Allowable Costs & Reasonable Costs, Private Nonprofit, Procurement & Contracting Requirements, Result of Declared Incident

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4563
Applicant	St. Thomas by the Sea Parish (Orange Beach)
Appeal Type	Second
PA ID#	003-UNIPZ-00
PW ID#	GMP 180211
Date Signed	2023-02-15T17:00:00

Summary Paragraph

From September 14-16, 2020, Hurricane Sally caused damage throughout Alabama.  St. Thomas by the Sea Parish (Applicant) used Belfor USA to remediate damage and make temporary repairs at its church (Facility).  FEMA created Grants Manager Project (GMP) 180211 to document the work but denied Public Assistance (PA) funding due to a lack of documentation supporting eligibility.  The Applicant submitted a first appeal, asserting that its emergency protective measures were eligible.  It provided additional documentation, including photographs, an insurance adjuster’s report, and pre- and post-disaster contracts with Belfor.  FEMA denied the appeal, finding that the Applicant had not provided documentation demonstrating that the work was necessary as a result of the disaster or demonstrating adherence to federal procurement standards in using the predisaster contract with Belfor.  The Applicant submitted a second appeal requesting $846,303.00 for GMP 180211.  It reiterates earlier statements regarding the eligibility of the work at issue and states that the predisaster contract with Belfor was utilized under exigent circumstances.

Authorities and Second Appeals

• Stafford Act §§ 403, 406(a)(3)(A)(ii).
• 2 C.F.R. §§ 200.318(a), (i), 200.319, 200.320, 200.323, 200.338, 200.404.
• 13 C.F.R. § 123.202(a).
• 44 C.F.R. §§ 206.223(a)(1), 206.225(a), 206.226(c)(2).
• PAPPG, at 51, 57-58, 66, 76-78, 80, 83, 98.
• Midwest Energy, Inc., FEMA-4063-DR-KS, at 5, City of Atlanta, FEMA-1858-DR-GA, at 14.

Headnotes

• When a Private Nonprofit cannot accept the terms of a Small Business Administration (SBA) loan, resulting in loan denial, PA funding for permanent work is limited to the costs that the loan would not have otherwise covered.
  • The work at issue in GMP 180211 is emergency work.  Therefore, the limitation to available PA funding due to the Applicant’s SBA loan denial does not apply.
• For emergency protective measures to be eligible, the applicant is responsible for showing the work is required due to an immediate threat resulting from the declared incident.
  • The insurance adjuster’s assessment of the Facility substantiates the disaster as the cause of the damages and is further corroborated by numerous post-disaster photographs.
• FEMA provides PA funding for contract costs based on the terms of the contract if an applicant meets federal procurement and contracting requirements.
  • The Applicant has not provided information documenting the procurement history for the contracted work, and both pre- and post-disaster contracts contain prohibited cost-plus-percentage-of-cost provisions.
• FEMA has discretionary authority that it exercises on a case-by-case basis to resolve issues of noncompliance, including procurement noncompliance.  At times, FEMA may exercise its discretion and award reasonable costs or disallow funding.
  • Given the circumstances on appeal, FEMA determines that funding totaling $262,929.59 represents reasonable costs a prudent person would incur for the work at issue.

Conclusion

Because GMP 180211 documents emergency work, limitations to available PA funding due to the denial of the Applicant’s SBA loan do not apply.  The emergency protective measures the Applicant completed were necessary as a result of the disaster.  However, neither the predisaster contract nor the post-disaster contract with Belfor were procured in accordance with federal regulations.  Subject to insurance adjustments, FEMA awards reasonable costs of $262,929.59 for the work at issue.  Therefore, this appeal is partially granted.

Appeal Letter

Appeal Analysis

Background

From September 14-16, 2020, strong winds, rain, and flooding from Hurricane Sally caused damage throughout southern Alabama.[1]  St. Thomas by the Sea Parish (Applicant) used Belfor USA to remediate interior water damage and make temporary roof repairs at its church (Facility) in Orange Beach.  Actual costs totaled $846,303.00.[2]  FEMA created Grants Manager Project (GMP) 180211 to document Category B (emergency protective measures) work for the remediation and temporary repairs Belfor completed.

On April 9, 2021, FEMA issued a Request for Information (RFI) to 24 subsidiary organizations under the Archdiocese of Mobile (Archdiocese), including the Applicant.  FEMA requested documentation related to the claimed damages, insurance policies and settlements, and Small Business Administration (SBA) loan applications for each of the organizations.  The Archdiocese responded to the RFI on May 7, 2021.  It stated that each subsidiary organization had uploaded damage information and insurance documentation to Grants Portal.  The Archdiocese also stated that it continued to pursue insurance claims and would provide updates as those claims were settled.

