Procurement – Reasonable Costs – Direct Administrative Costs

 

In order to remove debris deposited throughout the cities of Nicholasville and Wilmore and Jessamine County (Applicants) from 2009 winter storms, through a request for proposal (RFP) the County solicited quotes for work associated with debris removal and disposal.  It received nine bids by the deadline, and awarded the contract to CMC, a local contractor already performing debris work on a time and materials basis. In subsequent Project Worksheets (PWs), FEMA reduced funding for CMC’s invoiced quantities based on rates from the lowest cost proposal (Asplundh), upon determining the County did not comply with federal requirements for procurement by sealed bid. FEMA also allowed debris management costs using an event-historic rate since that item was not specified in the RFP. On first appeal, the Applicants requested that FEMA Region IV reverse the reduction, arguing that CMC was the better choice.  The Region requested additional documentation to support acceptance of the higher bid.  In response, the Applicants reiterated that CMC was the better choice, resubmitted documentation previously reviewed, and provided a proposal tabulation.  Although the Regional Administrator (RA) determined Asplundh’s proposal was the third-lowest, the RA nonetheless affirmed FEMA’s determination because Asplundh’s rates were determined fair and reasonable at the time of evaluation.  On second appeal, the Applicants: assert CMC’s proposal was the lowest cost option of the local proposals, and argue that the Stafford Act § 307(a) allows for this preference; sealed bid standards are inapplicable, and reasonable costs should not be based on the lowest bid; they followed competitive proposal procurement standards, and determined CMC’s proposal was the most advantageous with price and other factors considered; the first appeal contained ample justification demonstrating what was considered; and CMC’s actual rates should be allowed as reasonable. They also seek increased DAC for appeal activities, based on a lump-sum estimate with no supporting documentation. 

 

 

During the incident period of January 26 to February 13, 2009, freezing rain from winter storms caused the buildup of ice on woody vegetation, which resulted in hazardous limbs and the scattering of vegetative debris on roadways throughout the cities of Nicholasville and Wilmore and Jessamine County (Applicants) in Kentucky.  The Applicants executed a Memorandum of Agreement (MOA) to share the contract costs incurred for debris removal and disposal.[1]  In order to address the immediate threat posed by the debris, the County initially hired a local contractor, CMC, Inc., for debris work on a time and materials (T&M) basis.  Costs for the work to prepare two debris management sites in Nicholasville and Wilmore were charged against the T&M contract (debris management sites).^[2]

 

On February 6, 2009, Jessamine County initiated its Request for Proposal (RFP) process.  The RFP requested unit pricing for six items of work to remove and dispose of debris from the event: (1) rights-of-way (ROW) vegetative collection (requesting separate prices for collection of debris based on zero to 15 miles and 16 to 30 miles); (2) private property vegetative collection (zero to 15 miles) and (16 to 30 miles);[3] (3) removal of dangerous hanging limbs; (4) removal of hazardous stumps; (5) reduction through grinding of vegetative debris; and (6) haul-out of reduced vegetative debris.  Additionally, the RFP directed respondents to submit completed price proposal forms and proof of insurance and bonding.  The County required proposals to: (1) describe the contractor’s knowledge and ability to provide expert guidance in accordance with guidelines and regulations relevant to disaster-generated debris; (2) include recently completed major debris removal projects, and information necessary to determine past performance; (3) provide references, a technical plan explaining how the work would be done, and a list of personnel with their qualifications; and (4) list all equipment available for the project.[4]  The RFP also explained that proposals would be evaluated and scored based on five criteria: knowledge of FEMA regulations and procedures (25 percent); operational plan (10 percent); proposed price (15 percent); past performance record (30 percent); and personnel qualifications and company experience (20 percent).[5] 

 

Four Kentucky contractors, including CMC, and five contractors from other states submitted proposals by the County’s deadline.  The County Emergency Management Director reviewed the proposals and provided recommendations.  In a memorandum dated February 9, 2009, the Emergency Management Director recommended selection of CMC for the following reasons: (1) the majority of debris was already collected and the remainder of work would not take long to complete; (2) the sites for collection were established and advertised and debris operations were stable; (3) the work was being handled by a local contractor and subcontractor; (4) CMC agreed to renegotiate pricing; and (5) a new contract would cause major delay and confusion.[6]  The County awarded the contract to CMC based on the renegotiated unit prices.[7]  Table 1 provides a summary of the RFP prices and CMC’s renegotiated prices.

