Insurance, Force Account Labor – Overtime Labor Costs, Force Account Labor – Regular Time Labor, Increased Operating Expenses, Private Nonprofit

Appeal Brief

Appeal Letter

Appeal Analysis

Background

On August 13, 2004, Hurricane Charley caused damage to an adult care building (Facility) owned by The Opportunity Center, Inc. (Osceola Association for Retarded Citizens, Inc.) (Applicant), a Private Nonprofit (PNP).[1]  The hurricane caused two trees to fall on the building, damaging the roof and causing water damage to the interior of the Facility.  In addition, the alarm system, security system, ductwork, two air conditioners, electrical system and fixtures were damaged beyond repair and required replacement.[2]  FEMA prepared Project Worksheet (PW) 7081 to document the damage and associated costs to repair the Facility.  The estimated costs totaled $498,542.70, with anticipated insurance proceeds of $400,000.00.  FEMA prepared PW 7081 Version 1 for $98,542.70 in Public Assistance (PA) funding to cover the difference.  At closeout, the Applicant provided FEMA with documentation demonstrating that actual costs totaled $488,673.33[3] and actual insurance proceeds were $468,673.33, with the Applicant paying a $20,000.00 deductible.  FEMA prepared PW 7081 Version 2 noting a cost underrun amount of $78,542.70.00, which reflected the estimated PA funding less the deductible paid by the Applicant.  On October 21, 2014, FEMA notified the Florida Division of Emergency Management (Grantee) that PW 7081 was closed.

First Appeal

The Applicant appealed FEMA’s closeout determination in a letter dated March 3, 2015, claiming it incurred various disaster related expenditures not covered by insurance and those expenses should have been included on PW 7081.[4]  The Grantee transmitted the Applicant’s first appeal in a letter dated April 16, 2015 and offered its support of the Applicant’s claims.[5]

FEMA sent a final Request for Information (RFI) on February 1, 2016.  In its letter, FEMA requested the following: (1) copy of the insurance policy in effect at time of disaster; (2) either a Statement of Loss or a coverage denial letter from the insurer; (3) copies of invoices and receipts for claimed additional expenses; (4) documentation supporting eligibility for phone, storage and temporary relocation costs; (5) payroll information for all force account employees, including both regular and overtime rates and fringe benefits information; (6) pay and overtime policy; and (7) names and titles of employees and corresponding time sheets.[6]

The Applicant responded to the RFI on February 9, 2016 and included an incomplete copy of its insurance policy.  The Applicant explained that the insurance company did not cover the costs associated with removal of the trees that fell on the Facility, nor did it cover those costs associated with repairing a fence and other safety measures.  According to the Applicant, many items (e.g., fixtures, appliances, etc.) were the responsibility of the contractor, but the contractor did not supply all services and the insurance company paid “what it intended to,” indicating that the insurance company would not pay additional insurance proceeds.[7]  Finally, the Applicant had to replace and repair inferior work completed by the contractor.  On March 2, 2016, FEMA contacted the Grantee requesting the Statement of Loss or denial of claims from the Applicant’s insurance company, which the Applicant had stated in its RFI response were included, but were not.  FEMA did not receive a response to the request.[8]

The FEMA Region IV Regional Administrator (RA) denied the appeal, determining that the Applicant did not provide documentation to support FEMA’s reimbursement of the costs presented on appeal.  The Applicant did not provide documentation to support that its insurance company denied the extra expenses claimed, and also failed to provide a breakdown of the costs covered by the $468,673.33 in insurance proceeds.  As such, the RA could not conclude the costs for repair, tree removal, contents, equipment, and appliance replacement, storage and temporary relocation were not already covered by the insurance proceeds.  Additionally, while the contractor did not deliver items which were included in its cost estimate, these items were covered by the insurance policy.  She concluded it was the Applicant’s responsibility to enforce its contract and FEMA could not duplicate benefits available from insurance.  With regard to the Applicant’s phone charges, the RA found the costs to be ineligible increased operating expenses.  Finally, the RA determined that the Applicant did not provide adequate documentation to support the costs associated with the force account labor claimed.  She noted that the documentation reflected only one hour of overtime in the amount of $15.16, but could not find the amount eligible because requested pay and overtime policies were not submitted.  The RA also found that the first appeal was untimely because FEMA notified the Grantee on October 21, 2014 that the PW was closed and the Applicant did not appeal until March 3, 2015, outside the 60-day timeframe allotted to submit appeals.  The Grantee’s first appeal transmittal letter was dated April 16, 2015 and FEMA received it on the same day.

