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Restoration of Power

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster4029-DR-TX
ApplicantBluebonnet Electric Cooperative
Appeal TypeSecond
PA ID#000-UJ7K3-00
PW ID#500, 602, 603, 748, and 789
Date Signed2014-05-20T00:00:00

Conclusion:  The Applicant violated federal procurement regulations by using its existing time and equipment contracts that contained no cost ceilings or not-to-exceed clauses for the restoration work. Reflective of such, FEMA’s approach of reducing the eligible funding based on the average cost-per-pole calculation computed from eight other electrical cooperatives that performed work during DR-4029-TX was appropriate.

Summary Paragraph

During the August 30, 2011 to December 31, 2011 incident period, wildfires burned, damaged, or destroyed significant portions of the Applicant’s electrical distribution system.  The Applicant used force account and contract labor to replace poles, transformers, meters, and electrical wire.  Contrary to procurement requirements, the Applicant utilized an existing time and equipment contract without cost ceilings.  Exercising its discretion to develop remedies for the Applicant’s non-compliance with procurement requirements, rather than deobligating all of the projects, FEMA determined reasonable costs by using an average cost for similar work conducted by eight other electrical cooperatives during the same wildfire.  FEMA then deobligated funding from each of the five PWs that are the subject of this appeal, totaling $612,462.93.  In its first appeal, the Applicant requested FEMA fund repairs based on actual, incurred costs and maintained that the higher rate of reimbursement was justified by the emergency nature of the work, hazardous work conditions, and its commitment to the community.  The Regional Administrator (RA) reviewed FEMA’s cost analysis and the analysis provided by the Applicant.  The RA concluded that the Applicant did not follow proper procurement procedures, specifically in regards to the time and equipment contracts, and denied the first appeal.  In the Applicant’s second appeal, the Applicant reiterates its first appeal arguments and did not submit any new documentation.

Authorities Discussed

  • 44 C.F.R. §13.36  
  • 44 C.F.R. §13.43
  • PA Guide, at 40-42, 51-53, 104

Headnotes

  • 44 C.F.R. §13.36(b)(1) provides that contracts and procurements must comply with federal, state, and local procurement standards.  Section 13.36(b)(10) provides that time and material type contracts may be used only after a determination that no other contract is suitable and the contract includes a ceiling price that the contractor exceeds at its own risk.  Finally, §13.36(c) and §13.36(d) provide that a contract should be competitively bid.
  • 44 C.F.R. §13.43 provides remedies for noncompliance, including withholding of cash payments, disallowing or denying all or part of the activity, suspending or partially suspending or terminating the award, withholding of future awards, or other legal remedies.
  • PA Guide, at 51-53, reiterates that “Contracts must be of reasonable cost, generally must be competitively bid, and must comply with Federal, State, and local procurement standards.”  It also states that FEMA may separately evaluate and reimburse costs it finds fair and reasonable.

Appeal Letter

May 20, 2014

W. Nim Kidd, CEM
Chief
Texas Division of Emergency Management
PO Box 4087
Austin, TX 78773-0220

Re: Second Appeal – Bluebonnet Electric Cooperative, PA ID 000-UJ7K3-00, Restoration of Power, FEMA-4029-DR-TX, Project Worksheet (PWs) 500, 602, 603, 748, and 789

Dear Chief Kidd:

This is in response to your office’s letter dated July 26, 2013, which transmitted the referenced second appeal on behalf of the Bluebonnet Electric Cooperative (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $612,462.93 in costs associated with the restoration of power after a wildfire.

As explained in the enclosed analysis, I have determined that the Applicant did not follow federal procurement requirements; however, reasonable costs for the work performed are eligible.  The FEMA Regional Administrator’s approach for determining reasonable costs was appropriate.  Therefore, I am denying the appeal.

Please inform the Applicant of my decision.  This determination constitutes the final decision on this matter pursuant to 44 C.F.R. §206.206, Appeals.

