Direct Administrative Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	1763-DR-IA
Applicant	City of Cedar Rapids
Appeal Type	Second
PA ID#	113-12000-00
PW ID#	1404
Date Signed	2014-04-23T00:00:00

Heavy rainfall beginning in May 2008 resulted in severe flooding that caused extensive damage in the City of Cedar Rapids (Applicant).  FEMA prepared PW 1404 for $733,605.28 for estimated costs to perform emergency and permanent work, as well as hazard mitigation, at the Morgan Creek lift station.  Included in the project costs were $4,014.72 in Direct Administrative Costs (DAC).  Subsequent to the development and obligation of PW 1404, the Applicant discovered that items of emergency work identified in PW 1404 were completed under PW 7305 – Site 9.  As a result of the work performed in PW 7305, the lift station returned to its operational status and the estimated permanent work and hazard mitigation proposed in PW 1404 was deemed unnecessary.  The Applicant requested closeout and provided the documentation to support its claims for the work performed in PW 1404.  After the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs, FEMA closed out the PW and reduced the total eligible costs to $42,054.07 (de-obligation of $691,551.21) based on the Grantee’s recommendation.  In addition, FEMA reduced the eligible DAC ($2,174.65) claimed by the Applicant’s contractor.  The Applicant requested an additional $1,288.30 in DAC; however, FEMA determined that the submitted documentation did not support the eligibility of $1,288.30 in DAC associated with a consultant’s hourly rate that exceeded $155.  In the first appeal, the Applicant asserted that the DAC was eligible for reimbursement.  In the appeal response, the Regional Administrator noted that the Applicant did not justify the hourly rate above $155 and determined that the claim for $1,288.30 was ineligible.  In the second appeal, the Applicant argues that the consultant’s project manager rate was appropriate by virtue of the time required to review and supervise its lower level employees, reasonable by the Applicant’s adherence to proper contract procurement protocols, and comparable to another consulting contractor’s rates employed by the Grantee.

Authorities Discussed

• Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs dated March 12, 2008.

Headnotes

• Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, Section VII(D)(1).

  • DAC include costs that can be tracked, charged and accounted for directly to a specific project, such as staff time to complete field inspection and preparation of a PW. Direct costs are limited to actual reasonable costs incurred for a specific project. Such costs will be considered project costs.

 

 

 

 

Appeal Letter

Appeal Analysis

Background

Heavy rainfall between May and August 2008 resulted in severe flooding that caused extensive damage in the City of Cedar Rapids (Applicant).  As a result of the flooding, the Morgan Creek lift station was inundated with water, damaging equipment and affecting the operational status of the station.  FEMA prepared PW 1404 for $733,605.28 for estimated costs to perform emergency and permanent work, as well as hazard mitigation, at the Morgan Creek lift station.  Included in the project costs were $4,015.72 in Direct Administrative Costs (DAC).  Subsequent to the development and obligation of PW 1404, the Applicant discovered that emergency work identified in PW 1404 was completed under PW 7305 – Site 9.  As a result of the work performed in PW 7305, the lift station returned to its operational status.  The Applicant determined that the remaining permanent work and proposed hazard mitigation included in the scope of work in PW 1404 was unnecessary and requested closeout for the work performed.  The Applicant provided the documentation to support its claims.  After the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs, FEMA closed out the PW and reduced the total eligible costs to $42,054.07 (de-obligation of $691,551.21) based on the Grantee’s recommendation.

Of the $42,054.07 in total project costs, the following breakdown of expenses is provided:  $5,757.15 for actual work performed at Morgan Creek lift station; $26,992.54 for engineering/design costs; and $9,304.38 for total claimed DAC and Project Management (PM) costs.  FEMA reduced the eligible DAC claimed by the Applicant’s contractor, Adjustors International, to $2,174.65 ($1,288.30 less than claimed) due to insufficient documentation to support consultant rates in excess of $155 per hour.  The Applicant appealed and submitted additional claims for both DAC and PM costs from another consultant, Globe Midwest.  FEMA also reduced Globe Midwest claimed DAC from $950.00 to $310.00, and its claimed PM costs from $6,175.00 to $2,480.00.  The Applicant did not appeal either of these reductions.

