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Audit Report Number DD-07-04

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-1379-DR
ApplicantCity of Houston
Appeal TypeSecond
PA ID#201-35000-00
PW ID#19, 55, 759, 761 & 960
Date Signed2010-03-29T04:00:00

Citation:          FEMA-1379-DR-TX, City of Houston, Audit Report Number DD-07-04, Project Worksheets (PW) 19, 55, 759, 761 and 960

Cross-
References:
     Documentation, Equipment Rates, Labor Costs, Project  Management Costs

Summary:        Due to flooding from Tropical Storm Allison in June of 2001, the Applicant performed debris removal operations, emergency protective measures, and search and rescue operations.  Following an Office of Inspector General’s (OIG) audit report, FEMA deobligated $2,500,302 based on the OIG’s findings and recommendations.  The Applicant submitted its first appeal to the State’s Division of Emergency Management (State) on July 20, 2007, requesting the reobligation of $2,497,310.  The Appeal was forwarded to FEMA on September 27, 2007.  FEMA’s Regional Administrator denied the first appeal on November 1, 2007, stating that the Applicant did not provide sufficient documentation to evaluate the appeal.  The Applicant submitted its second appeal to the State on January 14, 2008.  The Applicant’s second appeal requests $2,419,141 arguing that the Region made incorrect decisions to deobligate funding based on the OIG audit. 

Issue:          Did the Applicant provide sufficient documentation to support funding the questioned costs? 

Finding:        The Applicant provided sufficient documentation to support reimbursement of $1,320,007 of the force account labor and equipment costs and contract costs.  However, the Applicant did not provide sufficient documentation to support the eligibility of the remaining $1,099,134.

Rationale:       Sections 324, 403, 406, 407 and 423 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act: 44 CFR §§13.36, Procurement, 206.224, Debris Removal 206.225, Emergency Work 206.226, Restoration of damaged facilities and 206.228 Allowable costs; Response and Recovery Policy 9525.6, Project Supervision and Management Costs of Subgrantees; and Response and Recovery Policy 9525.7, Labor Costs-Emergency Work.           

      

 

Appeal Letter

March 29, 2010

 

 

 

Philip Anders

State Coordinating Officer

Governor’s Division of Emergency Management

5425 Polk Street, Mail Slot O

Houston, Texas 77023-1423

 

Re:  Second Appeal, City of Houston, PA ID 201-35000-00, Audit Report Number DD-07-04

       FEMA-1379-DR-TX, Project Worksheets (PW) 19, 55, 759, 761, and 960

 

Dear Mr. Anders:

This letter is in response to your letter dated March 5, 2008, which transmitted the referenced second appeal on behalf of the City of Houston (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s denial of $2,419,141 in funding related to the PWs and audit report identified above.

As explained in the enclosed analysis, I am partially approving the Applicant’s appeal for $1,320,007.  By copy of this letter, I am requesting that the Acting 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/

Elizabeth A. Zimmerman

Assistant Administrator

Recovery Directorate

Enclosure

cc:  Tony Russell

       Regional Administrator

       FEMA Region VI

Appeal Analysis

Background

Between June 5 and 9, 2001, Tropical Storm Allison produced heavy rains and flooding in the Houston area.  Following the flooding, the City of Houston’s (Applicant) Solid Waste Department performed debris removal operations, its Convention and Entertainment Facilities Department performed emergency protective measures within the City’s Theater District Parking Garages, and its Fire Department performed search and rescue operations throughout the City.  FEMA documented eligible work and costs for these activities on PWs 19, 55, 759, 761, and 960.  The Department of Homeland Security (DHS) Office of Inspector General (OIG) issued Audit Report DD-07-04 on January 10, 2007, which questioned $2,737,128 associated with eight large emergency work projects.  The questioned costs consisted of unsupported contract costs ($539,794), ineligible contract costs ($312,506), duplicate contract costs ($208,291), unsupported force account costs ($1,602,416), duplicate force account costs ($194,445) ineligible force account costs ($6,388) and other reductions ($126,712).  The Solid Waste Department accounted for $1,097,486 of the questioned costs (PWs 19, 20, 960, and 1151); the Convention and Entertainment Department accounted for $961,541  (PWs 730, 759, and 761); and the Fire Department accounted for $678,101 (PW 55).  FEMA subsequently deobligated $2,497,310 of the questioned costs on May 7, 2007.  The Regional Administrator sustained the deobligation on first appeal on November 1, 2007.

