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Direct Administrative Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1763-DR-IA
ApplicantCity of Cedar Rapids
Appeal TypeSecond
PA ID#113-12000-00
PW ID#10267
Date Signed2014-05-09T00:00:00

Conclusion: The Applicant did not demonstrate that the costs incurred for contracted labor at $285 per hour were reasonable for grant administration work.  Furthermore, the Applicant failed to provide sufficiently detailed and descriptive documentation to demonstrate that the previously funded contracted DAC tasks/activities, and project management costs are eligible or reasonable.

Summary Paragraph

Heavy rainfall beginning in May 2008 resulted in severe flooding that caused extensive damage in the City of Cedar Rapids (Applicant).  FEMA prepared PW 10267 for $279,091.00, using the cost estimating format (CEF), to perform repairs on flood damaged areas in the Jones Golf Course Clubhouse.  Included in the project costs were $2,654.00 in Direct Administrative Costs (DAC).   After the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs, FEMA closed out the PW and increased the total eligible DAC to $49,824.90 ($47,170.90 more than estimated in the CEF) based on the Grantee’s recommendation.  Furthermore, FEMA reduced the eligible DAC ($8,010.55) claimed by the Applicant’s contractor.  The Applicant requested an additional $2,407.60 in DAC; however, FEMA determined that the Applicant’s documentation did not support the eligibility of $2,407.60 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 $2,407.60 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

May 9, 2014

Mark Schouten
Administrator
Iowa Homeland Security and Emergency Management Division
7105 NW 70th Avenue
Camp Dodge, Bldg. W-4
Johnston, Iowa 50131-1824

Re:   Second Appeal–City of Cedar Rapids, PA ID 113-12000-00, Direct Administrative Costs, FEMA-1763-DR-IA, Project Worksheet (PW) 10267        

Dear Mr. Schouten:

This letter is in response to a letter from your office dated June 7, 2013, which transmitted the referenced second appeal on behalf of the City of Cedar Rapids (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $2,407.60 for Direct Administrative Costs (DAC) in PW 10267.

As explained in the enclosed analysis, the Applicant has not demonstrated that the $2,407.60 in additional claimed DAC was reasonable and eligible.  The Applicant’s second appeal is therefore denied.  This determination is the final decision on this matter pursuant to 44 CFR §206.206, Appeals.

FEMA’s review of this appeal has revealed that the documentation submitted by the Applicant is not sufficiently detailed to enable FEMA to determine whether any of the claimed contracted DAC or Project Management costs are eligible and reasonable.  Therefore, by copy of this letter, I am requesting the Regional Administrator de-obligate all contracted DAC and Project Management costs previously approved in PW 10267.  In accordance with 44 CFR §206.206 (b)(1), Appeals, Levels of Appeal, the Applicant may appeal, to the Regional Administrator, project management costs and all contracted DAC, with the exception of  the $2,407.60 denied as stated above.  Please inform the Applicant of my decision.                       

Sincerely,

/s/

Brad J. Kieserman
Assistant Administrator
Recovery Directorate

Enclosure

cc:  Beth Freeman
      Regional Administrator
      FEMA Region VII

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 Jones Golf Course Clubhouse was inundated with water, damaging the building and contents.  FEMA prepared PW 10267 for $279,091.00 using the Cost Estimating Format (CEF) to perform repairs on the clubhouse.  Included in the project costs were $2,654.00 in Direct Administrative Costs (DAC).  After the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs, FEMA closed out PW 10267 for $286,620.25 and increased the total eligible DAC to $49,824.90 ($47,170.90 more than estimated in the CEF) based on the Grantee’s recommendation.

