Cleaning Storm Drains

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1603
ApplicantCity of New Orleans
Appeal TypeSecond
PA ID#071-55000-00
PW ID#3715
Date Signed2008-02-05T05:00:00
Citation: FEMA-1603-DR-LA; City of New Orleans
Cross-reference: Reasonable cost; cost-plus-percentage-of-cost contract; storm sewer cleaning

Summary: The City of New Orleans (City) solicited contracts to remove disaster-related sediment from its storm sewer system. Only one responsible bidder responded – its current standby contractor. The City amended its then-existing contract with Montgomery Watson Harza for $24,664,161 to perform the work over a 36-day period. It amended the contract again for $9,654,061 to clean storm sewers during an additional 30-day period. The City requested reimbursement of $34,318,222 from FEMA. FEMA determined that the costs were unreasonable and the City had not documented some of the claimed costs. FEMA evaluated the reasonableness of cost because there was only one responsible bidder for the work and the City used a cost-plus-percentage-of-cost contract, which is prohibited by 44 CFR Part 13. FEMA approved $17,128,639 in version 0 of PW 3715 and $2,362,156 in version 1. In response to the first appeal, the Regional Administrator approved and obligated an additional $4,558,683 in version 2 of PW 3715. FEMA has obligated a total of $24,049,479 for the project to date. The City submitted a second appeal requesting an additional $10,268,744.
Issues: Has the Applicant provided documentation to show that all of it claimed costs are reasonable?

Findings: Yes.

Rationale: 44 CFR 13.36

Appeal Letter

Colonel Thomas Kirkpatrick (Ret)
State Coordinating Officer
Governor’s Office of Homeland Security
and Emergency Preparedness
415 North 15th Street
Baton Rouge, Louisiana 70802

Re: Second Appeal – City of New Orleans, PAID # 071-55000-00, Cleaning Storm Drains, FEMA-1603-DR-LA, Project Worksheet (PW) 3715

Dear Col. Kirkpatrick:

This is in response to your letters dated June 22 and October 2, 2007, which transmitted the reference second appeal on behalf of the City of New Orleans (City). The City appealed the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) decision to deny the City’s request for an additional $10,268,774 for cleaning storm drains following Hurricane Katrina.

As discussed in the enclosed appeal analysis, I have determined that the City has demonstrated that the costs it incurred in cleaning storm drains throughout the city are reasonable. Therefore, I am approving the City’s request for an additional $10,268,774. By copy of this letter, I am requesting that the Director of the Louisiana Transitional Recovery Office take appropriate action to implement this determination.

Please inform the City of my determination. My determination is the final decision on this matter pursuant to 44 CFR 206.206.

Sincerely,
/s/
Carlos J. Castillo
Assistant Administrator
Disaster Assistance Directorate

Enclosure

cc William Peterson
Regional Administrator
FEMA Region VI

Jim Stark
Director
Louisiana Transitional Recovery Office

Appeal Analysis

BACKGROUND:

In the wake of Hurricane Katrina, the City of New Orleans (City) determined that its storm drainage system had been partially clogged by silt and debris. As a result, the U.S. Army Corps of Engineers (USACE) initiated emergency storm cleaning on September 20, 2005. The USACE subsequently transferred these efforts to the City. The City contacted three companies with which it had prior experience related to the storm drainage infrastructure. In the absence of information on the actual conditions of the drainage system, the City decided to contract for a defined level of effort rather than negotiate unit rates. Two of the firms declined to bid, citing inadequate available assets. However, both were able to assist the City by entering into subcontract agreements with the successful bidder. The City received a price proposal from the third firm, its then-current contractor- Montgomery, Watson and Harza Americas, Inc. (MWH). Following review and discussion of the pricing proposal, the City contracted with MWH to clean its storm drainage system. The City amended its contract with MWH (Amendment 9) to provide these services at the price of $24,664,161, covering a 36-day period. In November 2005, the City reviewed the progress of the initial 36-day cleaning effort and determined that additional efforts were required to address the remaining clogged storm drainage system. This decision resulted in the City amending the contract with MWH (Amendment 10) to provide services for an additional 30 days at a cost of $9,654,061. The City submitted MWH’s reformatted invoices to FEMA in December 2005 and January 2006.

