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Second Appeal Analysis
PA ID# 071-02E99-00; St. Mary’s Academy
PW ID# 17387; Procurement - Reasonable Costs
On August 29, 2005, heavy rains and wind from Hurricane Katrina caused significant damage to St. Mary’s Academy’s (Applicant) facility. FEMA determined that the facility was eligible for replacement because the damage exceeded 50 percent of the cost to replace the facility. As a result, the Applicant relocated its classrooms to a temporary facility. To secure the temporary facility, the Applicant contacted several security service firms via phone and email requesting bid proposals for three phases between August 7, 2007, and July 31, 2010. The Applicant selected First Choice Security for the first phase of procurement at a rate of $17.00/hour, L&R Security for the second phase at a rate of $17.00/hour, and Crescent Security for the third phase at a rate of $17.71/hour. FEMA prepared PW 17387 for Category B emergency protective measures, including security services provided at the Applicant’s temporary facility. Subsequently, FEMA approved seven versions of PW 17387, obligating funds for security services for the actual costs incurred in each phase.
On August 5, 2011, the Office of the Inspector General (OIG) issued OIG Audit DD-11-15 (Audit). The Audit found that, by soliciting bids from specific firms via email and phone, the Applicant did not allow open and free competition, and thus failed to comply with procurement procedures as required by 2 C.F.R. Part 215. Consequently, the OIG recommended that FEMA deobligate all the funding related to security services provided at the Applicant’s temporary facility. FEMA concurred with the OIG’s finding, but disagreed with the OIG’s recommendation, and resolved to award reasonable costs. Based on the bid proposals, FEMA determined the lowest rates among the proposals to be the reasonable costs. Specifically, FEMA elected $16.00/hour as the lowest rate for all three phases of procurement, based on a bid proposal from one of the firms—Day & Zimmermann Security. The OIG accepted FEMA’s resolution and closed the Audit on January 14, 2013.
On January 18, 2013, the Applicant submitted its first appeal to the Grantee, requesting that FEMA obligate $75,862.86 in actual costs. The Grantee transmitted the Applicant’s first appeal to FEMA Region VI on March 19, 2013, indicating its support of the appeal. As a basis for the appeal, the Applicant claimed that it had properly procured security services and that the actual costs incurred were reasonable.
On May 28, 2013, FEMA sent a Request for Information (RFI) requesting documentation on requests for proposals, bid comparisons, and correspondence. The Applicant responded to the RFI on June 27, 2013, and provided contract proposals from various firms without any written procurement procedures or documents reflecting the Applicant’s security services scope of work. Upon review of the RFI response, FEMA decided that the reasonable rate for services during the first phase was $16.50/hour rather than $16.00/hour based on another Day & Zimmermann Security bid proposal. Also attached to the Applicant’s response was a proposal from Day & Zimmerman Security during the second procurement phase showing a rate of $14.98/hour; FEMA determined that rate to be the basis for the reasonable cost during the second procurement phase. FEMA also determined that the reasonable rate for services during the third procurement phase was $15.00/hour, based on W&L Security’s proposal. W&L’s proposal only provided two guards. Essentially, FEMA selected the lowest rate in each phase based on the proposals received.
On April 21, 2014, the FEMA Region VI Regional Administrator (RA) denied the first appeal, finding that, by directly soliciting a select few security companies, the Applicant did not allow open competition and thus failed to properly procure the services as required under 44 C.F.R. 13.36. The first appeal decision also adjusted the hourly rates to match those deemed reasonable based on the Applicant’s response to the RFI, further deobligating $40,089.77.
