Direct Administrative Costs

Appeal Brief

Citation:  FEMA-1763-DR-IA, City of Cedar Rapids, Direct Administrative Costs, Project Worksheet (PW) 10277

Cross- Reference: Administrative Costs, Reasonable Cost

Summary:  Heavy rainfall beginning in May 2008 resulted in severe flooding that caused extensive damage in the City of Cedar Rapids (Applicant).  FEMA prepared PW 10277 in the amount of $268,694 for the estimated cost for debris removal and disposal.  Included in the cost estimate was $3,351 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 10277 and increased the total eligible project cost to $347,464 based on the Grantee’s recommendation.  The closeout version of PW 10277 reduced the eligible DAC by $696 to $2,655.  The Applicant requested an additional $187 in DAC; however, FEMA determined that the Applicant’s documentation did not support the eligibility of 1) $148 in DAC associated with a consultant’s hourly rate that exceeded $155, and 2) $39 in DAC claimed for work completed 90 days after project completion.  In the first appeal, the Applicant asserted that both categories of DAC were 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 $148 was ineligible.  The Regional Administrator also determined that a portion of the DAC incurred for closeout activities were eligible for reimbursement and obligated $39 with version 3 of PW 10277.  In the second appeal, the Applicant reiterates that the DAC charged at an hourly rate above $155 is eligible because the protocol used to procure the contract established the rate as a reasonable cost and justified the rate as appropriate for a program manager’s skill level/expertise.  The Applicant cites 44 CFR §13.36(b), Procurement, Procurement standards, and OMB Circular A-87, Attachment A, section C, and Attachment B paragraph 32 as supporting its claim regarding the reasonableness of the consultant’s hourly rate.  After reviewing the second appeal, FEMA requested additional information detailing the specific administrative tasks performed by the contractor that were associated with the claimed DAC. The Applicant submitted documentation including general tasks, but did not provide specific descriptions of the administrative tasks that were explicitly requested by FEMA.

Issue:  Has the Applicant provided sufficient documentation identifying specific administrative tasks that would enable FEMA to determine whether the claimed Direct Administrative Costs are eligible for reimbursement?

Finding:  No.

Rationale:  44 CFR §13.36 Procurement, Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative 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).   The Applicant contracted for debris removal services from the city’s rights-of-way to approved disposal sites.  On June 23, 2009, FEMA prepared Category A – PW 10277 at an estimated contract cost of $84,742 for the removal and disposal of debris.  The cost estimate included a line item for $2,039 in Direct Administrative Costs (DAC).  On March 4, 2010, FEMA adjusted the approved scope of work, increased the estimated eligible costs, and obligated version 1 of PW 10277 for $183,331, which included an additional $1,312 in DAC.  During project closeout, the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs and recommended that FEMA increase the total eligible cost to $347,464.  On July 12, 2011, FEMA obligated version 2 of PW 10277 for a total project cost of $347,464 and closed the PW.  In addition to $344,809 in eligible emergency work, the final PW costs included $2,655 in contracted DAC.

First Appeal

The Applicant submitted a first appeal to the Grantee on August 2, 2011.  With the appeal, the Applicant requested reimbursement of $148 for DAC that were charged at an hourly contract rate above $155, $39 for DAC costs that were incurred 90 days after project completion, and $66 in DAC inadvertently omitted by the Applicant at closeout.  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 as a result of FEMA not obligating PWs in a timely manner, the Applicant incurred additional DAC more than 90 days after project completion due to grant management and closeout activities.  The Grantee forwarded the Applicant’s first appeal to FEMA with a letter supporting the Applicant’s request on September 23, 2011.

On December 16, 2011, the FEMA Regional Administrator partially approved the first appeal with a letter explaining that the portion of the Applicant’s force account labor costs associated with closeout activities performed prior to obligation of the closeout PW were eligible for assistance and increased the approved project amount by $39 with version 3 of PW 10277.  The Regional Administrator denied the Applicant’s request for $148 in contract cost as the Applicant had not justified the $285 per hour rate.  FEMA would consider contract rates higher than $155 per hour reasonable if the Applicant provided a cost analysis and supporting documentation justifying the higher rate.  In addition, the Regional Administrator noted that the $66 in DAC omitted by the Applicant at closeout was not an appealable action as it was never denied by FEMA.  Though not part of the appeal determination, the Regional Administrator reviewed the omitted DAC, determined that the costs were eligible for funding, and obligated an additional $66 with version 3 of PW 10277.