Sincerely,

/s/

William W. Roche
Director
Public Assistance Division

Enclosure

cc:  George A. Robinson
       Regional Administrator
       FEMA Region VI

Appeal Analysis

Background

During the August 30, 2011 to December 31, 2011 incident period, wildfires burned and substantially damaged or destroyed significant portions of Bluebonnet Electric Cooperative, Inc.’s (Applicant) electrical distribution system. The Applicant used force account and contract labor to replace poles, transformers, meters, hardware, and electrical wire. FEMA obligated 18 Project Worksheets (PWs) for the Applicant to fund actual costs incurred for the repairs, including PW 500 for $79,389.68; PW 602 for $574,351.19; PW 603 for $976,160.67; PW 748 for $246,420.53; and PW 789 for $226,305.97.  Subsequently, FEMA found that the Applicant did not follow proper procurement procedures because it had the work completed under existing time and equipment contracts which did not have required cost ceilings or “not to exceed” provisions. Rather than deobligating the funding for the work performed, FEMA performed an analysis of costs of similar work done during the same disaster by other electrical cooperatives. Based on the analysis, FEMA determined that a reasonable cost of the restoration was approximately $2,429 per pole.  FEMA applied this reasonable cost to the number of poles covered in each of the Applicant’s PWs and deobligated funding, as follows: $7,301.38 from PW 500, $115,667.09 from PW 602; $389,902.98 from PW 603; $37,682.80 from PW 748; and $61,898.68 from PW 789.

First Appeal

The Applicant submitted its first appeal to the Texas Division of Emergency Management (Grantee) in a letter dated November 21, 2012.  The Grantee forwarded the first appeal to FEMA on January 8, 2013.  In its first appeal, the Applicant requested FEMA fund the repair of its electrical distribution system based on its actual, incurred costs and requested re-obligation of the total deobligated amount, $612,463.  The Applicant maintained that the higher rate of reimbursement is justified by the emergency nature of the work and need to act quickly, which did not allow time to competitively bid the contracts.  The Applicant also noted the hazardous work conditions as a result of on-going fires, threat of flare ups, hilly terrain, and deep ash which contributed to the higher per pole cost of the restoration work.  Furthermore, the Applicant explained that the complexity of the labor-intensive work was due to almost a third of the poles being either three-phase poles or meter poles.  Finally, the Applicant claimed that the higher costs are the result of the Applicant’s commitment to community, reliability, and safety, along with the Applicant’s excellent customer service and desire to protect the environment.  The Regional Administrator (RA) reviewed the cost analysis FEMA performed to determine the reasonable rate of reimbursement and compared it to the information provided by the Applicant.  The RA concluded that because the Applicant did not follow proper procurement procedures, FEMA rightfully determined reasonable costs as a way to provide partial reimbursement to the Applicant, and denied the first appeal on March 19, 2013. 

Second Appeal

The Applicant submitted its second appeal to the Grantee on June 17, 2013, and the Grantee forwarded it to FEMA on June 28, 2013.  In its second appeal, the Applicant reiterates its first appeal arguments.  No additional documentation was provided with the second appeal. 

Discussion

Under 44 Code of Federal Regulations (C.F.R.) Part 13, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments, contracts and procurements must be of reasonable cost, generally must be competitively bid, and must comply with federal, state, and local procurement standards.[1]  Additionally, federal procurement regulations allow use of time and material type contracts only after a determination that no other contract is suitable and only if “the contract includes a ceiling price that the contractor exceeds at its own risk.”[2]

The Applicant chose to complete the work under existing time and equipment contracts that did not include cost ceilings or “not to exceed” provisions.  After the work was complete, the Applicant modified the contracts to include cost ceilings.  As such, the contracts were not in compliance with procurement requirements.  This finding is not in dispute. 

