Direct Administrative Costs & Management Costs, Insurance

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4080
Applicant	Plaquemines (Parish)
Appeal Type	Second
PA ID#	075-99075-00
PW ID#	PW 1476
Date Signed	2021-04-09T16:00:00

Summary Paragraph

In 2005, Hurricane Katrina damaged properties owned by Plaquemines Parish (Applicant).  FEMA provided Public Assistance (PA) funding to restore the properties, and recorded requirements for the Applicant to procure insurance coverage for them as a condition of future grant assistance.  Subsequently, from August 26 to September 10, 2012, Hurricane Isaac caused damage to Applicant-owned water and sewage treatment sites.  FEMA prepared Project Worksheet (PW) 1476 to document the restoration of 62 sites, but reduced funding to zero dollars for some sites after determining that the Applicant failed to obtain and maintain insurance following Hurricane Katrina.  The Applicant submitted a request for Direct Administrative Costs (DAC) under PW 1476.  FEMA approved some DAC, but denied the remainder after determining: (1) the Applicant had not substantiated some of the administrative tasks and DAC it submitted; and (2) other DAC was associated with three of the sites previously reduced.  The Applicant submitted a first appeal, disputing FEMA’s determinations.  The FEMA Region VI Regional Administrator partially granted the appeal, finding that FEMA had not properly applied an insurance purchase requirement for two of the three reduced sites.  Permanent work and DAC for the sites, totaling $16,813.43, was eligible for funding.  FEMA found the remainder of the Applicant’s claim ineligible.  The Applicant submitted a second appeal requesting PA funding for permanent work and DAC totaling $237,139.88.  The Applicant disputes FEMA’s findings regarding the administrative tasks, and argues that the obtain and maintain insurance requirement did not apply to the Dalcour Water Treatment Plant (WTP), the third reduced site.

Authorities and Second Appeals

• Stafford Act §§ 311(a)(1), 324(a).
• 44 C.F.R. § 206.252(d).
• PA Guide, at 123.
• DAP 9525.9, at 2, 5.
• Zimmerman Memo, at 2, Attachment.
• Carrollton Utilities, FEMA-4239-DR-KY, at 6; City of Boulder, FEMA-4145-DR-CO, at 4.

Headnotes

• FEMA will reimburse DAC incurred by applicants that is properly documented and can be tracked, charged, and accounted for directly to a specific project.
  • The Applicant provided information substantiating 118 disputed administrative tasks.  The information does not substantiate the remainder of the claim, which is ineligible.
• For facilities damaged by flood, an applicant must obtain and maintain flood insurance in the amount of eligible PA funding as a condition of receiving the grant.
  • The Applicant failed to procure the required flood insurance for the Dalcour WTP in the aftermath of Hurricane Katrina.  Permanent work and DAC for the site are ineligible.

Conclusion

The Applicant substantiated additional DAC in the amount of $18,396.25.  The remainder of the DAC claim was not substantiated and is ineligible.  Additionally, the Applicant did not procure flood insurance coverage for the Dalcour WTP following Hurricane Katrina.  Consequently, the Dalcour WTP is ineligible for PA funding under PW 1476.  Therefore, this appeal is partially granted.

Appeal Letter

Appeal Analysis

Background

From August 29 to November 1, 2005, Hurricane Katrina caused damage to various properties owned and maintained by Plaquemines Parish (Applicant).  FEMA approved Public Assistance (PA) funding for numerous projects to restore the properties.  FEMA recorded requirements for the Applicant to obtain and maintain insurance coverage for the damaged properties, as a condition of receiving funding for any future disaster damage.

In a letter dated August 10, 2007, the Louisiana Insurance Commissioner certified that flood insurance in excess of the coverage provided by the National Flood Insurance Program (NFIP) was not reasonably available to applicants affected by Hurricanes Katrina and Rita.  However, the Insurance Commissioner directed applicants to procure NFIP coverage “for at least every facility that sustained flood damages” during those disasters.[1]  In a December 20, 2007 letter to the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee), the Applicant stated that it was in compliance with the Insurance Commissioner’s requirement.  It attached copies of NFIP insurance policies for several properties to the letter.