Second Appeal

The Applicant submitted a second appeal on February 24, 2012, which the Grantee transmitted to FEMA on April 23, 2012.  In the second appeal, the Applicant maintains that its procurement process was in full accord with local and state laws regarding procurement of professional services as well as requirements of Title 44 Code of Federal Regulations (44 CFR), §13.36(b), Procurement, Procurement standards, and OMB Circular A-87, Attachment A, section C, and Attachment B paragraph 32, and as such, all costs and rates related to DAC should be eligible for reimbursement.  The Applicant explains why DAC incurred at an hourly rate over $155 was justified due to the skill level and expertise of its consultant’s project manager.  The Applicant argues that a “Project Manager” was necessary to oversee the work performed by consultant staff, and referenced other professional services requiring a Project Manager for subordinate review.  In support of its claim, the Applicant provided a project manager’s resume and historical contract rates not flood related (annual audit charges).

FEMA’s Request for Additional Information

On June 22, 2012, FEMA Headquarters requested additional documentation from the Applicant regarding its second appeal documentation.  The request was for documentation of actual DAC including line item breakdowns of specific administrative tasks performed noting “that descriptions of project phases are not acceptable.”  The Applicant submitted what it described as its consultant’s DAC spreadsheet, purportedly including details regarding the specific tasks performed, its consultant’s project manager’s resume and the approved proposal with Adjusters International for grant management and insurance consulting services.

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 (PA) 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 2 CFR Part 225, “treatment of direct costs must be consistent across all federal awards and other activities of the grantee or subgrantee.”  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.  Eligible DAC must be in compliance with 44 CFR §13.22, and, by extension, OMB Circular A-87, and that 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.

FEMA issued additional clarifying guidance on determining the reasonableness of administrative costs by a memorandum from FEMA’s Assistant Administrator, Disaster Assistance Directorate, dated, September 8, 2009.  In order for FEMA staff to be able to evaluate DAC, grantees and subgrantees need to provide information about each activity in sufficient detail (specific description of administrative task performed, i.e. site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.) to be able to properly assess 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.

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.  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 direct administrative costs directly attributable to PW 10277.

However, the documentation provided by the Applicant lacked sufficient detail to discern the specific tasks or work performed by Adjusters International.  Without this information, FEMA is unable to determine eligibility and reasonableness of cost.  The Applicant maintains that 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 types of tasks that are generally not related to grant administration for a specific PW.  The tasks listed include consulting services that are either not eligible as DAC or are more appropriately claimed as indirect costs.

The Applicant asserts that according to the City contract with Adjusters International, project administration (note: “Project Administration” is listed on the spreadsheet under “Task”) includes 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.  Unfortunately, these descriptions are broad and vague and do not provide sufficient detail to determine if the activities were eligible DAC.  The Applicant did not provide any deliverables, work products, meeting notes, or any other documentation to substantiate that any of the claimed costs were eligible DAC.

FEMA requested additional information specifically addressing the DAC documentation submitted by the Applicant.  The request detailed a line item breakdown and emphasized the need for responses to the “Administrative Task” and “specific description of the task performed”.  FEMA noted that project phases are too broad and not acceptable.  The Applicant responded by providing the same DAC documentation from its consultant that was previously submitted and found to be insufficient for determining eligibility and reasonableness of cost.

Reasonableness of $285 per hour contract rate

As stated previously, due to the lack of sufficiently detailed descriptions of the tasks performed, FEMA is unable to determine whether the $285 per hour rate is reasonable.  However, notwithstanding the problems identified with the documentation of DAC, the reasonableness of the contract rate of $285 per hour is a central issue in the appeal.

FEMA’s September 8, 2009, guidance memo states that in evaluating the reasonableness of requested administrative costs, FEMA must consider: “(1) method of contracting for the services, (2) the skill level of persons performing the activities, and (3) the amount of time required to perform an activity.  FEMA usually considers costs resulting from competitively procured contracts to be reasonable, provided the skill levels are appropriate for the activities performed.”

There is no indication from the information in the file or provided by the Applicant that the administrative grant management tasks for this project were complex.  The PW documented the scope of work and contract costs performed by three contractors.  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 the PW.  As stated in FEMA’s September 8, 2009 guidance memo, “[f]or most Public Assistance projects, a junior or mid-level technical or program specialist (or equivalent) is appropriate for the effort.”

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.  Based on these findings, all such costs claimed are ineligible and the Regional Administrator must de-obligate all contracted DAC previously determined eligible in PW 10277.