Direct Administrative Costs – Project Management Costs

Appeal Brief

Summary Paragraph

Hurricane Rita damaged several of the Cameron Parish School Board’s (Applicant) facilities.  FEMA captured the replacement of the Applicant’s Administrative Office Building in Project Worksheet (PW) 533 and the replacement of South Cameron High School in PW 2397.  FEMA awarded the project management (PM) costs for all of the Applicant’s projects through PW 4653, at the full estimated costs with no cap.  FEMA awarded PW 4831 for all of the Applicant’s direct administrative costs (DAC)/close-out incentive costs, with funding capped at 3 percent.  After the spring of 2011, the Applicant’s contractor performed work supporting the eligibility of change orders pertaining to PWs 533 and 2397.  This work included, for example, preparing for and attending meetings with FEMA to present supporting documentation.  In November 2015, the Applicant formally requested that FEMA re-classify DAC costs pertaining to the review and documentation of change orders for PWs 533 and 2397 to PM costs and move them to PW 4653.  The re-classification would remove those costs from the 3 percent DAC cap.  In a 2017 determination, FEMA denied the request, concluding the change orders’ eligibility work was DAC, not PM.  The Applicant submitted a first appeal, noting that in 2012 its contractor informally notified the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) and FEMA of its re-classification request.  The Applicant stated that the Grantee instructed its contractor to continue the work associated with seeking FEMA funding for the change orders, and FEMA responded that it would consider transferring the costs from the PM PW to the DAC PW.  The FEMA Region VI Regional Administrator (RA) denied the appeal, finding that the costs were DAC rather than PM because the work involved eligibility discussions.  The RA also determined that FEMA had not committed to approving the re-classification request.  On second appeal, the Applicant repeats previously raised arguments.    

Authorities and Second Appeals

• 44 C.F.R. §§ 206.201(i)(1), (j); 206.206(a).
• Response and Recovery Policy 9525.6, Project Supervision and Mgmt. Costs of Subgrantees, at 2-3 (Apr. 22, 2001); Memorandum from Ass’t Adm’r Disaster Assistance Directorate, FEMA, to Reg’l Adm’rs, et al. (Sept. 8, 2009) at Attachment;
• Columbus Reg’l. Hosp. v. FEMA, 708 F.3d 893, at 899 (7^th Cir. 2013).
• Office of Personnel Management v. Richmond, 496 U.S. 414 (1990).

Headnotes

• Eligible PM activities are those that include oversight of an eligible project from design phase to the completion of work.  Ineligible PM activities are those necessary to requesting, obtaining, and administering Federal disaster subgrants.  Eligible DAC work includes activities related to developing the scope of work (SOW) component for one specific project worksheet.
  • The costs at issue pertain to work the Applicant’s contractor performed to support the eligibility of changes to the approved scopes of work for two specific PWs; these are DAC rather than PM costs.

• 44 C.F.R. § 206.201(j) defines project approval as when the Regional Director or a designee reviews and signs an approval of work and costs on a PW. 
  • Although the Applicant notes that a FEMA representative stated he would consider moving the requested costs to the PM PW, a FEMA designee never signed a PW approving the requested transfer. 

Conclusion

Because the costs at issue pertain to work the Applicant’s contractor performed to support the eligibility of changes to the approved scopes of work, they are DAC rather than PM costs.  Accordingly, the Applicant’s request to re-classify the DAC charges to PM costs is denied. 

Appeal Letter

Appeal Analysis

Background

As a result of Hurricane Rita, declared a major disaster on September 24, 2005, the Cameron Parish School Board (Applicant) suffered damage to its Administrative Office Building and the South Cameron High School (Facilities).  FEMA thereafter approved replacement of the Facilities in Project Worksheets (PW) 533 and 2397, respectively. 

