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Ineligible Contract - Reasonable Cost

Appeal Brief Appeal Letter

Appeal Brief

DisasterFEMA-1822-DR
ApplicantCity of New Madrid
Appeal TypeSecond
PA ID#143-52076-00
PW ID#503
Date Signed2012-05-17T04:00:00

Citation:         FEMA-1822-DR-MO, City of New Madrid, Ineligible Contract – Reasonable Cost, Subgrant Application (PW) 503

Cross-

Reference:    Ineligible Contract, Reasonable Cost

Summary:      The City of New Madrid (Applicant) expanded the scope of a previously awarded contract (piggyback contract) to perform emergency restoration of electrical systems damaged by an ice storm instead of soliciting bids for the emergency work.  FEMA limited the labor cost on PW 503 to an amount determined to be fair and reasonable.  The Regional Administrator denied the Applicant’s first appeal because the Applicant did not adequately demonstrate that it followed proper procurement procedures as required under Title 44 Code of Federal Regulations (44 CFR) §13.36 Procurement.

The Applicant submitted its first appeal on October 7, 2009, with documentation outlining the process followed to procure the original contract.  The Regional Administrator denied the appeal on April 22, 2010, stating that the Applicant did not adequately demonstrate that they followed proper procurement procedures as required by 44 CFR §13.36 Procurement.  Further, the letter stated that the labor cost submitted by the contractor was approximately twice what other contractors in the area were charging for similar work.  The Regional Administrator determined that the previous reduction of $239,870 for ineligible contract labor costs was appropriate, but ultimately increased PW 503 by $152,156 to correct calculation errors made during revision of the PW.

The Applicant’s second appeal contends that it was not attempting to include new work under an old contract, but was instead attempting to restore electricity using the contractor it had selected to upgrade the electrical system prior to the disaster.

Issues:            1.  Did the Applicant comply with minimum Federal procurement procedures?

                        2.  Were the contractor’s labor rates reasonable?

Findings:         1.  No.

                        2.  No.  Averages of labor rates for each job title that were reimbursed under approved PWs for similar work in FEMA-DR-1822-MO better represent reasonable costs than the requested rates.

Rationale:       44 CFR §13.36 Procurement; 44 CFR §13.43(a)(2) Enforcement, Remedies for noncompliance

Appeal Letter

May 17, 2012

Paul D. Parmenter

Director

Missouri Department of Public Safety

State Emergency Management Agency

2302 Militia Drive

P.O. Box 116

Jefferson City, Missouri 65102

Re:  Second Appeal–City of New Madrid PA ID 143-52076-00, Ineligible Contract - Reasonable Cost, FEMA-1822-DR-MO, Project Worksheet (PW) 503

Dear Mr. Parmenter:

This letter is in response to a letter from your office dated May 25, 2010, which transmitted the referenced second appeal on behalf of the City of New Madrid (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of contractor labor cost in the amount of $239,870.

Background

On January 26, 2009, a massive ice storm struck southeast Missouri depositing ice on electrical lines causing many electrical lines and poles to break from the extra weight.  To facilitate immediate restoration of power, the Applicant expanded the scope of a previously awarded contract with Power Line Consultants (contractor) to allow the contractor to perform emergency electrical restoration work.  FEMA prepared PW 503 to reimburse the cost of restoring electricity and bringing the electrical system back to pre-disaster condition.  FEMA determined that the Applicant expanded the scope of a previously awarded contract instead of soliciting bids for the emergency work and that the contractor’s labor cost for the eligible work was not reasonable.  Therefore, FEMA used the contractor’s pre-disaster labor rates for each job title to calculate eligible contract labor cost.  This recalculation resulted in the de-obligation of $239,870 from PW 503 for labor costs.

First Appeal

The Applicant submitted its first appeal on October 7, 2009, and the State of Missouri Emergency Management Agency (SEMA) transmitted it to FEMA on November 3, 2009.  To support its claim, the Applicant submitted documentation outlining the process followed to procure the original contract.  The Regional Administrator denied the appeal on April 22, 2010, stating that the Applicant did not demonstrate that it followed proper procurement procedures as required by Title 44 Code of Federal Regulations (44 CFR) §13.36 Procurement.  Further, the letter stated that the labor cost submitted by the contractor was approximately twice what other contractors in the area were charging for similar work.  The Regional Administrator determined that the previous reduction of $239,870 for ineligible contract labor costs was appropriate, but ultimately increased PW 503 by $152,156 to correct calculation errors made during revision of the PW.

 

Second Appeal

The Applicant submitted a second appeal on May 23, 2010 (with a supplemental letter on May 25, 2010).  In the second appeal, the Applicant requests full reimbursement of contract labor costs associated with PW 503.  The Applicant contends that for the sake of expediency, it awarded the emergency work contract to the same contractor being utilized for the properly procured citywide system upgrade contract.  SEMA submitted a proposal to average the labor rates for four contractors approved on other PWs within this same disaster and to use that rate to calculate the reasonable contract labor cost for PW 503.

Discussion

Use of a pre-existing contract by the Applicant to perform emergency restoration work may be legal under state law; however, the procurement practice, often referred to as a piggyback contract, does not meet the requirements for competition as established in 44 CFR §13.36 Procurement.  The Applicant provided no evidence to demonstrate it followed minimum Federal procurement regulations in the award of this emergency work contract.  Therefore, pursuant to 44 CFR §13.43(a)(2) Enforcement, Remedies for noncompliance, FEMA can limit the reimbursement of the Applicant’s costs to amounts determined to be reasonable.

Initially, FEMA used the contractor’s pre-disaster labor rates to calculate eligible contract labor cost.  However, average labor rates approved in neighboring jurisdictions for this disaster are more representative of the market rates at the time of the disaster.  Using the average labor rates shown in the table below, FEMA has calculated the required adjustment amount for the contract labor cost on PW 503.

Position

2nd Appeal - Avg Hourly Rate

Initial

PW 503 - Approved Hourly Rate

Hourly Rate Difference

Hours

Net

PW Adjustment

Lineman:

   Regular Time

$68.53

$48.78

$19.75

294

$5,806.50

   Overtime

$96.59

$73.17

$23.42

293

$6,862.06

   Double Time

$151.72

$97.56

$54.16

159

$8,611.44

Operator:

   Regular Time

$58.04

$35.22

$22.82

336

$7,667.52

Position

2nd Appeal - Avg Hourly Rate

Initial

PW 503 - Approved Hourly Rate

Hourly Rate Difference

Hours

Net

PW Adjustment

   Overtime

$82.27

$52.83

$29.44

309

$9,096.96

   Double Time

$125.73

$70.44

$55.29

150

$8,293.50

Groundman:

   Regular Time

$43.57

$27.86

$15.71

596

$9,363.16

   Overtime

$60.84

$41.79

$19.05

571

$10,877.55

   Double Time

$88.97

$55.72

$33.25

295

$9,808.75

Apprentice Lineman:

   Regular Time

$57.76

$41.46

$16.30

214

$3,488.20

   Overtime

$80.97