Debris Removal; Contract Costs
Appeal Brief
Appeal Letter
Appeal Analysis
Citation: FEMA1366-DR-KS, City of Hoisington, Audit Resolution
Cross Reference: Debris Removal from Private Property; Allowable Contract Costs
Summary: As a result of the April 2001 tornadoes in Kansas, the City of Hoisington (Applicant) received approximately $2.6 million in FEMA funding for disaster related work. In October 2003, the OIG issued audit report DD-02-04 questioning $262,015 of the Applicants total grant. FEMA Region VII disagreed with the findings and requested a resolution from Headquarters. On January 25, 2006, FEMA Recovery Division transmitted the Audit Resolution, which recommended a de-obligation of $122,030.62. FEMA determined that only 45% of the debris removed was from public property and derived eligible debris removal costs using this percentage. Other disallowed costs were associated with non-disaster related electrical work ($9,135) and a 10% markup on a subcontract ($6,148). FEMA determined that the markup constituted a cost-plus-percentage-of-cost method of contracting, which is prohibited, and could not substantiate the reasonableness of the 10% profit. On March 14, 2006, the Applicant submitted their first appeal, asserting the debris on private property constituted a health threat, the contracted electrical work was disaster related, and the 10% markup was reasonable. On July 13, 2006, the Regional Director denied the Applicants first appeal because they were not authorized to reverse determinations made by the Director of Recovery. The Applicant filed a second appeal with FEMA on August 16, 2006, reiterating its position and submitting additional documentation to substantiate its claim and an increase in the percentage of debris removed from public property to 51%.
Issues: (1) Did the Applicant have the legal responsibility for debris removal from private property?
(2) Did the Applicant provide sufficient documentation to support its claim that 51% of the debris removal was from public property?
(3) Did the Applicant provide sufficient documentation to support its claim that the contracted electrical work was disaster related?
(4) Did the Applicant provide sufficient documentation to support its claim that the 10% markup for profit is fair and reasonable?
Findings: (1) No. It did not follow the procedures outlined in its nuisance abatement ordinance to gain legal responsibility.
(2) Yes.
(3) Yes.
(4) No.
Rationale: 44 CFR §206.223(a); 44 CFR §13.36(f)(2).
Tornadoes that developed when severe storms struck Kansas (FEMA-1366-DR-KS, declared April 27, 2001) devastated Hoisington, Kansas and outlying areas. The City of Hoisington (Applicant) requested assistance from the Federal Emergency Management Agency (FEMA) for approximately $2.26 million for debris removal and certain emergency response measures and permanent restoration projects.
Subsequent to FEMAs close-out of the Applicants projects, the Office of the Inspector General (OIG) conducted an audit of the Applicants grant. In October 2003, the OIG issued Audit Report DD-02-04 questioning $293,364.18 of the total grant amount received by the Applicant under FEMA-1366-DR-KS. FEMA Region VII disagreed with the findings and recommended a de-obligation of only $8,060 in volunteer credit, non-disaster related work, contractor markups, duplicated benefits, and undocumented force account costs. The OIG Field Office rejected the Regions recommendation. In August 2004, the Regional Director requested that the Headquarters Program Office (Recovery Division) and the Assistant IG for Audit review make a determination regarding the audit.
FEMA transmitted the Headquarters Audit Resolution to the Kansas Department of Emergency Management (State) by letter dated January 25, 2006. FEMA determined that $122,030.62 in questioned costs should be de-obligated. The disallowed costs were mainly associated with debris removal from private property ($52,799.21), where the City did not appear to follow its ordinances to gain the right of entry and therefore did not have the legal authority to remove debris. FEMA determined that approximately 45% of the debris removed was from public property, and applied this percentage to determine eligible debris removal costs. Other disallowed costs were associated with non-disaster related electrical work ($9,135) and a 10% markup on a subcontract ($6,148). FEMA determined that the markup constituted a cost-plus-percentage-of-cost method of contracting, which is prohibited. Further, FEMA could not substantiate the reasonableness of the 10% profit. The remaining disallowed costs ($53,948.79) were related to lack of documentation, math errors, and other non-disaster related work.