Second Appeal

The State forwarded the Applicant’s second appeal, dated January 14, 2008, to FEMA on March 5, 2008.  The Applicant appealed FEMA’s deobligation of funds in PWs 19, 55, 759, 761 and 960.  The Applicant asserted that FEMA erred in its determinations concerning the deobligations.  The Applicant submitted over 600 pages of documentation and over 1,000 pages of information on a compact disc to support its request.  The documentation included contracts, time sheets, equipment logs, and other documents.

FEMA reviewed the Applicant’s documentation and summarizes its findings below.

Discussion 

Project Worksheet 19

The work described in PW 19 relates to the Applicant’s contract with Omni Construction (“Omni”) to remove debris from the City after Tropical Storm Allison.  The OIG audit report questioned $60,986 for mobilization and demobilization costs under the Omni contract, which was in place before the storm occurred.  Paragraph IV (B) of the contract calls for annual adjustments in the unit cost under the contract “by the lesser of 5 percent or the net annual change in the Construction Cost Index as published in the Engineering News Record for the current year.”  In addition, Part 3.01 of Exhibit A of the Omni contract states, “The unit price per cubic yard must include all subsidiary costs, including mobilization and demobilization….”

The OIG audit report noted that pursuant to Part 3.01 of Exhibit A of the Omni contract, mobilization and demobilization costs were not eligible for reimbursement; therefore, it questioned $60,986 that the Applicant paid for this item of work.  The Applicant agrees in the second appeal that costs for mobilization and demobilization are not eligible for reimbursement, but it notes that only $17,908 of the questioned costs relate to mobilization and demobilization.  The balance of the questioned costs under PW 19, which amounts to $43,078, represents the 2.33 percent cost adjustment under paragraph IV (B) of the Omni contract.  The Applicant has documented that $43,078 of the questioned costs is an appropriate and reasonable contract cost adjustment.  Therefore, FEMA will re-obligate $43,078.

Project Worksheet 960

The work described in PW 960 relates to the Applicant’s force account debris removal claim.  The OIG audit report determined that the Applicant commingled the costs for the removal of storm debris with regularly scheduled garbage pickup.  The questioned costs consisted of unsupported costs ($924,315), duplicate costs ($194,445), and ineligible costs ($6,388).  The Applicant appealed $1,017,091 of the questioned costs.

The Applicant makes several arguments in response to the OIG determinations relating to PW 960.  First, it argues that it did not commingle the costs of its equipment and did not use its residential garbage trucks during the disaster-related debris removal operation.  The Applicant also argues that it documented the challenged labor and equipment expenses.  Finally, the Applicant argues that a portion of the amount FEMA deobligated relates to employees and equipment that were involved in the debris removal operations, in spite of the OIG’s determination that the associated expenses were ineligible administrative costs.   

FEMA deobligated $822,977 of the City’s costs of force account equipment usage and overtime labor relating to PW 960.  The deobligated overtime labor expenses related to the City’s force account crews other than heavy equipment drivers and operators, i.e., the laborers who loaded the heavy equipment.  The Applicant included with its appeal a sample Force Account Equipment Summary Record and sample Force Account Labor Records and a compact disc it contends contained information that documents the use of its force account equipment and overtime hours of its debris removal laborers.  The compact disc contains information that does not appear to be related to PW 960; therefore, it does not document the questioned force account equipment and labor reimbursement requests.  As a result, this portion of the Applicant’s appeal is denied.

The OIG questioned $194,114 in costs based on its determination that some labor and equipment costs were administrative expenses.  Of this amount, $179,124 represents salaries paid to employees whose titles suggested to the OIG that the employees performed administrative work covered by the statutory administrative allowance authorized by subsection 406(f) of the Stafford Act.  Pursuant to Paragraph 7(A) of Response and Recovery Policy No. 9525.6, Project Supervision and Management Costs of Subgrantees, dated April 22, 2001,“Regular-time of a subgrantee’s employees for direct supervision of force account employees performing eligible emergency work generally is not an eligible cost.”  The Applicant contends that the salaries of its “District Supervisors” and retired employees who the Applicant rehired temporarily after the storm to help with the debris collection efforts are eligible, regardless of their current or former titles, because they were integral parts of the debris removal crews. 

The OIG also questioned $14,990 in PW 960 for equipment costs associated with the supervision of debris removal operations in the field.  The Applicant contends that these questioned equipment costs relate to light vehicles used in the field by supervisors who were participating in debris removal activities.  The Applicant argues that because the equipment was actually used on the debris removal projects, those costs are eligible for reimbursement.  The Applicant provided the pertinent time sheets and equipment documentation to establish that the employees performed debris removal activities with applicant-owned vehicles.  Therefore, the questioned costs are eligible, and FEMA will re-obligate $194,114.

