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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