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Second Appeal Analysis
PA ID# 059-99059-00 ; Nassau County
PW ID# (PW) 3750 ; Direct Administrative Costs – Project Management Costs
From October 27, 2012, to November 9, 2012, Hurricane Sandy caused damage throughout the State of New York. During the incident period, Nassau County (Applicant) mobilized its Department of Sheriff and Corrections (Department) to undertake emergency protective measures on behalf of its citizens. The Department’s Corrections Division prepared, packaged, delivered and serviced approximately 26,000 meals to first responders, displaced residents, and county workers. The Department’s Enforcement Division installed warning and hazard blockades, performed search and rescue, assisted in placement of vulnerable populations, provided emergency first aid, secured shelters, nursing homes and hospitals, and protected improved property. The Applicant later applied for and received FEMA Public Assistance (PA) funds to cover the associated expenses.
The Applicant hired project management contractors, including Camp Dresser McKee & Smith (CDM Smith), to assist with the administration of the PA grant for repairs to the Facility. CDM Smith’s employees often traveled to the Applicant’s jurisdiction and worked on multiple projects over the course of a day, billing period, and trip. They also kept records of time spent working on each project task, assigning different codes to different projects, tasks, and categories of tasks.
During administration of the projects, CDM Smith utilized a methodology to allocate travel expenses across multiple projects (Expense Allocation Methodology), described in a Memorandum dated January 8, 2013 (Expense Analysis Memo). Specifically, CDM Smith calculated an hourly travel expense rate for each of its employees per billing period by dividing the employee’s total travel expenses by the total number of hours the employee worked on Applicant-related projects during the billing period. CDM Smith then multiplied an employee’s travel expense rate for the billing period by the number of hours billed to a specific task by that employee, in order to allocate travel expenses to each project on a pro rata basis.
On May 30, 2014, FEMA obligated funds under Project Worksheet (PW) 3750 for emergency protective measures totaling $209,046.31, including $18,800.00 in direct administrative costs (DAC). During the period in which FEMA initially obligated these PWs, the Applicant, the New York State Division of Homeland Security and Emergency Services (Grantee), and FEMA met and discussed the division of certain CDM Smith disaster consulting work into the following three categories: (1) DAC, (2) project management, and (3) project coordination.
By letter dated January 6, 2017, FEMA informed the Applicant that as a general matter, many of CDM Smith’s travel expenses associated with direct administrative and project coordination tasks were not eligible for reimbursement as DAC, as they were indirect costs. This determination rested on FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, issued on November 13, 2007 and the Memorandum from the Assistant Administrator, Disaster Assistance Directorate dated September 8, 2009(DAC Guidance).
Shortly thereafter, on February 23, 2017, the Grantee submitted the Applicant’s Large Project Final Accounting (LPFA) for PW 3750 totaling $246,900.53. After the Applicant received additional invoices from CDM Smith, the Grantee submitted another LPFA (Revised LPFA) by letter dated April 5, 2018. The Revised LPFA claimed $243,422.05 in total costs, which included $6,800.08 of CDM Smith’s employees’ travel expenses ($5,254.34 for DAC and $1,545.74 for project coordination). On July 10, 2018, following its inspection of the Revised LPFA, FEMA adjusted PW 3750 to include DAC that it found the Applicant had substantiated, obligating $236,621.97 in total costs. However, FEMA denied funding for $6,800.08 in travel costs it found to be indirect costs in PW 3750, in accordance with its January 6, 2017 letter.
By letter dated September 10, 2018, the Applicant transmitted its first appeal to the Grantee (Applicant’s First Appeal). In its first appeal request, the Applicant argued that costs it was claiming as DAC “directly correspond to the number of labor hours an employee spent working on a specific project,” per the Expense Allocation Methodology described in the Expense Analysis Memo. The Applicant also argued that it would have been unreasonable to restrict CDM Smith’s employees to a single PW over the course of a given trip.