From August 26 to September 10, 2012, storm surge from Hurricane Isaac caused damage to water and sewage treatment sites owned and maintained by the Applicant.  FEMA prepared Project Worksheet (PW) 1476 to document permanent work to restore 62 sites,[2] awarding PA funding based on estimated costs for repairs.  However, FEMA found that the Applicant had failed to obtain and maintain the property insurance for some sites that was required as a condition of PA funding received in the aftermath of Hurricane Katrina.  Consequently, after multiple insurance reviews, FEMA determined that repairs to four sites were ineligible, and reduced PA funding to zero dollars for each of the sites.[3]

On July 21, 2016, the Applicant submitted an amendment request for PW 1476, requesting additional PA funding for $91,055.00 in Direct Administrative Costs (DAC).  In response, FEMA issued a determination memorandum on March 29, 2018, approving PA funding for DAC in the amount of $35,597.50.  However, FEMA denied the remainder of the Applicant’s DAC claim.  FEMA determined that the Applicant had not substantiated some of the administrative tasks it submitted, while other tasks were associated with three of the sites previously reduced due to the Applicant’s failure to obtain and maintain insurance following Hurricane Katrina.  In both cases, FEMA found that the tasks and associated DAC were ineligible for PA funding.

 

First Appeal                                                                       

The Applicant submitted a first appeal via letter dated May 25, 2018, disputing FEMA’s eligibility determinations and requesting reimbursement for DAC expenses totaling $46,470.00.  The Applicant stated that the administrative tasks FEMA had determined were unsubstantiated were in fact properly tracked and accounted for under PW 1476, and the associated DAC totaling $32,788.75 was eligible.  Regarding the administrative tasks for the three reduced sites, the Applicant stated that FEMA had erroneously reduced funding for permanent work to restore the sites, and the associated DAC totaling $13,681.25 was also eligible.  In a transmittal letter dated July 26, 2018, the Grantee expressed support for the appeal.

FEMA issued a Request for Information clarifying the Applicant’s DAC claim and documenting the insurance requirements for the three reduced sites.  In response, the Applicant provided a spreadsheet associating each disputed administrative task with a contractor’s invoice.  Regarding the three reduced sites, the Applicant provided photographs, which it claimed demonstrated that the sites were not insurable under the NFIP.  It asserted that it had satisfied the insurance requirement by obtaining the Insurance Commissioner’s August 2007 certification, and reiterated its previous argument that FEMA had erroneously reduced funding for permanent work to restore the sites.

The Region VI Regional Administrator (RA) issued the first appeal decision on March 26, 2020.  FEMA determined that the Applicant had not substantiated the disputed administrative tasks, as the contractor’s invoices did not provide clarification, and “many of the [disputed] task descriptions indicate indirect tasks and timelines that do not line up with the project.”[4]  Additionally, FEMA found that permanent work and DAC for the Dalcour Water Treatment Plant (WTP), one of the three reduced sites, remained ineligible, as the Applicant failed to obtain and maintain insurance for the site following Hurricane Katrina.  However, FEMA determined that it had not previously applied an obtain and maintain insurance requirement for the two remaining sites.  Therefore, the associated costs for permanent work and substantiated DAC for those sites were eligible for PA funding.  The RA partially granted the appeal for $16,813.43.