In a Determination Memorandum dated May 25, 2021, FEMA denied Public Assistance (PA) funding for GMP 180211.  FEMA stated that the only documentation submitted to date was Belfor’s invoice for the work at issue and a denied SBA loan application.  Therefore, FEMA found that the Applicant had not submitted documentation that would enable it to develop the project and evaluate it for eligibility.[3]

First Appeal

The Applicant submitted a first appeal via letter dated July 22, 2021.  It requested FEMA reverse its earlier eligibility decision and approve $846,303.00 in PA funding for GMP 180211.  The Applicant noted that the Facility is located “on the beach road, with unprotected exposure to hurricane winds and tidal surge.”[4]  It asserted that the work performed by Belfor was eligible for PA funding and was supported by the available documentation.  The Applicant faulted FEMA for issuing a consolidated RFI instead of requesting specific project information from each organization individually, and for denying funding without further communication following the Archdiocese’s response.  In a letter dated August 2, 2021, the Alabama Emergency Management Agency (Recipient) transmitted the appeal to FEMA without a recommendation.

FEMA issued an RFI expressing concern that the available information did not support project eligibility.  FEMA requested: (1) insurance documentation with information about the Facility and damage; (2) contract and procurement documentation; (3) a contractor’s invoice with descriptions of the damage and the work performed; and (4) “GPS coordinates correlating to pre- and post-disaster photographs of the Facility and its roof and interior.”[5]

In response, the Applicant provided: (1) an insurance adjuster’s report prepared by Sedgewick, a claims management service; (2) a statement of loss with a summary of costs for work to restore the Facility, including invoices and payment documentation; (3) a predisaster contract with Belfor detailing standardized procedures for obtaining emergency work;[6] (4) a Belfor work authorization contract signed immediately following the disaster (post-disaster contract);[7] and (5) a written statement explaining how Belfor was engaged to perform the work at issue.[8]  The Applicant explained that Belfor was engaged utilizing the predisaster contract due to exigent circumstances following the disaster, weeks before the request for PA was submitted to FEMA.  Finally, the Applicant provided geographic coordinates for the Facility, and uploaded post-disaster photographs of the Facility’s interior and exterior to Grants Portal.

On April 22, 2022, the FEMA Region IV Regional Administrator denied the appeal.  FEMA determined that the Applicant had not provided information substantiating the cause of the damages or supporting the eligibility of the work and costs under GMP 180211.  Specifically, FEMA found that post-disaster photographs in the Sedgewick report did not adequately capture the damages claimed, and that “[w]ithout a clearer and more comprehensive photographic record,” it could not verify that the work performed by Belfor was necessary as a result of the disaster.[9]  FEMA stated that the Applicant had not demonstrated the predisaster condition of the Facility’s roof; thus, FEMA could not verify the eligibility of the temporary roof repair work.  Moreover, FEMA determined that the Applicant had not provided documentation demonstrating adherence to federal procurement requirements when utilizing the predisaster contract with Belfor.  Finally, FEMA noted that in explaining the contract, the Applicant stated that the Archdiocese had no procurement process in place; this fact “render[ed] the costs ineligible.”[10]

Second Appeal

The Applicant submitted a second appeal via letter dated June 21, 2022, again requesting PA funding totaling $846,303.00 for emergency protective measures at the Facility.  The Applicant asserts that FEMA did not consider the 75 post-disaster photographs of the Facility, which it provided previously.  It states that the Sedgewick report, statement of loss, and additional photographs support the eligibility of the claimed emergency work.  The Applicant further states that it was “denied the opportunity to work with FEMA to develop its [PA] claim and address specific questions regarding eligibility” prior to FEMA issuing the Determination Memorandum.[11]  It asserts that these actions were inconsistent with the project development process outlined in FEMA’s Public Assistance Program and Policy Guide, and FEMA’s mission and core values.  Finally, the Applicant states that the predisaster contract with Belfor was utilized under exigent circumstances immediately following the incident period.[12]  In a letter dated June 23, 2022, the Recipient transmitted the appeal to FEMA without a recommendation.

