Appeal Timeliness – Appeal Procedures – Direct Administrative Costs – Procurement

Appeal Brief

Appeal Letter

Appeal Analysis

Background

As a result of Hurricane Ike, which the President declared a major disaster on September 13, 2008, the Louisiana State University Health Care Services Division’s Leonard J. Chabert Medical Center (Applicant) suffered a loss of power for approximately five days.  The power failure caused high levels of humidity and condensation, damaging some of the medical patient monitoring equipment and its ancillary accessories.  Consequently, FEMA prepared Project Worksheet (PW) 1307 (Version 0), noting that because the Applicant stated the malfunctioning equipment was not safe for patient use, the Applicant replaced the damaged equipment with new in-kind equipment.  FEMA stated the work was 100 percent complete as of October 22, 2009.  Accordingly, FEMA obligated Version 0 on December 17, 2009, approving total project costs in the amount of $981,478.25, of which $980,026.47 was allocated to the permanent work associated with replacing the damaged equipment, and $1,451.78 was approved for direct administrative costs (DAC). 

In June 2016, the State of Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) submitted a Final Inspection Report (FIR) notifying FEMA that there was a project underrun with respect to the permanent work completed; the DAC remained the same.  Consequently, through a June 24, 2016 letter and attached spreadsheet, the Grantee requested FEMA closeout PW 1307 for $1,802.38 less than the amount originally approved.  In the letter, the Grantee certified that all reported costs were incurred in the performance of eligible work, the work was completed in compliance with the provisions of the FEMA-State Agreement, all required and allowable funds had been reimbursed to the Applicant, and insurance (if applicable) had been obtained.  Therefore, on October 19, 2016, FEMA approved PW 1307 (Version 1), deobligating $1,802.38 in funding. 

In a February 7, 2017 letter, the Grantee requested FEMA reopen PW 1307 based on additional documentation it received from the Applicant after the Grantee completed the closeout review.  It attached a revised FIR, noting a cost overrun in the amount of $19,583.00 with respect to contract work associated with the repair of a parking operator lift arm gate located in a parking lot on the Applicant’s property.  Moreover, the Grantee also noted a cost overrun of $9,897.25 associated with additional DAC, incurred through the use of a contractor.  In sum, the Grantee requested a total cost overrun of $29,480.25.

By way of a letter dated March 31, 2017, FEMA addressed the Applicant’s request for additional funding related to the repair of the parking gate lift.  FEMA stated the original scope of work (SOW) in PW 1307 pertained to medical equipment and not repairs to the parking lot facility, and thus, FEMA determined the requested funding was not applicable to the project.  Consequently, FEMA declined the request to reopen the project.[1]

The Grantee forwarded FEMA’s denial to the Applicant via letter dated April 13, 2017.  The letter included language notifying the Applicant of its appeal rights and the appeal procedure requirements regarding FEMA’s March 31, 2017 determination.

First Appeal

Through a June 12, 2017 letter, the Applicant appealed FEMA’s determination, and requested FEMA reopen PW 1307 so that the Applicant could submit additional eligible DAC incurred on the project in the amount of $9,897.00 through work performed via contract with CSRS, Inc.  It stated that the contract with the Applicant’s closeout consultant did not begin until 2015, and initially the Applicant proceeded under the presumption that all DAC projects for Hurricanes Gustav and Ike would be funded under one PW, similarly to what had been done for DAC associated with Hurricane Katrina and Hurricane Rita projects.  However, the Applicant asserted that it was only in the late fall of 2015 that the Grantee confirmed with the Applicant all DAC for Hurricanes Gustav and Ike had to be separately added to each individual project.  The Applicant stated its closeout consultant continued to incur DAC during this time and through 2016, and as such, funds were still owed at the time FEMA closed the project.  Therefore, the Applicant requested FEMA reopen the project as the Applicant contended: (1) it was not given sufficient time to reconcile all costs related to PW 1307 prior to closeout; and (2) the Grantee notified FEMA the projects were closed prior to substantiating all eligible funds were paid and all work was complete. 

The Grantee forwarded the appeal to FEMA along with a letter and memorandum dated August 10, 2017, supporting the Applicant’s request to reopen the PW to allow FEMA the full opportunity to evaluate the claim for additional eligible DAC in the amount of $9,897.00. 

