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Second Appeal Analysis
PA ID# 053-43000-02; Minneapolis Park and Recreation Board
PW ID# Multiple PWs ; Procurement – OIG Audit
In June 2014, Minneapolis received record rainfall which lead to heavily saturated soil in many areas of the city. The torrential rainfall, straight-line winds, and flooding caused a steep, 100-foot-wide section of the west bank on the Mississippi River Gorge to collapse. The debris from this slope failure threatened other areas owned and operated by the Minneapolis Park and Recreation Board (Applicant), as well as three areas of the Fairview Hospital Campus. FEMA developed PWs 523 (Meadowbrook Golf Course), 524 (Hiawatha Golf Course), 953 (Emergency Protective Measures), 998 (Recreational Bike Trail/Rails), and 1000 (Slope Failure) to address damage to the Applicant’s various properties.
The Applicant and the Fairview Hospital entered into a Memorandum of Understanding on June 20, 2014, to collaborate on emergency efforts to stabilize the slope failure because of the close proximity of areas owned by both parties. Fairview Hospital led the initial temporary bluff work and contracted with other subcontractors to stabilize the bluff. Thereafter, the Applicant contracted with Barr Engineering Firm (Engineering Firm) to review the work done by the subcontractors. A few months later, the Applicant then re-contracted with the Engineering Firm to design a permanent solution to the slope failure. The Engineering Firm was selected from a pre-qualified list of professional services providers developed by the City of Minneapolis (City).
The OIG issued an audit report, OIG-17-46, Minneapolis Park and Recreation Board Did Not Follow All Federal Procurement Standards for $5.1 Million in Contracts, on March 16, 2017. The OIG found that the Applicant failed to follow federal procurement procedures; did not provide full and open competition in letting contracts; did not perform a cost or price analysis before evaluating contracts; did not follow federal procedures to ensure the use of small and minority firms, women’s business enterprises, and labor surplus area firms; and did not include required provisions of its contracts. The OIG questioned $4.8 million that the Applicant claimed for non-exigent contract work, finding that the exigency period ended on November 6, 2014, when the Applicant finished installation of a temporary slope cover before the winter season halted construction. Of that $4.8 million, the OIG questioned $1,308,676 for one large and eight small contracts that did not ensure full and open competition. The OIG questioned the remaining $3,478,040 for 15 contracts that did not include all required provisions and did not ensure the use of small business, minority firms, and women’s business enterprises.
The OIG recommended that FEMA disallow as ineligible $4,786,736 for contracts that did not comply with Federal procurement standards unless FEMA decided to grant an exception for all or part of the costs as regulation allowed and determined that the costs are reasonable.
On July 6, 2017, FEMA deobligated $1,239,567.68 in costs associated with the contracts that the OIG found did not ensure full and open competition. Those costs are illustrated in the following table.
Total Award Amount
FEMA used its authority to grant an exception under 44 C.F.R. § 13.6(c) for the Applicant’s failure to take all the specific federal procurement requirements given its documented efforts to comply with the spirit of the law and meet the goals of the disadvantaged business provisions. For this reason, FEMA did not deobligate the $3.5 million associated with the remaining 15 contracts.
The Applicant submitted a first appeal in a letter filed by its attorney, dated September 28, 2017, for the reasonable actual costs for permanent stabilization of the bluff and repair of the golf courses in the amount of $1,239,567.68 that was deobligated as a result of the OIG findings. The Applicant asserted that its Engineering Firm would have been the only bidder; solicitation of bids would have added time and expense to the project; the work was necessary to stabilize the slope; and rates for the work were reasonable and prudent.
The Applicant stated that FEMA’s decision was inconsistent with 42 U.S.C. § 5170(b), that its costs were “necessary and reasonable” and “prudent” under the circumstances, that all contractors were “responsible,” and that its procurements otherwise satisfied the intent and purpose of federal law and regulation. The Applicant further claimed that requiring it to follow FEMA’s procurement regulations and FEMA’s resulting deobligations violated federal law. It stated that (1) the selected firm would have been the only bidder, and (2) solicitation of bids would have not been prudent because of added time and expense. The Applicant also contested FEMA’s decision regarding exigency and asserted that the bluff issues remained dynamic and active after November 6, 2014, and that permanent stabilization of the slope was necessary to prevent future “damage, hardship, loss, or suffering.” Finally, the Applicant maintained that the costs to repair the golf courses were reasonable.