Second Appeal

In a letter dated July 20, 2016, the Applicant appeals the RA’s decision.  In its appeal, the Applicant reiterates its prior claims that: (1) the additional expenses should have been included in the PW; (2) FEMA personnel advised it multiple times that FEMA would reimburse the expenses; and (3) the expenses were not covered by insurance.  The Applicant argues that it did not know signing grant closeout documents would affect the appeal and a FEMA employee stated it would not affect the appeal (indicating that timeliness of its first appeal would not be impacted).  The Applicant further claims that it could not enforce its contract because when it attempted to do so, the contractor stopped work and filed a lien against the Applicant, providing no choice but to repair the items itself, with the promise of FEMA reimbursement.

In an August 29, 2016 letter, the Grantee concurs, while also emphasizing the intent of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) to provide an orderly and continuing means of assistance.  The Grantee asserts that for FEMA to not reimburse such costs to attain full functionality would be counter to the Stafford Act’s purpose.

Discussion

Timeliness

Pursuant to the Stafford Act § 423, an Applicant may appeal any decision regarding eligibility for, from, or amount of PA funding within 60 days of being notified of the award or denial of the award.[9]  Neither the Stafford Act nor its implementing regulation, Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.206(c)(2), provides FEMA authority to grant time extensions for filing appeals.[10]

FEMA notified the Grantee on October 21, 2014 that PW 7081 was closed.[11]  The Applicant did not appeal FEMA’s determination until March 3, 2015 and FEMA did not receive it, along with the Grantee’s written recommendation, until April 16, 2015.  The Grantee, however, did not notify the Applicant until January 13, 2015, when it sent a letter informing the Applicant of FEMA’s determination and the Applicant’s right to appeal.[12]  Although the exact date when the Applicant received notification is uncertain, the Applicant appealed within 60 days of the Grantee sending the notification.  Therefore, the Applicant appealed FEMA’s determination within the 60-day timeframe. 

Insurance

The Stafford Act Section 312 prohibits a business or other entity from receiving assistance with respect to any part of such loss as to which he has received financial assistance under any other program from insurance or any other source.[13]  Accordingly, disaster assistance will not be provided to repair damage covered by insurance.[14]  Assistance provided by FEMA is intended to supplement assistance from other sources.[15]  Thus, insurance proceeds should be an applicant’s first avenue for disaster assistance.[16]  An adjustment for the amount that an applicant is anticipated to receive from insurance coverage is required even if the applicant has not completed negotiations with the insurer.[17]  Therefore, the anticipated or actual insurance proceeds will be deducted from otherwise eligible costs.[18]  As such, an applicant needs to provide information concerning insurance recoveries to FEMA, including copies of all applicable policies.[19]  FEMA will then review the insurance information and determine whether the settlement appears proper in terms of the provisions of the policy.  FEMA may limit funding if the “policy provides coverage, which should be pursued from the insurer.”[20]  Finally the grantee is responsible for the settlement and satisfaction of all contractual and administrative issues arising out of procurements entered into in support of an award or other agreement, including disputes, claims, protests of award, source evaluations or other matters of a contractual nature, and will not have recourse with FEMA.[21]

The Applicant argues that $45,215.27 in costs for the building repair, tree removal, contents, equipment and appliance replacement, and $5,109.59 for storage and temporary relocation costs were not covered by its insurance company and that FEMA should have included those expenses in PW 7081.  The Applicant also indicates that while some or all of the costs may have been covered by insurance, its contractor refused to supply all services and equipment listed, and the Applicant was required to complete the work.[22]

Review of the insurance documentation in the administrative record reveals several missing insurance documents: (1) the commercial property insurance policy; (2) Statement of Loss describing the costs covered by the $468,673.33 in insurance proceeds;[23] and (3) the insurance carrier’s denial of coverage.  Without the commercial property insurance policy, FEMA cannot determine if the claimed costs were covered by the Applicant’s insurance policy.  Without the Statement of Loss, FEMA is unable to verify the actual insurance proceeds covered and received, the coverage the insurance company accepted and paid, and the facility location.  While the Applicant included the insurance policy’s Statement of Values, which identifies the insured buildings, FEMA cannot correlate the coverage and payment without the Statement of Loss.  Finally, the insurance carrier’s denial of coverage would state the reasons for denial, and so FEMA cannot verify if the applicant met the terms and conditions of the policy or if any policy exclusions applied.  FEMA is therefore unable to determine if the $45,215.27 in costs for the building repair, tree removal, contents, equipment and appliance replacement, and $5,109.59 for storage and temporary relocation costs were previously reimbursed by the insurance company. 

