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Montevina Pipeline Connection

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-845-DR-
ApplicantVILLA DEL MONTE MUTUAL WATER COMPANY
Appeal TypeSecond
PA ID#087-90114
PW ID#34154/06120/83697/05020, 26644/05047, 74
Date Signed2001-05-19T04:00:00
Citation: FEMA-845-DR-CA, PA 087-90114, Villa Del Monte Mutual Water Company, DSRs 34154/06120/83697/05020, 26644/05047, 74737/38984, 26642, Montevina Pipeline Connection

Cross-reference: Project Delay Costs, Improved Project, Project Management, Closeout

Summary: The Loma Prieta earthquake compromised the water supply of the residents served by the Villa Del Monte Mutual Water Company (Villa). After determining that repairing wells and the surface water supply was not feasible, Villa decided to connect to the existing Montevina Pipeline. FEMA approved DSR 34164 for this purpose on April 16, 1992. In August 1993, Villa requested additional items of work and funding for the project. FEMA approved some of these items and prepared supplemental DSR 06120. A series of delays prolonged the construction for years. In June 1995, Villa requested additional funding for contractor delay charges, price increases, change orders, etc. It also asked FEMA to approve telemetry and pump upgrades. FEMA approved some of these items and prepared DSR 83697. Based on this DSR, Villa submitted its first appeal on June 16, 1997. FEMA addressed this appeal and the Project Completion and Certification Report in a letter dated September 30, 1999. FEMA approved telemetry and pump upgrades, and some additional funding for project management costs. It did not fund costs related to project delays or additional costs claimed in the closeout report for other large projects. In its second appeal, dated January 7, 2000, Villa asks for $180,418 in costs associated with the pipeline project and $164,139 for its other large projects.

Issues: 1) Are costs associated with project delays eligible? 2) Are Villa's claimed costs for project management reasonable? 3) Are additional costs for Villa's other large projects eligible?

Findings: 1) No, costs must be directly related to the performance of eligible work. 2) No, the claimed project management costs equal approximately 15 percent of total project costs. 3) No, in one case Villa did not receive a time extension and has not provided a justification for delay. In the other, Villa did not request a cost overrun upon project completion.

Rationale: 44 CFR  206.228, 44 CFR  206.204(d)(e).




Appeal Letter

May 19, 2001

D.A. Christian
Governor's Authorized Representative
Governor's Office of Emergency Services
Post Office Box 419023
Rancho Cordova, California 95741-9023

Re: Second Appeal - Villa Del Monte Mutual Water Company, Montevina Pipeline Connection, FEMA-845-DR-CA, DSRs 34154/06120/83697/05020, 26644/05047, 74737/38984, 26642

Dear Mr. Christian:

This is in response to the referenced second appeal forwarded by your office on March 3, 2000, with an addendum on May 30, 2000. The Villa Del Monte Mutual Water Company (Villa) is asking for an additional $180,418 for the Montevina Pipeline Project and $164,139 in costs denied during the closeout process. The total amount requested is $344,557.

As explained in the enclosed analysis, I have reviewed the documentation submitted and found no reason to overturn the first appeal response. The main issues raised in this appeal are contractor delay and change order costs, project management costs, the designation of the project as an improved project, and closeout for other large projects. Despite lengthy appeals, Villa has failed to sufficiently support the eligibility of its claimed work and costs. Therefore, I am denying this appeal.

Please inform the applicant of this determination. My decision constitutes the final decision on this matter as set forth in 44 CFR  206.206.

Sincerely,
/S/
Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate

Enclosure

cc: Karen E. Armes
Acting Regional DirectorFEMA Region IX

Appeal Analysis

BACKGROUND

The Villa Del Monte Mutual Water Company (Villa) is located in the Santa Cruz mountains of California. On October 17, 1989, the Loma Prieta earthquake impacted this area, compromising the water supply of local residents. Prior to the earthquake, residents received water from wells and surface water from Laurel Creek. The earthquake damaged the wells beyond repair and the surface water supply was insufficient in meeting the community's needs.