First Appeal

The Applicant submitted its first appeal for PW 1404 to the Grantee on August 20, 2012.  With the appeal, the Applicant requested reimbursement of $1,288.30 for DAC that were charged at an hourly contract rate above $155.  The Applicant asserted that the contractor’s project manager rate of $285 per hour was eligible because the Applicant followed a proper procurement process, in accordance with federal regulations, and awarded the contract based on fair market value.  Further, the Applicant claimed that the project manager’s review and oversight of consultant staff required “special skills”, referencing OMB Circular A-87, Attachment B, paragraph 32.  The Grantee forwarded the Applicant’s first appeal to FEMA with a letter supporting the Applicant’s request on October 9, 2012.

Upon receipt of the Applicant’s first appeal, the FEMA Region VII Regional Administrator (RA) issued a request for information to assist in its analysis of the eligibility of the DAC claimed.  The requested information included:

• Professional designation or title of employee performing task;
• Specific description of each task performed and the associated cost (i.e., site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.) because the project phases were too broad and did not substantiate specific work activity;
• Justification for each task why specific staff or skills were required to accomplish the work;
• Documentation demonstrating non-FEMA related historical costs for similar tasks.

In response to the RA’s request, the Applicant submitted information and documentation related to its procurement process, non-FEMA related historical costs, and task descriptions, costs and employees performing them.

On January 3, 2013, the RA denied the first appeal with a letter explaining that the Applicant’s request for $1,288.30 in contract cost was not eligible for reimbursement as the Applicant had not justified the $285 per hour rate. 

Second Appeal

The Applicant submitted a second appeal March 7, 2013, which the Grantee transmitted to FEMA on June 7, 2013.  In the second appeal, the Applicant argues that the documentation provided describing the time required for the project manager to review and supervise its lower level employees is appropriate, reasonable and eligible for reimbursement.  The Applicant maintains that its competitive procurement process for services demonstrates reasonable costs, and notes the costs claimed are similar to contractor rates for another consultant employed by the Grantee.  In support of its claim, the Applicant provided a contract between the Grantee and James Lee Witt Associates.  The Applicant did not provide any information demonstrating the specific tasks performed under its contract beyond what it submitted with the first appeal and in response to the RA’s request for additional information.

Discussion

Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, describes grant management and administrative costs that are eligible under the Public Assistance Program.  The policy defines direct administrative costs as “costs incurred by the grantee or subgrantee that can be identified separately and assigned to a specific project.”  In accordance with OMB Circular No. A-87, as codified in Title 2 Code of Federal Regulations (CFR) Part 225, “treatment of direct costs must be consistent across all federal awards and other activities of the grantee or subgrantee.”  Direct administrative costs include costs that can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspection and preparation of a PW. [1] Eligible DAC must be in compliance with 44 CFR §13.22, and, by extension, OMB Circular A-87, and the costs must be reasonable and properly documented in order to qualify for reimbursement.  Such costs cannot be assumed eligible if the costs are not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.

To allow FEMA to evaluate DAC, Grantees and Subgrantees must provide information about each activity in sufficient detail (i.e., specific description of administrative task performed, such as site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.).  Such information enables the skill level of each person performing the activities, the suitability of that skill level to the activity in question, and the level of effort required to complete the activity to be assessed.

DAP 9525.9 also defines indirect costs as “costs a grantee or subgrantee incurs for a common or joint purpose benefitting more than one cost objective that are not readily assignable to the cost objectives specifically benefitted.”  A Grantee or Subgrantee cannot direct charge costs to a PA project if such costs are considered indirect costs for any other Federal award or activity of the Grantee or Subgrantee or if similar costs incurred for the same purpose in like circumstances have been allocated to indirect costs. (See OMB Circular No. A-87, Attachment A.)  Indirect costs are considered to be eligible Section 324 management costs and are not eligible as DAC.

The Applicant’s contract with Adjusters International includes tasks that are defined as indirect costs, project management, or consulting activities.  For example, the scope of work includes the following items:

• Provide general grant management advice
• Assist in the development of a disaster recovery team
• Assist in the development of a comprehensive recovery strategy
• Provide advice to disaster recovery team
• Prepare program management plan
• Prepare weekly report

It also includes insurance adjusting services that are not eligible for FEMA funding as DAC or indirect grant management costs. 

