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Reasonable Costs

Appeal Brief Appeal Letter

Appeal Brief

Disaster1822-DR-MO
ApplicantCity of Sikeston
Appeal TypeSecond
PA ID#143-67790-00
PW ID#625
Date Signed2012-09-11T00:00:00

Citation:  FEMA-1822-DR-MO, City of Sikeston, Labor, Material, and Equipment Costs, Project Worksheet (PW) 625

Cross-
Reference:
 Reasonable Cost, Documentation

Summary:   A severe ice storm between January 26 and January 29, 2009, damaged the Applicant’s electrical distribution system.  On June 3, 2009, FEMA prepared PW 625 in the amount of $1,068,693 for force account and contract support to repair the damaged electrical distribution system.  In a letter dated October 14, 2009, the Applicant appealed PW 625, providing additional documentation to support disallowed contractor costs.  FEMA conducted a reasonable cost analysis to determine eligible contract labor and force account labor costs allowing up to 16 hours per day per person or crew and adjusted equipment hours to match labor hours.  FEMA determined that an additional $520,317 of the labor, material, and equipment cost was eligible resulting in a total eligible project cost of $1,589,010. The Regional Administrator partially approved the Applicant’s appeal on December 10, 2010.

The Applicant submitted its second appeal in a letter dated February 11, 2011.  The Applicant contends that there are discrepancies between FEMA’s analysis of eligible costs based on a 16-hour work day and the State’s analysis of eligible costs based on a 16-hour work day, and requests that FEMA increase the approved total project amount to$2,837,067.  This includes $349,686 for force account labor costs, and material costs in the amount of $375,359.  The Applicant has submitted additional cost documentation to demonstrate that a portion of the costs incurred were eligible and reasonable.

Issue:  Has the Applicant provided documentation demonstrating that its costs for labor, material, and equipment costs are eligible?

Finding:  Yes, the Applicant has provided documentation demonstrating that an additional portion of its claimed costs are eligible.

Rationale:  Office of Management and Budget Circulars A-21, A-87, Attachment A.C.2, and A-122; FEMA 322, Public Assistance Guide, June 2007, page 53, and 44 CFR §206.228(a)(2).
 

Appeal Letter

September 11, 2012

Paul D. Parmenter
Director
State Emergency Management Agency
Missouri Department of Public Safety
2302 Militia Drive
P.O. Box 116
Jefferson City, Missouri 65102

Re:  Second Appeal–City of Sikeston, PA ID 143-67790-00, Reasonable Costs,
FEMA-1822-DR-MO, Project Worksheet (PW) 625

Dear Mr. Parmenter:

This letter is in response to a letter from your office, dated April 15, 2011, which transmitted the referenced second appeal on behalf of the City of Sikeston (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of additional costs for contract labor, equipment, and meals.

Background

A severe ice storm occurred from January 26 through 29, 2009, which damaged the Applicant’s electrical distribution system.  The Applicant entered into a verbal time and equipment (T&E) contract with Sturgeon Electric Company, Inc., and Henkels & McCoy, Inc., to assist in the restoration of the electrical distribution system.  On June 3, 2009, FEMA prepared PW 625 for force account labor and contract support for repairing the damaged electrical distribution system.  During the original project review, FEMA reduced the final funding in PW 625 because the Applicant did not substantiate all costs, and FEMA determined that other claimed costs were unreasonable.  FEMA obligated PW 625 in the amount of $1,068,693.

First Appeal

The Applicant submitted its first appeal on October 14, 2009, requesting total project costs of $3,599,183.  The State of Missouri Emergency Management Agency (SEMA) requested additional information from the Applicant to demonstrate eligibility of specific issues including: accurate contractor hours due to insufficient monitoring; inconsistency of workers compared to equipment use claimed; ineligible personal claimed costs; meals and lodging discrepancies; and the reasonableness of labor costs, such as claiming costs for 18-hour work days and consecutive days of double time.  After conferring with the Applicant, SEMA transmitted the Applicant’s first appeal on March 15, 2010. 

FEMA conducted a reasonable cost analysis to determine eligible force account labor and contract labor and costs, allowing up to 16 hours per day per person or crew, and adjusted equipment hours to match labor hours.  FEMA verified time worked by reconciling meal receipts that indicated meal times and time sheets.  FEMA considered ineligible the instances where monitoring was insufficient to substantiate contractor hours claimed, such as when a monitor approved contractor time on days that the monitor had not worked.  FEMA determined that a portion of the claimed contract costs were eligible, as well as an increase in funding for force account equipment, but deducted a portion of the funding for force account labor and materials.  With the adjustments, FEMA found an additional $520,317 in eligible costs, and partially approved the Applicant’s appeal on December 10, 2010.  The revised total project cost was $1,589,010.

Second Appeal

The Applicant submitted its second appeal in a letter dated February 11, 2011, requesting total project costs of $2,837,067.  SEMA and the Applicant adjusted contractor and force account labor hours to 16-hour days.  The Applicant contends that there are discrepancies between FEMA’s analysis of eligible costs based on a 16-hour work day and SEMA’s analysis of eligible costs based on a 16-hour work day.

Discussion

Per 44 CFR §13.36(b)(10), Time and materials (T&M) contracts are allowable only on a limited basis and the Applicant needs to meet specific requirements when using this type of contract.  Utility companies generally refer to this type of contract as “time and equipment” (T&E).  Pursuant to FEMA Fact Sheet 9580.6, Electric Utility Repair (Public and Private Nonprofit), and the Public Assistance Guide (FEMA 322, dated June 2007), Applicants must carefully monitor and document contractor expenses, and include a cost ceiling or “not to exceed” provision in the contract. 