In addition, while FEMA is sympathetic to the Applicant’s situation and assertion that the contractor may have refused to complete work paid for by the insurance company, Stafford Act Section 312 precludes it from reimbursing expenses otherwise covered by insurance.  To that point, the administrative record includes the Applicant’s contractor supplied cost estimate, which includes most of the appealed items, as well as a signed agreement between the Applicant and insurance company authorizing the insurer to directly pay the contractor for the cost of repairs, subject to the terms and conditions of the insurance policy.[24]  As such, the Applicant has a means of seeking redress through its insurance company, rather than from FEMA.  The Applicant also requests PA funding to repair and replace inferior work performed by the contractor.  Again, and for the same reasons, the appropriate means for the Applicant to address the contractor’s refusal for purchasing fixtures and appliances or performing subpar work is through its insurance claims department or other legal remedies. 

Operating Expenses - PNP

According to 44 C.F.R. § 206.225, emergency protective measures that eliminate or lessen immediate threats to lives or improved property, or which protect public health and safety, are eligible for FEMA funding.[25]  Temporary facilities are considered an emergency protective measure.[26]  However, this is distinct from the costs of operating a facility or providing a service, which may increase due to or after a disaster, and are not typically eligible for PA funding.[27]  Specifically, operating costs for PNP services are not eligible, even if increased by the disaster event.[28]  In this instance, the $8,129.61 claimed by the Applicant for phone charges were related to setting up and utilizing the phone system at a temporary location following the disaster.  The phone charges are increased operating costs and are not eligible for PA funding.[29]  In addition, the Applicant has Business Interruption (BI) coverage with “Extra Expense” coverage which is meant to cover extra expenses over and above normal operating expenses to continue daily services such as relocation expenses to a temporary location.  Extra Expense may also cover the phone set up fees, and storage fees, but without having a denial letter from the insurance company or the insurance policy, FEMA could not verify with certainty that the $5,109.59 for storage and temporary relocation cost, and $8,129.61 in phone set up charge or $3,200.80 in force account labor would be covered by the Applicant’s BI or Extra Expense Policies.[30] 

Force Account Labor

Force account labor costs associated with conducting eligible work may be claimed at an hourly rate.[31]  Labor rates can include actual wages paid plus fringe benefits paid or credited to personnel.[32]  For permanent work performed by an applicant, both regular time and overtime, are eligible for all employees[33] but the expenses must be adequately documented with supporting source documentation.[34]  Additionally, appeals must contain documented justification supporting an applicant’s position.[35]  Reflective of such, FEMA relies upon the administrative record, which includes documentation submitted by the Applicant.  The burden to fully substantiate appeals hinges upon the Applicant’s ability to produce not only its own records but to clearly explain how those records should be interpreted as relevant to supporting the appeal.[36] 

In this instance, the administrative record includes: (1) the Applicant’s breakdown of costs for employee labor in the amount of $3,200.80 for the weeks of August 12 and August 18, 2004; and, (2) the Force Account Labor Summary Record prepared by FEMA noting several employees worked the weeks of August 12 and August 17, 2004, with only one employee working overtime during that period and for only one hour.  The employee’s hourly overtime rate was $15.16.   

In previous reviews of this same information, FEMA explicitly expressed that the Applicant’s support documentation lacked specificity[37] and did not validate overall eligibility.  The Applicant provided time sheets which demonstrate only one instance of overtime and for only one hour, but offers no additional information to demonstrate that the $15.16 in overtime or the rest of the $3,200.80 in employee labor costs are eligible.  Therefore, the force account labor costs claimed are not eligible. 

Conclusion

The Applicant’s first appeal was timely.  However, the Applicant did not demonstrate that the expenses claimed on second appeal were not a duplication of insurance benefits.  The claimed phone charges are ineligible increased operating expenses and the Applicant did not substantiate its second appeal with documentation justifying force account labor eligibility.