Damage Survey Report (DSR) 34164 was prepared to connect Villa to the Montevina Pipeline, modify pump stations, add booster stations and storage tanks, install water line with appurtenances, obtain permits and easements, and provide engineering and construction management. The DSR was approved on April 16, 1992, based on the scope of work and cost estimates from an engineering report prepared by Bissell and Karn. Some costs were reduced to reflect a cost-share with another eligible applicant, Big Redwood Park and Improvement Association (Big Redwood). In addition, the American Red Cross donated $300,000 to the project. The final approved estimate was $784,400, less $300,000 from the American Red Cross, for a total of $484,400.

In August 1993, Villa requested a supplemental DSR for the project. By this time the American Red Cross had rescinded its donation because the project was eligible for federal assistance. Some additional items were added to the eligible scope of work and some costs were decreased based on updated information. The adjusted approved estimate was $765,708. The previously approved amount of $484,400 was subtracted and supplemental DSR 06120 was approved for $281,308 on September 7, 1993. The DSR narrative indicated that the majority of requested increases in the scope of work were not adequately justified and thus determined ineligible. The project was still in the construction phase at this point. The majority of the pipeline, water tanks and appurtenances had been installed, but Villa was in the process of redesigning the pump stations. The redesign effort was not approved by FEMA.

Villa requested another supplement in June 1995. FEMA determined that requested telemetry and pump changes were improvements to the approved project. Villa also requested expenses related to contract delays. FEMA found the reasons for delays were unsubstantiated. Finally, Villa asked for more than $100,000 in project management costs payable to Robert Hansen. The work appeared to be administrative, which is covered by the administrative allowance. FEMA did allow for project management at a rate of 3 percent of total eligible costs. In addition, FEMA approved $1,300 for a geotechnical study. Based on this and other cost adjustments, the new approved estimate for the project was $761,697. Adding 3 percent in project management costs and subtracting previously obligated funding, supplemental DSR 83697 was approved for $18,840 on September 20, 1996.

FIRST APPEAL

Villa submitted its first appeal on June 16, 1997, requesting an additional $322,594. Again, the majority of claimed expenses related to telemetry and pump changes, contract delays and project management costs. It claimed that the scope of work for the project had not changed since the project was approved and therefore, it was not an improved project. It stated that telemetry and pump upgrades were required by health regulations, that project delay costs should be considered eligible cost overruns, and that project management costs of 10 to 15 percent of the total project cost are reasonable. Finally, Villa asked for a time extension to complete the project.

In September 1999, Villa submitted its Project Completion and Certification Report claming $1,235,233 for the pipeline project, $450,685 more than the approved estimate. Villa also requested additional funding for projects that were approved prior to the conception of the Montevina Pipeline project. DSR 26644 was approved on February 24, 1990, for $189,096 to replace the roof and repair cracks in Villa's concrete reservoir. As of December 21, 1994, the last approved completion date, Villa had spent $36,675 on this project. It requested a time extension to complete the project and the full $189,096. DSR 74737 was obligated for $76,099 to replace sections of main line water supply pipe; at closeout, actual project costs claimed were $64,381. Villa also requested an additional $16,426 for DSR 26642, which was originally approved for $41,338 on January 5, 1990. It allowed for repairing a steel water tank.

Prior to September 1999, FEMA had informed Villa that it would respond to its first appeal and its closeout requests at the same time. On September 30, 1999, FEMA partially approved Villa's appeal. In terms of the pipeline project, FEMA determined that the telemetry and pump upgrades were required for the connection to the pipeline and therefore eligible items. It also found that costs related to project delays were not eligible because they do not constitute overruns, in accordance with 44 CFR  206.204(e). Finally, the eligible rate of project management costs was increased from 3 to 8 percent of the total project costs. FEMA approved a total of $1,054,331 for the project and prepared DSR 05020 for $269,783 on September 24, 1999 (total approved project cost minus the previously approved amount). FEMA also granted a time extension to December 31, 1999.