 

Second Appeal

The Applicant submitted a second appeal via letter dated June 30, 2020, disputing FEMA’s eligibility determinations and requesting reimbursement for permanent work and DAC totaling $237,139.88.[5]  The Applicant reiterates its first appeal arguments for the disputed administrative tasks, and asserts that FEMA failed to complete a detailed examination of the justifications for each task and cost.  Regarding the Dalcour WTP, the Applicant states that PA funding for repairs to damages from Hurricane Katrina had not been expended at the time of the present disaster.  Therefore, it claims that any requirement to obtain and maintain insurance resulting from Hurricane Katrina does not apply to PW 1476.  Further, the Applicant states that FEMA’s notice of the insurance requirement was deficient and overstated the dollar amount of coverage available.  It states that insurance coverage for the Dalcour WTP was unobtainable, and again claims that the site is uninsurable under the NFIP.  Finally, the Applicant reiterates its claim that it satisfied the obtain and maintain requirement with the Insurance Commissioner’s August 2007 certification.

 

Discussion

Direct Administrative Costs – Disputed Tasks

Funding under the PA program is available for management costs, which are administrative expenses and any other expenses not directly chargeable to a specific project under a major disaster.[6]  In addition to management costs, FEMA will reimburse DAC incurred by applicants,  that is properly documented and can be tracked, charged, and accounted for directly to a specific project.[7]  DAC is limited to actual reasonable costs incurred for a specific project; FEMA must consider the following factors when evaluating the reasonableness of requested costs: (1) method of contracting for the services; (2) the skill of the persons performing the activities; and (3) the amount of time required to perform an activity.[8]

To support its claim for the disputed administrative tasks and DAC, the Applicant provided a spreadsheet listing 285 tasks,[9] as well as its contractor’s invoices and supporting documentation associated with the performance of the work.  The spreadsheet includes comments made during FEMA’s review of the claim, describing the reasons DAC for each disputed task was denied; it also includes the Applicant’s justifications in response.  For each task, the spreadsheet accurately records information from an associated contractor’s invoice.  For many tasks, the Applicant referenced and provided contemporaneous documentation, such as emails and meeting minutes, that could be used for further verification.

The supporting information substantiates 118 disputed tasks, with associated DAC in the amount of $18,396.25.  Reasons for this differ; for the majority, information in the invoice ties the work to PW 1476, and descriptions of the work found in the supporting documentation comport with descriptions of eligible work provided in FEMA policy.[10]  The supporting information did not substantiate 167 disputed tasks, with associated DAC in the amount of $14,498.75.  Again, reasons for this finding vary.  Generally, either: (1) there was no description of the work performed; (2) the Applicant provided no response to FEMA’s review comments, or provided conflicting information; or, (3) FEMA could not determine whether the work performed required the proficiency, and thus the associated cost, of the employee that completed it.

Based on this analysis, FEMA determines that the Applicant provided information substantiating additional eligible DAC in the amount of $18,396.25.  The remaining DAC was not substantiated, and are ineligible for PA funding.

 

Insurance Purchase Requirement – Dalcour WTP

The Robert T. Stafford Disaster Relief and Emergency Assistance Act requires that, with respect to any facility to be replaced, restored, repaired, or constructed with PA funds, an applicant must obtain and maintain such types and extent of insurance as may be reasonably available, adequate, and necessary to protect against future loss to such property.[11]  For facilities damaged by flood, an applicant must obtain and maintain flood insurance in the amount of eligible PA funding as a condition of receiving the grant.[12]  If the requirement is not met, FEMA will not provide any assistance for that facility in future disasters of the same type.[13]  An applicant is exempt from this requirement for facilities for which, in the determination of the State insurance commissioner, the type and/or extent of insurance being required by FEMA is not reasonable.[14]  However, this exemption does not apply to facilities insurable under the NFIP because insurance is both available and reasonable.[15]

On second appeal, the Applicant argues that FEMA’s notice to obtain and maintain flood insurance for the Dalcour WTP following Hurricane Katrina was deficient.  However, as noted in the first appeal decision, FEMA recorded the obtain and maintain requirement for the site in the insurance information section of the subgrant application for PW 13786.[16]  The Applicant’s argument is not compelling, as the requirement to obtain and maintain flood insurance was clearly recorded, applied, and available to the Applicant and Grantee.