 

FEMA prepared separate Project Worksheets (PWs) to document each Applicant’s share of claimed costs using the CMC debris work invoices billed through Jessamine County.  As noted in the PWs, FEMA found that the Applicants did not follow Agency guidelines for debris documentation and federal procurement requirements.[8]  FEMA found that work performed was eligible, but that the County should have awarded the contract to Asplundh, the contractor with the lowest costs.[9]  FEMA determined that Asplundh submitted the lowest cradle to grave removal cost of $10.63 per cubic yard (CY) compared to CMC’s $17.65 per CY rate.[10]  As a result, FEMA calculated eligible funding using Asplundh’s unit costs for the quantities of debris as invoiced.  As management costs for the debris management sites were not listed as a component in the RFP, FEMA applied an event-historical rate of $2.25 per CY, which was also the rate CMC charged on another project in a nearby county for the same event.[11]  While the County paid a total of $1,244,200.20 for CMC’s work, FEMA determined only $753,126.22 was eligible.[12]

 

 

In a first appeal letter dated April 11, 2012, the Applicants disputed the reduction of costs deemed unreasonable.  The Applicants: (1) argued that CMC was selected for the T&M contract because it was the sole contractor found capable of meeting the County’s needs to dispose of debris as quickly as possible by providing access to permitted lots for use in Nicholasville and near Wilmore; (2) claimed the RFP was issued to obtain proposals for use during price negotiations; (3) explained that changing contractors would have required transferring the debris that was stored on the T&M contractor’s site to the new contractor’s site or a separate contract with CMC for grinding and hauling; (4) asserted CMC’s renegotiated prices neared the average of all nine proposals; and (5) noted the rate allowed by FEMA for debris site management did not consider that Garrard County provided the collection site in that instance.[13]  In a forwarding letter dated March 24, 2014, the Kentucky Emergency Management (Grantee) supported the appeal.[14] 

 

As part of the first appeal process, FEMA Region IV transmitted a Final Request for Information (RFI) on December 18, 2014.  Through it, FEMA requested additional documentation from the Applicants to support acceptance of the higher bid.^[15]  In a response dated March 5, 2015, the Applicants asserted “FEMA recognized that all of the proposals were not equal,”[16] and reiterated that, based on their analysis, CMC was the better choice.  They also argued that because CMC’s work was done quickly, loss of life and damage to property was avoided and vital services were restored which enabled economic recovery.  The Applicants resubmitted copies of RFP support documentation and also provided a proposal tabulation.[17]

 

On September 10, 2015, the Regional Administrator (RA) denied the appeal because the Applicants did not follow federal standards for procurement by sealed bids in failing to award the debris contract to the lowest bidder without a sound documented reason, pursuant to Title 44 Code of Federal Regulations (C.F.R.) § 13.36(d)(2).  According to the RA, the Applicants did not provide documentation supporting that they reviewed all nine proposals based on the RFP’s five evaluation criteria.  In addition, the RA found that the reasons provided to justify CMC’s selection were not fully explained or otherwise supported by documentation.  For example, the RA stated the Applicants did not show how the potential for confusion from changing contractors would have increased costs, nor was there evidence to support how selecting a contractor with lower costs would have led to instability within debris operations.[18] 

 

In addressing the Applicants’ assertion that CMC’s renegotiated prices neared the average of all nine proposals, the RA calculated cost estimates for each respondent (i.e., “proposal estimates”) using the actual quantity of debris claimed, RFP rates, and the rate allowed by FEMA for debris site management.  The RA compared the total costs of the proposal estimates to the total contract cost with CMC’s adjusted rates ($1,244,200.20), and concluded that DRC Emergency Services, LLC submitted the lowest bid ($705,742.34) and that Asplundh submitted the third lowest bid ($753,125.66).[19]  Further, as a result of the significant difference in CMC’s cost and the lowest bid, the RA concluded the savings from the adjusted rates was not reason enough to reject the lower bids. 

