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Second Appeal Analysis
PA ID# 033-UXIMQ-00; Escambia Commity Holdings, Inc.
PW ID# PW 888; Alternate Project – Duplication of Benefits – Hazard Mitigation – Insurance – Pilot Program – Scope of Work – Support Documentation
Between April 28 and May 6, 2014, severe storms, straight-line winds, and flooding struck the western end of the Florida panhandle. During the event, the administrative headquarters (Facility) of Escambia Community Holdings, Inc. (Applicant), located in Pensacola, Florida, sustained two feet of flooding, damaging all structural components and a significant amount of contents. The Applicant carried National Flood Insurance Program (NFIP) flood insurance on the Facility with $500,000.00 in building coverage and $500,000.00 in contents coverage.
FEMA prepared four Project Worksheets (PWs) related to the Facility. PW 888, the PW at issue in this case, documented Facility restoration work and eventually included a hazard mitigation proposal (HMP) for a five-foot-high concrete barrier wall. FEMA also prepared PW 782 for the Applicant’s lessee, Escambia Community Clinics, Inc. (ECC), documenting the costs of damaged building contents. FEMA additionally prepared two Category B emergency protective measures PWs: PW 481 (for the Applicant) for costs to pump out floodwater, remove contaminated drywall and flooring, and clean affected areas of the Facility; and PW 425 (for ECC) for the costs of a temporary relocation to another site.
The Applicant requested participation in two aspects of the Public Assistance Alternative Procedures Pilot Program for permanent work (PAAP Pilot Program): subgrants based on fixed estimates and use of excess funds. The nine-month deadline in place at the time to reach a fixed-cost agreement under the PAAP Pilot Program was February 6, 2015. That June, however, FEMA granted an extension through August 6, 2015.
Before that deadline, the Applicant, FEMA, and the NFIP prepared or had prepared various estimates addressing the costs of Facility restoration, the HMP, and flood damage:
- In June 2014, NFIP adjusters prepared estimates of $353,490.12 for building damage and $106,550.92 for contents damage (each amount after $1,000.00 deductibles were applied). The NFIP issued initial payments in those amounts that month. That September, the NFIP issued an additional contents damage payment of $10,705.46, bringing the Applicant’s total flood insurance proceeds for contents to $117,256.38.
- In July 2014, engineers with the Applicant’s disaster recovery consultant, Arcadis U.S., Inc. (Arcadis), prepared an estimate it said was based on FEMA’s Cost Estimating Format (CEF), addressing costs to restore the Facility to its pre-existing condition. It’s unclear from Arcadis’ report what the estimated cost was. Arcadis apparently prepared another restoration estimate for the Applicant in February 2015. This one included estimated base costs of $440,405.96 and a total of $751,038.73. It also included an HMP estimate for the flood wall of $1,852,110.01.
- In May 2015, FEMA prepared its first CEF estimate for Facility restoration and the HMP. It found the costs used in the February 2015 (i.e., second) Arcadis estimate were reasonable, and FEMA based its estimate on those. The Facility restoration portion of FEMA’s estimate included base costs of $404,406.00, with total costs of $752,856.00, which essentially matched the February 2015 Arcadis estimate. The HMP separately totaled $1,566,652.00.
- In July 2015, an insurance adjuster hired by the Applicant prepared an estimate for building damage of $1,629,758.91.
- In February 2016, FEMA prepared a second CEF estimate for Facility restoration and the HMP, re-evaluating its May 2015 estimate. The Facility restoration portion of FEMA’s estimate included base costs of $199,236.00 and a total project cost of $220,177.00. The HMP totaled $1,150,331.00.
Additional estimates were prepared in 2016:
- In June 2016, the NFIP prepared a second flood insurance estimate for building damage. It totaled $516,402.56 (after application of the $1,000.00 deductible). Thereafter, the NFIP issued an additional building damage payment of $146,509.88, which was the remaining amount of the Applicant’s available coverage following the first payment.
During this time period, there were also indications that the Applicant might not return to the facility. In a December 2014 email, Arcadis informed FEMA that the Applicant did not intend to move back to the Facility. Also, a February 2015 note in PW 888 states that the Applicant “was proposing to make necessary repairs so that they may reopen at this location” but also said there had been discussion of the Applicant “relocating to a new building or location as a possible alternate project.” FEMA noted that if this were to occur, mitigation would not be eligible.