First Appeal
On March 14, 2006, the Applicant submitted an appeal for the three determinations made in the Audit Resolution, which was forwarded by the State to FEMA on May 8, 2006. The Applicant agreed to return a total of $8,060, for overpayments, and appealed the remaining $68,082.21 in disallowed costs associated with debris removal on private property, unsupported labor for electrical repairs, and markups applied to services provided by third parties. In its appeal, the Subgrantee does not address the remaining $45,888.79 ($53,948.70 less $8,060) in disallowed costs.
The Applicant argued that the removal of debris from private property was necessary to eliminate the threat to human health. Further, it asserted that the $9,135 in contract labor costs that FEMA disallowed because they were not disaster related, were in fact associated with disaster related electrical repairs. Finally, the Applicant argued that the $6,148 in contract overhead and profit markups (10%) that FEMA disallowed, do in fact represent a reasonable amount for profit. On July 13, 2006, FEMA Region VII denied the Applicants appeal.
Second Appeal
On August 16, 2006, the Applicant submitted a second appeal of FEMAs determination that $68,082.21 associated with debris removal, contract labor for electrical work and contract markups must be de-obligated. The State forwarded the appeal to FEMA on August 18, 2006.
The Applicant asserts that the tornado-generated debris was so widespread that the public health and safety was threatened. The Kansas Department of Health and Environment (KDHE) determined that the debris on private and public property constituted a clear threat to human health and environment. As a result of the determination made by KDHE, the Applicant enacted City Ordinance 1262 that addresses nuisances. Further, the Applicant claims that 51% of the area affected by debris was public property, not 45% as FEMA determined. In support of this claim, the Applicant included an aerial photograph of the city. The Regions second appeal transmittal memo states that the percentage was developed by the State through field surveys and calculations.
In addition, the Applicant provided a notarized statement and labor summary sheets from its electrical contractor and a letter from its Electrical Distribution Superintendent. These documents support the Applicants assertion that the $9,135 claimed for contract work is associated with disaster related repairs.
Regarding the 10% markup on subcontractor costs, the Applicant asserts that while the OIG determined that the markup was not eligible because the contract was a cost-plus-percentage-of-cost contract, the contract was actually a unit price contract with allowable markups modeled after an existing KDHE contract. The Applicant argues that Title 44 Code of Federal Regulations (44 CFR) § 13.36(f)(2) allows fair and reasonable markups for subcontractors. Further, the Applicant states that the Federal Officials on site at the time determined that the markup was eligible and approved the funding.
DISCUSSION
Private Property Debris Removal
In accordance with 44 CFR § 206.223 (a)(3), to be eligible for financial assistance, an item of work must be the legal responsibility of an eligible applicant. Generally, debris removal from private property is not eligible under the Public Assistance Program because it is the responsibility of the property owner. The Applicant states that it enacted its nuisance abatement ordinance (City Ordinance 1262) after determining that debris removal from private property was necessary to eliminate a threat to human health. It is clear that the Applicants Ordinance gives the Applicant the legal responsibility to clear nuisance debris from private property if the private property owner does not. However, the Ordinance outlines detailed procedures that the Applicant must follow to gain that legal responsibility. The Ordinance also includes a mechanism for assessing costs for the nuisance abatement against the property owner. The Applicant has not shown that it followed the procedures as outlined in the Ordinance; therefore, the Applicant did not have the legal right or responsibility to remove debris from private property and funding for the debris removal is not eligible for reimbursement.
As a result of an analysis performed by the Region, FEMA determined that 45% of the tornado-generated debris removed was from public property and derived eligible costs using this same percentage. With its appeal, the Applicant submitted an aerial photograph in support of its claim that 51% of the debris removed was from public property. This additional documentation submitted by the Applicant is sufficient to support an increase in the eligible funding for debris removal. After applying the new percentage to the costs claimed, the additional cost associated with eligible debris removal from public property is $6,155, increasing the eligible amount from $46,146.50 to $52,302.94. (See Table 1 below for a summary of costs).
Table 1
Summary of Ineligible Costs Associated with Debris Removal
Finding Debris Removal Costs Claimed by Applicant Amount disallowed due to documentation issues 1 Amount allowed based on 45% debris on public property 2 Amount allowed based on 51% debris on public property 2
A-1
$34,87 $876.00 $12,750.54 $27,056.46 $30,663.98
A-8 $19,207.25 $13,600.00 $2,523.26 $2,859.70
Totals = $27,449.11 $46,146.50 $52,302.94
Increase in eligible funding associated with debris removal: $52,302.94-46,146.50 = $6,155.50
Notes:
1) Applicant concurs with these amounts. These amounts are not under appeal.
