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Debris Removal-Reasonable Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1603-DR
ApplicantSt. Bernard's Parish
Appeal TypeSecond
PA ID#087-99087-00
PW ID#Project Worksheets 2050, 3078, 3113, and 3657
Date Signed2008-10-21T00:00:00

Citation:

FEMA-1603-DR-LA, St. Bernard Parish, Debris Removal, PWs 2050, 3078, 3112, and 3657

Summary:

Following Hurricane Katrina, St. Bernard Parish (Applicant) entered into a non-competitive, sole-source debris removal contract.  In late October 2005, the Applicant solicited cometitive proposals and awarded the contract to the same contractor in January 2006.  FEMA prepared four PWs to fund the eligible debris removal work performed underh the two contracts.  Prior to obligating the PWs, FEMa determined that some of the unit costs contained in the contracts were excessive and unreasonable.  FEMA reduced the eligible costs associated with recovering Freon, managing Temporary Debris Storage and Reduction Sites, and removing white goods, hazardous limbs, and cars and boats.

In the first appeal, the Applicant asserted that it acted prudently under the circumstances prevailing at the time it procured both contracts; therefore, it complied with OMB Circular A-87 to establish reasonable costs.  The Applicant contended that FEMA ignored debris removal prices in surrounding parishes, historical debris removal costs, and prices paid by the U.S. Army Corps of Engineers.  The FEMA Regional Administrator's response acknowledged that the PWs did not clearly state the rationale behind the reduced costs and adjusted the reimbursement rates based on the maximum prices FEMA had obligated for eligible work in Louisiana.  FEMA's first appeal determination increased the eligible unit price of white goods, Freon recovery, and TDSRS management, but decreased the eligible unit price for hazardous limbs and car and boat removal.  The Appliclant's second appeal reiterates the arguments of the first appeal and provides additional documentation to support its claim that its contract costs

Issues:

1. Did the Applicant act prudently when it procured both contracts?

2. Has the Applicant established that all of its costs associated with the initial sole source non-competitive contract are reasonable?

3. Has the Applicant established the competitive contract costs are reasonable?
 

Findings:

1. Yes.

2. No.

3. Yes.

Rationale:

44 CFR §13.36

Appeal Letter

October 21, 2008

Colonel Thomas Kirkpatrick (Retired)
State Coordinating Officer
Governor’s Office of Homeland Security
and Emergency Preparedness
415 North 15th Street
Baton Rouge, LA 70802

Re: Second Appeal - St. Bernard Parish, PA ID 087-99087-00, Debris Removal-Reasonable Cost, FEMA-1603-DR-LA, Project Worksheets (PWs) 2050, 3078, 3112, and 3657

Dear Colonel Kirkpatrick:

This is in response to your letter dated December 14, 2007, which transmitted the referenced second appeals on behalf of St. Bernard Parish (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency's (FEMA) partial denial of its first appeal for increased reimbursement rates for debris removal contract costs. 

For reasons explained in the enclosed analysis, I am partially approving the appeal.  By copy of this letter, I request that the Regional Administrator take appropriate action to implement this decision.

Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 CFR §206.206.

Sincerely,

/s/

Carlos J. Castillo
Assistant Administrator
Disaster Assistance Directorate

Enclosure

cc: William Peterson
Regional Administrator
FEMA Region VI

 Jim Stark

 Director

 Louisiana Transitional Recovery Office


 

Appeal Analysis

SECOND APPEAL ANALYSIS
FEMA-1603-DR-LA
St. Bernard Parish, PA ID 087-99087-00
Debris Removal Reasonable Costs, Project Worksheets (PWs) 2050, 3078, 3112, and 3657

 

Background:

As a result of Hurricane Katrina in August 29, 2005, large quantities of disaster-related debris were deposited on public and private property in St. Bernard Parish (Applicant).  On September 3, 2005, the Applicant entered into a non-competitive debris removal contract with the Unified Recovery Group (URG).  URG consisted of four companies that had previously entered into separate unsolicited, non-competitive contracts with the Parish.  The scope of work for this contract included the removal of vegetative and construction and demolition debris, white goods, silt, hazardous trees, hazardous limbs priced on a per-cut basis, and cars and boats.  It also included management of temporary debris storage and reduction sites (TDSRS) and recovery of Freon. 