 

Since the award of CMC’s contract did not comply with procurement regulations, the RA found the actual costs for the work were ineligible.  Consequently, the RA agreed that awarding reasonable costs based upon the lower bid rates was appropriate and consistent with Office of Management and Budget (OMB) cost guidance.[20] 

 

 

In a second appeal dated November 10, 2015, the Applicants request $494,333.20[21] for contract costs, and $18,000.00 for additional direct administrative costs (DAC) related to appeal activities.  The Applicants indicate that DAC support documentation will be submitted upon approval of the appeal and formulation of subsequent PW versions.  The second appeal contests a number of categories of FEMA decision-making including the finding that procurement requirements were not followed in awarding the contract and the amount of eligible funding.  Appeal items are grouped into categories for discussion: procurement and CMC’s contract; reasonable costs; and other items in dispute such as debris quantities and debris site management.    

 

Regarding CMC’s unit cost contract, the Applicants: (1) argue that sealed bid procurement standards are inapplicable and as a result, FEMA erred in reducing funding based on the lowest bid; (2) assert CMC’s contract complied with standards for competitive proposal, which require awards to be made to the responsible firm whose proposal is most advantageous to the program (price is but one factor considered during selection)[22] and that the information offered through the first appeal justified the selection;[23] (3) claim the “County selected the lowest bid from local contractors,” and that use of a local preference factor is allowed pursuant to Section 307 of The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act);[24] and (4) indicate FEMA’s decision infringed upon the Applicants’ authority and contravenes 44 C.F.R. § 13.36(b)(11)’s guidance that “Federal agencies are generally not to substitute their judgment for that of the Grantees and Subgrantees.”  The appeal also provides that the County acted prudently in making the award based on the information available at the time of selection,[25] and renegotiating unit prices that were later applied to all debris removal work.[26]

 

In challenging the award of reasonable costs rather than the actual contract amount, the Applicants: (1) argue FEMA’s initial reasonable cost determination was flawed because it was based on only four proposals and omitted some of the RFP’s line items;[27] (2) assert that basing reasonable costs on Asplundh’s rates is incorrect because Asplundh did not submit the lowest bid;[28] and (3) indicate actual contract rates should be allowed in light of FEMA’s erroneous reasonable cost calculation.  The appeal also notes that actual contract rates should be found reasonable because they fall within an overall range for the event.[29]

 

In the remainder of the appeal, the Applicants assert FEMA should increase the actual quantity of debris reduced by grinding from 77,720 CY to 78,243 CY, explaining the corrected amount properly reflects the amount hauled to sites by CMC (36,529 CY) plus the amount hauled to sites by citizens (41,714 CY).[30]  They also argue that other eligible work activity related to assisting citizens with their debris at sites is not fully addressed in scope or cost by what FEMA allowed for debris site management, that such activity was specified in the RFP under the ROW collection component (zero to fifteen miles) and, in lieu of charging the ROW collection rate, CMC reduced it to a more reasonable rate which was applied to the debris hauled by citizens (charging $2.90 instead of $9.40 per CY).[31]  The Applicants request resolution of that matter through the approval of either the actual costs claimed using CMC’s reduced rate or additional funding based on CMC’s rate for ROW collection.[32] 

 

On January 7, 2016, the Grantee forwarded the second appeal to FEMA.

