporting to FEMA of Disaster Costs

As noted correctly in FEMA's prior determinations, 44 CFR 206.202(d) requires that damages be identified to FEMA within 60 days after the initial inspection has taken place. The subgrantee's position is that until the court issued its order in September 1996, it could not have been aware of the "damages" and, thus the subgrantee implies that extenuating circumstances warrant a time extension. Our review indicates that it is not necessary to determine whether the length/outcome of the litigation justifies a time extension because determination of the substantive eligibility issues renders the procedural issue irrelevant to the outcome of the appeal.

Subgranteee's Legal Responsibility for Requested Work


To be eligible for Public Assistance funding, an item of work must not only be required as the result of the disaster﷓event; however, not all disaster related work is eligible for assistance. Section 406 (e)(2) of the Robert T. Stafford Disaster Relief and Emergency Assistance Ac dch the owner was responsible as per the applicable the construction contract are eligible for funding. This statutory limitation is also reflected in 44 CFR 206.223 (a) (3) which provides that to be eligible for funding work/expenses must be the legal responsibility of an eligible applicant. This has been consistently interpreted that such legal responsibility must be established at the onset of the disaster.


As a general rule for facilities under construction, in the absence of contract provisions to contrary, the contractor is assumed to be legally responsible for the facility until it has been completed (or substantially completed) and accepted by the owner. Prior to this point in time, any disaster-necessitated work to the project would, therefore, be considered by FEMA to be the legal responsibility of the contractor. In that instant case, the contract documents not only contain specific provisions relating to substantial completion and acceptance of the work, but also specifically assign to the contractor responsibility for flood damage.

In the contract documents, substantial completion is defined and discussed in Supplemental Condition (SC)-15 and final inspection and acceptance is discussed in SC-16. "Substantial completion" is defined as the completion of the facilities to the point that raw water can be delivered in the quantity and quality satisfactory to the project engineer (designated as the owner's representative). SC-15 states that when the contractor "considers the Work ready for full occupancy or utilization by Owner, Contractor shall declare in writing to Owner and Engineer that the Work is substantially complete and request that Engineer issue a Notice of Substantial Completion therefore." This paragraph goes on to state that "[I]f Engineer considers the Work substantially complete, Engineer shall prepare and deliver to Owner and Contractor a Tentative Notice of Substantial Completion which will fix the date of Substantial Completion, the release of any part of the retainage, and the responsibilities between Owner and Contractor for operation and maintenance. The notice shall include a tentative list of items to be completed or corrected before final acceptance." SC-14 provides that "facilities substantially completed in accordance with the Contract Documents which are occupied or used prior to Substantial Completion will be defined by Engineer in a written notice to Owner and Contractor fixing the responsibility for insurance and maintainence on that part of the Work and including a tentative list of items to be completed or corrected before final acceptance." SC-16 provides that following completion of all work and correction of any deficiencies/defects noted during final inspection, the engineer will notify the owner and contractor that the work is acceptable.

The above-cited provisions support strongly the conclusion that, as is typically the case, the contractor remains legally responsible for the project facilities until the first to occur of (1) substantial completion, or (2) occupancy and use by the owner (subgrantee). This conclusion is further bolstered by paragraph 11 of Specification 01500 entitled "Flood Protection" that states the contractor "shall provide temporary protection as necessary to prevent flood damage to new and existing facilities and shall be responsible for any damage which may result from flooding".

It is the subgrantee's position that Section 14.2 of the general conditions of the Improvement Contract establishes its ownership/legal responsibility for the worksite/improvements at the time of the disaster. Section 14.2 states that "title to all Work, materials and equipment covered by any Application for Payment will pass to Owner at the time of payment free and clear of all liens, claims.". Review of the contract in its entirely, however, indicates that this provision is intended to address the owner's interest vis-a-'vis the contractor the contractor and third party creditors to the work, materials, and equipment for which it has made payment. Article 14 governs the method by which progress payments and final payment are to be made. It is noteworthy that Section 14.7 addresses final payment and specifically references that an application for final payment and specifically references that an application for final payment from the contractor must be triggered by the written notice that the work covered thereby, and therefore, legal responsibility for the same. In summary, the progress payment provisions of the contract documents do not establish the subgrantee's legal responsibility for the worksite improvements covered thereby.

The subgrantee also cites its need to obtain a 404 Permit from the USACE as evidencing its legal responsibility for the worksite at the time of the disaster. Instead, the need for the subgrantee to apply for the 404 Permit evidences simply the subgrantee's status as the "owner" of the public water supply, treatment and transmission facilities for which the 404 Permit was needed in the same sense that the term "owner is used throughout the contract documents.

We also note that the court did not determine as a matter of law or otherwise that the contract placed upon the subgrantee legal responsibility for the site at the time of the disaster. Instead, the court held that the subgrantee's "breaches of and failure to perform its contractual and legal obligations resulted in and caused extra costs and damages."

The unambiguous provisions of the contract documents cited above relating to substantial completion and acceptance of the work and the contractor's responsibility for flood damage establish that, at the time of the disaster, we do not find it necessary to disallow funding for the work covered under DSR 27421. This decision is based on the fact that at the time the DSR was prepared, it reflected the reasonable good faith efforts of FEMA to distinguish between work that was completed or substantially completed on the basis of a site inspection. In this regard, it is noted that the 54-in. watermain was physically complete at the time of the disaster. The Stafford Act provides, however, that for facilities under construction, legal responsibility should be determined on the basis of a review of the contract documents, not on the (sole) basis of a site inspection.

In summary, the Improvement Contract establishes that the contractor maintained sole responsibility for the work site prior to " Substantial Completion," as defined in the Improvement Contract. According to a contract change order (number six), Substantial Completion occurred on June 28, 1993. Thus, at the time of the disaster the subgrantee was not legally responsible for the worksite or the facilities that were the subject of the Improvement Contract. Costs associated with the replacement of the backfill stockpile and dewatering are not, therefore, eligible for funding.

Third Crew

The subgrantee has requested a portion of the costs associated with the court order that it must pay the contractor for that the contractor incurred when it brought to the site a third work crew. To be eligible for assistance, 44 CFR 206.223 (a)(1) requires that work be required as a result of the major disaster event. The third crew was brought on by the contractor before the disaster (December 1992) when the subgrantee did not grant the contractor and extension of time within which to complete the Improvement Contract and increased the amount of its retainage in anticipation of being owed liquidated damages by the contractor. Although some of the work efforts of the third crew may have been associated with disaster-related repairs, the fact remains that the decision to add this crew was due to pre-disaster work load issues, and not directly attributed to the disaster event. For this reasonor'se.
CONCLUSION
The Improvement Contract does not establish the subgrantee's legal responsibility for the work site at the time of the disaster and funding requested for costs associated with the lost backfill stockpile and dewatering are not eligible under 44 CFR 206.223(a)(3). Further, the costs incurred by the subgrantee's contractor for a third work crew are not related to the performance of eligible disaster work and are not, therefore, eligible for funding under 44 CFR 206.223(a)(1).