FEMA sent the Applicant a Request for Information on May 21, 2018, requesting that the Applicant provide documentation to demonstrate that competing the contracts was infeasible and that one of the following exceptions applied: (1) the item is available only from a single source; (2) the public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation; (3) the awarding agency authorizes noncompetitive solicitation; or (4) after solicitation of a number of sources, competition is determined inadequate. The Applicant responded via letter stating that Minnesota state law narrowly construes requirements for competitive bidding and that professional services contracts, such as the one in question, are not required to be competitively bid.
FEMA issued a first appeal decision on September 20, 2018, finding that the Applicant failed to meet the intent of the Federal procurement requirements and the conditions of the grant by using pre-selected consultants for non-exigent work. FEMA held that the Applicant did not fall within any of the exceptions to procurement by competitive proposals found under 44 C.F.R. § 13.36(d)(4)(i)(A)-(D). First, FEMA found that the Applicant had not demonstrated that competitive bids were “infeasible.” Additionally, FEMA did not agree that the Applicant’s selected engineering firm was the only source for the engineering work because there were other qualified firms on the pre-qualified list from which the Applicant chose its firm. The RA also noted that because the Applicant did not issue a request for proposal, it was not certain whether there were other firms that could have completed the work and would have bid. FEMA agreed with the OIG that the exigent period ended on November 6, 2014, and thus found that the exigency exception did not apply because work was started after this period and because some of the work that the Engineering Firm completed was permanent in nature. Finally, FEMA found that when a direct conflict exists between state and federal law, the more restrictive standard will control, and FEMA did not authorize the non-competitive proposal. While FEMA exercised its authority to grant an exception for contracts totaling $3,478,040 based on the Applicant’s efforts to comply with the intent of Federal law and regulations, the RA determined that the Applicant’s actions in awarding the permanent architectural and engineering work did not meet the intent of the federal requirement to provide free and open competition and the associated costs were therefore not reasonable.
The Applicant filed a second appeal dated November 30, 2018, requesting reimbursement in the amount of $1,239,567.98 in PWs 523, 524, 953, 998, and 1000 for the reasonable, actual costs incurred on recovery work performed after the bluff collapse and flooding. The Applicant asserts that its contracts fall under one or all of the exceptions to the competitive bidding requirements outlined in 44 C.F.R. § 13.36(d)(4)(i)(A)-(C), and that FEMA arbitrarily assumes that the competitive bidding process must take place after a disaster as opposed to before.
The Applicant also asserts that the Engineering Firm was the only source available for the largely complex, specialized services needed. The Applicant selected the Engineering Firm from the pre-qualified list of professional service providers developed by the City. It claims the only alternative provider in that pool was an engineering firm that previously refused to contract with the Applicant based on a contractual disagreement. The Applicant also asserts that public exigency for the permanent repairs would not permit delay, and thus, competitive solicitation was infeasible. In support, the Applicant argues that the significant risk posed to Fairview Hospital created an emergency far after November 6, 2014, because the slope was still experiencing excessive movements that would have had an adverse effect on the hospital.
In addition, the Applicant explains that the seven-month construction delay was due to the slope movement and states that this time was used to create a fully engineered design plan. The Applicant further asserts that the awarding agency, the Minnesota Department of Public Safety, Homeland Security, and Emergency Management Division (Grantee), authorizes non-competitive proposals, because the contract between the Applicant and its Engineering Firm was a professional services contract, which it asserts is not required to be competitively bid in the State of Minnesota. Lastly, the Applicant claims that FEMA’s decision to deobligate funding is arbitrary based on the timing of the solicitation. The Applicant claims that while it did not conduct a competitive solicitation of bids after the bluff collapse, it did, by and through the City’s pre-qualified list, solicit bids before the bluff collapse.
Federal regulation requires that all procurement transactions are conducted in a manner providing full and open competition, and discourages noncompetitive contracts. Grantees and subgrantees will follow their own procurement procedures provided they conform to applicable Federal laws and standards. Grantees and subgrantees are required to ensure that all pre-qualified lists of persons, firms, or products which are used in acquiring goods and services are current and include enough qualified sources to ensure maximum open and free competition. Grantees and subgrantees may not preclude potential bidders from qualifying during the solicitation period.