In late October 2005, the Applicant solicited competitive proposals to perform the debris removal work in the parish.  Twelve debris removal contractors responded to the solicitation, and on December 9, 2005, the Applicant awarded the contract to URG based on the evaluation criteria published with the request for proposals.  Although URG was not the lowest bidder, the Applicant determined that URG provided the best value considering the evaluation criteria which included past accomplishments, technical capabilities, and reasonableness of cost.  Reasonableness of cost was weighted 15 percent for the proposal evaluation.  The contract went into effect in January 2006.

FEMA prepared four Project Worksheets (PWs) - 2050, 3078, 3112, and 3657 - to document and fund eligible debris removal work performed under the two contracts that the Applicant awarded to URG.  FEMA prepared PW 2050 to cover eligible costs associated with the first non-competitive contract awarded to URG on September 3, 2005, and PW 3078 to cover eligible costs associated with the second contract awarded on December 9, 2005.  FEMA prepared PW 3112 to cover eligible costs incurred between December 24, 2005, and January 20, 2006, for work performed under both URG contracts, and PW 3657 to cover eligible costs incurred between January 23 and 29, 2006, for work performed under the second contract.

Prior to obligating the PWs, FEMA determined that some of the unit costs contained in the contracts were excessive and unreasonable.  FEMA reduced the eligible costs associated with recovering Freon, managing TDSRS, and removing white goods, hazardous limbs, and cars and boats because it determined that the unit costs requested for these items were not reasonable.  FEMA adjusted the unit costs for each item of work based on an average of cost for each line item taken from the 12 bids received for the second contract solicitation, excluding the two highest and two lowest bids.  The table below shows the reductions FEMA made to the contract line items associated with both contracts.   

Contract line item

September 3, 2005 contract unit price

December 9, 2005 contract unit price

FEMA’s reduced unit price applied to PWs 2050, 3078, 3112, and 3657

 
 

White goods

$150.00 each

$75.00

$45.00

 

Freon recovery

$250.00 each

$35.00

$35.00

 

TDSRS Management

$6.00 per c.y.

$2.90

$1.70

 

Hanging Limbs

 

 

 

 

2" - 4"

$125.00 each

$125.00

$75.00

 

5"-12"

$200.00 each

$200.00

$100.00

 

>12"

$250.00 each

$250.00

$125.00

 

Car removal

$1,000.00 each

 

$500.00

 

Boat Removal

$1,000.00 each

 

$500.00

 

First Appeal

The Applicant submitted three first appeals challenging FEMA’s reductions to the established contract unit prices.  The State forwarded the appeals of the unit price reductions made to PWs 3112 and 3657 to FEMA on April 17 and 18, 2006, respectively, and to PWs 2050 and 3078 on July 29, 2006.  Because the appeals only challenge the unit price reductions and not the eligibility of debris removal work performed or specific scope of work, they did not include the total amount being appealed. 

In all three first appeals, the Applicant claimed that both contracts were procured in compliance with 44 CFR §13.36 and with Louisiana Public Bid Law.  The Applicant stated that 44 CFR §13.36(d)(4) permits noncompetitive proposals when the public exigency or emergency does not permit delays resulting from competitive solicitation.  The Applicant also asserted that the second contract was properly procured by competitive proposals as outlined by 44 CFR §13.36(d)(3).  It also claimed that an opinion from the Louisiana State Attorney General’s Office verified that both contracts were properly procured in accordance with State law.   

The Applicant also asserted that it acted prudently under the circumstances prevailing at the time it procured both contracts; therefore, it complied with OMB Circular A-87 to establish reasonable costs.  The Applicant contended that FEMA ignored pertinent data, including debris removal prices in surrounding parishes, historical debris removal costs, and debris removal prices paid by the U.S. Army Corps of Engineers (USACE), when it reduced the eligible unit costs in PWs 2050, 3078, 3112, and 3657.      

