Direct Administrative Costs & Management Costs – Appeals

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster1791
ApplicantMemorial Hermann Hospital System
Appeal TypeSecond
PA ID#000-UADRD-00
PW ID#PW 11529
Date Signed2020-09-21T16:00:00

Summary Paragraph

Between September 7 and October 2, 2008, Hurricane Ike struck Texas with high winds, heavy rains and storm surge and damaged the Applicant’s facilities.  FEMA prepared and obligated Project Worksheet (PW) 11529 for $108,773.26 to fund replacement of damaged HVAC, ceiling and floors and damaged medical equipment.  The Texas Division of Emergency Management (Grantee) notified FEMA a financial compliance review revealed a cost underrun due to unsubstantiated direct administrative costs (DAC) and recommended that FEMA amend the PW to deobligate $850.00 and close the PW.  FEMA found no DAC eligible at closeout and amended the PW to deobligate $850.00 in DAC and notified the Grantee, which in turn informed the Applicant.  The Applicant appealed for $850.00 or $3,459.52, representing 5 percent of PW 11529’s costs, and asked FEMA include it in a new PW inclusive of all of its DAC for its Hurricane Ike projects. It also also argued FEMA did not provide adequate notification of its eligibility determinations or guidance on DAC for its projects.  The FEMA Region VI Regional Administrator (RA) denied the appeal.  The RA determined the Applicant did not demonstrate that FEMA failed to provide adequate notification of its eligibility determinations, or that FEMA failed to provide correct and consistent information regarding DAC.  Additionally, the Applicant did not demonstrate that FEMA has the authority to provide alternative methodologies of assessing the eligibility of DAC for Hurricane Ike.  The Applicant’s second appeal reiterates prior arguments, and notes FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, is inconsistent with the Disaster Mitigation Act of 2000.   

Authorities and Second Appeals

  • Stafford Act § 324.
  • DAP 9525.9, at 2.
  • Cent. Bradford Progress Auth., FEMA-4030-DR-PA, at 4; Univ. of Tex. Med. Branch, PWs 1001, 10638 and 12128, FEMA-1791-DR-TX,  at 9-10; Roman Catholic Bishop of Springfield, PW 249, FEMA-1994-DR-MA, at 6.

Headnotes

  • Stafford Act § 324 provides for establishment of management cost rates.  Management costs include any indirect cost, any administrative expense, and any other expense not directly chargeable to a specific project under a major disaster, emergency, or disaster preparedness or mitigation activity or measure.
  • According to DAP 9525.9, indirect costs are incurred by the grantee or applicant for a common or joint purpose benefitting more than one cost objective.  In contrast, DAC can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspections and preparation of a PW.  Such costs cannot be assumed eligible if not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.
    • The Applicant has not provided the necessary documentation to support its DAC claim because the costs cannot be accounted for directly to PW 11529.

Conclusion

The Applicant has not provided the necessary documentation to support its DAC claim.  Its costs cannot be accounted for directly to PW 11529; therefore, its claimed DAC is ineligible and the appeal is denied.

Appeal Letter

W. Nim Kidd, MPA, CEM

Chief, Texas Division of Emergency Management

Vice Chancellor – The Texas A&M University System

1033 La Posada Drive, Suite 370

Austin, Texas 78752

 

Re:       Second Appeal – Memorial Hermann Hospital System, PA ID 000-UADRD-00,

      FEMA-1791-DR-TX, Project Worksheet (PW) 11529 – Direct Administrative Costs and Management Costs – Appeals

 

Dear Chief Kidd:

This is in response to a letter from your office dated June 15, 2020, which transmitted the referenced second appeal on behalf of Memorial Hermann Hospital System (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $850.00 in Public Assistance funding and requests 5 percent of the value of its project amount.

As explained in the enclosed analysis, the Applicant’s documentation to support its direct administrative costs (DAC) does not include costs that are accounted for directly to PW 11529, but rather are indirect costs which are ineligible for reimbursement as DAC.  Therefore, the appeal is denied.

Please inform the Applicant of my decision.  This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.
 