The Applicant argued that Section 207.6 (c) of Title 44 of the Code of Federal Regulations (44 C.F.R.), read in conjunction with DAP 9525.9, allows applicants to claim, as DAC, those costs which can be “identified separately and assigned to a specific project… if such costs can be and are attributed to individual projects.” The Applicant supported this argument by pointing to a pair of U.S. Office of Management and Budget (OMB) regulations, which encourage applicants to allocate “reasonable costs” among multiple projects, if said costs benefit two or more projects “in proportions that can be determined without undue effort or cost.” The Applicant also provided meeting notes, email correspondence, and various memoranda, and in a supplemental narrative, stated that the “Project Coordination” category of work was the creation of FEMA, in order to capture certain expenses from CDM Smith’s employees as contract costs, rather than DAC. In this supplemental narrative, the Applicant also explained that it had allocated all of CDM Smith’s travel expenses in accordance with the Expense Allocation Methodology, including DAC travel costs and Project Coordination travel costs. The Applicant stated it believed that, since project coordination and project management were both contract costs, travel expenses assigned to these categories should also be eligible for PA funding as contract costs. In support, the Applicant relied on a provision in FEMA’s Public Assistance Guide [hereinafter PA Guide], which allows costs incurred for project supervision and management under a contractor’s Master Service Agreement to qualify as contract costs.
Finally, in an attachment containing an undated position paper, the Applicant noted that assignment/allocation of consultant expenses as DAC was a continuing source of contention, and disputed FEMA’s interpretation of DAP 9525.9. The Applicant claimed that FEMA and the Applicant agreed that the Applicant would record the expenses associated with “Project Management” and “Project Coordination” tasks as contract costs, rather than DAC.
On September 10, 2018, the Grantee transmitted the Applicant’s First Appeal to FEMA Region II, expressing support.
FEMA issued a Final Request for Information (Final RFI) for PW 3750 to both the Applicant and the Grantee via letter dated September 26, 2018. In the Final RFI, FEMA informed the Applicant and the Grantee that there was “insufficient documentation in the Administrative Record to support the Applicant’s position” regarding contractor expenses denied as indirect costs. FEMA also informed both the Applicant and the Grantee that FEMA was unaware of any documentation that could potentially support the Applicant’s position and lead to a grant of appeal, but nevertheless invited the Applicant to submit any information it believed to be relevant. Neither the Applicant nor the Grantee responded to the Final RFI.
The FEMA Region II Regional Administrator (RA) denied the Applicant’s First Appeal in a decision dated November 8, 2018.  The RA found that DAP 9525.9 limits reimbursement for travel costs (as DAC) to those costs that relate to “one specific project.” The RA also rejected the Applicant’s reliance on the OMB regulation at Title 2, Code of Federal Regulations (2 C.F.R.) § 200.405, since 2 C.F.R. § 200.110 expressly excludes all disasters declared prior to December 26, 2014 from the allocation principles codified in 2 C.F.R. § 200.405. Further, the RA found that the Applicant had not substantiated its contention that travel expenses associated with project coordination tasks should be treated as contract costs, since DAP 9525.9 and the DAC Guidance “specifically define DAC as including costs associated with the preparation and submission of PWs.”
The Applicant submitted its second appeal via letter dated November 20, 2018 and reiterated its prior arguments from its first appeal. By letter dated November 29, 2018, the Grantee transmitted the Applicant’s second appeal to FEMA Region II, supporting it.
Direct costs are those that can be “identified separately and assigned to a specific project,” such as staff time to conduct an initial inspection, prepare and submit PWs, and make interim and final inspections of the project. By contrast, “costs a grantee or subgrantee incurs for a common or joint purpose benefitting more than one cost objective that are not readily assignable to the cost objectives specifically benefitted” are indirect costs. Travel expenses related to one specific PW qualify as DAC, while travel expenses “related to general support and not directly tied to one specific project” are indirect costs. Indirect costs are not reimbursable as DAC. More pertinently, an applicant cannot allocate expenses to every task for all PWs in proportion to the hours worked on the task, and then claim such expenses as DAC.