The Applicant argues that the work was contracted during an emergency response and therefore it could not take the additional time necessary to properly procure contracts; that by the nature of the emergency restorations the work was determined location by location; and since the work was not contiguous in nature it would be best conducted under existing time and equipment contracts.  The Applicant also justifies the higher cost per pole by detailing the hazardous work conditions, the complexity of the work, and the catastrophic nature of the event. 

All procurement transactions must be “conducted in a manner providing full and open competition,” [3] including emergency contracts.  Awarding the contract to the same contractor that was already working for the Applicant without taking additional bids is considered restrictive of competition.  Procurement by noncompetitive proposals may only be used when the award of the contract is not feasible under competitive measures and if the item is available from only one source; when public exigency or emergency will not permit a delay as a result of competitive solicitation; or if competition is determined to be inadequate after solicitation of a number of sources.[4]  FEMA is required to conduct a cost analysis of any noncompetitive proposal.[5]

Per 44 C.F.R. §13.43, remedies for noncompliance with federal procurement requirements include one or more of the following actions, as appropriate in the circumstances: (1) Temporarily withhold cash payments; (2) Disallow or deny all or part of the activity; (3) Wholly or partly suspend or terminate the award; (4) Withhold further awards; (5) Take other legal remedies.[6]  As the Applicant violated federal procurement regulations, FEMA has the authority to disallow all funding for work performed under these contracts, and FEMA also has the authority to fund eligible work based on costs it determines to be reasonable.[7]  A cost is reasonable if 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.  In other words, a reasonable cost is a cost that is both fair and equitable for the type of work being performed.[8]  The PA Guide describes the following ways reasonable costs may be established:  historic documentation for similar work, average costs for similar work in the area, published unit costs from national cost estimating databases, FEMA cost codes, and equipment rates.[9]

FEMA calculated an average per pole cost by computing an average cost for similar work done under seventeen different PWs conducted by eight other electrical cooperatives during the same wildfire disaster.  FEMA examined the costs of 1,321 poles and the average cost per pole was $2,428.81, while the Applicant’s claimed average contract cost per pole was $4,669.81.  The Applicant included its own cost analysis using five electrical cooperatives, including some of the same electrical cooperatives that FEMA used.  The Applicant’s analysis was significantly higher than what was done by FEMA, but also included a higher number of three-phase lines and transformer/meter poles. Additionally, the Applicant’s comparative analysis included 100 percent contract labor, which would increase costs, while its PWs contained force account labor.[10]  

In this case, FEMA’s approach of using similar work performed as the result of the same event to determine reasonableness is appropriate. Moreover, the Applicant’s comparative data is distinguishable and does not provide compelling documentation to support its claim that the RA’s determination of costs was inconsistent with policy or otherwise unreasonable.

Conclusion

The Applicant violated federal procurement regulations using its existing time and equipment contracts that contained no cost ceilings or not-to-exceed clauses for the restoration work.  Because the Applicant violated procurement regulations, FEMA was correct to evaluate the reasonableness of the Applicant’s actual costs and its methodology for doing so was sound.  Because the Applicant was not able to provide sufficient documentation to establish reasonableness, FEMA was correct to reduce the Applicant’s reimbursement to the average cost-per-pole calculation computed from eight other electrical cooperatives that performed work during DR-4029-TX.



[1] 44 C.F.R. § 13.36(b)(1); Public Assistance Guide, FEMA 322 (June 2007), at 51.

[2] 44 C.F.R. § 13.36(b)(10)(i) and (ii).

[3] 44 C.F.R. § 13.36(c).

[4] 44C.F.R.  § 13.36(d)(4)(i)

[5] 44C.F.R.  § 13.36(d)(4)(ii)

[6] 44 C.F.R. § 13.43(a).

[7] 44 C.F.R. § 13.43(a)(2); PA Guide at 53.

[8] PA Guide, at 40-41.

[9] Id.

[10] FEMA First Appeal Response, FEMA-4029-DR-TX, Bluebonnet Electric Cooperative, Inc. PWs 500, 602, 603, 748, and 789, (Mar 19, 2013) at 3.