 

 

 

 

Part 13 of 44 C.F.R. establishes procurement standards for local governments.  Applicants can follow their own procedures provided they conform to applicable Federal laws and standards in § 13.36.[33]  Applicants must maintain records sufficient to detail the significant history of a procurement, including the rationale for the method of procurement; selection of contractor type; contractor selection or rejection; and the basis for the contract price.[34]  In addition, § 13.36(c) requires that all procurement transactions must be conducted in a way that provides full and open competition, which prohibits the use of statutorily or administratively imposed in-State or local geographical preferences in the evaluation of bids or proposals, unless applicable Federal statutes expressly mandate or encourage such preference.[35]   

 

On second appeal, the Applicants argue that CMC was selected as the lowest cost option out of the proposals submitted by local contractors, and further contend that Stafford Act § 307(a)(1) authorizes the use of local preference when making an award.  However, FEMA has, within its discretion, declined to implement by regulation or policy alternative compliance requirements that would exempt PA applicants from local preference limitations established by 44 C.F.R. § 13.36(c)(2).[36]  Failure to allow for full and open competition through the use of a local/state geographical preference does not comply with Federal procurement standards.  The Applicants argue that FEMA should not substitute its judgment in place of grantees and subgrantees pursuant to 44 C.F.R. § 13.36(b)(11).  However, this section relates to resolving contracting and administrative issues arising from the procurement, and contrary to the Applicants’ suggestion, does not alleviate the Applicants’ responsibility to award the contract in accordance with full and open competition and to comply with all other federal procurement standards.  Therefore, the Applicants did not comply with procurement standards because the procurement action relied upon prohibited local preferences that prevented full and open competition. 

 

     b.  Procurement by Competitive Proposal

 

Pursuant to § 13.36(d)(3), if an applicant procures by competitive proposal, it must demonstrate compliance with four regulatory requirements.  Those include: (1) requests for proposals must be publicized and identify all evaluation factors and their relative importance; (2) proposals must be solicited from an adequate number of qualified sources; (3) subgrantees must have a method for conducting technical evaluations of the proposals received and for selecting awardees; and (4) awards must be made to the responsible firm whose proposal is most advantageous to the program, with price and other factors considered.[37]  The Applicants contend they followed the standards for procurement by competitive proposal, and determined CMC’s proposal was the most advantageous with price and other factors considered.  The Applicants also assert their first appeal demonstrated the other factors that were considered in making the award.[38] 

 

The County clearly conveyed that contractors were required to provide specific documentation to properly qualify for consideration in accordance with evaluation criteria.[39]  According to the percentages assigned to the evaluation criteria, the price of the work (15 percent) was not as significant as a contractor’s record of past performance (30 percent); knowledge of FEMA regulation and policy (25 percent); and qualifications of personnel and company experience

(20 percent).[40]  Yet, only the price proposal forms for each contractor were forwarded to FEMA for consideration.  Given the Applicants’ responsibility to maintain detailed procurement records, a sample of the RFP’s other required documentation as submitted by each contractor to meet all of the criteria should have been forwarded for FEMA’s review.  The Applicants did not comply with documentation requirements and due to the lack of information, price is the only criterion that FEMA is able to evaluate.

 

In addition, as the RA noted, the Applicants did not demonstrate that they evaluated all nine proposals based on the areas of consideration listed in the RFP.  In fact, with the exception of the proposal tabulation, the RFI response resubmitted the same documents that FEMA already evaluated during PW formulation and on first appeal.  Moreover, the proposal tabulation provided does not show how the proposals were scored against the criteria nor explain why contractors may have been rejected.[41]  The importance of documentation demonstrating why other bids were excluded cannot be overlooked since the unit cost contract was awarded to the same contractor that was already removing debris for the Applicants.  Furthermore, the recommendation memo suggested CMC should be selected because it had already begun the work and for several other reasons that have no connection to the RFP’s requirements or evaluation criteria.  This does not comport with § 13.36(d)(3) requirements.

 

Based on the documentation provided, the Applicants failed to demonstrate compliance with procurement requirements.  As such, the RA was correct in reaching this finding.