In January 2017, FEMA obligated Version 0 of PW 888, awarding $220,177.00 for the estimated costs of building restoration, based on its 2016 CEF analysis. In March 2017, FEMA deobligated that amount in Version 1, based on a reduction for flood insurance proceeds. It added the HMP estimated amount of $1,150,331.00, also based on its 2016 CEF analysis.
The Applicant’s first appeal argued PW 888 didn’t include all disaster-related damage and contained other errors and discrepancies. It asked that FEMA use the $1,629,758.91 insurance adjuster’s estimate for the Facility restoration fixed-cost estimate, but also sought “an extension to negotiate and agree on the fixed cost agreement under FEMA’s alternative procedures.”
The Applicant asserted that since the May 2014 kickoff meeting, it made FEMA and the Grantee aware that “the ultimate intent of the project is to relocate the facility using Alternative Procedures.” The Applicant did not dispute PW 888’s HMP amount.
The Applicant additionally requested reallocation of insurance proceeds, arguing that FEMA made incorrect reductions for insurance proceeds and improperly allocated insurance proceeds over PWs 481 (Facility emergency cleanup), 888 (Facility building damage), and 782 (contents damage). It didn’t expressly offer an alternative allocation, but it included this table:
Finally, although not expressly stated in its appeal, the Applicant also sought $58,329.78 for costs to obtain its insurance adjuster’s estimate. The Grantee supported the appeal.
Requests for Information
FEMA issued an initial Request for Information (RFI) seeking additional documentation from the Applicant to support its claims and requested costs. In its response, the Applicant reiterated that it “remains displaced” and “is working to relocate the facility and operations outside of an area of high flood risk using 428 Alternative Procedures.” The Applicant provided, among other documents, its insurance adjuster’s estimate, the NFIP flood insurance estimates, and copies of the insurance claim checks it received.
FEMA issued a second RFI requesting a specific list of damages the Applicant believed were not included in PW 888’s scope of work (SOW) and stating that the $1,629,758.91 insurance adjuster’s estimate included items not damaged by the disaster or already reimbursed on a separate PW. The RFI also sought photographs and repair/replacement cost estimates not based on the Applicant’s insurance adjuster’s estimate, as well as any Grantee-approved time extensions past the deadline to perform permanent work. The Grantee responded on March 2, 2018, providing a new restoration estimate of $1,129,730.00 (prepared by an Applicant-hired contractor); a Grantee-issued project time extension through May 6, 2018; and damage photographs of the Facility.
First Appeal Response
The FEMA Region IV Regional Administrator (RA) issued a first appeal response finding that the Applicant failed to demonstrate additional damages to the approved SOW. Analyzing the Applicant’s contractor’s estimate, the RA found that most of its proposed work items were not included in the approved SOW. For items in the estimate that did correspond with PW 888’s approved SOW, the RA found that in most cases the contractor’s estimated costs were the same or actually less than FEMA’s CEF estimate. The RA also found that some costs vastly exceeded the CEF estimate. Because the Applicant didn’t provide an explanation for such discrepancies, the RA stated that “FEMA defers to the CEF until actual costs can be assessed at final reconciliation.”
The RA also determined FEMA’s insurance proceeds reductions under PW 888 were proper, given that the Applicant had not demonstrated eligible costs and, therefore, the amount of eligible costs remained below the amount of insurance proceeds the Applicant received for building coverage. The decision didn’t address the Applicant’s concerns about how the insurance proceeds were allocated across PWs 888, 481, and 782; the Applicant’s statements about relocation; or the Applicant’s request for more time to agree to a fixed cost estimate as part of the PAAP Pilot Program.
The Applicant asserts on second appeal that (1) the Facility remains in a “muck-out condition” with no repairs done, and all the damage seen in the previously provided photographs is disaster-related; (2) PW 888’s SOW does not include all disaster-related damage; and (3) FEMA has previously received estimates calculated by licensed professionals (i.e., the July 2014 Arcadis estimate and the February 2018 contractor estimate) that demonstrate additional eligible costs. The Applicant also noted that the first appeal decision did not address its request for a time extension to arrive at a fixed-cost agreement to participate in the PAAP Pilot Program. It also said it has “continuously reminded FEMA of its intent to pursue relocation to mitigate future damage.”