Additional costs relating to other projects were not approved. DSR 05047 was prepared as a supplement to DSR 26644. It reduced eligible funding to $36,675, to cover expenses incurred prior to the last approved completion date of December 21, 1994. DSR 38984 was prepared as a supplement to DSR 74737. Based on actual project costs, it debobligated $11,718 from this project. No additional funding was approved for DSR 26642.

SECOND APPEAL

Villa submitted its second appeal on January 7, 2000. We will summarize Villa's claims, though all issues raised in its appeal were considered in making our determination. The main issues raised in this appeal are contractor delay and change order costs, project management costs, designation of project as improved project, and closeout costs for other large projects. Villa is asking for a total of $344,557 in additional funding ($180,418 related to the Montevina Pipeline project, and $164,139 for other projects).

Villa separated its contractor delay and change order costs into three categories. The first totals $46,893 and charges stem from price increases and start-up and re-inspection costs. There is also a claim for repairing a cable that was damaged in 1995. Villa claims that bad weather, FEMA approval of funds, access to Redwood Mutual Water Company (Redwood) facilities, adoption of telemetry standards, access to Gillette Mutual Water Company facilities, and other improvements by Redwood, caused its delays. It characterizes the resulting cost increases as cost overruns, which it thinks are eligible in accordance with 44 CFR  206.204(e). It claims that because FEMA partially approved the first appeal in 1999, price increases and other charges associated with the newly eligible aspects of the project should be eligible as well.

The second set of delay charges total $52,521 and result from a $37,500 settlement payment to Villa's contractor for construction delays, and $15,021 in interest charges. Villa negotiated the $37,500 settlement with McGuire and Hester/EMSCO and the charges are for "field management labor and their vehicles and rental of trencher (third party rental) starting January 7, 1993, the original scheduled completion date of this project, and continuing until $75,000 had been accumulated." Villa paid $15,021 in interest charges to McGuire and Hester/EMSCO for delayed payment of contract c to Frietas and Frietas. Frietas and Frietas took over the engineering and construction management aspects of this project in 1996. The charges comprise of $1,350 for startup, $575 for a site visit, and $6,785 for additional construction management costs. According to Villa, the $6,785 was added to the contract due to delays caused by Pacific Gas and Electric, Redwood, telemetry and pump changes, increases to scope of work, and preparation of technical descriptions of project easements.

Villa's project management costs totaled $146,587. Of this, FEMA has agreed to pay $74,293, an amount equal to 8 percent of total project costs. Villa does not find this reasonable and is asking for the remaining $72,294 in project management costs. Villa contends that all claimed expenses directly relate to the performance of eligible work, disagrees with the 8 percent rate and how it was calculated, and claims that because all of Big Redwood's project management costs were reimbursed, Villa's should be as well. (Project management costs were divided equally between Villa and Big Redwood; because Big Redwood's project costs were greater its project management costs equaled 6.5 percent of the total costs.)

There are three issues that Villa raises that have no monetary bearing in this appeal. The first is an objection to certain FEMA personnel reviewing this appeal. The second is the designation of the pipeline project as an improved project. Villa is unsure why this project is classed as an improved project, given that FEMA approved the costs of pump upgrades and telemetry changes. Villa also asks for an extension of its project completion date (presently December 31, 1999) to six months following FEMA's response to the second appeal.

Finally, Villa is appealing closeout activities related to DSRs 26644/05047, 74737/38984 and 26642. It contends that the project described in DSR 26644/05047 is essential because the Villa pipeline is not a pressurized transmission line. Therefore, it claims that the reservoir is required to store water. In terms of DSR 74737, Villa claims that the pipe repair is not part of the pipeline project and "FEMA is in error for deobligating $11,718 from one of Villa's large projects (DSR 74737) and not offsetting that amount against an increase in the claimed costs totaling $16,426 for another large project (DSR 26642) to repair a water tank."

