Allowable Costs and Reasonable Costs, Financial Accounting and Reconciliation

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From October 7-19, 2018, Hurricane Michael’s strong winds, torrential rain and tidal surge caused extensive damage throughout Florida.[1]The School Board of Bay County (Applicant) requested Public Assistance (PA) funding for contracted work to permanently repair damage to its Lynn Haven Elementary School Gymnasium (Facility), including the roof, wall panels, insulation, lighting, drywall, windows, overhead doors, electrical system and Heating, Ventilation, and Air Conditioning (HVAC) control. FEMA prepared Grants Manager Project (GMP) 113459 to document the damage and approved scope of work (SOW). The Applicant provided work order cost detail reports, building inspection reports with photographs dated February 19 and August 21, 2019, and cost estimates prepared using RS Means software to assert that the Facility was eligible for total replacement, totaling $1,487,101.85. On June 15, 2021, FEMA obligated the project, approving $923,685.00 to replace the Facility.

During review of the Applicant’s cost estimate, FEMA identified damage and cost discrepancies. On December 8, 2020, FEMA issued a request for information (RFI), requesting confirmation of Facility dimensions and adjustment to the various inconsistencies found in the repair and replacement cost estimates, including soft costs. In its response, the Applicant provided an updated cost estimate spreadsheet that revised its replacement costs to $992,894.74. On 

March 18, 2021, FEMA issued a Determination Memorandum (DM) approving $723,867.91 for Facility replacement costs.[2] FEMA denied $269,026.83 and noted that the percentage factors in the Applicant’s estimates for site access, storage, and staging were unnecessary given the Facility’s location, and further stated that other soft cost factors appeared excessive and lacked justification. 

First Appeal 

On May 18, 2021, the Applicant filed its appeal through the Florida Division of Emergency Management (Recipient), seeking the previously denied costs, to total the full amount of the previously requested replacement costs. The Applicant contended that: (1) it was not required to provide supporting invoices for completed work until project closeout; (2) FEMA policy allowed for funding completed work using estimated costs; and (3) the factors used to calculate soft costs in its estimates were reasonable and compliant with FEMA policy. On July 16, 2021, the Recipient transmitted the Applicant’s appeal to FEMA with a letter recommending approval.

On January 6, 2022, FEMA issued an RFI, stating the DM did not adequately communicate all applicable eligibility issues and noting issues with the Applicant’s cost documentation for contracted and completed work. The Applicant responded, providing approved time extensions, construction contracts, bids and bid tabulations for categories of work, and selected contractor payment applications. Payment Application Number 18 (dated February 8, 2022) shows that the Applicant had contracted for Facility repair, not replacement, for a total scheduled repair value of $397,943.31, with $274,873.04, or about 70 percent of the total, completed by January 31, 2022. Accordingly, the Applicant also reduced its total claimed amount to $397,943.31 to align with the provided payment applications. Based on the Applicant’s response, FEMA inquired whether the Applicant was repairing rather than replacing the Facility. On March 8, 2022, the Applicant confirmed that it was repairing the Facility, not replacing it. On September 9, 2022, FEMA prepared an updated cost estimate (CEF). 

On November 10, 2022, the FEMA Region 4 Regional Administrator denied the appeal finding that the Applicant’s documentation did not demonstrate all the costs requested were tied to work required as a direct result of the disaster. FEMA compared the invoiced costs with the approved SOW and the updated CEF. FEMA also summarized the line-item costs in FEMA’s cost validation in the CEF in accordance with the Applicant’s breakdown of actual costs and found a cost underrun. In total, FEMA found $276,605.12 to be eligible. FEMA determined that federal law did not bar it from deobligating the remaining $647,079.00 previously awarded funds because the Applicant did not draw down all the funds, the Applicant did not complete the approved SOW, and the claimed costs were not reasonable for the work performed.[3] 

Second Appeal

The Applicant submits a second appeal, dated January 13, 2023, seeking an additional $121,338.19 for the remaining costs to repair the Facility.[4] The Applicant provides additional documentation to account for work performed after January 31, 2022, via Pay Application Number 22, outlining work performed until September 30, 2022.  It also shows that items of incomplete work previously included on Pay Application Number 18 were completed. The Applicant contends that Pay Application Number 22, together with the previously provided documentation (including its engineer’s and architect’s assessments and FEMA approved SOW, construction contract, and pay applications) all support the eligibility of the actual costs of the completed work. The Recipient transmitted the Applicant’s second appeal to FEMA with a letter recommending approval.

Discussion

FEMA provides PA funding to eligible applicants for the repair, restoration, reconstruction, or replacement of facilities damaged or destroyed by disasters.[5] Final costs for large projects are based on the actual documented cost of the completed, eligible work.[6] To be eligible, costs must be directly tied to the performance of eligible work and be adequately documented.[7] The burden to fully substantiate appeals with documented justification falls exclusively to the applicant and hinges upon the applicant’s ability to produce not only its own records but to clearly explain how those records are relevant to the appeal.[8]

FEMA, in its first appeal decision, approved costs for the Applicant’s completed repair work directly tied to eligible work, but did not approve funding for the costs associated with the uncompleted repair work. On second appeal, the Applicant submitted additional cost documentation that is tied to the completed repair work. Specifically, Pay Application Number 22 shows all repair work was completed within the allowed timeframe and directly tied to the performance of eligible work. This documentation provides a quantitative description of the repairs performed and the costs attributable to those completed eligible repairs. As such, the Applicant has shown that all eligible work has been completed and adequately documented, and therefore, the actual costs for completed work in the amount of $121,338.19 are eligible for PA funding.

Conclusion

The Applicant demonstrated that the costs claimed are directly tied to the performance of completed eligible work. Accordingly, this appeal is granted in the amount of $121,338.19 and the Regional Administrator is requested to take appropriate action to implement this determination.