Though not specifically articulated in its second appeal request, FEMA assumes that the Applicant is reiterating its first appeal requests for: (1) a PW 888 obligation for a fixed-cost Facility restoration estimate based on an estimate it provided (either its insurance adjuster’s or its contractor’s); (2) an adjustment of insurance proceeds reductions applied to all of its PWs; and (3) a time extension to negotiate and agree on the fixed-cost agreement under the PAAP Pilot.
The Grantee transmitted the second appeal to FEMA on Nov. 19, 2018, recommending approval but not providing any additional analysis.
Scope of work, restoration costs, and hazard mitigation
As part of project formulation, FEMA or applicants prepare a PW for each project that identifies the eligible SOW and a cost estimate for the work. The SOW must completely describe the work necessary to repair the damage and correspond directly to the cause of the damage.
Under the PAAP Pilot Program, applicants can elect to receive subgrants for large permanent work projects based on agreed-upon fixed cost estimates, instead of the actual costs of completing the eligible SOW. At the time of this disaster, the PAAP Pilot Program required an applicant and FEMA to agree upon the fixed-cost estimate within nine months after a disaster declaration date but allowed for an extension “for complex or catastrophic disasters.”
Either FEMA or an applicant can prepare the estimate. If FEMA prepares the estimate, it uses the CEF. For an applicant-prepared estimate, FEMA will consider one prepared by a professionally licensed engineer and mutually agreed upon by FEMA and the applicant; however, FEMA must ensure it does not contain items inconsistent with a PW damage description or approved SOW. At the time of the disaster, FEMA policy required the agency to validate an applicant-prepared estimate within 30 days of receiving it. FEMA would review it based on FEMA’s CEF instructional guide, and it would not create a competing estimate. If FEMA did not accept an applicant-provided estimate, it was to record the reason in the general comments section of the subgrant. If FEMA and the applicant did not reach an agreement within the deadline, a project would not be eligible for alternative procedures and, instead, would be processed using standard procedures (i.e., reimbursement based on actual incurred costs).
The administrative record in this case does not provide a clear picture of how this project proceeded under the provisions of the PAAP Pilot Program or demonstrate its current status. Early on in this project’s history, the parties seemed to have reached consensus on an appropriate SOW and a cost estimate. This occurred before expiration of the extended PAAP Pilot Program deadline of August 6, 2015. Specifically, FEMA’s first CEF estimate for Facility restoration, performed in May 2015, essentially validated the Applicant’s second engineer restoration estimate, which FEMA’s CEF stated was completed in February 2015. However, the Applicant thereafter prepared another estimate—the insurance adjuster’s estimate for $1,629,758.91, upon which it based its appeal. Later, FEMA prepared another CEF estimate that reduced the building restoration amount to $220,177.00.
It is clear from the record that the parties did not reach an agreement on a fixed-cost estimate within the timeframe set under the PAAP Pilot, including by the time the extended deadline the parties agreed to had expired. Because they did not agree on an estimate, the project should proceed under standard PA procedures. Specifically, it should proceed based on the eligible SOW and the CEF cost estimate captured in PW 888, as the RA properly determined that the Applicant had not met its burden to demonstrate that changes to the SOW or increased estimated costs were justified. The Applicant did not provide its $1,629,758.91 insurance adjuster’s report until asked to do so in an RFI. A second RFI asked for a specific list of damages that the Applicant felt was not included in the approved SOW, given that the insurance adjuster’s estimate provided items not identified as damaged by the disaster or that were reimbursed on another PW. In response, the Applicant provided its contractor’s estimate. The first appeal response included a detailed review of that estimate, finding most items not within PW 888’s scope of work and that many items had inflated costs.
The Applicant has not documented disaster-related damage not already included in PW 888’s SOW or supported its request for estimated costs beyond those arrived at under the second FEMA-prepared CEF estimate. As the first appeal response explained, the project can proceed based on that final CEF estimate until actual costs can be assessed at final reconciliation.
Finally, because the Applicant did not challenge PW 888’s HMP estimated costs, the first appeal response does not address its continued eligibility of HMP funding. If the Applicant completes the SOW under PW 888, HMP funding will remain eligible. However, the Applicant repeatedly stated in its appeal submissions it has intended to relocate from the Facility and not restore it. If the Applicant intends to request an improved project that would involve the replacement of the facility at the same or an alternate site, the HMP funding would no longer be eligible. Similarly, if the Applicant were to pursue an alternate project, the HMP funding would no longer be eligible.