On November 14, 2017, FEMA transmitted a Final Request for Information (RFI) to the Applicant and the Grantee, notifying them the administrative record did not contain sufficient evidence to demonstrate, among other items, that the appeals were timely submitted, and the claimed expenses constituted eligible DAC of PW 1307.  Accordingly, FEMA requested various documentation, including the following: (1) copies of the Applicant’s original request to the Grantee to reopen the PW, and any response thereto from the Grantee; (2) verification that the Applicant and the Grantee timely submitted the first appeals; (3) documentation explaining the circumstances that prevented the Applicant’s accounting and reconciliation of the costs for PW 1307 prior to closeout, considering that PW 1307 was 100 percent complete when written, and closeout did not occur until seven years after; (4) copies of the contract or contracts giving rise to the DAC, with documentation demonstrating the contracts were properly procured in accordance with applicable Federal law and the standards; and (5) for each task reflected in the DAC spreadsheet previously provided by the Applicant, a description, with sufficient details, to permit FEMA to determine exactly what was done, why it was necessary, and how it applied to PW 1307 specifically.  For example, regarding the last item, FEMA requested an explanation as to why the task description of “project inspection request” was required about seven years after the project was complete, and why the project, which was completed, invoiced, and paid years earlier, required monthly cost reconciliation and payment requests.  FEMA requested the aforementioned documentation as well as any other additional supporting documentation, be submitted within 30 days of receipt of the Final RFI. 

The Applicant responded on January 10, 2018, forwarding multiple attachments.  First, it transmitted a January 28, 2016 email that requested a different project, PW 2331 for FEMA-1786-DR-LA (Hurricane Gustav), be reopened (but which did not mention PW 1307 or the instant disaster).  It then sent a print out of an email demonstrating that the Applicant electronically transmitted its June 12, 2017 first appeal letter to the Grantee on that date.  Next, it forwarded documentation pertaining to the previously requested expense of $19,583.00, associated with the repair work to the parking lift gate.  Finally, the Applicant transmitted various agreements made with CSRS, Inc. for it to perform closeout services; the original contract was effective January 1, 2015 and the amended agreements extended the services through 2017.  The Grantee transmitted the Applicant’s response to FEMA on January 22, 2018.

On June 27, 2018, the FEMA Region VI Regional Administrator (RA) issued a first appeal decision denying the Applicant’s appeal.  First, the RA found that FEMA’s action, which triggered the 60-day appeal deadline under Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.206(c), was the obligation of PW 1307 (Version 1) on October 19, 2016.  The RA therefore concluded that because the Applicant conceded it was aware of the closeout effectuated in Version 1 in 2016, but did not appeal the closeout determination until it filed its June 12, 2017 letter, the first appeal was untimely.[2] 

Second, notwithstanding timeliness, the RA denied the appeal on the merits.   The RA found that the costs claimed as DAC were actually indirect, unnecessary, and unreasonable costs, as they did not relate to the specific project cost objectives of PW 1307.  The RA then further determined that although FEMA requested procurement documentation in the Final RFI, the Applicant had failed to produce documentation demonstrating that the contract with CSRS, Inc. was properly procured.

Second Appeal

The Applicant appeals the first appeal determination via letter and memorandum dated August 22, 2018, reiterating its request for FEMA to reopen PW 1307 to allow the Applicant to submit its DAC, as well as resolve its existing issues for audit, as it states it was not afforded the opportunity to do so prior to FEMA closing the project or to review the closeout workbook to certify the PW prior to closure.[3]  With respect to the issue of timeliness, the Applicant acknowledges it had knowledge of FEMA’s closeout of PW 1307 in 2016, but emphasizes it took action in response to this determination well before the filing of the June 12, 2017 letter. 

Furthermore, the Applicant states that documentation previously provided demonstrates the closeout DAC contract was properly procured.  To support this assertion, the Applicant transmits the 2015 original CSRS, Inc. contract and the 2016-2017 extended contracts executed with CSRS, Inc.  Last, the Applicant contends that FEMA did not follow its own procedures on first appeal by failing to issue a sufficient RFI with appropriate language regarding what the Applicant describes as the “fundamental issue” of a lack of process/guidelines for DAC at the time FEMA closed the PW.  Therefore, if FEMA intends to deny the second appeal based on what the Applicant asserts is a new “fundamental issue”, the Applicant requests FEMA issue a new RFI.       

The Grantee forwarded the Applicant’s appeal to FEMA with a letter and memorandum dated October 17, 2018, supporting the $9,897.00 in disputed costs.  In support of the assertion the Applicant’s first appeal was timely, the Grantee emphasizes that within 60 days of the Grantee notifying the Applicant of FEMA’s determination denying the request to reopen (which included language notifying the Applicant of its appeal rights), the Applicant filed its June 12, 2017 first appeal.  Concerning the additional requested DAC, the Grantee contends the PW should be reopened to allow the Applicant to reconcile all final costs as it states this was not done at closeout. 

