Direct Administrative Costs – Project Management Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

DisasterFEMA-4085
ApplicantNassau County Public Works
Appeal TypeSecond
PA ID#059-99059-01
PW ID#Project Worksheets 3559, 3657, 3724, 3998
Date Signed2019-01-31T00:00:00

Conclusion:  Nassau County Public Works’ (Applicant) contractor’s employees did not incur travel expenses associated with specific projects; rather, such expenses benefitted more than one Project Worksheet (PW).  Under FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, these expenses are indirect costs and are not eligible for reimbursement as Direct Administrative Costs (DAC).      

 

 

Summary

From October 27, 2012, to November 9, 2012, Hurricane Sandy caused damage in the State of New York.  The Applicant hired project management contractors, including Camp Dresser McKee & Smith (CDM Smith), to assist with the administration of multiple Public Assistance grants.  CDM Smith’s employees often traveled to the Applicant’s jurisdiction and worked on multiple projects during each trip or billing period.  CDM Smith allocated these expenses on a pro rata basis according to the eligible hours worked by a given employee (Expense Allocation Methodology).  By letter dated January 6, 2017, FEMA informed the Applicant that CDM Smith’s travel expenses associated with direct administrative and project coordination tasks and allocated across multiple PWs on a pro rata basis were not eligible for reimbursement as Direct Administrative Costs (DAC).  At closeout, FEMA adjusted the PWs to include DAC that it found the Applicant had substantiated, but denied funding for indirect travel costs in each PW, in accordance with its prior letter.  The Applicant appealed FEMA’s determinations, arguing that CDM Smith’s Expense Allocation Methodology was permissible under its interpretation of applicable regulations and FEMA policy, and that the travel costs so allocated were eligible for reimbursement as either DAC or contract costs.  On first appeal, FEMA’s Regional Administrator (RA) upheld the denial of indirect costs as either DAC or contract costs.  The Applicant appeals the RA’s decision, reiterating its arguments from its first appeals.

 

Authorities and Second Appeals

  • Stafford Act § 324
  • 44 C.F.R. §§ 207.2, 207.6;
    2 C.F.R. § 200.110
  • DAP 9525.9, Section 324 Management Costs and Direct Administrative Costs; Memo., DAC Guidance; DAP 9525.11, Payment of Contractors for Grant Management Tasks
  • FEMA-4069-DR-MN, City of Duluth, Mult. PWs, at 5

 

Headnotes

  • FEMA policy provides that travel expenses related to one specific PW qualify as DAC, while travel expenses “related to general support and not directly tied to one specific project” are indirect costs, and therefore ineligible as DAC.  By extension, expenses allocated to every task for all PWs in proportion to the hours worked on the task are not eligible as DAC. 
    • CDM Smith utilized its Expense Allocation Methodology to divide travel expenses incurred by its employees to benefit multiple PWs across said PWs on a prorated basis.  Accordingly, the costs are not eligible DAC.

Appeal Letter

Deputy Commissioner Anne Bink

Alternate Governor’s Authorized Representative

New York State Division of Homeland Security and Emergency Services

1220 Washington Avenue

Building 7A, Floor 4

Albany, New York 12242

 

Re:  Second Appeal – Nassau County Public Works, PA ID 059-99059-01,

FEMA-4085-DR-NY, Project Worksheets (PWs) 3559, 3657, 3724, 3998 –

Direct Administrative Costs – Project Management Costs 

 

Dear Ms. Bink:

 

This is in response to letters from your office dated September 10, 2018, which transmitted the referenced second appeals on behalf of Nassau County Public Works (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) decision to uphold a partial denial of funding for certain travel expenses claimed as Direct Administrative Costs (DAC) under PWs 3559, 3657, 3724, and 3998, on the basis that such expenses were indirect costs, and ineligible for reimbursement as DAC.

 

As explained in the enclosed analysis, I have determined that since the travel expenses at issue benefitted more than one PW, they are indirect costs under FEMA Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative Costs, and the Applicant cannot allocate or assign such expenses to individual projects as DAC or as contract costsAccordingly, I am denying the appeal. 

 

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/

 

                                                                        Jonathan Hoyes

                                                                        Director

Public Assistance Division

 

 

Enclosure

 

cc:       Thomas Von Essen

            Regional Administrator

            FEMA Region II

Appeal Analysis

Background

 

From October 27, 2012, to November 9, 2012, Hurricane Sandy caused damage throughout the

State of New YorkNassau County Public Works (Applicant) hired project management contractors, including Camp Dresser McKee & Smith (CDM Smith), to assist with the administration of multiple Public Assistance (PA) grants.  CDM Smith’s employees often traveled to the Applicant’s jurisdiction and worked on multiple projects over the course of a day, billing period, and trip.  They also kept records of time spent working on each project task by assigning different codes to different projects, tasks, and categories of tasks. 