 

                                                                        Sincerely,

                                                                              /S/

                                                                        Keith Turi

                                                                        Assistant Administrator

                                                                        Recovery Directorate

 

 

Enclosure

 

cc: George A. Robinson

      Regional Administrator

      FEMA Region VI

Appeal Analysis

Background

During the incident period, September 7, 2008 to October 2, 2008, Hurricane Ike struck Texas with high winds, heavy rains and storm surge.  Memorial Hermann Hospital System (Applicant) sustained heavy damages to its Outpatient Imaging Center, OPID-Pasadena building (Facility).  Water infiltrated the Facility through the damaged roof, in turn causing damage to the ceiling and floors, as well as to to the digital imaging equipment.  FEMA prepared Project Worksheet (PW) 11529 to address the required repairs to the Facility.  The Texas Division of Emergency Management (Grantee), in a letter dated March 1, 2019, notified FEMA it completed the financial compliance review of PW 11529 and recommended FEMA deobligate $1,575.00, $850.00 of which was in direct administrative costs (DAC).  FEMA notified the Grantee on June 13, 2019 that the project had been amended deobligating the $850.00 in DAC and that the project had been closed.[1]  On June 28, 2019, the Grantee notified the Applicant of FEMA’s deobligation.[2]

 

First Appeal

In a letter dated September 5, 2019, the Applicant appealed the deobligation from this project and requested 5 percent of the total cost of $69,190.32, totaling $3,459.52 for DAC.  The Applicant argued that: (1) FEMA did not follow its procedures for issuing Determination Memoranda; (2) FEMA and the Grantee provided incorrect and inconsistent information regarding DAC and did not address two attempts in 2010 and 2016 by the Applicant to resolve prior irregularities; (3) FEMA has demonstrated creativity addressing DAC for other applicants yet refuses to do so in this case; and, (4) FEMA developed Public Assistance Alternative Procedures for DAC (PAAP-DAC) which demonstrates innovation and also that prior DAC procedures were not simple and were burdensome.  The Applicant proposed using the PAAP-DAC allowance of up to 5 percent of eligible costs for DAC.[3]  The Grantee forwarded the appeal and supported it.

FEMA considered previous Requests For Information (RFI) responses to identical appeals (for PW 11494) to be part of the record.  In one RFI, FEMA requested documentation demonstrating that procurement of DAC contractors was performed in compliance with federal procurement requirements; copies of executed DAC contracts including scope of work (SOW) descriptions, qualifications of contractor personnel and hourly rates; documentation identifying the specific direct administrative work performed and trackable to the PWs; and the skill levels of the personnel performing the work.  The Applicant responded to the RFI for PW 11494.  The Applicant described the procurement process and provided copies of its DAC contract, a sample invoice showing rates charged and its DAC request with associated appeal documentation submitted previously.  It restated previous issues and contentions and acknowledged that it could not provide documentation identifying specific DAC tasks performed by its contractors relative to its PWs.[4]

The FEMA Region VI Regional Administrator (RA) denied the appeal on April 13, 2020.  FEMA applied its DAC policy which was in effect at the time of the disaster, rather than PAAP-DAC which applied to disasters declared on or after January 29, 2013.  The RA determined the Applicant did not demonstrate that: (1) FEMA failed to provide adequate notification of its eligibility determinations or failed to provide correct and consistent information regarding DAC; (2) FEMA has the authority to provide alternative methodologies of assessing the eligibility of DAC for FEMA-1791-DR-TX; and, (3) it could provide the necessary documentation to support its DAC claim.  

 

Second Appeal

The Applicant’s second appeal, dated June 12, 2020, reiterates and expands on its prior arguments, and notes FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, is inconsistent with the Disaster Mitigation Act of 2000 (DMA2K).  Furthermore, the Applicant requested Congressional review of this appeal.[5]  The Grantee in a letter dated June 15, 2020, forwarded and supported the Applicant’s appeal.[6]

 

Discussion

Direct Administrative Costs and Management Costs

FEMA and any entity receiving PA assistance must comply with all applicable federal regulations.[7]  DAC includes costs incurred by a grantee or applicant “that can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspections and preparation of a PW.”[8]  Eligible DAC is limited to actual reasonable costs incurred for a specific project.[9]  Such costs cannot be assumed eligible if not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.[10]  To allow FEMA to evaluate DAC, applicants must provide information about each activity performed in sufficient detail.[11] 

In its appeal, the Applicant asked that FEMA reimburse DAC at a fixed 5 percent rate to be added to an all-inclusive Category Z PW for all of its Hurricane Ike projects.  The PAAP-DAC allowance of up to 5 percent for eligible costs applied to disasters declared on or after January 29, 2013; the major disaster relative to this appeal was declared in 2008.  PAAP-DAC is not applicable or available to the Applicant; rather DAP 9525.9 applies.  The Applicant has not submitted any costs that are tracked, charged, and accounted for directly to PW 11529.  Costs that cannot be accounted for directly to specific projects are indirect costs which are ineligible for reimbursement as DAC.