 

 

When an applicant fails to comply with a term or condition of a PA subaward, FEMA may, as appropriate to the circumstances, take a combination of broad enforcement actions, including, but not limited to, deobligating all funding, or awarding a portion of funding deemed reasonable.[42]  “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.”^[43]  FEMA may, as appropriate, rely upon the following non-exhaustive list of information and documentation when establishing a reasonable cost: historical documentation of similar work; average costs for similar work performed in the area; published unit costs from national cost estimating databases; and FEMA cost codes.[44]

 

Although the Applicants utilized a procurement method that did not require selection based solely on the low bid, they did not provide any scoring data or other required documentation supporting rejections.  Absent this information, FEMA correctly evaluated the bids solely on price.  According to PW records, FEMA determined that Asplundh’s cradle to grave price of $10.63 per CY was the lowest overall cost to remove and dispose of the debris.  The cradle to grave cost includes unit costs for ROW collection, reduction, and haul out of the reduced debris. 

The Applicants contend FEMA’s use of Asplundh as the lowest bid was in error, based on an incomplete sample of RFP component and rates.  However, during the second appeal review, FEMA validated Asplundh’s $10.63 cradle to grave price as the lowest of the nine proposals (using the zero to fifteen mile rate for ROW Collection) and the $43.75 price for hangers as reasonable because it was near the $40.00 price FEMA found reasonable at the time of formulation, when the bids were evaluated.[45]  Therefore, upon review of the information available at the time of the decision, because Asplundh submitted the lowest bid, it was appropriate for the RA to assess reasonable costs for the debris removal activities performed by CMC by applying Asplundh’s unit prices.[46]

 

The Applicants assert that FEMA’s prices per CY for other debris removal work conducted under the same disaster were higher than what FEMA determined reasonable for the price per CY on this appeal.  However, the amounts determined reasonable for this appeal are based on responses to the RFP, which established competitive pricing for the work at the time of solicitation.  Therefore, the work conducted for this project could have been completed for the amounts reimbursed by FEMA.[47] 

 

The Applicants also argue that other eligible work related to helping citizens with debris at debris management sites is not fully addressed in the existing scope or the rate allowed by FEMA for debris site management.  They further contend that such activity was included in the RFP as “zero mile debris” under the ROW collection component (Item No. 1) and in lieu of charging the full rate, CMC charged less ($2.90 instead of $9.40 per CY).  However, none of the activities described under ROW collection in the RFP address debris hauled by citizens.[48]  Therefore, prices for this item were not solicited.  The County later amended the contract (creating Item No. 7), which enabled CMC to separately invoice for this cost and maintain distinguishability of documented hauled amounts.[49]  As a result, FEMA appropriately based funding using the $2.25 event historic rate which as noted previously, was utilized by CMC on another project and accepted by FEMA as reasonable.  Regarding the eligible quantity, based on invoices, CMC billed the County for this item on the amount hauled by citizens (41,714 CY) not the total of all debris hauled for the event.  Therefore, increasing the quantity is not warranted.        

 

Lastly, the Applicants contend FEMA should increase the quantity for reduction of loose debris by 523 CY, claiming that 78,243 CY is the correct total.  According to invoices, CMC billed the County for the reduction of 77,720 CY, and this quantity was verified by FEMA at closeout.  As such, this increase is not substantiated and ineligible. 

 

 

Pursuant to Disaster Assistance Policy DAP 9525.9, Section 324 Management Costs and Direct Administrative Costs, eligible DAC include those costs that can be tracked, charged, and accounted for directly to a specific project.  Furthermore, funding for DAC is limited to actual reasonable costs incurred for a specific project.[50]  The Applicants request approximately $18,000.00 in increased DAC based on a lump sum estimate with no supporting documentation.  Without detailed documentation, FEMA is unable to determine the eligibility of the claimed costs.  As such, the requested costs are ineligible for reimbursement.

 

 

The Applicants did not demonstrate compliance with federal procurement standards in awarding the unit cost contract to CMC.  FEMA appropriately exercised its discretionary enforcement authority, which could have been disallowance of all costs, to award costs deemed reasonable.  Finally, the amount requested for DAC is unsupported and ineligible.  Therefore, the appeal is denied.