Finally, although the Grantee acknowledges the Applicant procured the services of CSRS, Inc. in a non-competitive fashion, it nonetheless argues that the Applicant properly procured the contract.  First, the Grantee discusses the Applicant’s confusion concerning the process for claiming DAC.  For instance, the Grantee states that under prior disasters, FEMA approved funding for all DAC in one PW.  It was not until 2015 that the Applicant learned it would have to individually claim DAC associated with each PW.  Therefore, the Grantee contends it was not feasible for the Applicant to follow the standard procurement procedures as FEMA’s DAC policy required the Applicant to take immediate action in securing the assistance of CSRS, Inc.  Thus, procurement should be justified under a public emergency/exigency or single source exceptions.

Discussion

Appeal Timeliness

Section 423(a) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act provides that “any decision regarding eligibility for . . . assistance under this title may be appealed within 60 days after the date on which the applicant for such assistance is notified of the award or denial of award of such assistance.”[4]  Implementing that provision, 44 C.F.R. § 206.206(c)(1) requires applicants to submit appeals within 60 days of receipt of the notice of the action that is being appealed.[5]  According to the FEMA Recovery Directorate Manual, Public Assistance Program Appeal Procedures (Appeals Manual), the date the applicant receives notice of the determination from the grantee serves as the date the applicant’s 60 day appeal timeframe begins to run, regardless of whether the applicant previously learned of the determination.[6]    

Here, although the Applicant acknowledges it was aware of this project’s closeout in 2016, there is no documentation showing it was aware of the exact determination(s) effectuated in the closeout or the funding approved in the closeouts, nor that it was advised of its right to appeal the determination prior to the Grantee’s April 13, 2017 letter.  Consequently, FEMA relies on the receipt of the Grantee’s letter as the notice that triggered the 60-day appeal timeline.  Accordingly, the Applicant has demonstrated its June 12, 2017 first appeal was timely submitted.[7] 

Appeal Procedures

An appeal must contain documented justification supporting the applicant’s position and stating the provisions in Federal law, regulation, or policy with which the appellant believes the initial action was inconsistent.[8]  The burden to substantiate appeals with “documented justification” falls to the applicant[9] and hinges upon the applicant’s ability to produce not only its own records, but to clearly explain how those records support the appeal.[10] 

When an RA is considering denying a first appeal in whole or in part, he or she issues a Final RFI to the applicant noting all information in the administrative record the Region is considering in deciding the appeal, and requesting the applicant provide any additional information to support the appeal.[11]  In addition, Version 4 of the Appeals Manual states that when reviewing and analyzing a first appeal, if FEMA identifies a new eligibility issue, it issues a Basic RFI.[12]  For purposes of the new eligibility issue, the RFI essentially serves as a PA eligibility determination.[13]  Accordingly, it informs the applicant that a new eligibility issue was identified, frames the new issue and informs the applicant that it has 60 days from receipt to respond.[14]  Following receipt of the applicant’s response to the RFI or expiration of the 60 day timeframe, the first appeal proceeds and is adjudicated on both the original and new eligibility issues.[15]

In this instance, the RA informed the Applicant in the Final RFI that the current administrative record was insufficient to support the Applicant’s appeal, and then further stated the reasons for the potential denial.  The RA therefore requested documentation to demonstrate the Applicant properly procured its contract for the claimed DAC, and that the DAC were eligible.  For instance, the RA notified the Applicant that the administrative record was lacking documentation explaining the circumstances that prevented the Applicant’s accounting and reconciliation of the costs for PW 1307 prior to closeout, as well as task descriptions that were sufficiently detailed to allow FEMA to determine the costs were reasonable and necessary.  The Applicant then responded to the Final RFI with additional supporting documentation.

Although FEMA informed the Applicant that new eligibility issues concerning the DAC were identified, framed the new issues, and provided the Applicant time to respond, the Applicant argues that FEMA failed to follow its own procedures.  In its second appeal letter, the Applicant cites to FEMA’s RFI procedures generally but does not articulate, with specificity, any alleged error in the RFI process that prejudiced its appeal.  Furthermore, the Applicant does not specify the provision of law or policy the Applicant believed the Final RFI was inconsistent with.   