The Applicant argues that FEMA overstated the dollar amount of insurance coverage available for the Dalcour WTP, and that the Insurance Commissioner’s August 2007 certification satisfied any insurance purchase requirement.  The Insurance Commissioner’s certification may have relieved the Applicant of any requirement to procure excess flood insurance coverage, at least initially.[17]  However, the August 2007 certification clearly recorded a requirement to procure NFIP coverage “for at least every facility that sustained flood damages” in Hurricane Katrina.  This included the Dalcour WTP.  Therefore, the Applicant’s assertion that the Insurance Commissioner’s certification satisfied the insurance purchase requirement for the site is erroneous.

Next, the Applicant argues that the damages sustained at the Dalcour WTP during Hurricane Katrina were uninsurable.  In support, it provides an assessment of the site based on its own understanding of insurability under the NFIP.[18]  However, the Applicant has the burden on appeal to provide more than statements or opinions to substantiate its claims; documentation or other evidence supporting its position must also be submitted.[19]  Here, the Applicant has not provided supporting documentation, e.g., an underwriter’s assessment or a dated application form, showing that it was denied NFIP insurance coverage for the Dalcour WTP, or otherwise demonstrating that the site was uninsurable.  Therefore, the Applicant has not demonstrated that the insurance purchase requirement was inapplicable due to the insurability of the site.

Finally, the Applicant argues that the obtain and maintain requirement did not apply due to the timing of the work performed following Hurricane Katrina through PW 13786, and the fact that project funding had not been fully expended at the time of the present disaster.  In support, it provides an extract from the Grantee’s financial records, and contractor’s records showing the completion and acceptance of work done at the Dalcour WTP in 2013 and 2014.[20]  The Applicant asserts that this documentation demonstrates that the work done under PW 13786 was not completed until well after the present disaster.  FEMA is unable to substantiate the Applicant’s assertion with the information provided.[21]  Beyond simply stating that the obtain and maintain requirement was inapplicable “until such time as the FEMA funding under PW 13786 has been expended,”[22] the Applicant has provided nothing to demonstrate that this was the case.

Here, FEMA notes that seven years passed between Hurricanes Katrina and Isaac.  The Insurance Commissioner clearly expressed the NFIP insurance purchase requirement in August 2007.  The Applicant’s December 2007 letter to the Grantee demonstrates it understood the requirement, and that it procured NFIP flood insurance policies for other properties impacted by Hurricane Katrina, including another water treatment plant.[23]  However, on appeal the Applicant provides no indication it procured, or attempted to procure, flood insurance coverage for the Dalcour WTP.  Consequently, permanent work and DAC for the site are ineligible for PA funding under PW 1476.

 

Conclusion

The Applicant substantiated additional DAC in the amount of $18,396.25.  The remainder of the DAC claim was not substantiated and is ineligible.  Additionally, the Applicant did not procure flood insurance coverage for the Dalcour WTP following Hurricane Katrina.  Consequently, the Dalcour WTP is ineligible for PA funding under PW 1476.  Therefore, this appeal is partially granted.

 

[1] Letter from Comm’r, La. Dep’t of Ins., to President of the United States of America, at 2 (Aug. 10, 2007).

[2] The Dalcour Water Treatment Plant (WTP), was listed in the PW 1476 scope of work twice, as both site 37 and site 62, with different items of work and costs under each listing.

[3] The four sites reduced were: both listings for the Dalcour WTP (sites 37 and 62), the Buras Wastewater Treatment Plant (site 58), and the Empire Booster Station (site 60).

[4] FEMA First Appeal Analysis, Plaquemines (Parish), FEMA-4080-DR-LA, at 5 (Mar. 26, 2020).

[5] The Applicant requests $32,788.75 in DAC for the disputed administrative tasks, and $193,241.13 for permanent work and $11,110.00 for DAC associated with the restoration of the Dalcour WTP.