In addition to the underlying projects, FEMA funded the Applicant’s project management (PM) and direct administrative costs (DAC)/close-out incentive (COI) costs for all disaster projects in two separate PWs.  FEMA awarded PW 4653 for all PM costs with no cap.  FEMA awarded PW 4831 for all DAC/COI costs with a 3 percent funding cap.[1]

In a November 6, 2015 letter, the Applicant formally requested FEMA move $672,287.00 in costs incurred by its contractor Hoffpauir Architects, LLC (Hoffpauir) for PWs 533 and 2397 from the DAC/COI PW to the PM PW.  It requested the re-classification of those costs because expenses captured in the DAC/COI PW were subject to the 3 percent cap, whereas PM costs were fully reimbursed.  The Applicant stated the costs were PM rather than DAC because they were related to the review and documentation of change orders for PWs 533 and 2397.  The changes orders related to additional work beyond that previously approved, such as the installation of additional electronic and fire safety equipment.

In response, FEMA issued a letter dated May 3, 2017 denying the Applicant’s request.  FEMA concluded the work performed by Hoffpauir to support the eligibility of the changes to the approved scopes of work was eligible for reimbursement as DAC/COI, not PM. 

First Appeal

On July 5, 2017, the Applicant submitted a first appeal requesting FEMA include the charges for work done to support the changes to the approved scopes of work for PWs 533 and 2397 in PM PW 4653.  The Applicant reiterated that Hoffpauir spent significant time and effort on discussing the changes to the approved scopes of work with FEMA and the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) after construction of the above-referenced projects.  Such work included preparing for and attending meetings with FEMA to present documentation in support of the eligibility of the changes to the approved scopes of work. 

It also noted the multiple times, starting in 2012, that Hoffpauir told the Grantee and FEMA of its concerns over costs incurred from continuing discussions on the eligibility of the changes to the approved scopes of work, and therefore its request to have its work classified as PM costs, not DAC.  In response, a Grantee representative instructed Hoffpauir to continue with its effort so that the Grantee could use it as precedence for other applicants.  Based on this instruction, Hoffpauir continued the above-referenced work.  Additionally, the Applicant stated that a FEMA representative indicated he had authority to consider moving the DAC charges incurred during the version review timeframe for PWs 533 and 2397 to the PM PW. 

Finally, the Applicant noted that in February 2016, the Grantee performed an analysis of its request and generally concurred with re-classifying the costs.  The Grantee found that certain task descriptions of work performed after March 2011, all of which the Applicant had previously categorized as direct management tasks, should be considered for a move to the PM PW.  One such example was the direct management task description “activities related to developing the scope of work component for one specific project worksheet.”[2]

The Grantee transmitted the appeal in a August 31, 2017 letter supporting the Applicant’s re-classification request.  In an attached memorandum, the Grantee requested that FEMA provide additional rationale for its denial to allow the Applicant to provide responsive supplemental documentation.

On November 7, 2017, FEMA issued a Request for Information (RFI), seeking information that satisfied regulatory appeal requirements.[3]  The Applicant responded on December 6, 2017 reiterating previously raised arguments.  The Applicant also summarized the communications between Hoffpauir and the Grantee and FEMA, concerning changing the DAC to PM costs that occurred from 2012 through 2016.  It urged FEMA to approve the costs associated with the change orders’ discussions as PM, especially since one of Hoffpauir’s assigned task descriptions for PM costs included “[e]valuating and providing recommendations on change order proposals.”[4]  Last, the Applicant stated that per the Grantee’s February 2016 review, the costs to be re-classified amounted to $512,258.75.  On December 11, 2017, the Grantee transmitted the Applicant’s response and accompanying documentation to FEMA.
 

FEMA transmitted an additional RFI on October 29, 2018, requesting documentation: (1) explaining how the claimed activities qualify as PM versus DAC, and why PW 4653 is the appropriate project for the claimed activities; (2) specifying the provisions in federal law, regulation, or policy with which the applicant believes the initial action was inconsistent; and, (3) the monetary figure in dispute for each of the PWs mentioned in the appeal, PWs 533, 2397, 4653, and 4831.