Project Worksheets 759 and 761

PWs 759 and 761 relate to emergency protective measures performed at two City-owned Theater District underground parking garages and tunnels that connected the garages.  There were numerous contractors who performed work covered by PWs 759 and 761, and the OIG audit report focused on the City’s four main contractors: 1) Eagle Environmental (“Eagle”), 2) Garner Environmental (“Garner”), 3) Gilbane, and 4) Siemens.

Based on the recommendations contained in the OIG audit report, FEMA deobligated $524,715 under PW 759 and $200,000 under PW 761.  Of this amount, $155,493 was for costs Garner incurred for decontaminating flooded automobiles before removing them from the garage after the storm.  The questioned costs related to towing approximately 150 cars from the garages to the garage ramp and then washing mud and contaminants from the cars before towing them offsite.  The OIG’s audit report stated, “the work was outside the scope of eligible work as described on the project worksheets.”  The Applicant argues that Garner performed the questioned work to ensure that contaminants from the garages were contained and not spread throughout the city.  The Applicant also argues that it was necessary to remove the vehicles in order to clean the garages and the cost of this work was a necessary component of the contract.

FEMA prepared PW 759 to cover the costs of removing silt, mud and other debris from the garages.  Although the PW did not specifically refer to cleaning out automobiles, the contaminated vehicles had to be removed from the garages before the garages could be cleaned.  It is also clear that the vehicles had to be cleaned before they were moved offsite because otherwise contaminates would have spread to the relocated sites.  These types of expenses are eligible emergency protective measures under section 403 of the Stafford Act.  Therefore, the $155,493 of costs for this work is eligible.

FEMA deobligated $29,624 in questioned costs that the OIG characterized as “Rescue Standby” in the Garner invoices and an additional $6,675 of standby expenses that were billed by Eagle.  The Applicant contends the workers at issue in the context of these two sets of questioned costs were in fact implementing the safety plan contained in PW 759.  The Applicant’s appeal notes that,

The PW 759 scope of work required that a safety plan be provided and that,

“the safety plan shall be site-specific for confined space access”….the City

Fire Marshal determined that the garages became “confined spaces” due to

the lack of ventilation.  Upon that determination, both the Fire Code and

OSHA required (the City) to develop a plan and a means to evacuate any personnel who might be overcome by fumes or lack of oxygen in the

confined space.  The means chosen was “Rescue Standby” which was

the term used for a certified group of confined space rescue personnel

who were required to be on-site during all working hours.

In summary, the Applicant argues that the salaries of the Garner and Eagle workers who were at the work site in the event that a need might arise for evacuation were actually working at the site and are eligible for reimbursement pursuant to Paragraph 7(F) of Response and Recovery Policy 9525.7, Labor Costs-Emergency Work, dated July 20, 2000.  Based on the information provided, the questioned expenses are eligible for reimbursement and FEMA will re-obligate $36,299.

 

The OIG also questioned $15,148 for subcontractor costs that Garner billed and $5,135 that Eagle billed based on a determination that these costs were part of a cost plus a percentage of costs contracts.  FEMA’s regulations at 44 CFR § 13.36 Procurement, prohibit the use of cost plus a percentage of costs contracts.  The Applicant argues that it had a pre-existing contract with Garner and performed the work pursuant to that contract that was, “properly awarded according to City guidelines and its validity was not disputed when the contract was discussed with FEMA….FEMA in its PWs concluded:  ‘A review of the contractor’s costs has been performed and (those costs) are considered reasonable….”

The OIG is correct that cost plus a percentage of costs contracts are prohibited.  However, the enforcement mechanism is to limit reimbursement to reasonable costs, rather than to deny reimbursement altogether.  FEMA concluded in PW 759 that the questioned costs were reasonable.  Therefore, FEMA will reobligate $15,148 associated with the subcontractor costs and the $5,135 Eagle costs. 

The OIG questioned an additional $44,305 of Eagle’s contract costs.  Of that amount, the Applicant documents $43,805 in costs that it is requesting for re-obligation.  The OIG audit report notes that the questioned costs duplicated other costs claimed under the Eagle contract.  The Applicant argues with respect to $26,428 of the purported duplicate costs that the Eagle proposal was for work that was expected to take 35 days to complete.  The City’s contract proposals with Eagle obliged the City to pay more for Eagle’s work if the work took longer than 35 days to complete.  In fact, the work took 45 days to complete, and the City contends that the $26,428 represents its payment for the extra days of work.  This argument is meritorious, and FEMA will re-obligate $26,428.  