FEMA’s records indicate that the Applicant submitted funding requests for DAC related activities performed by Adjusters International for 458 PWs totaling approximately $2,399,295.00.  Given the Applicant’s contract for services with Adjusters International included project management, indirect cost activities, consulting and insurance adjusting services, and the number of PWs that Adjusters International charged against, it is incumbent upon the Applicant to provide sufficiently detailed and descriptive documentation to demonstrate that the tasks performed were, in fact, eligible DAC directly attributable to a specific PW.

The documentation provided by the Applicant in this case lacks sufficient detail to discern the specific tasks or work performed by Adjusters International.  Without such information, FEMA is unable to determine eligibility and reasonableness of cost.  The consultant’s spreadsheet details the specific tasks that were performed:

“Tasks performed by Senior Consultant/Project Manager in accordance with FEMA DAP 9525.9 as direct costs to the project worksheet include: supervise consultants; provide advice; consultation; funding strategies to City; report status; eligibility consultation; client recovery strategy and work plan development; ensure quality deliverables; document review and comment; PW formulation; continually monitoring progress; milestones; deliverables…”

The provided spreadsheet contains descriptions for the types of tasks that are generally not related to grant administration for a specific PW.  The tasks listed appear to include consulting services and tasks more appropriately claimed in indirect costs.

FEMA requested additional information, during the first appeal review process, to ascertain eligibility for the Applicant claimed DAC including:

“Specific description of each task performed and the associated cost (i.e. site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.)  Project phases are too broad and are not acceptable to substantiate specific work activity engaged in.”

The Applicant’s response included a table describing its consultant’s task and task description, which lacked sufficient detail to discern specific tasks or work performed.  As an example, the table provided lists tasks performed by Adjusters International and uses the terms “Project Formulation” to describe an “Administrative Task.”  In FEMA’s guidance, “project formulation” describes a project “Phase” (which may include activities that are considered either “Direct” or “Indirect” costs).  Despite FEMA’s caution that project phases are not acceptable, the Applicant provided this documentation.  Other terms used in the Applicant’s documentation such as “Project Administration” and “Document Review Meeting” are vague and do not describe a specific administrative task.  Of the tasks submitted by the Applicant, only “Site Repair Estimate” is an acceptable task as described in FEMA guidance.

The Applicant lists “Project Administration” under “Task” and provides the following as a task description: “Ensuring quality deliverables, assuring conformance with program specific requirements, report status, document review and comment, and follow up on inquiries related to specific project worksheets.”  In its second appeal the Applicant asserts that these terms are not broad, but are “a clear, common sense description of project administration and supervision.”    While the Applicant asserts the description of the “Project Administration” task is clear, the description does not provide sufficient detail to determine if the activities were eligible DAC.  Overall, project administration and management of personnel preparing PWs is not a direct administrative activity. 

Reasonableness of $285 per hour contract rate

The reasonableness of the contract rate of $285 per hour is a central issue in the appeal.  However, as discussed previously, FEMA is unable to determine whether the $285 per hour rate is reasonable due to the lack of sufficiently detailed descriptions of the tasks performed. 

Noting such, there is no indication from the information considered and provided by the Applicant that the administrative grant management tasks for this project was complex.  The PW documented the scope of work and project costs provided by the Applicant.  A project manager’s review and supervision of a subordinate’s work in the administration of a PW, in and of itself, is not complex. The Applicant’s determination that the time required for the project manager to provide review and supervision is “appropriate” does not justify the hourly rate claimed or the reasonableness of work performed.  From a grant management standpoint, this PW was not complex and did not require the skills or experience of a Senior Consultant compensated at $285 per hour to review it. 

In an attempt to demonstrate the reasonableness of the charged rate, the Applicant submitted a contract between the Grantee and James Lee Witt Associates noting that the rates paid are similar to its contractor rates.  While the rates may be similar, there is no evidence to indicate that the work performed or the level of expertise required to perform the work by the other contractor is comparable to the scope of work contracted by the Applicant.  Thus, the James Lee Witt Associates contract does not establish a basis to conclude the rate at issue in this case was reasonable.   

