Allowable Costs & Reasonable Costs, Financial Accounting & Reconciliation, Procurement & Contracting Requirements

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	1791
Applicant	Port of Galveston
Appeal Type	Second
PA ID#	167-ULN6R-00
PW ID#	PW 11968
Date Signed	2023-05-11T16:00:00

 

Appeal Letter

Appeal Analysis

Background

From September 7 to October 2, 2008, Hurricane Ike impacted areas in East Texas.[1] High winds, wind-driven rain, and storm surge damaged various facilities owned by the Port of Galveston (Applicant). FEMA developed Project Worksheet (PW) 11968 to document costs of port-wide emergency protective measures and direct administrative costs (DAC). FEMA initially included Public Assistance (PA) funding based on estimated costs for the project but later deobligated funding to account for actual insurance proceeds received by the Applicant. On January 14, 2020, the Texas Division of Emergency Management (Recipient) submitted a project closeout request for PW 11968 that included DAC.

On February 28, 2022, FEMA Region 6 issued an eligibility determination for PW 11968. FEMA stated that all PA funding for claimed damage, had been reduced due to actual insurance proceeds received by the Applicant. Therefore, FEMA stated that the only project funding at issue was associated with the Applicant’s DAC claim. It then pointed to a previous first appeal decision for PW 15839, a separate project associated with repairs the Applicant completed following the same disaster. FEMA explained that in the referenced first appeal decision, it found DAC the Applicant claimed for services performed by Beck Disaster Recovery (BDR) was ineligible due to improper contract procurement.[2] FEMA found that the Applicant’s DAC claim for BDR services under PW 11968, with costs totaling $121,066.12, was similarly ineligible.

First Appeal

The Applicant submitted a first appeal to the Recipient. It disputed FEMA’s earlier determination and faulted FEMA for basing the denial of DAC under PW 11968 on the first appeal decision for PW 15839. It asserted that in referring only to the previous decision, FEMA failed to specify the procurement standards upon which the denial was based.

The Applicant provided a lengthy analysis of the BDR contract procurement process under PW 15839, asserting that it complied with federal procurement requirements. The Applicant acknowledged that the BDR contract for that project was procured through an agreement in which an entity known as the Houston-Galveston Area Council Buy Board (HGAC-Buy) acted as its procurement agent. It asserted that HGAC-Buy procured the contract competitively, receiving 13 proposals in response to the bid solicitation, and that this was “a direct indicator that adequate price competition was not lacking.”[3] Thus, it asserted that BDR’s costs were reasonable, and a cost analysis for the contract was not required. Finally, the Applicant asserted that the use of HGAC-Buy for procurement constituted “an intergovernmental purchasing agreement” that fulfilled federal standards under Title 44 of the Code of Federal Regulations Part 13, which was in effect at the time of the disaster.[4] In a transmittal letter dated May 16, 2022, the Recipient expressed support for the appeal.

FEMA issued a Request for Information (RFI) requesting the Applicant provide additional information related to the BDR contract. In response, the Applicant provided documentation including: (1) HGAC-Buy contract; (2) a record of the minutes from a meeting in which its Board of Trustees granted it the authority to expend funds and enter into agreements for the repair of disaster-related damage; (3) documentation supporting the costs at issue, including the BDR contract, invoices, employee timesheets, receipts, and other related documentation.[5]

On October 14, 2022, the FEMA Region 6 Regional Administrator (RA) denied the appeal, finding that the BDR contract was not compliant with federal procurement regulations. FEMA explained that HGAC-Buy did not base the procurement of the contract on the Applicant’s specific requirements. FEMA noted that the contract bid advertisement was completed before the Applicant requested HGAC-Buy’s assistance and included “an infinite quantity of services” that “could be provided to users nationwide.”[6] Thus, FEMA determined that the broad nature of the procurement action restricted competition for the specific requirements under PW 11968 and amounted to a prohibited sole-sourced contract.[7] FEMA also determined that the Applicant failed to demonstrate compliance with other federal procurement standards, such as performing a cost analysis or taking steps to utilize socioeconomic procurement practices.

In light of the issues with procurement noncompliance, the RA exercised discretionary enforcement authority to disallow DAC under the BDR contract. Further, FEMA found that the Applicant had not provided information adequately describing the tasks BDR performed, and consequently it could not determine reasonable costs for the DAC claim.

Second Appeal

The Applicant submitted a second appeal via letter dated December 15, 2022, requesting $132,533.62 in DAC for PW 11968.[8] The Applicant asserts that FEMA based its earlier determinations regarding the procurement of the BDR contract on authorities (i.e., law, regulation, and FEMA policy) that were not in effect for the disaster. Further, the Applicant states its belief that reasonable costs under the BDR contract could be determined. In support, it attaches the HGAC-Buy bid solicitation, BDR contract documentation (service agreement, invoices, etc.), and other documentation it submitted previously for the first appeal. In a transmittal letter dated January 4, 2023, the Recipient expressed support for the appeal.