The documentation submitted by the Applicant did not substantiate appropriate monitoring of contract labor and equipment costs nor was a cost ceiling included in the contract.  However, FEMA may consider reasonable costs of contractors to accomplish emergency work to determine eligibility for reimbursement.  The Applicant was not able to substantiate certain unmanned equipment hours or material costs, and also included various ineligible costs in its request for funding.  FEMA made reductions accordingly.  The spreadsheet attached as the last page of this response documents the costs claimed at each stage of this appeal, and the specific costs that FEMA determined were documented and reasonable in the second appeal. 

The costs at issue in the second appeal are those for force account labor; force account material; and costs for Sturgeon Electric and Henkels & McCoy.  The Applicant has provided documentation substantiating the adjusted force account labor costs of $349,686.  FEMA originally approved $162,886 for force account labor, because this was the total for overtime.  However, because this project is permanent work, the Applicant’s substantiated straight time is also eligible per 44 CFR §206.228(a)(2).  The Applicant also provided documentation for material costs totaling $375,359 in the form of Force Account Materials Stock Movement Documentation showing the materials list for items included in the project Scope of Work.  This documentation shows the average costs of these items from the Applicant’s five-year record system. 

There are several reasons for the discrepancies in SEMA’s calculations of contractor costs and FEMA’s analysis.  SEMA adjusted the hours to limit the contractor hours to 16 hours per day, including Sunday, and billed Saturdays as 12-hour shifts.  FEMA also limited the days to not more than 16 hours.  For Sturgeon Electric, FEMA verified through meal receipts and timesheets that on many days, shifts worked were shorter than 16 hours, so FEMA adjusted crew shift hours according to what it could verify.  Additionally, the contractors’ Union Agreement states that all hours worked on Sundays will be paid at doubletime rates rather than overtime.  The contractors chose to work shorter shifts on Saturdays, paid at time and a half, and maximize the doubletime pay by claiming 16-hour shifts on Sundays.  This arrangement is not a reasonable cost that is eligible for reimbursement by FEMA.  Therefore, FEMA calculated that the Applicant could be reimbursed for 12 hours of double time on Sunday shifts, and calculated four hours (or the appropriate number of hours) of the Sunday shift to be reimbursed at overtime, as it would have been on a Saturday shift.  For both contractors, FEMA also adjusted the equipment hours to match labor hours.  Comparing labor and equipment records for Henkels & McCoy, FEMA was able to validate costs totaling $522,873 (the previously obligated amount is $326,640). 

Upon further review, FEMA’s approach for determining reasonable costs for labor and equipment hours for time worked is reasonable.  Regarding Sturgeon Electric, no additional funding for these costs is eligible.  Further, PW 625 Version 1 obligated $769,940 for Sturgeon Electric; FEMA was only able to validate $760,940, resulting in an unsupported cost of $9,000 under PW 625 Version 1.  This will be factored into the adjusted eligible project total.

Additionally, there is an eligible cost for Scatterfield Towing in the amount of $1,188 that was included in PW 625 Version 0, but does not appear to be in the total for PW 625 Version 1.  This amount is included in the total to be obligated below.

Conclusion

I have reviewed the information submitted with this appeal and have determined that the Applicant has provided documentation to substantiate an additional portion of its claimed costs for force account labor, material, and some additional contractor costs.  The costs are illustrated in the attached spreadsheet.  Therefore, I am partially approving the Applicant’s second appeal in the amount of $733,080.

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/
Deborah Ingram
Assistant Administrator
Recovery Directorate

cc:  Beth Freeman
      Regional Administrator
      FEMA Region VII

*Shaded cells indicate a change in the obligated amounts under PW 625 Version 1 that are impacted by the second appeal review.

FEMA-1822-DR-MO

City of Sikeston, PW 625

Second Appeal Cost Summary

Cost Category

PW 625 V0

Applicant 1st Appeal Request

SEMA 1st Appeal Rec.

FEMA 1st Appeal Partial Approval

Applicant 2nd Appeal Request

SEMA 2nd Appeal Rec.

FEMA 2nd Appeal

Change in Funding

Sturgeon Electric

$0.00

$1,418,133

$1,047,660

*$769,940

$1,052,973

$1,052,973

$760,940

($9,000)

Henkels & McCoy

$0.00

$1,112,356

$767,991

$326,640

$745,818

$745,818

$522,873

$196,233

Scatterfield Towing

$1,188

$1,188

$1,188

Not listed

(Not included in Version 1)

$1,188

$1,188

 

$1,188

 

$1,188

FA Labor

$413,578

$413,578

$417,879

$162,886

$349,686

$349,686

$349,686

$186,800

FA Equipment

$250,222

$250,222

$250,222

$283,697

$283,697

$283,697

$283,697

$0.00

FA Materials

$375,359

$375,359

$375,359

$17,500

$375,359

$375,359

$375,359

$357,859

Mike Rentals

$720

$720

$720

$720

$720

$720

$720

$0.00

Mutual Aid (3)

$40,244

$40,244

$40,244

$40,244

$40,244

$40,244

$40,244

$0.00

Salvage Value

($12,618)

($12,618)

($12,618)

($12,618)

($12,618)

($12,618)

($12,618)

$0.00

TOTALS

$1,068,693

$3,599,183

$2,888,644

$1,589,010

$2,837,067

$2,837,067

$2,322,089

$733,080