FEMA reviewed the City’s request for reimbursement and determined that the City had used a cost- plus-percentage-of-cost (cost plus) contract, instead of a fixed price method. The use of cost plus contracts is prohibited by 44 CFR 13.36(f)(4). Since the work was eligible, FEMA had to determine if the contract costs were reasonable. FEMA used an existing, pre-disaster storm-drain maintenance contract as its source to establish reasonable unit rates to clean each catch basin and linear foot of drain lines. Accordingly, FEMA approved only $17,128,639 of the requested amount of $24,664,161 in Version 0 of PW 3715 for the first 36-day period. FEMA approved $2,362,157 of the requested amount of $9,654,061 in Version 1 of the PW for the additional 30-day period. The City did not agree with FEMA’s determination and appealed the decision. The State forwarded the City’s appeal in a letter dated September 12, 2006.

In the first appeal the City and State disagreed with FEMA’s determination that the City’s contract with MWH was a cost plus contract. The City also argued that FEMA used an inappropriate process to calculate reasonable costs that it would provide to the City in light of its having entered into a prohibited cost plus contract. Finally, the City claimed that the PW contained errors and omissions which inappropriately reduced the amount of funding that FEMA provided to the City.

FEMA responded to the City’s first appeal in a letter dated November 21, 2006. FEMA confirmed its determination that the City had entered into a cost plus contract with MWH and that it was appropriate to use a pre-existing storm-drain maintenance contract to establish reasonable costs for the purposes of calculating the amount of funding that the City was eligible to receive. FEMA disagreed with the allegation that there were material errors and omissions in the PW. However, based on additional documentation presented to verify eligible work and the fact that MWH provided project management oversight for the project, FEMA partially approved the City’s first appeal, granting an additional $4,558,683. The City did not agree with FEMA’s partial approval and submitted its second appeal in a letter dated January 29, 2007. The State forwarded the appeal to FEMA in a letter dated June 22, 2007.

DISCUSSION:

The City provided the following arguments to support its appeal.
1. FEMA incorrectly determined that the City entered into a prohibited cost plus contract.
2. FEMA used an inappropriate procedure to calculate reasonable costs in the context of the City’s cost plus contract.
3. FEMA erroneously concluded that the City failed to perform a cost analysis pursuant to 44 CFR 13.36(d)(4)(ii).
4. FEMA did not reimburse the City for all of the catch basins and storm drainpipes that were cleaned by the City’s contractor.
5. FEMA’s reasonable cost analysis did not include costs for cleaning manholes. And,
6. FEMA miscalculated the City’s invoice totals.
The balance of this discussion will address each of these arguments in the order summarized above.
1. Was the Applicant’s Contract a Cost Plus Contract?

The Applicant’s contract with MWH stated that the Applicant would pay MWH thirteen (13) percent of cost incurred on the project as profit. This meets the definition of the cost plus contract.
2. Did FEMA Calculate Reasonable Costs Properly?

In establishing reasonable costs for this project, FEMA researched historical documentation for similar work, the average cost for similar work that was being performed in the area and FEMA Cost Codes. Based on this research, FEMA determined that using a pre-Katrina maintenance contract as a “historical“ document with a similar scope of work and adequate unit costs was reasonable.

FEMA reimbursed the City for completed work utilizing a local pre-Katrina maintenance contract between the City and Compliance Envirosystems, LLC (CES). FEMA used this pre-Katrina contract because CES was a prime subcontractor for MWH, and CES performed the majority of the completed work. FEMA’s rationale for using pre-Katrina unit costs was that the pre-Katrina maintenance contract was executed as a task order contract, which required services to be rendered intermittently over an extended period of time. In contrast, the post-Katrina environment required services to be rendered continuously, without the significant mobilization costs associated with random maintenance and cleaning. In summary, FEMA believes that the process it used to calculate reasonable costs was appropriate.

3. Did the City Perform a Cost Analysis Pursuant to 44 CFR 13.36(d)(4(ii)?

In situations where there is inadequate competition before a contract is awarded, an applicant must perform a cost analysis pursuant to 44 CFR 13.36(d)(4)(ii). The City argues that it performed a cost analysis. However, it did not provide any information to substantiate this claim. FEMA concluded that the City did not perform a cost or price analysis. Therefore, the City failed to comply with the mandates of 44 CFR 13.36(d)(4)(ii) and there is no merit to this aspect of the City’s second appeal.
4. Has FEMA Reimbursed the City for All of the Contractor’s Work?