 

Discussion

Procurement & Contracting Requirements

Title 44 of the Code of Federal Regulations (44 C.F.R.) Part 13, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments, codifies the requirements for local governments seeking, receiving, or administering PA grants.[9] Section 13.36 requires an applicant to procure services in a manner that allows full and open competition.[10] Among other requirements, applicants must also perform and document a cost or price analysis in connection with every procurement action,[11] and take necessary affirmative steps to assure that minority-owned firms, women’s business enterprises, and labor surplus area firms are used when possible.[12]

On first appeal, FEMA determined that the Applicant’s contract with BDR was not competitively procured. FEMA also found that the Applicant did not perform a cost analysis for the contract or take necessary steps to utilize small businesses, minority-owned firms, and/or women’s business enterprises for the administrative services at issue. On second appeal, the Applicant does not contest the substance of these determinations. Rather, it states that FEMA applied authorities that were not in effect on the declaration date for the disaster (September 13, 2008) and “retroactively [applied] policy to make determinations related to eligibility.”[13]

As a local government entity, the Applicant was required to comply with federal procurement standards found in 44 C.F.R. § 13.36 at the time of the disaster declaration. In FEMA’s first appeal decision, the Agency determined the BDR contract was noncompetitively procured, citing Title 2 of the Code of Federal Regulations (2 C.F.R.) § 215.43. However, the applicable procurement standard in effect at the time was 44 C.F.R. § 13.36(c)(1).[14] Similarly, FEMA determined that the Applicant had not prepared a cost analysis for the BDR contract, citing 2 C.F.R. § 215.46; in fact, the applicable procurement standard in effect at the time was 44 C.F.R. § 13.36(f)(1).[15] Finally, FEMA determined that the Applicant had not taken steps to utilize socioeconomic procurement practices when procuring the BDR contract, citing 2 C.F.R. § 215.44(b)(1); in fact, the applicable procurement standard in effect at the time was 44 C.F.R. § 13.36(e)(1).[16]

Although FEMA cited the standards found in 2 C.F.R. Part 215 (for institutions of higher education, hospitals, and other nonprofit organizations) in the first appeal analysis, the Applicant failed to comply with similar procurement standards found in 44 C.F.R. § 13.36, which were in effect at the time of the disaster and applicable to the Applicant.[17] The Applicant did not demonstrate that it: (1) procured BDR’s services in a manner that allowed full and open competition; (2) performed and documented a cost or price analysis in connection with the procurement of the BDR contract; and (3) took necessary affirmative steps to assure that minority-owned firms, women’s business enterprises, and labor surplus area firms were used when possible. Therefore, the Applicant did not properly procure the DAC contract.

Allowable Costs & Reasonable Costs, Financial Accounting & Reconciliation

FEMA has discretionary authority that it exercises on a case-by-case basis to resolve issues of noncompliance with procurement requirements.[18] Its range of authorized actions include disallowing all or part of the cost of the activity or action not in compliance.[19] While enforcement action taken by FEMA is discretionary, the action selected must be appropriate given the circumstances.[20] To the extent FEMA agrees to allow funding, FEMA first determines whether costs are reasonable.[21] For costs to be allowable and therefore reimbursable, under a PA award, the costs must be, among other requirements, reasonable and adequately documented.[22] A cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the costs.[23] Additionally, appeals must contain documented justification supporting the applicant’s position.[24] 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.[25]

Given the Applicant’s procurement noncompliance, FEMA exercised its discretionary enforcement authority on first appeal to disallow all of the DAC at issue. FEMA also found that it was unable to determine reasonable costs for the BDR contract with the documentation the Applicant provided. FEMA noted that in the RFI it requested detailed descriptions of the tasks associated with the DAC claim, but in response the Applicant “provided only generic descriptors … with minimal description of tasks performed.”[26] On second appeal, the Applicant provides the same HGAC-Buy bid solicitation and evaluation documents, and the BDR service agreement and associated documentation that it provided on first appeal. It states that it “believe[s] cost reasonableness can be determined with the invoice and back-up documents provided.”[27]

On second appeal, FEMA examined the available documentation associated with the costs incurred under the BDR contract. The supporting documents total more than 1,000 pages, most of which appear to be unrelated to the Applicant’s DAC claim for PW 11968. However, where information is highlighted and is presumably part of the claim (e.g., highlighted job titles and task descriptions listed on employee timesheets), it often lacks detail that would directly tie any of the associated work to PW 11968.[28] In those cases where the Applicant notes project-specific information, the task descriptions provided are not specific enough for FEMA to evaluate their eligibility.[29] The Applicant did not provide an explanation of the documentation with its appeal letter that would substantiate its assertion regarding reasonable costs or otherwise demonstrate how the documents support FEMA’s previous request in the RFI. Therefore, FEMA finds that the Applicant has not provided documentation enabling a reasonable costs determination.[30]

 

Conclusion

The Applicant failed to comply with procurement standards applicable to local governments. Additionally, the Applicant has not provided information that would enable a reasonable costs determination. Therefore, this appeal is denied.