The FEMA Regional Administrator responded to the first appeal of PWs 2050 and 3078 on June 11, 2007, and to the first appeal of PWs 3112 and 3657 on July 25, 2007.  FEMA maintained that the Applicant had failed to establish reasonable prices for some of the line items in the contracts.  FEMA acknowledged that the PWs that contained the reductions did not clearly state the rationale behind the reduced costs.  It sought to further determine reasonable costs for debris removal and disposal activities performed in Louisiana in the aftermath of Hurricane Katrina by conducting a broad cost analysis.  FEMA reviewed all reimbursed contract costs for comparable services in Louisiana for after Hurricane Katrina and calculated a reasonable reimbursement unit price for each item of work.  FEMA obtained additional cost information from price data received from three USACE contractors and included that information in the analysis.  The reasonable unit costs FEMA established through this cost analysis, known as the Reasonable Cost Matrix, identified the maximum prices FEMA had obligated for eligible work in the state of Louisiana following Hurricane Katrina.  The table below shows the reasonable unit cost determinations FEMA made in the first appeal based on FEMA’s Reasonable Cost Matrix.

 

Contract line items

September 3, 2005 Contract Unit Cost

1st appeal reasonable unit price determination, based on cost matrix

 

December 9, 2005 Contract Unit Cost

1st appeal reasonable unit price determination, based on cost matrix

 

White Goods

$150.00 each

$49.00

 

$75.00

$49.00

Freon recovery

$250.00 each

$42.13

 

$35.00

$35.00

TDSRS Management

$6.00 per c.y.

$2.94

 

$2.90

$2.90

Hanging Limbs

 

$215 per tree

 

 

$215 per tree

2" - 4"

$125.00 each

N/A

 

$125.00

N/A

5"-12"

$200.00 each

N/A

 

$200.00

N/A

>12"

$250.00 each

N/A

 

$250.00

N/A

Car removal

$1,000.00 each

$36.05

 

 

 

Boat Removal

$1,000.00 each

$36.05

 

 

 

FEMA used the Applicant’s contract prices to establish eligible reimbursement levels where unit costs were less than or equal to the reasonable costs established by the cost matrix analysis.  In instances where the contract prices exceeded FEMA’s reasonable unit costs, FEMA used reasonable unit costs from the cost analysis.  Based on this methodology, FEMA partially approved the Applicant’s first appeal.  FEMA’s first appeal determination increased the eligible unit price of white goods, Freon recovery, and TDSRS management, but decreased the eligible unit price for hazardous limbs and car and boat removal.  Notably, FEMA’s reasonable unit cost analysis changed the unit price for removing hazardous limbs from a per-cut to a per-tree unit-price basis.

Second Appeal

The Applicant submitted one second appeal for PWs 2050, 3078, 3112, and 3657, to the State on October 16, 2007.  The State forwarded the appeal to FEMA on December 14, 2007.  Because the appeal only challenges the unit price reductions and not the eligibility of debris removal work performed or a specific scope of work, it does not include the total amount being appealed. 

The Applicant resubmitted information presented in the first appeal and presented additional information to substantiate its claim that its contract unit prices are reasonable.  The primary arguments that the Applicant makes in its second appeal are:  (1) the Applicant procured both contracts in compliance with 44 CFR §13.36; (2) the Applicant acted prudently under the prevailing circumstances when both contracts were procured; therefore, the Applicant met the reasonable cost criteria established by OMB Circular A-87; and (3) FEMA arbitrarily and improperly reduced unit prices associated with both contracts.

The Applicant also submitted three sets of supplemental information in letters dated July 2, 9, and 17, 2008.  The first supplemental argues that FEMA’s Reasonable Cost Matrix contains inaccurate data and uses a flawed methodology, and thus should not be utilized.  The second supplemental includes several analyses to substantiate the Applicant’s claim that its individual contract unit prices are reasonable and that its overall contract cost is reasonable and comparable to others FEMA has reimbursed in the past.  The third supplemental contains a ruling from the State of Louisiana Attorney General that hurricane debris management and removal contracts are not subject to the requirements of the Louisiana Public Bid Law.  The Applicant claims that this opinion bolsters the claim that the contracts were properly procured under Louisiana law. 

Discussion:

The Director of the Public Assistance Division and staff met with members of St. Bernard Parish, URG, and its legal representatives on July 10, 2008, in Washington, D.C., to discuss the appeal.  FEMA considered the information the Applicant presented during that meeting in the evaluation of the appeal.

FEMA’s responses to the primary issues submitted in the Applicant’s second appeal are presented below.

Issue # 1:  Did the Applicant procure both contracts in compliance with 44 CFR §13.36?