Globe Midwest Risk Management

The City of Cedar Rapids passed a resolution, June 11, 2008, declaring a state of emergency as a result of the flood disaster.  One provision in the resolution states… “The City Manager is hereby authorized to grant any contracts necessary to respond to the state of emergency, including those for the construction and repair of public improvements…”   Under this provision the Applicant entered into a no bid contract with Globe Midwest Risk Management, L.L.C., an insurance public adjustor company, for a period from June 18 through September 18, 2008.  The Applicant agreed to an hourly rate of compensation to be paid to Globe Midwest for personnel time ranging from $275 - $475 per hour.

In addition to the DAC claimed for Adjustors International in PW 1404, the Applicant also included claims from Globe Midwest for $950.00 in additional DAC and $6,175.00 in Project Management (PM) costs.  Both claims were reduced at closeout to $310.00 for DAC and $2,480.00 for PM costs.  Neither reduction was appealed by the Applicant.

As detailed in the previous section, DAC are the eligible costs incurred in the administration of a grant for a specific project.  Whereas, PM costs encompass the oversight of an eligible project which includes direct management, procurement activities, and design review and approval.

Globe Midwest was contracted as a consultant to assist the City to efficiently coordinate its remediation of flood damaged facilities.  The scope of services in the Service Agreement states:

“Globe will provide consulting services to assist the City to efficiently coordinate its remediation of flood damage to City properties.  Such services shall include providing advice on: the development of a disaster recovery strategy: the efficient scheduling of remediation work to be performed: and the coordination of work to be performed by various contractors hired by the City.”

This scope of services does not include provisions for the consultant to provide services related to the administration of DAC or perform activities as a PM.  Costs for contractor consulting services, in this case providing remediation advice for flood damaged facilities, are not eligible for FEMA funding as either DAC or PM costs, as the services contracted do not pertain to the administration of a grant or the management tasks of specific projects.

Engineering Costs

Under 44 CFR §206.223 (a)(1), General work eligibility, an item of work must be the direct result of the declared event in order to be eligible.  Without a detailed breakdown of engineering services linking the engineering services performed to the approved scope of work, FEMA cannot determine what work resulted directly from disaster damage and therefore, what work is eligible for reimbursement. 

The Applicant submitted a claim for $26,992.54 in costs associated with contracted engineering services for the Morgan Creek lift station and provided invoices which list the hours the contractors’ employees worked, broken down by date, employee title, and rate, but do not provide a detailed description of the engineering activities actually performed.  FEMA prepared PW 1404 for $733,605.28 for estimated costs to perform emergency and permanent work, as well as hazard mitigation, at the Morgan Creek lift station.  Emergency work was subsequently performed under another PW and upon completion the lift station returned to its operational status.  The Applicant determined that the remaining permanent work and proposed hazard mitigation included in the scope of work in PW 1404 was unnecessary and requested closeout for the work performed.  The closeout scope of work included cleaning and the repair of a pump and elevator for a total cost of $5,757.15.  The Applicant has not provided documentation to support the engineering services cost of $26,992.54 to facilitate the repair of the pump and elevator.

Consequently, the Applicant has not demonstrated that the engineering costs incurred are associated with the approved scope of work in PW 1404.  Therefore, the engineering funding requested is not eligible.

Conclusion

The documentation submitted by the Applicant does not demonstrate that the costs incurred for contracted labor at $285 per hour were reasonable for grant administration work.  Furthermore, the documentation provided by the Applicant was not sufficiently detailed and descriptive to enable FEMA to determine that the previously funded contracted DAC tasks/activities are eligible or reasonable.  In addition, the documentation submitted does not demonstrate that the engineering costs claimed are associated with the final scope of work.  Finally, the claims for DAC and Project Management costs by the remediation consultant are not eligible as the services contracted do not pertain to the administration of a grant or the management tasks of specific projects.  Based on these findings, all such costs claimed are ineligible and the Regional Administrator must de-obligate all contracted DAC, Engineering costs, and Project Management costs previously determined eligible in the PW.

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