On August 29, 2014, the Grantee transmitted the Applicant’s second appeal letter dated July 1, 2014, indicating its support of the appeal. In its second appeal, the Applicant reiterated its first appeal position that it properly procured security services and that the actual costs incurred were reasonable, requesting a total of $115,952.86. The Applicant believes that it complied with 2 C.F.R. § 215.43 by selecting the responsive bids, 2 C.F.R. § 215.44(b) in utilizing a small business which is minority owned, and 2 C.F.R. § 215.44(d) by using a contractor who possessed the potential ability to perform successfully. The Grantee asserted that (1) this appeal should not be a second appeal because FEMA made new determinations by applying hourly rates different from those relied upon previously and (2) 2 C.F.R. Part 215 rather than 44 C.F.R. Part 13 applies in this instance. The following table summarizes all transactions:
Total Actual Costs Incurred per Invoices
Amounts FEMA Deemed Reasonable after OIG Audit
Total Amounts Obligated (PW Versions 0 - 4)
(Not obligated) and (Deobligated) Amounts Requested on First Appeal
Obligated and (Deobligated) Amounts Based on RFI Response
(Not obligated) and (deobligated) Amounts Requested on Second Appeal
Second Appeal Meeting
On May 11, 2015, FEMA held a meeting with the Applicant. The Applicant’s counsel appeared in person, along with representatives of the Grantee. The Applicant participated by phone. At the meeting, the Applicant stated that it performed an internet search of available security companies and contacted each company via email and telephone. Various factors affected bid selection, including a requirement by FEMA that the Applicant have a guard shack at the temporary facility. Other considerations were whether the company was minority-owned, women-owned, or a small business. The Applicant also analyzed the costs under each price structure, particularly demonstrating that selecting Day and Zimmerman during the first and second phases would result in increased costs of nearly $100,000.00 due to the way this contractor charged for overtime work. After the meeting, FEMA requested that the Applicant provide the complete list of companies generated by the internet search as well as requests for proposals sent to the companies. The Applicant stated that they had computer problems when updating some software components, but would try to find the documentation. At the end, the Applicant did not find the information but provided an affidavit stating that it complied with procurement standards.
No New Determinations
The Grantee asserts that FEMA made new determinations on first appeal when it found $16.50/hour, $14.98/hour, and $15.00/hour, rather than $16.00/hour, to be the lowest rates for security services. As such, the Grantee avers that the first appeal decision should not be subject to a second appeal as FEMA relied on a new standard, hence a new determination.
The Grantee’s claim that FEMA made “a new determination [by] employing a standard of reasonable cost which had not been previously disclosed to the Applicant” is flawed. FEMA used the lowest rate from each phase as the basis for reasonable costs prior to the Applicant’s first appeal and revised the rates based on the documentation that the Applicant provided in response to the RFI. The revised rates were not a new standard. The Applicant was aware that FEMA selected the lowest rate as the basis for determining reasonable costs when it filed its first appeal and should have known that providing documentation showing rates even lower than the $16.00/hour previously relied upon could potentially result in FEMA revising its determination of the reasonable rates. Thus, this issue is properly on second appeal.
Applicability of 2 C.F.R. Part 215
The Applicant correctly states that FEMA Region VI applied the incorrect Federal procurement requirements. Part 215 establishes uniform administrative requirements for grants awarded to private non-profits (PNPs). Where state and local governments provide subawards to PNPs, Part 215 applies.  Thus, FEMA Region VI should have applied the Federal procurement requirements found in 2 C.F.R. Part 215 (for institutions of higher education, hospitals, and other private nonprofit organizations) instead of the requirements found at 44 C.F.R. § 13.36 (for States, local and Indian tribal governments). However, since both sets of regulations require open competition as a condition for proper procurement, Region VI’s error is inconsequential because regardless of whether Part 13 or Part 215 applies, the Applicant still failed to comply with open competition requirements.
Compliance with Procurement Requirements
Open and Free Competition
Regulation mandates that services are procured in compliance with open competition requirements. All procurement transactions must be conducted in a manner that provides, to the maximum extent possible, open and free competition. Solicitations must clearly set forth all requirements that the bidder must fulfill. Although not defined in the regulation, “open and free competition” generally means that a complete requirement is publicly solicited and all responsible sources are permitted to compete. Therefore, to comport with this requirement, an applicant must substantiate that it openly solicited bids and that the solicitations clearly set forth the parameters of the work.
Here, the Applicant did not substantiate open and free competition. The Applicant contacted several security firms via telephone and email. The list of companies was generated via an internet search and the companies were solicited following this list. The Applicant, however, could not produce the internet list, nor could it provide the solicitations, except one email sent to L&R Security services. Instead, the Applicant only provided an affidavit stating that its statements were true. Based upon review of the record, FEMA does not find that the Applicant adequately demonstrated it provided open and free competition to the maximum extent practicable.
The Applicant did not fully comport with all procurement procedures as required under 2 C.F.R. § 215.44. The section provides that: (1) an applicant must establish written procurement procedures including the requirements to be fulfilled by the bidder; (2) an applicant must make positive efforts to utilize small, minority-owned, and/or women-owned businesses; (3) the procurement instruments must be appropriate (i.e. fixed-price contract in this case); (4) contracts must be made only with responsible contractors; and (5) where an applicant’s procurement procedures fail to comply with the procurement standards, the applicant must make available to FEMA procurement documents such as requests for proposals or invitations for bids, or independent cost estimates.