2) Percentage applied to costs claimed by Applicant less the disallowed costs due to documentation issues.
Electrical Repair Work
The additional documentation, described in the Background section above, submitted with the Applicants appeal is sufficient to support the Applicants claim that the electrical work performed was necessary as the result of the disaster. Accordingly, an additional $9,135 in contract labor costs is eligible.
Contract Markups
The Applicant used a standing KDHE contract that reimburses the contractor the cost of its subcontractors plus a 10% administrative fee. The OIG determined that the contract is a cost-plus-percentage-of-cost type contract. Further, FEMA was unable to substantiate the reasonableness of the cost of this fee. The Applicant states that the contract was not a cost-plus-percentage-of-cost type contract, and the amount ($6,148) is reasonable. However, the Applicant provided neither the contract nor documentation supporting its claim that the cost is reasonable. Therefore, this portion of the appeal is denied.
CONCLUSION
For the reasons discussed above, the Applicants appeal is partially granted. Sufficient documentation has been submitted by the Applicant to support its claim for additional funding for debris removal from public property and for electrical work performed by its contractor. However, the costs associated with the debris removal from private property and the 10% markup on services provided by a subcontractor is ineligible. Accordingly, the amount of funding to be de-obligated from the Applicant is reduced from $122,030.92 to $106,740.12.
Appeal Brief
| Disaster | FEMA-1366-DR |
| Applicant | City of Hoisington |
| Appeal Type | Second |
| PA ID# | 009-32550-00 |
| PW ID# | DD-02-04 |
| Date Signed | 2007-05-29T04:00:00 |
(2) Did the Applicant provide sufficient documentation to support its claim that 51% of the debris removal was from public property?
(3) Did the Applicant provide sufficient documentation to support its claim that the contracted electrical work was disaster related?
(4) Did the Applicant provide sufficient documentation to support its claim that the 10% markup for profit is fair and reasonable?
(2) Yes.
(3) Yes.
(4) No.
Appeal Letter
05/29/2007
Mr. Lloyd E. Krase
Kansas Division of Emergency Management
2800 SW Topeka Boulevard
Topeka, Kansas 66611-1287
Re: Second Appeal-City of Hoisington, PA ID # 009-32550-00,
Audit Report Number DD-02-04, Debris Removal; Contract Costs;
FEMA 1366-DR-KS
Dear Mr. Krase:
This letter is in response to the referenced second appeal submitted by the City of Hoisington (Applicant) to your office on August 16, 2006. The Applicant is appealing the determination made by the Department of Homeland Securitys Federal Emergency Management Agency (FEMA) relating to three items contained in the Audit Resolution for Audit Report Number DD-02-04.
For reasons explained in the enclosed analysis, the amount of funding to be de-obligated as the result of the audit is reduced from $122,030.62 to $106,740.12. The Applicants claim for additional funding for debris removal from public property and for contract costs for electrical work is eligible for funding. However, the debris removal from private property and the 10% markup on services provided by a third party are not eligible. I am partially granting this appeal. By copy of this letter, I am requesting that the Regional Administrator amend the de-obligation accordingly.
Please inform the Applicant of my decision. This determination constitutes the final decision of this matter pursuant to 44 CFR Section 206.206.
Sincerely,
/s/
David Garratt
Acting Assistant Administrator
Disaster Assistance Directorate
Enclosure
cc: Richard Hainje
Regional Administrator
FEMA Region VII
Mr. Lloyd E. Krase
Kansas Division of Emergency Management
2800 SW Topeka Boulevard
Topeka, Kansas 66611-1287
Re: Second Appeal-City of Hoisington, PA ID # 009-32550-00,
Audit Report Number DD-02-04, Debris Removal; Contract Costs;
FEMA 1366-DR-KS
Dear Mr. Krase:
This letter is in response to the referenced second appeal submitted by the City of Hoisington (Applicant) to your office on August 16, 2006. The Applicant is appealing the determination made by the Department of Homeland Securitys Federal Emergency Management Agency (FEMA) relating to three items contained in the Audit Resolution for Audit Report Number DD-02-04.