FEMA regulation 44 CFR §13.36(d)(4)(i)(B) states, “Procurement 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…the public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation.”  The Applicant has demonstrated that exigent circumstances resulting from Hurricane Katrina justify the noncompetitive bid solicitation for the first contract that was procured on September 3, 2005.  The Applicant also properly procured the second contract in compliance with 44 CFR §13.36(d)(3).  The Applicant has demonstrated that the Request for Proposal was properly publicized and identified all evaluation criteria. 

Issue # 2:  Were the contract costs reasonable pursuant to OMB Circular A-87?  

First Contract: PWs 2050 and 3112

The Applicant claims that it acted prudently under the prevailing circumstances when it solicited the first noncompetitively bid contract; therefore, it met the reasonable cost criteria established by OMB Circular A-87.  OMB Circular A-87, Cost Principles for State, Local and Tribal Governments, states 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.”  44 CFR §13.36(f)(1) states, “…A price analysis will be used in all other instances to determine the reasonableness of the proposed contract price.”  The Applicant did not perform a price analysis to determine if the cost of the sole source contract was reasonable.  Therefore, FEMA must determine reasonable cost rates for the work performed.  Accordingly, an analysis addressing the reasonableness of each unit cost item under appeal is presented below.  The analysis considers information that the Applicant submitted in both appeals, including information from the Applicant’s competitively bid procurement process.  This analysis does not incorporate data from FEMA’s Reasonable Cost Matrix.  Determinations on eligible unit prices are for each line item are presented and will be applied to PWs 2050 and 3112.

White Goods:  The Applicant contracted a $150 per-unit price for white goods removal in the first contract on September 3, 2005, and a $75 per-unit price in the second contract on December 9, 2005.  In the first appeal, FEMA determined that a $49 per-unit price was a reasonable price for this activity.  The supplemental information that the Applicant submitted notes that the first contract price included additional charges including refrigerator cleaning and re-handling fees for items that were taken to TDSRS and transferred a second time for final disposition; therefore, FEMA should incorporate these costs into its calculations.  Based on a review of the information submitted, the Applicant has demonstrated that the price ($75 per unit) it obtained from the competitive procurement of the second contract is reasonable.  Thus, FEMA has determined that $75 per unit for white goods removal is a reasonable price for PWs 2050 and 3112.   

Freon Recovery:  The Applicant contracted a $250 per-unit price for Freon recovery in the first contract on September 3, 2005, and a $35 per-unit price in the second contract on December 9, 2005.  In the first appeal, FEMA determined that a $42.13 per-unit price was reasonable.  The Applicant asserts that the $250 price is justified because the price applies to both moveable units (refrigerators, window unit air conditioners, etc.) and immoveable units (primarily central air conditioning units), and each type required different levels of work and in some cases transportation to the location of the unit.  Also, the Applicant claims that the highly technical requirements of the job and potential shortage of workers early in the disaster necessitated a price that could enable the Applicant to attract technicians from around the State.  However, the Applicant did not provide any additional information to substantiate that the $250 unit cost was reasonable when it contracted for a $35 unit price three months later.  It also did not provide any documentation of comparable prices of Freon removal work that was performed in surrounding parishes with similar conditions or any historic price information.  Based on a review the information submitted, the Applicant has demonstrated the cost ($35 per unit) it obtained from the competitive procurement process for the second contract is reasonable.  Thus, FEMA has determined that the $35 unit price for Freon removal is a reasonable price for PWs 2050 and 3112.

TDSRS Management:    The Applicant contracted a $6 per-cubic-yard price for TDSRS management in the first contract on September 3, 2005, and a $2.90 per cubic yard price in the second contract on December 9, 2005.  In the first appeal, FEMA determined that a unit price $2.94 per cubic yard was reasonable.  The Applicant’s second appeal supplement noted that FEMA’s cost matrix allows for $8.50 per cubic yard for TDSRS site management with segregation.  The Applicant asserted that FEMA’s first appeal determination fails to consider that the first contract scope of work includes costs for material segregation.  The fact that the Applicant performed segregation is documented in an affidavit provided by the Applicant.  The Applicant also noted that the combined costs of TDSRS management and segregation were eligible and higher than $6 in other areas in the State of Louisiana.  Based on review of the information submitted, FEMA has determined that the full contract price of $6 per cubic yard for TDSRS management is reasonable for this activity in PWs 2050 and 3112.   