Flood insurance reductions and allocation
An applicant cannot receive PA funding for work that is funded from another source, including insurance, and FEMA reduces otherwise eligible costs by actual and anticipated insurance proceeds. Here, the Applicant argues that FEMA misallocated reductions for flood insurance proceeds for contents and building damage across PWs 481, 782, and 888. However, as to PW 888, the PW at issue in this appeal, the Applicant agrees that costs should be reduced based on insurance proceeds it received for building damage. This is reflected in the Applicant’s proposed insurance proceeds allocation table set forth above, as well as in its proposed fixed-cost estimate (which included an insurance proceeds reduction). The Applicant may disagree with reductions for insurance proceeds and anticipated proceeds FEMA applied to PWs 481 and 782, but those reductions can be addressed apart from this appeal.
Flood insurance estimate costs
The Applicant’s appeal includes a request for $58,329.78 in costs the Applicant said it incurred to obtain its $1,629,758.91 insurance adjuster’s estimate. The Applicant did not directly request these costs or provide relevant supporting documentation. The Grantee’s grants management system (FloridaPA.org) includes a July 2016 invoice in the amount of $58,329.78 from BASE Tactical Disaster Recovery, Inc. (Base) to Arcadis, the Applicant’s consultant. However, the Applicant did not submit it with its appeal or provide other documentation, such as proof of payment, supporting reimbursement of these costs, as required on appeal.
In addition, it’s not clear how the work performed, as reflected in the July 2016 Base invoice, related to the development of the Applicant’s insurance adjuster’s estimate. Much of the work was completed after the July 30, 2015 estimate date (one of the four Base employees performed work on July 29, 2015 (6 hours) and July 30, 2015 (10 hours), but the rest performed work after that). In addition, the work descriptions are not clear (the work was for “project listing development—data collection and dissemination,” and “project development” for “site visits” and “project cost estimation and documentation”), as are the roles of the four Base employees (two listed as engineers, one listed as “insurance,” and one was listed as a senior consultant).
The parties did not reach an agreement on a fixed-cost estimate within the timeframe set under the PAAP Pilot and, therefore, PW 888 should proceed under standard PA procedures. In addition, the Applicant has not demonstrated that requested changes to the approved SOW are justified. The project can proceed based on the approved cost estimate until actual costs can be assessed at final reconciliation. Additionally, the Applicant has not demonstrated that FEMA improperly reduced eligible costs by insurance proceeds for building damage and contents damage or provided documentation to support reimbursement of costs to prepare its insurance adjuster’s estimate. Therefore, the appeal is denied.
 The Applicant owns the Facility and leased it to a separate legal entity, Escambia Community Clinics, Inc. (ECC). In February 2018, ECC changed its name to Community Health Northwest Florida.
 Project Worksheet 888, Escambia Community Holdings, Inc., Version 0 (Jan. 30, 2017) [hereinafter PW 888, (Version 0)] (documenting FEMA’s estimated costs of Facility restoration) & Project Worksheet 888, Escambia Community Holdings, Inc., Version 1 (Mar. 23, 2017) [hereinafter PW 888, (Version 1)] (documenting HMP estimated costs and deducting insurance proceeds).
 Public Assistance Alternative Procedures Pilot Program for Permanent Work Acknowledgement (Jan. 29, 2015).
 Letter from Reg’l Adm’r, FEMA Region IV to Dir., FDEM (June 16, 2015).
 See NFIP Estimate (June 20, 2014) (included in Attachment D to Applicant’s first Request for Information Response) [hereinafter NFIP 2014 Estimate].
 See NFIP Payments (Attachment E to Applicant’s first Request for Information Response).
 The engineering estimate file as it appears in FEMA’s grants management database seems to be a mix of pages from different reports, including Facility restoration cost estimates, a benefit-cost analysis for the Applicant’s proposed relocation, and a flood wall mitigation cost estimate. See Memorandum, Prof’l Eng’r, Arcadis U.S., Inc., to Exec. Dir., Escambia Community Clinics, (July 18, 2014) [hereinafter Applicant Engineer Estimates].