In this instance, the Applicant made positive efforts to utilize small, minority-owned, and/or women-owned businesses by soliciting bids from First Choice Security (small and minority-owned business), L&R Security Services (small, minority-owned business), and Crescent Security (small, minority-owned, and women-owned business). The Applicant also had the appropriate fixed-price procurement contract made with responsible contractors who possessed the ability to carry out the Applicant’s requirements. However, the Applicant did not submit its written procurement procedures to FEMA. Because the Applicant also did not comport with open and free competition, its procurement fell short of Federal procurement standards triggering the requirement that the Applicant submit procurement documents, upon FEMA’s request. In spite of FEMA’s repeated requests, the Applicant did not provide such documents. Thus, the Applicant did not adequately fulfill the Federal procurement requirements.
Cost or Price Analysis and Record Retention
Regulation requires applicants to maintain records showing the basis for contractor selection, justification for lack of competition, and basis for the award cost or price. The Applicant performed a thorough cost and price analysis. However, given the fact that the Applicant could not substantiate open and free competition, the Applicant did not retain records justifying the lack of competition. The Applicant submitted bid proposals from the select companies from which it solicited bids without establishing the criteria under which the bids were requested. None of the documentation that the Applicant submitted to FEMA provides justification for the lack of open and free competition, as required by 2 C.F.R. § 215.46.
Where an applicant does not follow proper procurement standards, FEMA has the authority to deobligate all funding or, as an alternative, award reasonable costs. Pursuant to OMB Circular A-122, “a cost is reasonable if, in its nature or amount, 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 costs.” Price is not the only factor considered in determining reasonable cost. An applicant must award to contractors “whose bid or offer is responsive to the solicitation and is most advantageous to the recipient, price, quality and other factors considered.” Such matters as contractor integrity, compliance with public policy, record of past performance, and financial and technical resources are considered in determining the contract that is most advantageous to the applicant.
To determine whether the Applicant acted reasonably, FEMA requested documentation such as the Applicant’s request for proposals, records associated with bid evaluations, documentation on advertising, and other evidence supporting the Applicant’s procurement action. The Applicant provided bid proposals and presented a thorough analysis of each bid proposal including considerations of bid responsiveness and compliance with the regulations.
For the first and second phase, a closer look at Day and Zimmermann’s bid proposal, which was the lowest rate for two of the phases, reveals that it would only provide 60 hours per week, after which higher overtime rates would take effect. Selecting Day and Zimmermann would result in increased total costs of nearly $100,000.00. Similarly, for the third phase, W&L Security’s low rate was only for two guards, and therefore was not selected.
The Applicant also took into account FEMA’s request that the Applicant select a security company that provided a guard shack. As a preliminary matter, the Applicant asked each bidder whether it offered a guard shack as required by FEMA. The Applicant selected only those companies which comported with that requirement.
Given all of these considerations, the Applicant incurred reasonable costs. As such, the Applicant will be awarded actual costs.
The Applicant did not follow the Federal procurement standards prescribed in 2 C.F.R. Part 215 in contracting for security services at St. Mary’s Academy’s temporary facility from August 2007 to July 2010. Specifically, the Applicant did not demonstrate that it afforded open and free competition and could not provide documentation justifying the lack of open and free competition. However, the Applicant demonstrated that the actual costs incurred were reasonable. As such, FEMA will reimburse the Applicant’s actual costs in the amount of $115,952.86.
 Following the first appeal denial, FEMA prepared PW 17387 Version 7, adjusting the rates and correcting a previous mathematical error of $7,734.54, resulting in a net deobligation in the amount of $32,355.23.
 This is the difference between the costs incurred and the amount obligated.
 This is the excess amount obligated over the reasonable amount.
 This is the excess amount obligated over the reasonable amount.
 The Applicant requested a rounded up value of $40,090.00.
 Due to rounding, the Applicant requested a slightly different total amount of $115,952.86 ($75,862.86 + $40,090.00).
 Affidavit of Pamela Rogers (June 2, 2015).
 2 C.F.R. § 215.1 (2005).
 2 C.F.R. § 215.0(b)(3).
 2 C.F.R. § 215.44(a)–(e).
 2 C.F.R. 215.62(a)(5); See FEMA Second Appeal Analysis, Bluebonnet Electric Cooperative, Inc., FEMA-4029-DR-TX, at 3 (May 20, 2014).
 Office of Mgmt. & Budget, Exec. Office of the President, OMB Circular A-122, Cost Principles for Non-Profit Organizations (2004).
 2 C.F.R. § 215.43; see 2 C.F.R. § 215.44(d).
 2 C.F.R. § 215.44(d).