Hazardous Limbs: The Applicant contracted for the following unit prices for hazardous limbs in the contract procured on September 3, 2005:  $125 for hazardous limbs two to four inches in diameter; $200 for hazardous limbs five to 12 inches in diameter; and $250 for hazardous limbs greater than 12 inches in diameter.  The Applicant obtained the same unit prices for each size of hazardous limb in the contract procured on December 9, 2005.  In the first appeal, FEMA determined that a unit cost of $215 per tree was reasonable.  Based on a review of the information that the Applicant submitted and on an evaluation of work performed in other jurisdictions in the state, FEMA has determined that the Applicant’s contract unit prices and pricing structure for removal of hazardous limbs on a per-cut basis is reasonable.  Thus, the Applicant’s original unit prices of $125 for hazardous limbs two to four inches in diameter, $200 for hazardous limbs five to 12 inches in diameter, and $250 for hazardous limbs greater than 12 inches in diameter are eligible for PWs 2050 and 3112.

Car and Boat Removal:  The Applicant contracted for  a $1,000 per-unit price for car and boat removal in the first contract on September 3, 2005.  The Applicant did not bid this item of work for the second contract.  In the first appeal, FEMA determined that a unit price of $36.05 was reasonable.  The Applicant submitted an affidavit to show that the “the Parish and URG verbally agreed to delete the disposal portion of URG’s responsibility and to reduce the price accordingly to $500” per unit.  This unit price also corresponds to the $500 per unit price that was written into the first versions of PWs 2050 and 3112.  Additionally, an evaluation of work performed by other applicants in the State shows that eligible unit prices in some cases approached $500 per unit, depending on size.  Accordingly, FEMA has determined that a unit price of $500 is reasonable for removing cars and boats for PWs 2050 and 3112.   

Second Contract: PWs 3028, 3112, and 3657

The Applicant has demonstrated that it acted prudently in procuring the second contract on a competitive proposal basis by soliciting bids from 12 debris removal contractors, negotiating lower unit price line items, and awarding the contract based on advertised selection criteria.  Additionally, the Applicant has demonstrated that the contract unit prices included in the second contract and covered in PWs 3078, 3112, and 3657 are commensurate with similar work performed in other areas in the State and affected by Hurricane Katrina.  Accordingly, all contract unit prices associated with PWs 3078, 3112, and 3657, including the removal of hazardous limbs on a per-cut basis, are considered reasonable and are thus eligible for Public Assistance grant funding. 

Issue # 3: Did FEMA arbitrarily and improperly reduce unit prices associated with both contracts in making the first appeal determination?

No.  FEMA conducted an evaluation of similar work in the area as a method of determining eligible reasonable costs per guidance stated in the Public Assistance Guide, FEMA 322.  The Applicant has provided additional information in its second appeal to substantiate its claim that several of its original contract unit prices are reasonable, and that all of the unit prices in the competitively bid contract are reasonable.    

Conclusion:

Based on the above, the appeal is partially approved.  The table below summarizes the second appeal determinations.

 

Contract line item

September 3, 2005 contract unit price

1st appeal reasonable cost determination, based on cost matrix

2nd Appeal Determination

December 9, 2005 Contract Unit Cost

1st appeal reasonable cost determination, based on cost matrix

2nd Appeal Determination

 
 

White Goods

$150.00

$49.00

$75.00

$75.00

$49.00

$75.00

 

Freon Recovery

$250.00

$42.13

$35.00

$35.00

$35.00

$35.00

 

TDSRS Management

$6.00

$2.94

$6.00

$2.90

$2.90

$2.90

 

Hanging Limbs

 

$215 per tree

 

 

$215 per tree

 

 

2" - 4"

$125.00

N/A

$125.00

$125.00

N/A

$125.00

 

5"-12"

$200.00

N/A

$200.00

$200.00

N/A

$200.00

 

>12"

$250.00

N/A

$250.00

$250.00

N/A

$250.00

 

Car removal

$1,000.00

$36.05

$500.00

 

$36.05

 

 

Boat Removal

$1,000.00

$36.05

$500.00

 

$36.05