Contrary to the Applicant’s arguments on second appeal, FEMA’s determination is not inconsistent with section 324 of Robert T. Stafford Disaster Relief and Emergency Assistance Act Assistance Act (Stafford Act), or any prior FEMA guidance or second appeal decision that the Applicant has identified.  Section 324 of the Stafford Act includes indirect costs and administrative expenses as potentially eligible management costs (which are separate from DAC), but does not require FEMA to reimburse an applicant’s DAC.[12]  FEMA published DAP 9525.9 in November 2007, months before Hurricane Ike, and did not issue any guidance for Hurricane Ike inconsistent with that policy.[13]  The policy plainly states DAC includes costs incurred “that can be tracked, charged, and accounted for directly to a specific project,” and this policy applied even if FEMA did not respond to alternate requests from the Applicant.[14]  Finally, in the University of Texas Medical Branch second appeal decision cited by the Applicant, FEMA denied funding when the applicant did not track costs directly to a specific project or substantiate the eligibility of DAC, consistent with FEMA’s decision here.[15]  As noted above, the Applicant has acknowledged that it cannot provide the necessary documentation to support its DAC claim, as the costs cannot be accounted for directly to a specific project, they are indirect costs.  Therefore, the costs are ineligible.

 

Appeals

The Applicant claims it never received a formal determination memorandum from either FEMA, or the Grantee, and, in support, cites to the FEMA Recovery Directorate Manual – Public Assistance Program Appeal Procedures.[16]  However, the Applicant received notice of its appeal rights[17] and of the applicable provisions of law and policy supporting FEMA’s determination.  The Applicant timely appealed and the Grantee timely submitted the appeals, and neither has identified any additional information necessary for the appeal which FEMA has not already provided.  Therefore, any potential procedural error is harmless.[18] 

 

Conclusion

The Applicant’s documentation to support its DAC claim does not include costs that are accounted for directly to PW 11529, but rather are indirect costs which are ineligible for reimbursement as DAC.  As such, the appeal is denied.

 

 

[1] Letter from Recovery Div. Dir., FEMA, to Chief, Texas Div. of Emergency Mgm’t, at 1 (June 11, 2019).

[2] Letter from Grant Coordinator, Texas Div. of Emergency Mgm’t to Assoc. Vice President, Memorial Hermann Health System, at 1 (June 28, 2019) [hereinafter Grantee Closeout Letter].

[3] See Applicant First Appeal.

[4] Letter from Assoc. VP. Fin., Memorial Hermann Health System, to Chief, TX DEM, at 1 (Jul. 18, 2019).

[5] See Letter from Assoc. Vice President, Memorial Hermann Health System, to Chief, Texas Div. of Emergency Mgm’t (June 12, 2020).  The Applicant does not list an amount in dispute for this PW but rather the aggregate total of 5 percent for all of its Hurricane Ike projects.

[6] See Letter from Chief, Texas Div. of Emergency Mgm’t, to Regional Adm’r, FEMA (June 15, 2020). Specifically, the Grantee again cites $1,312.00 in DAC as the amount in dispute.  Considering the RFI from the First Appeal, it is assumed here the Grantee meant $850.00 as the amount in dispute.

[7] 44 C.F.R. § 206.200(b).  See also FEMA Second Appeal Analysis, St. Lucie County, FEMA-1545/1551-DR-FL, at 3 (Dec. 11, 2006).

[8] FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs (2007).

[9] Id.

[10] FEMA Second Appeal Analysis, Central Bradford Progress Authority, FEMA-4030-DR-PA, at 4 (Feb. 29, 2016).

[11] Id.

[12] See Robert T. Stafford Disaster Relief and Emergency Assistance Act Assistance Act, as amended, § 324, 42 U.S.C. 5165b (2007).

[13] In prior second appeals for this Applicant on DR-1791, the month, and year the DAP was published was incorrectly cited as March 2008.  The corrected date does not affect the applicability of the policy to this appeal and prior decisions on this topic.

[14] DAP 9525.9, at 2.

[15] FEMA Second Appeal Analysis, Univ. of Tex. Med. Branch, FEMA-1791-DR-TX, PWs 1001, 10638 and 12128, at 9-10 (Sep. 21, 2017) (denying costs ineligible as DAC, including any costs that were awarded in error earlier).

[16] Recovery Directorate Manual – Public Assistance Program Appeal Procedures, Version 4 (Mar. 29, 2016).

[17] See Grantee Closeout Letter.

[18] See FEMA Second Appeal Analysis, Roman Catholic Bishop of Springfield, PW 249, FEMA-1994-DR-MA, at 6 (Apr. 04, 2019) (finding FEMA’s procedural error to be harmless where the applicant was still able to submit a response and did not argue that it would have responded differently had FEMA adhered to Appeals Manual guidelines).

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