Here, the Applicant claims certain travel expenses that its contractors incurred as DAC and/or contract costs, despite its acknowledgment that CDM Smith’s employees worked on several PWs over the course of each trip at issue. Specifically, the Applicant seeks pro rata allocations of travel and lodging expenses across multiple PWs, based upon the hours worked on a given PW during the course of a given trip. The Applicant believes it is entitled to reimbursement for the hourly travel expense rate for a given employee multiplied by the number of hours that employee billed for each PW in a given billing period, since it does not attempt to claim a pro rata share of travel expenses for hours spent on indirect tasks.
As an example, the Applicant claims a CDM Smith employee spent “234.5 hours performing work on 27 projects which has been individually tracked and documented on CDM Smith’s invoice #3.” This employee incurred a total of $9,097.10 in travel, lodging, and meal expenses during the period covered by CDM Smith’s invoice #3. To allocate these travel expenses, the Applicant first divided the total by the hours worked during the invoice period to obtain an hourly expense rate for that period ($38.79/hour). This CDM Smith employee claimed 3 hours of work purportedly eligible as DAC (or, in the alternative, as contract costs) for PW 3750 during the period covered by invoice #3. Therefore, the Applicant seeks reimbursement for $116.38 ($38.79/hour x 3 hours) in travel, lodging, and meal expenses for this employee that it associates with PW 3750 for CDM Smith’s invoice #3.
However, as noted, a pro rata allocation of expenses across every task for all PWs on the basis of hours worked on the task does not make such expenses eligible for reimbursement as DAC. Since the travel expenses at issue benefitted more than one PW, they are indirect costs. Accordingly, under DAP 9525.9, the Applicant cannot allocate or otherwise assign such expenses to individual projects as DAC or contract costs. Such costs are only reimbursable as management expenses under the Applicant’s administrative allowance, if at all.
The Applicant also relies on the indirect cost allocation under 2 C.F.R. § 405(d) in support of its appeal; however, this regulation does not apply to disasters declared before December 26, 2014.
Since the travel expenses at issue benefitted more than one PW, they are indirect costs under DAP 9525.9, and the Applicant cannot allocate or otherwise assign such expenses to individual projects as DAC or as contract costs. Accordingly, the appeal is denied.
 Project Worksheet (PW) 3750, Nassau Cty., Version 0 (May 30, 2014).
 Email from N.Y. St. DR-4085 PA Operations Lead, to N.Y. Sandy Branch Chief, FEMA Region II
(Oct. 4, 2016); CDM Smith Memorandum, Determination and Allocation of Expense Portion of Project Costs
(Jan. 8, 2013) [hereinafter Expense Analysis Memo].
 See Expense Analysis Memo (“The expenses and hours incurred on the project are totaled for each team member… then divided by the total hour value for each team member.”).
 Letter from N.Y. Sandy Branch Chief, FEMA Region II, to Dep. Dir., Nassau Cty. Office of Management and Budget (OMB), at 2 (Jan. 6, 2017) (“FEMA will not amend the PWs to include apportioned travel expenses spread across multiple PWs as DAC.”).
 Memorandum from Assistant Adm’r, Disaster Assistance Directorate, to Reg’l Adm’rs, Acting Reg’l Adm’rs, Trans’l Recovery Office Dirs., Fed. Coord. Officers, and Disaster Assistance Div. Dirs. (Sept. 8, 2009) (concerning Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs (Nov. 13, 2007) [hereinafter DAP 9525.9] and FEMA Recovery Policy 9525.14, Grantee Administrative Costs (Nov. 6, 2007)) [Memorandum hereinafter referred to as DAC Guidance].
 Letter from Deputy Comm'r for Disaster Recovery Programs, N.Y. St. Div. of Homeland Security and Emergency Servs. (NYSHSES), to Reg’l Adm’r, FEMA Region II (Feb. 23, 2017).
 Letter from Deputy Comm’r for Disaster Recovery Programs, NYSHSES, to Reg’l Adm’r, FEMA Region II (Apr. 5, 2018).