The Applicant responded via letter dated December 11, 2018.  It reiterated its prior arguments concerning the reliance on previous communications suggesting the costs could be re-classified,   noted that the meetings took place while FEMA reviewed the change orders (primarily after construction had been completed), and formally concurred with the Grantee’s estimate that a combined total of $512,258.75 in costs should be re-classified. 

On May 23, 2019, the FEMA Region VI Regional Administrator (RA) issued a first appeal decision denying the appeal.  First, the RA found that because the work involved discussions on the eligibility of the changes to the approved scopes of work and were administrative in nature, the costs associated with that time were correctly classified as DAC/COI rather than PM.  Second, in response to the Applicant’s statement that FEMA had assured it the Agency had authority to approve the costs as PM expenses, the RA pointed out the Agency had never actually made a commitment or promise to approve the request.  Even if it had, the RA confirmed FEMA nonetheless only has authority to re-classify costs when the re-classification follows regulations and policy.

Second Appeal

Through a second letter dated July 22, 2019, the Applicant reiterates previously raised arguments requesting FEMA re-classify $512,258.75 in DAC to PM costs.  The Grantee forwarded the Applicant’s appeal through a September 11, 2019 letter and attached memorandum.  In the memorandum, the Grantee cited to predisaster PM and post-disaster DAC policies to show that the costs are closely related.  It requests that FEMA complete an extensive investigation of the costs at issue, and recommends that FEMA obligate $512,258.75 as PM costs, and additionally grant all other costs and fees to which the Applicant may be entitled.

Discussion

Direct Administrative Costs/Project Management Costs

Eligible PM activities include oversight of an eligible project from the design phase to the completion of work.[5]  Ineligible PM activities include those necessary in requesting and obtaining Federal disaster subgrants, such as attending Grantee and FEMA meetings or completing documents to request assistance.[6]  FEMA published post-disaster guidance for DAC charges that applies retroactively to this disaster in a September 8, 2009 memorandum.[7]  The memorandum includes a non-exhaustive list of DAC eligible work, such as “[a]ctivities related to developing the scope of work component for one specific project worksheet…[and] [a]ctions carried out to support FEMA and the grantee’s determination of the sub-applicant, facility, work and cost eligibility for one specific project.”[8]

The costs at issue in this appeal relate to work Hoffpauir performed to persuade FEMA that the changes to the approved scopes of work for PWs 533 and 2397 were eligible for funding (e.g., preparing for/attending meetings with the Grantee and FEMA, and providing documentation upon request).  Activities related to requesting, obtaining, and administering Federal disaster subgrants are not eligible PM costs.[9]  Since the Applicant has not demonstrated Hoffpauir’s work and related costs pertain to eligible PM activities (i.e., oversight of an eligible project from the design phase to the completion of the work, including architectural and engineering design work), these are not eligible PM costs.

Applicable FEMA guidance makes clear that activities related to developing the scope of work component for one specific PW and actions carried out to support the request for federal assistance, i.e., FEMA’s determination of the work and cost eligibility for one specific project, are DAC, not PM costs.[10]  Since that is the type of work underlying the costs at issue in this appeal, FEMA denies the Applicant’s request to re-classify those costs as PM expenses.

Hoffpauir’s prior communications with the Grantee and FEMA about re-classifying the DAC charges to PM costs

The Applicant states Hoffpauir relied on an instruction from a Grantee representative to continue the discussions on the changes to the approved scopes of work.  However, “[n]o field employee can commit the [A]gency to pay more than the statute and regulations require”[11] and FEMA must approve a scope of eligible work and costs before funding an project.[12]  Such project approval is accomplished when the Regional Director or a designee reviews and signs an approval of work and costs on a PW.[13]  Since a FEMA designee never signed a PW approving the requested transfer of costs, the Agency does not find merit in the Applicant’s argument concerning reliance on prior FEMA communication.

Conclusion

The costs at issue are DAC rather than PM costs because they relate to work the Applicant’s contractor performed to support the eligibility of changes to the approved scopes of work.  Accordingly, the Applicant’s request to re-classify the DAC charges to PM costs is denied.