Allowable Costs and Reasonable Costs

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From May 8 to 13, 2022, severe storms, straight-line winds, tornadoes and flooding impacted Minnesota, resulting in a major disaster declaration on July 8, 2022. Minnesota Valley Cooperative Light and Power Association (MVCLPA) (Applicant), a private nonprofit entity, requested Public Assistance (PA) funding for repairs to wooden transmission and distribution poles that the disaster caused to lean. The Applicant claimed damage to over 1,000 total poles. FEMA developed Grants Manager Project 688227 to document the Applicant’s costs. The scope of work (SOW) prepared by FEMA stated “The [A]pplicant will utilize contract for repairs to the [MVCLPA] to restore this facility to its predisaster design, function, and capacity (in-kind) within the existing footprint.”[1] On January 30, 2023, FEMA issued a Request for Information (RFI) to the Applicant, requesting predisaster maintenance records and work orders, as well as standard operating procedures (SOP) which explained the need to straighten the poles. The Applicant responded on February 6, 2023, with a letter from its consulting engineer, certifying the predisaster maintenance and status of the poles, and that it did not have a SOP regarding leaning poles. On April 24, 2023, FEMA issued a Determination Memorandum denying $169,312.00, finding that the Applicant had not demonstrated the predisaster condition of the poles, or that the damage was caused by the declared incident. FEMA also found that the Applicant did not provide any documentation demonstrating the work was performed inside the disaster declared areas.

First Appeal

On June 21, 2023, the Applicant appealed. The Applicant provided a map of the pole locations and a map from the National Weather Service showing high wind in the same areas during the disaster. The Applicant argued that its own engineer determined the poles to be in good working order before the disaster, and included predisaster service orders for the poles. The Minnesota Department of Public Safety (Recipient) forwarded the appeal, with its support, on August 17, 2023.

FEMA issued an RFI on December 20, 2023, requesting a SOW and cost estimate for the work, predisaster maintenance and inspection documents, documentation regarding the extent of lean, and the status of the work. The Applicant responded on January 22, 2024, stating that no work had begun, and that FEMA’s previous estimate of $169,312.00 was inaccurate. FEMA followed up to again request a SOW, method of repair information, and a cost estimate. The Applicant responded on May 6, 2024, stating that 1,168 poles needed straightening, and provided the GPS location of each pole. The Applicant provided cost information for this project as well as a similar project under a different disaster, such as a price analysis estimate prepared by its primary contractor and a document explaining the manpower and factors that were considered in developing the estimate. However, the Applicant noted that it would request proposals for the work (i.e., advertise a request for proposals (RFP)). The Applicant claimed that it expected the proposals would quote a total project cost of $539,532.05. 

On June 18, 2024, the FEMA Region 5 Regional Administrator partially granted the appeal.  Although FEMA found that the work to straighten 1,168 poles was required as a result of the declared incident, it determined that the cost estimate proposed by the Applicant was unreasonable. FEMA conducted a reasonable cost analysis based on historical data from 2019 and validated $268,172.80 as a reasonable cost estimate. 

Second Appeal

On August 16, 2024, the Applicant submitted a second appeal seeking an additional $149,885.20 in PA funding to complete the repair work approved by FEMA in the first appeal decision. The additional requested funding is based on a bid amount to repair 1,1168 poles for a total cost of $418,058.00. The Applicant provides documentation demonstrating that it published an RFP after FEMA issued its first appeal decision.[2] The RFP listed technical specifications for the work, and that the poles would be straightened as near as practical to in-place. The RFP also specified that the vendors must comply with all relevant Federal contract provisions. The Applicant sent the RFP to 11 electrical utility repair and construction contractors and received four responsive bids. The Applicant includes an evaluation sheet with its appeal, which shows the per unit and total prices from each of the four contractors that bid. The documentation shows that Michels Power, Inc. (Michels) submitted the lowest cost bid. Michels estimated $400,538.00 to straighten 1,168 poles, with an additional $17,520.00 in material costs for gravel to stabilize the poles, for a total low bid amount of $418,058.00. 

Discussion

To be eligible, costs must be directly tied to the performance of eligible work and necessary and reasonable to accomplish the work properly and efficiently.[3] A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the Applicant makes the decision to incur the cost.[4] FEMA generally considers contract costs reasonable when the Applicant adheres to full and open competition under applicable Federal procurement requirements, and the scope of services or work in the contract and level of effort is consistent with respect to the eligible SOW.[5] FEMA evaluates reasonableness when price competition is lacking or when the selection was noncompliant with the applicable procurement under grant requirements even though there may have been price competition.[6] As part of this evaluation FEMA considers whether the Applicant provided a cost or price analysis as well as whether the applicant selected the lowest responsible bidder based on the selection criteria.[7]

On second appeal, the Applicant provides documentation to show the results of its competitive bid process for the eligible SOW. The Applicant prepared an RFP, using the assistance of a consulting engineer, and solicited bids from 11 vendors. The Applicant analyzed the competing bids it received, in comparison to the cost estimate, and demonstrated prudence by selecting the lowest bidder that offered to complete the project in accordance with the RFP’s requirements in a timely manner. A review of the RFP requirements and bid results show that the scope of services in the contract and level of effort is consistent with the eligible SOW of straightening 1,168 poles. While FEMA notes that installing gravel to stabilize the poles was not previously approved, this work is eligible because it is necessary to accomplish the work of straightening the poles properly and efficiently. Because the Applicant adhered to full and open competition, consistent with applicable Federal procurement requirements, and the scope of services are consistent with the eligible SOW, FEMA finds the low bid contract costs, totaling $418,058.00 to be reasonable.

Conclusion

The Applicant has demonstrated that additional costs of $149,885.20 are reasonable. Therefore, this appeal is granted.[8]