[6] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act § 324(a), 42 U.S.C. § 5165b(a) (2012); Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, at 2 (Nov. 13, 2007).

[7] DAP 9525.9, at 2, 5.

[8] DAP 9525.9, at 5; Memorandum from Assistant Adm’r, Disaster Assistance Directorate, FEMA, to Reg’l Adm’rs, FEMA Regions I-X, et al., Disaster Assistance Policy DAP9525.9, Section 324 Management Costs and Direct Administrative Costs and Recovery Policy 9525.14, Grantee Administrative Costs, at 2 (Sept. 8, 2009) [hereinafter Zimmerman Memo].

[9] Plaquemines Parish, PW 1476 FEMA Draft PW Version DAC Comments Review (Undated).  On second appeal, both the Applicant and the Grantee total the DAC associated with the disputed tasks at $32,788.75.  However, the total cost of the disputed tasks documented on the Applicant’s spreadsheet is $32,895.00.  Neither the Applicant nor the Grantee address this discrepancy in the second appeal request.

[10] See Zimmerman Memo, at Attachment (providing a listing of administrative activities eligible for PA funding).

[11] Stafford Act § 311(a)(1), 42 U.S.C. § 5154(a)(1).

[12] Title 44 Code of Federal Regulations (44 C.F.R.) § 206.252(d) (2011) (this regulatory requirement was also in effect at the time of Hurricane Katrina).

[13] Public Assistance Guide, FEMA 322, at 123 (June 2007).

[14] Id.

[15] Id.

[16] Project Worksheet 13786, Plaquemines (Parish), Version 0 (Oct. 12, 2006) (documenting permanent work to restore the Dalcour WTP following Hurricane Katrina, and recording a requirement to procure flood insurance coverage of $1,936,386.30 for the site’s “Office/Control” building, and $49,828.90 for the “Chlorine Storage” building as a condition of PA grant funding).

[17] A July 20, 2010 letter from the Insurance Commissioner to the President revised the August 2007 insurance certification criteria.  Specifically, it established a requirement for local government applicants to expend an amount equal to 33 percent of their annual operating budgets on property insurance, including flood insurance coverage in excess of the NFIP maximum.  For the present appeal, the Applicant did not discuss or provide information related to this requirement; cf. FEMA Second Appeal Analysis, Plaquemines Parish Government, FEMA-4080-DR-LA, at 3 (Sept. 13, 2019).  Therefore, FEMA makes no determination on the excess flood insurance coverage requirement, and notes it here for explanatory purposes only.

[18] Letter from Law Office of Gaffney & Gaffney, to Assistant Dep. Dir., La. Governor’s Office of Homeland Scty. and Emergency Preparedness, at 11-16 (June 30, 2020) [hereinafter Applicant Second Appeal].

[19] FEMA Second Appeal Analysis, Carrollton Utilities, FEMA-4239-DR-KY, at 6 (July 16, 2018); see also FEMA Second Appeal Analysis, City of Boulder, FEMA-4145-DR-CO, at 4 (Jan. 19, 2017) (“[a]s reflected in 44 C.F.R. § 206.206(a), the Applicant, as the proponent of the relief sought, must provide documented justification needed to support eligibility”).

[20] Applicant Second Appeal, at 10, Exhibits 6 and 7.

[21] The Applicant did not explain how the dollar amounts depicted in the Grantee’s financial record comport with PA funding approved under PW 13786, and there is no discernable reference to that project in the extract.  Likewise, while the contractor’s records reference the Dalcour WTP, the Applicant did not provide information describing the work performed, or otherwise tying the records to PW 13786.

[22] Applicant Second Appeal, at 10.

[23] Letter from Managing Dir. and Senior Consultant, Sigma Consulting Corp., to State Coordinating Officer, La. GOHSEP, at Attachment (Dec. 20, 2007) (attaching NFIP flood insurance policies for various Applicant-owned properties, including a water treatment plant located in Belle Chasse, Louisiana).