Conclusion: The engineering fees are not reasonable as they were negotiated as a percentage of the initial total construction cost, and were not adjusted once the scope of work was reduced, as allowed in the contract. FEMA Cost Curve B is used to calculate the engineering fee, reducing eligible costs from $171,499.00 to $108,574.07, and denying the appeal.
The Applicant is appealing FEMA’s denial of $171,499.00 for engineering design services because the fee was determined using an estimated higher construction project cost rather than the lower actual cost. Hurricane Katrina destroyed a segment of Beach Boulevard, an FHWA roadway, that had Applicant owned utilities buried beneath. PW 954, awarded for $6,689,898.00, included $506,998.00 for estimated engineering costs. The engineering agreement contained a cost range of $342,998.00 to $537,398.00. After the engineers started work, the Applicant reached a multi-agency agreement that combined the utilities work and the FHWA road work into a single project. The Applicant paid a total of $342,998.00 for the engineering services. At closeout, along with action on other items, FEMA awarded engineering fees of $171,499.00—because the completed scope included FHWA work. The Applicant appealed, arguing that the joint project significantly reduced the overall project costs and that the engineering scope was formulated as a standalone project. FEMA’s Region IV Regional Administrator (RA) partially approved the appeal for $79,594.06, awarding additional funds for questioned engineering hours, quantity overruns, survey costs and work on a sea wall, a utility box and a large concrete structure. The RA denied the request to fund street lighting conduit and striping and an additional $171,499.00 for engineering fees. The Applicant submitted a second appeal for the engineering fees, adding a justification memorandum from an engineer. FEMA finds that the actual costs of the engineering scope of work are not reasonable as they were negotiated as a percentage of the initial total construction cost, and were not adjusted once the project was reduced. A cost reasonableness analysis was performed using Cost Curve B. The cost curve amount is 5.75 percent of the $1,888,244.73 actual cost for the utilities portion of the joint project. The appeal finds eligible engineering costs to be $108,574.07—a $62,924.93 reduction—based on Cost Curve B.
Authorities and Second Appeals
- Stafford Act § 406(a)(1)(A), 705(c).
- 44 C.F.R. § 206.223(c).
- OMB Circular A-87.
- PA Guide at 75-76, 78.
- The Stafford Act § 406(a)(1)(A) authorizes FEMA to make contributions to a local government for the reconstruction of a public facility destroyed by a major disaster.
- The basic engineering and design services normally performed by an architectural-engineering firm on construction projects are eligible for reimbursement.
- OMB Circular A-87 defines a cost reasonable if it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time.
- The engineering fees are unreasonable because the contract should have been amended when project became less complex.
- The PA Guide states that if actual costs are unknown the FEMA cost curves may be used to establish reasonable design service costs.
- Curve B establishes 5.75 percent of the $1,888,244.73 construction price, $108,574.07.
- Section 705(c) of the Stafford Act prohibits FEMA from recovering payments if certain criteria are met.
- Section 705(c) does not apply because the costs were unreasonable.