For reasons explained in the enclosed analysis, the amount of funding to be de-obligated as the result of the audit is reduced from $122,030.62 to $106,740.12. The Applicants claim for additional funding for debris removal from public property and for contract costs for electrical work is eligible for funding. However, the debris removal from private property and the 10% markup on services provided by a third party are not eligible. I am partially granting this appeal. By copy of this letter, I am requesting that the Regional Administrator amend the de-obligation accordingly.
Please inform the Applicant of my decision. This determination constitutes the final decision of this matter pursuant to 44 CFR Section 206.206.
Sincerely,
/s/
David Garratt
Acting Assistant Administrator
Disaster Assistance Directorate
Enclosure
cc: Richard Hainje
Regional Administrator
FEMA Region VII
Appeal Analysis
BACKGROUNDTornadoes that developed when severe storms struck Kansas (FEMA-1366-DR-KS, declared April 27, 2001) devastated Hoisington, Kansas and outlying areas. The City of Hoisington (Applicant) requested assistance from the Federal Emergency Management Agency (FEMA) for approximately $2.26 million for debris removal and certain emergency response measures and permanent restoration projects.
Subsequent to FEMAs close-out of the Applicants projects, the Office of the Inspector General (OIG) conducted an audit of the Applicants grant. In October 2003, the OIG issued Audit Report DD-02-04 questioning $293,364.18 of the total grant amount received by the Applicant under FEMA-1366-DR-KS. FEMA Region VII disagreed with the findings and recommended a de-obligation of only $8,060 in volunteer credit, non-disaster related work, contractor markups, duplicated benefits, and undocumented force account costs. The OIG Field Office rejected the Regions recommendation. In August 2004, the Regional Director requested that the Headquarters Program Office (Recovery Division) and the Assistant IG for Audit review make a determination regarding the audit.
FEMA transmitted the Headquarters Audit Resolution to the Kansas Department of Emergency Management (State) by letter dated January 25, 2006. FEMA determined that $122,030.62 in questioned costs should be de-obligated. The disallowed costs were mainly associated with debris removal from private property ($52,799.21), where the City did not appear to follow its ordinances to gain the right of entry and therefore did not have the legal authority to remove debris. FEMA determined that approximately 45% of the debris removed was from public property, and applied this percentage to determine eligible debris removal costs. Other disallowed costs were associated with non-disaster related electrical work ($9,135) and a 10% markup on a subcontract ($6,148). FEMA determined that the markup constituted a cost-plus-percentage-of-cost method of contracting, which is prohibited. Further, FEMA could not substantiate the reasonableness of the 10% profit. The remaining disallowed costs ($53,948.79) were related to lack of documentation, math errors, and other non-disaster related work.
First Appeal
On March 14, 2006, the Applicant submitted an appeal for the three determinations made in the Audit Resolution, which was forwarded by the State to FEMA on May 8, 2006. The Applicant agreed to return a total of $8,060, for overpayments, and appealed the remaining $68,082.21 in disallowed costs associated with debris removal on private property, unsupported labor for electrical repairs, and markups applied to services provided by third parties. In its appeal, the Subgrantee does not address the remaining $45,888.79 ($53,948.70 less $8,060) in disallowed costs.
The Applicant argued that the removal of debris from private property was necessary to eliminate the threat to human health. Further, it asserted that the $9,135 in contract labor costs that FEMA disallowed because they were not disaster related, were in fact associated with disaster related electrical repairs. Finally, the Applicant argued that the $6,148 in contract overhead and profit markups (10%) that FEMA disallowed, do in fact represent a reasonable amount for profit. On July 13, 2006, FEMA Region VII denied the Applicants appeal.
Second Appeal
On August 16, 2006, the Applicant submitted a second appeal of FEMAs determination that $68,082.21 associated with debris removal, contract labor for electrical work and contract markups must be de-obligated. The State forwarded the appeal to FEMA on August 18, 2006.
The Applicant asserts that the tornado-generated debris was so widespread that the public health and safety was threatened. The Kansas Department of Health and Environment (KDHE) determined that the debris on private and public property constituted a clear threat to human health and environment. As a result of the determination made by KDHE, the Applicant enacted City Ordinance 1262 that addresses nuisances. Further, the Applicant claims that 51% of the area affected by debris was public property, not 45% as FEMA determined. In support of this claim, the Applicant included an aerial photograph of the city. The Regions second appeal transmittal memo states that the percentage was developed by the State through field surveys and calculations.