 

Discussion

Private Nonprofit

To receive assistance for the repair, restoration, reconstruction, or replacement of damaged facilities, Private Nonprofit (PNP) applicants operating facilities that provide noncritical, essential social services (such as Houses of Worship) must apply for SBA disaster loans.[13]  Pursuant to Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.226(c)(2), if a PNP declines an SBA loan, PA funding for permanent work is limited to the costs that the loan would not have otherwise covered; this applies even when the PNP cannot accept the terms of the loan, and SBA therefore denies the loan, which may occur as in situations where the PNP does not meet the collateral requirement.[14]  SBA disaster business loans to PNPs, including physical disaster and economic injury loans, are available to cover up to $2,000,000.00.[15]

The Archdiocese applied for an SBA loan on the Applicant’s behalf on November 19, 2020.  In a letter dated March 30, 2021, the SBA denied the loan application because the Applicant’s bylaws prevented it from pledging the collateral required by the SBA.[16]  Thus, because the Applicant could not accept the SBA’s collateral requirement, pursuant to 44 C.F.R. § 206.226(c)(2), available PA funding for permanent work to restore the Facility is limited to the costs the loan would not have otherwise covered.   However, the work at issue in GMP 180211 is emergency work to prevent further damage to the Facility and its contents.[17]  Therefore, the limitation to available PA funding due to the Applicant’s SBA loan denial does not apply.

Result of Declared Incident

FEMA is authorized to provide PA funding for emergency protective measures necessary to save lives, protect public health and safety, and to protect improved property.[18]  For emergency protective measures to be eligible, the applicant is responsible for showing the work is required due to an immediate threat resulting from the declared incident.[19]

Hurricane Sally made landfall on September 16, 2020, near Gulf Shores, Alabama as a Category 2 hurricane.[20]  The Applicant asserts that information in the Sedgewick report demonstrates that the damage to the Facility was caused by the disaster.[21]  Sedgewick conducted its initial inspection of the Facility on September 17, 2020, along with Applicant and Belfor representatives.[22]  Sedgewick photographed and documented the damage and recorded the Applicant’s account of the incident.  It determined that Hurricane Sally caused significant damage to the Facility’s roof and interior but found that the Facility was otherwise in good condition and well-maintained.[23]  After completing additional visits to the Facility, Sedgewick provided an update to its initial report in which it again stated that the disaster was the cause of the damage.[24]  Thus, information in the report demonstrates that Sedgewick inspected the Facility several times, including an initial inspection made the day after Hurricane Sally made landfall, and determined through direct observation that the damages at issue were caused by the disaster.

Additionally, photographs of the Facility captured by Sedgewick and the Applicant immediately after the disaster show interior water damage to the ceilings and drywall, carpeting, and other features.  Exterior photographs of the Facility’s roof show missing or displaced terracotta roofing tiles and numerous roof sections with temporary coverings, presumably placed by Belfor to prevent further water intrusion into the structure’s interior.[25]

In this light, FEMA determines that Sedgewick’s assessment of the Facility substantiates the cause of the damages at issue and is further corroborated by numerous post-disaster photographs.  Considering the timing of the assessment and the fact that it was prepared for the Applicant’s insurer, and given the Facility’s proximity to where Hurricane Sally made landfall, FEMA finds that emergency protective measures were necessary as a result of the disaster.

Procurement & Contracting Requirements

FEMA provides PA funding for contract costs based on the terms of the contract if an applicant meets federal procurement and contracting requirements.[26]  Non-state entities, including PNPs, must follow the federal procurement requirements set forth in Title 2 of the Code of Federal Regulations (2 C.F.R.) §§ 200.318-200.326.  Among other requirements, PNP applicants must establish and use written procurement procedures that reflect applicable state and local laws and regulations, and must maintain records sufficient to document the history of the procurement.[27]  Additionally, federal procurement regulations expressly prohibit the use of the cost-plus-percentage-of-cost (CPPC) method of contracting, as it does not provide incentive to contractors to control costs because the contractor’s profit increases as the costs of performance increase.[28]  FEMA identifies CPPC cost methods by determining whether: (1) payment is on a predetermined percentage rate; (2) the predetermined percentage rate is applied to actual performance costs; (3) the contractor’s total payment amount is uncertain at the time of contracting; and (4) the contractor’s payment increases commensurately with increased performance costs.[29]

Here, the available information does not fully clarify the contractual relationship between the Archdiocese, the Applicant, and Belfor.  It appears that following Hurricane Sally, the Archdiocese used a predisaster contract with Belfor to engage their services on behalf of the Applicant.  In order to receive PA funding for the work, the Applicant must demonstrate that both the pre- and post-disaster procurement actions were made in full compliance with federal requirements.  On second appeal, FEMA examined the predisaster contract and the post-disaster contract, to determine compliance with federal procurement regulations.