The Eagle proposal also called for reimbursement of $10,000 for its mobilization and demobilization costs.  Therefore, FEMA will re-obligate $10,000.  In addition, OIG questioned miscellaneous office items valued at $7,377 and disallowed by FEMA.  This cost is not a duplicate expense because it is consistent with the City’s contract.  Therefore, FEMA will re-obligate $7,377.

A third contractor, Gilbane, billed the City $305,000 for its costs to hot-water-power-wash the garages.  The Applicant contracted with Eagle to wash out the garages for $1.2 million. The OIG questioned the $305,000 that Gilbane charged because it determined that the Eagle contract covered all of the costs to clean out the garages, implicitly including any hot–water-power-wash that might be necessary.  Of the total, $200,000 was included under PW 761 and the remaining $105,000 was included under PW 759.

The Applicant argues that the Eagle proposal did not specifically provide for a hot-water-power-wash of the garage and neither the City nor the contractor anticipated that there would be a need for such a power wash.  Nevertheless, the Eagle contract did not obligate the City to pay Eagle more than $1.2 million, even if a hot-water-power-wash became necessary.  Therefore, the $305,000 the Applicant paid Gilbane is not eligible for reimbursement because it duplicates the scope of work contained on the Eagle contract.  This portion of the appeal is denied.

Finally, the OIG questioned $99,505 that Siemens billed the City.  FEMA deobligated this amount for work performed by Siemens that was beyond the scope of work for PWs 759 and 761.  The PWs related to emergency protective measures, while the questioned costs were for permanent work involving the replacement of damaged carpets and ductwork.  The Applicant acknowledges that the questioned work was categorized incorrectly as a debris removal expense, but was in fact a Category E permanent repair.  These expenses are eligible for assistance under section 406 of the Stafford Act.  Therefore, FEMA will reobligate $99,505 under a new project worksheet under Category E. 

Finally, the Applicant appealed FEMA’s deobligation of $103,000.  The OIG determined that the statutory administrative allowance established by subsection 406(f) of the Stafford Act covered this cost.  The Applicant argues subsection 205(e) of the Disaster Mitigation Act of 2000, P.L. 106-390, and repealed subsection 406(f) of the Stafford Act on October 30, 2000, and as a result of the repeal it is eligible for payment of the $103,000.  The costs in question are for contract support for oversight of the clean up and repair activities in the garages.  These are direct project costs and eligible for reimbursement.  FEMA will reobligate $103,000.

Project Worksheet 55

The work in PW 55 relates to force account search and rescue operations that the Applicant’s Fire Department performed in the immediate aftermath of Tropical Storm Allison.  The amount of the PW was $685,218, and the IG questioned $678,101 of that amount based on its determination that the claimed overtime was not incurred in the performance of disaster-related work.

The Applicant submitted substantial documentation with its second appeal to support its contention that most of the Fire Department’s overtime costs that it incurred in the immediate aftermath of Tropical Storm Allison directly related to the storm.  The documentation establishes that $624,430 of the questioned costs relating to PW 55 is eligible for reimbursement.  The balance of the Applicant’s claim ($53,671) is not eligible for reimbursement because it relates to the salaries of employees whose work is not eligible pursuant to Response and Recovery Policy 9526.6, Project Supervision and Management Costs of Subgrantees, April 22, 2001.  In addition, the Applicant’s documentation suggested that several employees worked more than 24 hours in a single day and two employees appeared to have worked two consecutive 24 hour days.

The following table summarizes the findings for each of the items discussed above.

PW

Description

Amount Appealed ($)

Eligible Amount($)

19

Omni Debris Collection

43,078

43,078

960

Force Account Labor and Equipment

1,017,091

194,114

759

Eagle/Garner/Gilbane/Siemens

480,871

458,385

761

Hot Pressure Wash

200,000

0

55

Fire Department Rescue Overtime

678,101

624,430

 

Total

$2,419,141

$1,320,007

Conclusion

The Applicant submitted substantial documentation in support of its second appeal.  Based on the supplemental documentation and the terms of the Applicant’s contracts with its contractors, the appeal is partially granted.  FEMA will reobligate $1,320,007 based upon this determination.