For all these reasons, the Applicant’s request that FEMA issue a new RFI is denied.

Direct Administrative Costs

FEMA will reimburse DAC incurred by applicants that are properly documented and can be tracked, charged, and accounted for directly to a specific project.[16]  Such costs must be reasonable for the work performed and accounted for in accordance with applicable Federal regulations.[17]  Costs that are not tracked to a specific project, but are instead indirect costs, are not DAC.[18] 

The documentation submitted by the Applicant shows that work was completed by CSRS, Inc. to closeout multiple projects for multiple disasters.  Moreover, all permanent work for PW 1307 was completed by the Applicant at least five years prior to engaging CSRS, Inc., rendering the requested costs unnecessary and unreasonable.   Accordingly, as FEMA has determined the claimed DAC are ineligible for funding, FEMA denies the Applicant’s request to reopen the PW.

Procurement

Adherence to Federal procurement laws is required to receive grant assistance.^[19]  All procurement transactions using Federal funds must also be conducted in a manner providing free and open competition to the maximum extent practicable.[20]  Moreover, 2 C.F.R. § 215.45 requires some form of cost or price analysis and documentation in the procurement files in connection with every procurement action—the implication being that the cost/price analysis is done at the time of procurement.  In addition, an applicant must maintain records sufficient to detail that such cost or price analysis was made and documented in the procurement files in connection with the procurement action.[21]  These records will include, but are not limited to: rationale for the method of procurement; selection of contract type; contractor selection or rejection; and the basis for the contract price.[22]  In addressing non-compliance, FEMA may disallow all or part of the cost of the activity or action not in compliance.^[23]  

The Applicant states it learned it had to individually claim DAC separately in each PW in the late fall of 2015.  As such, although the Grantee acknowledges the Applicant procured the services of CSRS, Inc. in a noncompetive fashion, the Grantee argues the costs are eligible because by the time the Applicant learned of the aforementioned DAC claim procedure, it was not feasible for the Applicant to solicit bids through free and open competition.  Therefore, it states its method of procurement was justified through public emergency/exigency or single source exceptions to the normal contract procurement procedural requirements.

However, even though FEMA specifically requested the Applicant produce documentation on first appeal that demonstrated the CSRS, Inc. contract was properly procured, the Applicant failed to submit any records or evidence showing what its procurement policies were, or that any price or cost analysis was performed prior to selecting CSRS, Inc.  Moreover, it has not submitted documentation demonstrating the Applicant’s rationale for the method of procurement; selection of contract type; contractor selection or rejection; or the basis for the contract price.  In addition, the Applicant has not provided documentation establishing the closeout services, which serve as the basis for the requested DAC, were only available from CSRS, Inc. 

The Applicant and the Grantee argue that the procurement was proper because the Applicant was under strict time constraints when it learned in the late fall of 2015 that for this disaster, all DAC had to be included separately on each project, rather than funded under one roll-up PW.  However, the Applicant procured the services of CSRS, Inc. prior to the fall of 2015; the original contract with CSRS, Inc. was effective January 1, 2015.  Therefore, in contrast to the Applicant’s assertion, it was presumably not under a time constraint to procure closeout services at the time it engaged CSRS, Inc. and could have solicited bids through free and open competition.  In addition, the Applicant completed the SOW for PW 1307 at least five years before engaging the services of CSRS, Inc. to perform closeout activities.  Therefore, on this basis as well, FEMA finds the Applicant had ample time to solicit bids and select a contractor to perform closeout services. 

Additionally, FEMA issued Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative Costs, on November 13, 2007, which specifically addressed the process for obligation of DAC.  This included specific reference to obligation of DAC for subrecipients on individual PWs.[24]  While exceptional provisions were made to authorize DAC for previously declared incidents in Louisiana, namely Hurricanes Katrina and Rita, non-adherance to a published FEMA policy does not constitute a justification for emergency procurement procedures.

Consequently, as the Applicant has not demonstrated it was excused from complying with the requirement to engage in free and open competition, FEMA finds the Applicant did not comply with Federal procurement requirements and as such, denies the Applicant’s request to reopen PW 1307.[25]  

Conclusion

The Applicant timely submitted its first appeal.  However, FEMA also finds the RA followed FEMA procedure in notifying the Applicant that the first appeal may be denied based on the Applicant’s inability to substantiate that the DAC claimed were eligible and properly procured.  Finally, the Applicant has not demonstrated that the costs submitted were eligible DAC or that the contract for the costs was properly procured.  Accordingly, this appeal is denied.