The Applicant did not provide any written procurement policies or procedures with its appeal; it also stated affirmatively that the Archdiocese “did not have a formal procurement process.”[30]  Thus, the Applicant has not demonstrated that the predisaster contract was procured using a documented contract procurement policy.  It further indicated that no policy was in place for the procurement of the post-disaster contract.  Therefore, FEMA determines that neither contract was procured in compliance with the federal procurement standard at 2 C.F.R. § 200.318(a).

Further, PNP applicants are required to maintain records sufficient to document the procurement history.  Without documented policies, FEMA is unable to identify how the procurement actions were conducted.  For example, FEMA cannot determine whether the predisaster agreement was procured in a manner ensuring full and open competition,[31] whether either contract was procured using one of the five procurement methods approved in regulation,[32] whether the noncompetitive procurement of the post-disaster contract was warranted due to exigent or emergency circumstances,[33] or whether a cost or price analysis was prepared for the post-disaster contract.[34]  The Applicant has not provided information documenting the procurement history for the contracted work, as required by the federal procurement standard at 2 C.F.R. § 200.318(i).

Finally, provisions in both the pre- and post-disaster contracts contained prohibited CPPC methods for determining costs.  Both included a 21 percent markup on the total cost for unscheduled materials, unscheduled equipment, and subcontractors/vendors; a 15 percent markup on the total cost for reimbursables; and a 15 percent markup on the costs of airfare, hotels, rental car rates, and other travel expenses.[35]  Thus, for each markup: (1) the contracts used a predetermined percentage rate; (2) the contracts applied the percentage rate to actual performance costs; (3) the total amount of the markup was uncertain at the time of contracting; and (4) the amount of the markup increased commensurately with increased costs for each item.  Therefore, FEMA determines that the contracts used prohibited CPPC costing methods in violation of the federal procurement standard at 2 C.F.R. § 200.323(d).

Reasonable Costs

FEMA has discretionary authority that it exercises on a case-by-case basis to resolve issues of noncompliance, including procurement noncompliance.[36]  In such instances, FEMA may, as appropriate, take a number of enforcement actions including, but not limited to, wholly or partially deobligating project funding and/or taking other remedies that may be legally available.[37]  At times, FEMA may exercise its discretion to award reasonable costs or disallow funding, but the actions selected must be appropriate given the circumstances.[38]  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 decision was made to incur the cost.[39]  FEMA evaluates reasonableness when the selection was noncompliant with the applicable procurement under grant requirements; if the Applicant does not submit a cost or price analysis, FEMA may evaluate the elements that would have been part of such analysis.[40]

The failure to provide written procurement policies or other information documenting the procurement history, as well as the inclusion of prohibited CPPC provisions in both contracts, represents a failure to comply with federal procurement standards.  However, given that the Facility suffered damage as a direct result of the disaster and that there is sufficient information in the record to substantiate a reasonable amount for the eligible work completed, FEMA will exercise its discretionary authority to award reasonable costs for the project.  On second appeal, FEMA examined the available information pertaining to the Facility and the work Belfor performed and, using RS Means data adjusted for the locale, determines that PA funding totaling $262,929.59 represents reasonable costs a prudent person would incur for the emergency protective measures at issue.

 

Conclusion

Because GMP 180211 documents emergency work, limitations to available PA funding due to the denial of the Applicant’s SBA loan do not apply.  The emergency protective measures the Applicant completed were necessary as a result of the disaster.  However, neither the predisaster contract nor the post-disaster contract with Belfor were procured in accordance with federal regulations.  Subject to insurance adjustments, FEMA awards reasonable costs of $262,929.59 for the work at issue.[41]  Therefore, this appeal is partially granted.

 

[1] The President issued a major disaster declaration on September 20, 2020.

[2] Belfor USA Grp., Invoice No. 1470317, at 2 (Nov. 19, 2020).

[3] FEMA Region IV, Eligibility Determination Memorandum, St. Thomas by the Sea Parish (Orange Beach), Project No. 180211, at 3-4 (May 25, 2021).  Among other things, FEMA stated that the available documentation did not contain information such as a detailed description of damages, floor plans, a “schedule of activities for primary use evaluation,” photographs of the site and damages, or the Applicant’s predisaster insurance and procurement policies.

[4] Letter from St. Thomas by the Sea Parish, to Ala. Emergency Mgmt. Agency, at 7 (July 22, 2021).

[5] Letter from Dir., Recovery Div., FEMA Region IV, to Dir., Ala. Emergency Mgmt. Agency and Sec’y, St. Thomas by the Sea Parish, at 2 (Nov. 9, 2021).

[6] Catholic Mut. Grp., 2020 Standard Operating Procedures (Feb. 20, 2020) [hereinafter Belfor Predisaster Agreement] (submitted as Exhibit D).