 Letter from Pub. Assistance (PA) Deputy Branch Chief, N.Y. Sandy Branch, FEMA Region II, to Dep. Comm’r, NYSHSES and Dep. Budget Dir., Nassau Cty. OMB, at 2 (July 10, 2018) (table showing indirect travel costs as ineligible for reimbursement as either contract costs or as DAC) [hereinafter LPFA Determination].
 Letter from Dep. Dir., Nassau Cty. OMB, to Comm’r, NYSHSES (Sept. 10, 2018) [hereinafter Applicant’s First Appeal].
 Id. at 1 (emphasis in original).
 Id. at 3 (emphasis in original).
 See Title 2 of the Code of Federal Regulations (2 C.F.R.) § 200.404 (2014); Applicant’s First Appeal, at 3.
 Applicant’s First Appeal, at 5 (quoting 2 C.F.R. § 200.405(d)) (emphasis from original omitted).
 See id. at Attachments.
 See Public Assistance Guide, FEMA 322, at 62 (June 2007).
 Applicant’s First Appeal, “Nassau County Position Paper – Consultant Expenses as Direct Administrative Costs,” (undated) [hereinafter Applicant Position Paper] at 1 – 2 (noting ongoing “contention and disagreement,” and referring to “FEMA’s current statement that a consultants [sic] expenses would only be eligible as DAC if that consultant worked on a single project all day” as being “void of logic.”)
 Letter from Section Chief, Appeals & Audits, Recovery Div., FEMA Region II, to Dep. Comm’r, NYSHSES and Dep. Budget Dir., Nassau Cty. OMB (Sept. 26, 2018).
 Letter from Reg’l Adm’r, FEMA Region II, to Dep. Comm’r, NYSHSES and Dep. Budget Dir., Nassau Cty. OMB (Nov. 8, 2018), enclosing FEMA First Appeal Analysis, Nassau County Public Works, FEMA-4085-DR-NY (Nov. 8, 2018) [hereinafter First Appeal Determination].
 First Appeal Determination, at 5 (citing 2 C.F.R. § 200.110 (2014) (specifying the effective date for the Uniform Rules under 2 C.F.R. pt. 200 as December 26, 2014); 79 Fed. Reg. 75,867, 75,872 (Dec. 19, 2014) (“For grants authorized under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, this rule is applicable for emergency or major disaster declarations issued on or after December 26, 2014.”)); see also 2 C.F.R. pt. 225 (2012) (codifying OMB CIRCULAR A-87, which sets forth the applicable cost principles for the Applicant in FEMA-4085-DR-NY based on the October 30, 2012 declaration date).
 First Appeal Determination, at 5.
 Letter from Dep. Dir., Nassau Cty. OMB, to Comm’r, NYSHSES (Nov. 20, 2018) [hereinafter Applicant’s Second Appeal].
 DAP 9525.9, at 2 (citing 44 C.F.R. §§ 207.2, 207.6(c))
 See DAC Guidance, at Attachment (emphasis in original).
 FEMA Second Appeal Analysis, City of Duluth, Multiple PWs, FEMA-4069-DR-MN, at 5 (June 15, 2015) [hereinafter City of Duluth].
 See Expense Analysis Memo.
 Applicant’s Second Appeal, at 2.
 City of Duluth, FEMA-4069-DR-MN, at 5.
 DAP 9525.9, at 2 – 4; DAC Guidance, at 3 and Attachment; City of Duluth, FEMA-4069-DR-MN, at 4. See also DAP 9525.11, Payment of Contractors for Grant Management Tasks, at 1 (Apr. 22, 2001) (although grantees may receive reimbursement for “all eligible” contractor costs, including travel and per diem, “[t]here is no similar provision for subgrantees because all of their grant management and administrative costs are required by statute to be considered under the Statutory Administrative Costs allowance (also known as the subgrantee’s Administrative Allowance or sliding scale).”).
 See 2 C.F.R. § 200.110 (2014) (stating effective date of 2 C.F.R. § 200.405); 79 Fed. Reg. 75,867, 75,872 (Dec. 19, 2014) (same).