Federal regulation does not preclude the use of a pre-qualified list of firms, such as the one used by the Applicant. However, the Applicant may not merely select a candidate from such a list, it must still open the procurement so as not to preclude potential bidders from qualifying during the solicitation period. Not only did the Applicant not open the procurement, it also ruled out the only other firm from the pre-qualified list of contractors because of a prior contractual dispute. In doing so, it assumed that the other firm would not want to bid on the contract and in turn, did not allow that firm nor any others the opportunity to submit bids. By foregoing a solicitation for the specific work needed for this project, the Applicant precluded potential bidders that may have opted out of the City’s solicitation for any number of reasons.
Consistent with 44 C.F.R. § 13.36(d)(4)(i), FEMA allows for noncompetitive procurement only when the award of a contract is infeasible under small purchase procedures, sealed bids, or competitive proposals and one of the following applies: (1) the item is only available from a sole source; (2) a public exigency or emergency does not allow for delay; (3) the awarding agency allows for noncompetitive bids; or (4) after solicitation from a number of sources, competition is determined inadequate. Neither Federal regulations nor FEMA policy define “exigency” or “emergency.” However, through OIG opinions, factor-specific criteria have been developed to determine whether exigent or emergency circumstances exist, including, but not limited to, whether lives or property were at stake, whether the work is for critical activities, whether the work is permanent in nature, and the duration of the noncompetitive contract.
The Applicant claims that the slope experienced excessive movement, risking lives and property because of the hospital’s proximity to the bluff, and the exigency of these circumstances made it infeasible to request competitive proposals. However, the Applicant’s documentation does not support this argument. For example, the contract allowed up to 27 months to complete the scope of work, which was written to provide permanent stabilization of the slope. In addition, the slope was covered for seven months during the winter season to prepare for the permanent work. Consequently, the Applicant has not met the criteria for noncompetitive procurement as it has not demonstrated that the award of a competitively bid contract was infeasible under the circumstances.
The Applicant did not meet the standards of federal procurement regulations when it made a single-source selection from a pre-qualified list of contractors. In doing so, it precluded other potential bidders from qualifying for the award. The award of a contract by competitive proposals was not infeasible under the circumstances, therefore, FEMA appropriately deobligated $1,239,567.68 in funds associated with an improperly procured contract.
 U.S. Dep’t of Homeland Sec. Office of Inspector Gen. (OIG), OIG-17-46-D, Minn. Park and Recreation Bd. Did Not Follow All Federal Procurement Standards for $5.1 Million in Contracts, at 2 (March 16, 2017) [hereinafter OIG-17-46-D].
 The audit report resulted in four recommendations total, but only Recommendation 1 is at issue in this appeal. OIG 17-46-D, at 7.
 The deobligation for PW 953 was adjusted because of an eligible cost overrun of $69,108 on work unrelated to the questioned contract. Letter from Acting Reg’l Adm’r, to Dir. Minn. Homeland Sec. and Emergency Mgmt., at 2 (July 27, 2017).
 Letter from Att’y, MRPB, to Acting Reg’l Adm’r, at 15-16 (Sept. 28, 2017).
 The OIG stated in its report that the exigency period ended when the Applicant finished installation of a temporary slope cover on November 6, 2014, before the winter season halted construction. See OIG 17-46-D, at 3.
 Public Assistance Guide, FEMA 322, at 52 (June 2007).
 44 C.F.R. § 13.36(b)(1).
 See 44 C.F.R. § 13.36(d)(4)(i)(A)-(D).
 But see Second Appeal Analysis, City of Pierre, FEMA-1984-DR-SD, at 11 (May 27, 2015) (applying the
dictionary definition of “exigency,” meaning “something that is necessary to a particular situation that requires or
demands immediate aid or action,” and “emergency,” meaning “an unexpected and usually dangerous situation that calls for immediate action.”).
 Second Appeal Analysis, Martinsville CUSD #C-3, FEMA-1771-DR-IL, at 4 (Jul. 19, 2016).