[7] Belfor USA Grp., Inc., Ala. Work Authorization Contract (Sept. 18, 2020) [hereinafter Belfor Post-disaster Contract] (submitted as Exhibit E).

[8] St. Thomas by the Sea Parish, Letter as response to your request for clarification on the engagement of Belfor Property Restoration, at 1 (Undated) [hereinafter Clarification Letter] (submitted as Exhibit C).

[9] FEMA First Appeal Analysis, St. Thomas by the Sea Parish (Orange Beach), FEMA-4563-DR-AL, at 4 (Apr. 22, 2022) [hereinafter First Appeal Determination].

[10] Id. at 3.

[11] Letter from St. Thomas by the Sea Parish, to Ala. Emergency Mgmt. Agency, at 6 (June 21, 2022) [hereinafter Applicant Second Appeal].

[12] Id. (additionally asserting that “[t]he delay that would have been caused by a competitive solicitation would have caused significant additional damage” to the Facility).

[13] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act § 406(a)(3)(A)(ii), 42 United States Code § 5172 (2018); Public Assistance Program and Policy Guide, FP 104-009-2, at 57 (June 1, 2020) [hereinafter PAPPG].

[14] See also PAPPG, at 57-58 (“[f]or PNPs with facilities that provide noncritical, essential social services, FEMA only provides PA funding for eligible Permanent Work costs that an SBA loan will not cover for those facilities”).

[15] Title 13 Code of Federal Regulations § 123.202(a) (2020).

[16] Letter from Application Processing Dep’t, Disaster Assistance Processing and Disbursement Ctr., U.S. Small Bus. Admin., to St. Thomas by the Sea Parish, at 1 (Mar. 30, 2021).

[17] PAPPG, at 98.

[18] Stafford Act § 403; 44 C.F.R. § 206.225(a).

[19] 44 C.F.R. §§ 206.223(a)(1), 206.225(a)(3); Public Assistance Program and Policy Guide, FP 104-009-2, at 51 (June 1, 2020) [hereinafter PAPPG].

[20] National Hurricane Center, Tropical Cyclone Report, Hurricane Sally (AL 192020), https://www.nhc.noaa.gov/‌data/tcr/AL192020_Sally.pdf (last visited Nov. 21, 2022).  The Facility’s location in Orange Beach, Alabama is in close proximity to the City of Gulf Shores and is near the water line of the Gulf of Mexico.

[21] Applicant Second Appeal, at 4.

[22] Sedgewick, First Report, Sedgewick File No. BIR20028090, at 1-2, 9 (Oct. 27, 2020).

[23] Id. at 1-2, 4.

[24] Sedgewick, Second Report, Sedgewick File No. BIR20028090, at 1, 7 (Dec. 2, 2020).

[25] The additional photographs provided by the Applicant were not considered on first appeal.  FEMA stated that it could not locate the additional photographs in the documentation uploaded for GMP 180211; see First Appeal Determination, at 4.  However, the Applicant uploaded the photographs to its applicant-level profile for the disaster rather than the project file for GMP 180211.

[26] PAPPG, at 76.

[27] Title 2 Code of Federal Regulations (2 C.F.R.) §§ 200.318(a), (i) (2020); PAPPG, at 78, 80.

[28] 2 C.F.R. § 200.323(d); PAPPG, at 83.

[29] PAPPG, at 83.

[30] Clarification Letter, at 1.

[31] 2 C.F.R. § 200.319.

[32] 2 C.F.R. § 200.320.

[33] 2 C.F.R. § 200.320(f)(2).

[34] 2 C.F.R. § 200.323.

[35] Belfor Predisaster Agreement, at 7; Belfor Post-disaster Contract, at 3.

[36] 2 C.F.R. § 200.338; PAPPG, at 76-77.

[37] 2 C.F.R. § 200.338; PAPPG, at 76-77.

[38] Id.; FEMA Second Appeal Analysis, City of Atlanta, FEMA-1858-DR-GA, at 14 (Aug. 13, 2019); FEMA Second Appeal Analysis, Midwest Energy Inc., FEMA-4063-DR-KS, at 5 (May 10, 2018).

[39] 2 C.F.R. § 200.404.

[40] PAPPG, at 66.

[41] As noted above, in response to the initial RFI the Archdiocese indicated it was pursuing insurance claims and would provide updates as settlements were finalized.  As of this writing, insurance settlement information has not been uploaded to the Applicant’s profile in Grants Portal/Grants Manager.  Thus, the award of PA funding under GMP 180211 discussed above is contingent on FEMA’s assessment of any pending or finalized insurance settlement, which may result in funding reductions for anticipated or actual insurance proceeds.