 

Claiming DAC

Amount Requested by the Applicant

at Project Closeout

Amount FEMA Allowed

at Project Closeout

Amount Disallowed at Project Closeout

Amount
Appealed

 

 

 

 

 

Adjustors International

$10,418.15

$8,010.55

$2,407.60

$2,407.60

Base Tactical

$25,771.75

$22,013.25

$3,758.50

0

Ryan Companies

$7,616.25

$6,702.25

$914.00

0

FA Labor

$13,098.85

$13,098.85

0

0

   Total

$56,905.00

$49,824.90

$7,080.10

$2,407.60

FEMA reduced the eligible DAC claimed by the Applicant’s contractor, Adjustors International, to $8,010.55 ($2,407.60 less than claimed) due to insufficient documentation to support consultant’s rates in excess of $155 per hour which the Applicant is appealing.  The other DAC reductions, which are reduced for the same reason, are not appealed.

In addition, the Applicant submitted a claim for Project Management (PM) costs from its consultant, Base Tactical, for $94,924.25.  The Grantee determined that the PM costs were excessive and unreasonable and recommended 7% of project repair costs, $12,559.03, as a reasonable PM cost.  This cost represents an $82,365.22 reduction which the Applicant did not appeal.  

Of the $286,620.25 in total project costs, the following breakdown of expenses is provided:  $178,388.81 for actual work performed at the Jones Golf Course Clubhouse; $45,847.51 for engineering/design costs; $49,824.90 for total DAC; and $12,559.03 for PM costs.

First Appeal

The Applicant submitted its first appeal for PW 10267 to the Grantee on July 20, 2012.  With the appeal, the Applicant requested reimbursement of $2,407.60 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 letters supporting the Applicant’s request on September 10, 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 November 21, 2012, the RA denied the first appeal with a letter explaining that the Applicant’s request for $2,407.60 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.

On September 17, 2013, FEMA Headquarters requested additional documentation from the Applicant regarding its second appeal.  The Applicant was asked to provide documentation pertaining to the City’s procurement and contracting protocol, request for proposal, and bid results for the consulting and contractor services provided by Globe Midwest Risk Management and Ryan Companies US. 

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 performed in sufficient detail (e.g., site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection and 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 had 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.  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 cannot 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 as 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 “PW Processing” to describe an “Administrative Task.”  In FEMA’s guidance, “PW Processing” 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.  The task “Program Funding” is an “Indirect” cost and not eligible.  The task “Special Considerations” is not an eligible cost to the subgrantee.  Of the tasks submitted by the Applicant, only “Inspection Request” 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. 

The Applicant also included DAC claims from two additional contractors: Base Tactical for $25,771.75 and Ryan Companies for $7,616.25.  Base Tactical claims were reduced at closeout to $22,013.25 and Ryan Companies to $6,702.25.  The reductions were not appealed by the Applicant.  Similar to Adjustors International documentation, the documentation provided by both Base Tactical and Ryan Companies lacked sufficient detail to discern the specific tasks or work performed.  Without such information, FEMA is unable to determine eligibility and reasonableness of cost.

The Applicant submitted a claim for PM costs from its consultant, Base Tactical, for $94,924.25 PM costs encompass the oversight of an eligible project which includes direct management, procurement activities, and design review and approval. The Grantee determined that the PM costs were excessive and unreasonable and recommended 7% of project repair costs, $12,559.03 (an $82,365.22 reduction), as a reasonable PM cost.  However, the documentation provided by the Applicant to support PM tasks performed is the same spreadsheet information submitted for DAC tasks performed, which lacks sufficient detail to discern the specific tasks or work performed or distinguish between DAC and PM costs. 

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 of comparison or ability to conclude the rate at issue in this case was reasonable. 

Conclusion

The information 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 or Project Management costs tasks/activities are eligible or reasonable.  Based on these findings, all such costs claimed are ineligible and the Regional Administrator must de-obligate all contracted DAC and Project Management costs previously determined eligible in the PW.


[1] Disaster Assistance Policy DAP9525.9, Section 324 Management Costs and Direct Administrative Costs (March 12, 2008).

 

Last updated May 28, 2020