DISCUSSSION

The majority of Villa's claim for additional pipeline project funding, $108,124, is related to project delays, for example, start-up costs, price increases, settlement claims, and interest charges. Villa has yet to adequately explain why construction of this project was delayed for years. The telemetry and pump upgrades should have been completed in a timely manner. Work must not be contingent upon recovery of costs from the federal government. The costs associated with start-up, re-inspection, price increases, and contract retention after years of not working on the project are not eligible items. Bad weather and FEMA approval of funding are unacceptable as reasons for delay, as is Villa's inability to obtain access to other facilities. In addition, all damage must be disaster-related; therefore, the repair of a cable that was not damaged by the earthquake is ineligible. Finally, FEMA cannot fund interest charges, in accordance with Office of Management and Budget (OMB) Circular No. A-122, Attachment B, Paragraph 23. Villa has not sufficiently supported the eligibility of all claimed work and costs.

Villa is asking for an additional $72,294 in project management costs for services provided by Robert Hansen. FEMA generally pays construction management, engineering and design services, or project management costs based on actual costs. But, like any cost, actual costs must be reasonable, in accordance with OMB Circular No. A-122, Attachment A (A)(3). For this project, FEMA reimbursed $70,746 for construction management, $116,357 for engineering and design services, and $74,293 to Mr. Hansen for "project management." Typically FEMA pays for the sorts of services provided by Mr. Hansen only in cases where the project is basic and requires minimal construction management and no engineering and design services. The $74,293, roughly 8 percent of total project costs, previously approved for Mr. Hansen's services is more than reasonable for this project.

In terms of the non-monetary aspects of the pipeline project appeal, Villa objects to certain FEMA personnel reviewing its appeals. It should be noted that FEMA headquarters staff independently review all second appeals and the Executive Associate Director renders the final determination. Villa also claims that the pipeline project is not an improved project. Villa appears to misunderstand FEMA's position on this matter. Because pump upgrades and telemetry changes were required in part because non-eligible applicants were connecting to the Montevina Pipeline, we determined that this is an improved project. The improved project status of this project has no monetary bearing on this appeal. Finally, Villa asks for a time extension for this project. FEMA will not approve a time extension for "unanticipated matters [that] may require additional time to complete." Time extension requests must provide justification for the delay and anticipated completion date. Villa has not provided this information, and furthermore has stated that construction on the project was complete by December 31, 1999.

Villa requested a time extension for DSR 26644 in September 1999, five years after the last approved completion date. At that time, FEMA denied the time extension as Villa did not provide "a detailed justification for the delay," as is required by 44 CFR 206.204(d)(2). Because the Regional Director denied the time extension request, funding is limited to "eligible project costs incurred only up to the latest approved completion date." In this case, the P.4 report indicates that the last approved completion date was December 21, 1994, and at that time Villa had spent $36,675 on this project. Villa has yet to provide a detailed justification for the delay and therefore, no additional costs are approved. It should be noted that if this project is not completed, all Federal funding for the project is ineligible.

Villa contends that because DSR 74737 was reduced by $11,718 based on its submission of actual project costs, this amount should be applied to DSR 26642, for which Villa claims $16,426 more than was approved. Large projects are funded based on actual eligible costs documented, in accordance with 44 CFR  206.203(c)(1). FEMA does not apply "unused" funds from one large project to another. If additional funding was required for DSR 26642, Villa should have requested funding for a cost overrun in a timely manner. The P.4 report shows that this project was completed by December 2, 1991. 44 CFR  206.204(e)(2) requires that Villa submit "sufficient documentation to support the eligibility of all claimed work and costs" in order to receive a funding supplement; it has not done so.

CONCLUSION

Based on the information presented, I have found that no additional costs are eligible for FEMA funding. Therefore, the appeal is denied.