 The full estimate does not appear to be in the record. A FEMA CEF analysis states that the Applicant’s engineer prepared a second estimate on February 6, 2015. See Cost Estimating Format, Escambia Community Holdings, Inc., at 1 (May 5, 2015) [hereinafter FEMA May 2015 CEF Analysis].
 Applicant Engineer Estimates, at 21-22.
 FEMA May 2015 CEF Analysis at 1, 12, 16.
 See “ECC-FEMA Estimate,” (July 30, 2015) (included as Attachment D to Applicant’s first Request for Information response).
 See Cost Estimating Format, Escambia Community Holdings, Inc, Building Repairs, at 8-9 (Feb. 23, 2016) [hereinafter FEMA February 2016 CEF Analysis].
 See NFIP Estimate, at PDF page 1 (June 9, 2016) (included in Attachment D to Applicant’s first Request for Information response, at PDF page 490).
 NFIP Payments at PDF page 3.
 Email from Planner, Arcadis U.S., Inc., to Project Specialist, FEMA (Dec. 12, 2014, 1024 EST).
 See Letter from Exec. Dir., Escambia Community Holdings, Inc., to Dir., State of Fla. Div. of Emergency Mgmt. (FDEM), at 2-3 (May 2, 2017) [hereinafter Applicant First Appeal].
 The $58,329.78 is part of the total amount the Applicants states should be obligated under PW 888. The Grantee also stated that the Applicant was seeking those costs.
 Letter from Dir., FDEM, to Reg’l Adm’r, FEMA Region IV, at 1. (June 29, 2017) [hereinafter Grantee First Appeal Transmittal].
 Letter from Dir., FEMA Region IV Recovery Div., to Interim Dir., FDEM & Exec. Dir., Escambia Community Holdings, Inc. (Dec. 19, 2017).
 Letter from Exec. Dir., Escambia Community Holdings, Inc., to Dir., FEMA Region IV Recovery Div., at 1 (Jan. 17, 2018).
 Id. at Attachment D.
 E-mail from Representative, FEMA Region IV Pub. Assistance – Appeals, to Recovery Dep. Bureau Chief, FDEM (Jan. 29, 2018, 1041 EST).
 E-mail from Recovery Dep. Bureau Chief, FDEM, to FEMA Region IV Pub. Assistance – Appeals (Mar. 2, 2018, 1639 EST).
 Letter from Reg’l Adm’r, FEMA Region IV, to Dir., FDEM, at 3-4 (July 23, 2018).
 Letter from Exec. Dir., Escambia Community Holdings, Inc., to Dir., FDEM, at 2 (Sept. 21, 2018).
 Letter from Dep. Recovery Bureau Chief, FDEM, to FEMA Region IV (Nov. 19, 2018).
 Title 44 Code of Federal Regulations (C.F.R.) § 206.202(d)(1)(i) (2013).
 Public Assistance Guide, FEMA 322, at 101 (June 2007) [hereinafter PA Guide].
 Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) of 1988, Pub. L. No. 93-288, § 428(e)(1), 42 U.S.C. § 5189f(e)(1) (2013); Public Assistance Alternative Procedures Pilot Program Guide for Permanent Work (Version 2), at 1 (Dec. 19, 2013) [hereinafter 2013 PAAP Pilot Program Guide].
 2013 PAAP Pilot Program Guide, at 6, 7, 12.
 Public Assistance Alternative Procedures Pilot Program – Permanent Work Standard Operating Procedures, at 5 (Dec. 19, 2013) [hereinafter 2013 PAAP Pilot Program SOP].
 2013 PAAP Pilot Program Guide, at 7-8.
 2013 PAAP Pilot Program SOP, at 5.
 2013 PAAP Pilot Program Guide, at 6.
 See FEMA February 2016 CEF Analysis at 1.
 Recovery Policy (RP) 9526.1, Hazard Mitigation Funding Under Section 406 (Stafford Act), at 3 (Mar. 30, 2010); PA Guide at 110-11.
 Stafford Act § 312; 44 C.F.R. § 206.250(c); PA Guide at 41.
 BASE Tactical Disaster Recovery, Escambia Community Clinics, Inc. FLOOD-A1P Insurance Invoice (July 8, 2016) [hereinafter BASE Tactical Invoice].
 BASE Tactical Invoice at PDF pages 1, 3.