The City and State’s contention that FEMA did not reimburse the City for the actual number of catch basins and amount of storm drainpipe cleaned is based on an audit the City performed to verify the work performed by MWH. The City claims that MWH cleaned 67,775 catch basins, rather than the 47,300 catch basins included in the Project Worksheet. Additionally, the City claims that MWH cleaned 3,256,019 linear feet of pipe, rather than the 2,393,002 linear feet estimated by FEMA. The State contends that it performed an analysis of the City and its contractor’s financial records related to the cleaning of catch basins and drainage pipe. The State’s analysis determined that production logs support the cleaning of 62,360 catch basins; that 82% of the pipe was greater than 90% clear of debris; and that 90% of the pipe was greater than 50% clear of debris. The State belaspe.

On December 11-17, 2007, FEMA representatives met at the MWH New Orleans office to validate data collected during the storm sewer cleaning activities. The purpose of the validation was to establish the accuracy of the data presented in the MWH Geographic Information System (GIS) database, which detailed work conducted during the project. The data was formatted such that each catch basin, manhole, and drain line segment had a unique identification number and was considered a unique data point.

A random sample of each of the three separate data types (catch basin, manhole, and line segment) was selected by using the Microsoft Access programs random sample selection function. The sample size was selected to assure statistical validity based on the total data population size. Once selected, the data point location was printed out and the original field records were reviewed for each data point. The field records consisted of truck drive field notes/logs, MWH Quality Control/Quality Assurance (QA/QC) field staff notes/logs, and MWH Project Coordinator field notes/logs and maps.

The field notes were reviewed first to determine if the notes indicated that the contractor was on the street working on the day indicated in the GIS database. Next the notes were reviewed for evidence that the particular catch basin, manhole, or drain line segment was either drawn in the field map, or mentioned in the actual text of the field notes. The presence of either occurrence (drawing or text) was considered as an indication that the structure in question was cleaned. After the review the field records for each sample data point was copied and filed. Field records that could not be located or did not indicate a particular structure by drawing or text was not considered as being documented. It should be noted that the lack of documentation does not mean that the work outlined in the GIS database was not conducted; it only indicates that the support documentation could not be located.

Based on FEMA’s review, it appears that the units sampled in the MWH GIS database are accurate and are supported reliably and consistently by the field documentation. The validation indicated that overall 91.7% of the GIS sample points selected had supporting field notes/logs confirming that the work outlined in the database was in fact performed. The MWH database appears to be a reliable summation of the work completed. FEMA reviewed the quantities claimed by the City and State and used the results of the random sample to determine that the City can be reimbursed for cleaning 62,360 catch basins and 2,389,500 LF of drain lines.
5. Did FEMA’s Cost Analysis Include the Cost of Cleaning Manholes?

The City and State argue that FEMA’s reasonable cost analysis did not include the costs for manhole cleaning. The City’s contractor contends that it also inspected and cleaned 21,534 manholes at an additional cost of $7,536,900. The contractor believes that FEMA failed to factor this work into the cost analysis.

During its initial review of the City’s documentation, FEMA discovered that two original invoices presented by MWH did not include manhole cleaning as a separate line item. MWH’s invoice #1 requested reimbursement for 44,300 catch basins and 1,770,000 linear feet of pipe. Invoice #2 requested reimbursement for 3,000 catch basins and 1,623,000 linear feet of pipe. After analyzing the information from the subcontractors’ daily logs and inspection reports, FEMA found some evidence of inspection and manhole cleaning. Initially it was difficult to determine the number of manholes cleaned because the City’s records combined the number of catch basins cleaned with the number of manholes cleaned. As previously referenced, FEMA conducted a random sample of the MWH GIS database, which included data points for manhole cleaning. Based on the results of the random sample, FEMA has determined that the City can be reimbursed for cleaning 17,636 manholes. FEMA used the reasonable unit price established for catch basin cleaning for manhole cleaning as well.

6. Did FEMA Miscalculate the City’s Invoices?

The City argues that both the State and FEMA have totaled the invoiced amounts incorrectly. FEMA conducted a thorough review of the invoices for this project during the evaluation of the second appeal.

CONCLUSION:
FEMA has determined that the City is eligible to receive reimbursement for cleaning 62,230 catch basins, 2,389,500 LF of drain lines, and 17,636 manholes. The City has submitted sufficient justification to show the $34,318,222 it incurred to clean the City’s storm drains, catch basins and manholes is reasonable. Therefore, the City request for an additional $10,268,744 is approved.
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