In addition, the Applicant provided a notarized statement and labor summary sheets from its electrical contractor and a letter from its Electrical Distribution Superintendent. These documents support the Applicants assertion that the $9,135 claimed for contract work is associated with disaster related repairs.
Regarding the 10% markup on subcontractor costs, the Applicant asserts that while the OIG determined that the markup was not eligible because the contract was a cost-plus-percentage-of-cost contract, the contract was actually a unit price contract with allowable markups modeled after an existing KDHE contract. The Applicant argues that Title 44 Code of Federal Regulations (44 CFR) § 13.36(f)(2) allows fair and reasonable markups for subcontractors. Further, the Applicant states that the Federal Officials on site at the time determined that the markup was eligible and approved the funding.
DISCUSSION
Private Property Debris Removal
In accordance with 44 CFR § 206.223 (a)(3), to be eligible for financial assistance, an item of work must be the legal responsibility of an eligible applicant. Generally, debris removal from private property is not eligible under the Public Assistance Program because it is the responsibility of the property owner. The Applicant states that it enacted its nuisance abatement ordinance (City Ordinance 1262) after determining that debris removal from private property was necessary to eliminate a threat to human health. It is clear that the Applicants Ordinance gives the Applicant the legal responsibility to clear nuisance debris from private property if the private property owner does not. However, the Ordinance outlines detailed procedures that the Applicant must follow to gain that legal responsibility. The Ordinance also includes a mechanism for assessing costs for the nuisance abatement against the property owner. The Applicant has not shown that it followed the procedures as outlined in the Ordinance; therefore, the Applicant did not have the legal right or responsibility to remove debris from private property and funding for the debris removal is not eligible for reimbursement.
As a result of an analysis performed by the Region, FEMA determined that 45% of the tornado-generated debris removed was from public property and derived eligible costs using this same percentage. With its appeal, the Applicant submitted an aerial photograph in support of its claim that 51% of the debris removed was from public property. This additional documentation submitted by the Applicant is sufficient to support an increase in the eligible funding for debris removal. After applying the new percentage to the costs claimed, the additional cost associated with eligible debris removal from public property is $6,155, increasing the eligible amount from $46,146.50 to $52,302.94. (See Table 1 below for a summary of costs).
Table 1
Summary of Ineligible Costs Associated with Debris Removal
Finding Debris Removal Costs Claimed by Applicant Amount disallowed due to documentation issues 1 Amount allowed based on 45% debris on public property 2 Amount allowed based on 51% debris on public property 2
A-1
$34,87 $876.00 $12,750.54 $27,056.46 $30,663.98
A-8 $19,207.25 $13,600.00 $2,523.26 $2,859.70
Totals = $27,449.11 $46,146.50 $52,302.94
Increase in eligible funding associated with debris removal: $52,302.94-46,146.50 = $6,155.50
Notes:
1) Applicant concurs with these amounts. These amounts are not under appeal.
2) Percentage applied to costs claimed by Applicant less the disallowed costs due to documentation issues.
Electrical Repair Work
The additional documentation, described in the Background section above, submitted with the Applicants appeal is sufficient to support the Applicants claim that the electrical work performed was necessary as the result of the disaster. Accordingly, an additional $9,135 in contract labor costs is eligible.
Contract Markups
The Applicant used a standing KDHE contract that reimburses the contractor the cost of its subcontractors plus a 10% administrative fee. The OIG determined that the contract is a cost-plus-percentage-of-cost type contract. Further, FEMA was unable to substantiate the reasonableness of the cost of this fee. The Applicant states that the contract was not a cost-plus-percentage-of-cost type contract, and the amount ($6,148) is reasonable. However, the Applicant provided neither the contract nor documentation supporting its claim that the cost is reasonable. Therefore, this portion of the appeal is denied.
CONCLUSION
For the reasons discussed above, the Applicants appeal is partially granted. Sufficient documentation has been submitted by the Applicant to support its claim for additional funding for debris removal from public property and for electrical work performed by its contractor. However, the costs associated with the debris removal from private property and the 10% markup on services provided by a subcontractor is ineligible. Accordingly, the amount of funding to be de-obligated from the Applicant is reduced from $122,030.92 to $106,740.12.
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