 

Between March 24, 2014 and April 10, 2015, FEMA obligated several Project Worksheets (PWs) to document emergency protective measures, debris removal, and storm-related repairs.  During the period in which FEMA initially obligated these PWs, the Applicant, the New York State Division of Homeland Security and Emergency Services (Grantee), and FEMA met and discussed the division of certain CDM Smith disaster consulting work into the following three categories: (1) Direct Administrative Costs (DAC); (2) project management; and (3) project coordination.  During administration of the projects, CDM Smith utilized a methodology to allocate travel expenses across multiple projects (Expense Allocation Methodology), described in a Memorandum dated January 8, 2013 (Expense Analysis Memo).[1] Specifically, CDM Smith calculated an hourly travel expense rate for each of its employees per billing period by dividing the employee’s total travel expenses by the total number of hours the employee worked on the Applicant’s projects during the billing period.[2]  CDM Smith then multiplied an employee’s travel expense rate for the billing period by the number of hours billed to a specific task by that employee, in order to allocate travel expenses to each project on a pro rata basis.[3]

 

Between February 1, 2016 and February 10, 2017, the Grantee submitted to FEMA the Applicant’s Large Project Final Accounting (LPFA) for the PWs (collectively, LPFA Requests). By letter dated January 6, 2017 [hereinafter DAC Determination Memo], FEMA informed the Applicant that CDM Smith’s travel expenses associated with direct administrative and project coordination tasks and allocated across multiple PWs were not eligible for reimbursement as DAC, but rather were indirect costs.[4]  This determination rested on FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, and the Memorandum regarding DAP 9525.9 – Section 324 Management Costs and [DAC],[5] [hereinafter DAC Guidance].  Following its final inspection of the LPFA Requests, between October 31, 2017 and January 16, 2018, FEMA applied the DAC Determination Memo and denied funding for the types of travel costs that it had previously found to be indirect costs, as those indirect costs were ineligible for reimbursement as DAC or as contract costs.[6]  The following table illustrates the amounts for each PW that FEMA found to be ineligible, in the context of the overall obligation for each PW. 

 

Table of Eligible Costs and Ineligible Travel Expenses by PW

 

 

Eligible Costs

Ineligible Travel Expenses

PWs

Costs Obligated V(0)

Costs Obligated Closeout

Costs Claimed as DAC

Costs Claimed as Project Coordination Costs

Total Travel Expenses in Dispute

3998

$123,708.24

$147,085.98

 $1,755.94  

$4,594.38  

$6,350.32  

3724

$133,958.31

$142,802.06

$877.01  

$715.57

$1,592.58  

3657

$321,850.00

$352,649.66

$656.96  

$598.33

$1,255.29  

3559

$703,453.61

$716,232.37

$1,790.18

$160.42  

$1,950.60  

Total

$1,282,970.16

$1,358,770.07

$5,080.09

$6,068.70

$11,148.79

 

First Appeal

 

By letters dated between January 5, 2018 and March 23, 2018, the Applicant transmitted its first appeals to the Grantee (collectively, Applicant’s First Appeals).[7]  In its first appeal requests, the Applicant argued that costs it was claiming as DAC “directly correspond to the number of labor hours an employee spent working on a specific project,”[8] per the Expense Allocation Methodology described in the Expense Analysis Memo.  The Applicant also argued that it would have been unreasonable to restrict CDM Smith’s employees to a single PW over the course of a given trip.

 

The Applicant claimed that Section 207.6(c) of Title 44 of the Code of Federal Regulations (44 C.F.R.), read in conjunction with DAP 9525.9, allows applicants to claim, as DAC, those costs which can be “identified separately and assigned to a specific project,” “if such costs can be and are attributed to individual projects.”[9]  The Applicant supported this argument by pointing to a pair of U.S. Office of Management and Budget (OMB) regulations,[10] which encourage applicants to allocate reasonable costs[11] among multiple projects, if said costs benefit two or more projects “in proportions that can be determined without undue effort or cost.”[12]

 

Between January 11, 2018 and April 13, 2018, the Grantee transmitted the Applicant’s first appeals to FEMA Region II.  FEMA issued a Final Request for Information for each of the PWs via letters dated between April 16, 2018 and May 14, 2018 (collectively, Final RFIs).[13]  In each of the Final RFIs, FEMA requested documentation: defining or describing project coordination costs and project coordination travel costs; explaining how project coordination travel costs differ from travel expenses categorized as DAC; and/or supporting the Applicant’s claims that DAP 9525.9 does not apply to the contractor’s project coordination travel costs and/or that such costs should qualify as eligible contract costs.[14] 

 

Between April 24, 2018 and June 1, 2018, the Applicant responded to the Final RFIs (collectively, RFI Responses).[15]  In its RFI Responses, the Applicant provided meeting notes, email correspondence, and various memoranda, and stated that the “Project Coordination” category of work was the creation of FEMA, in order to capture certain expenses from CDM Smith’s employees as contract costs, rather than DAC.[16]   The Applicant included an undated position paper with the RFI Responses, which noted that assignment/allocation of consultant expenses as DAC was a continuing source of contention, and disputed FEMA’s interpretation of DAP 9525.9.[17]  The Applicant claimed that FEMA and the Applicant had agreed that the Applicant would record the expenses associated with “Project Management” and “Project Coordination” tasks as contract costs, rather than DAC. 

 

In the RFI Responses, the Applicant also explained that it allocated all of CDM Smith’s travel expenses in accordance with the Expense Allocation Methodology, including DAC travel costs and Project Coordination travel costs.  The Applicant stated that it believed that, since project coordination and project management were both contract costs, travel expenses assigned to these categories should also be eligible for PA funding as contract costs.  In support of this belief, the Applicant relied on a provision in FEMA’s Public Assistance Guide, which allows costs incurred for project supervision and management under a contractor’s Master Service Agreement to qualify as contract costs.[18] 

 

The FEMA Region II Regional Administrator (RA) denied each of the Applicant’s First Appeals in decisions dated July 9, 2018.[19]  The RA found that DAP 9525.9 limits reimbursement for travel costs as DAC to only those costs that relate to “one specific project.”[20]  The RA also rejected the Applicant’s reliance on Title 2 Code of Federal Regulations (2 C.F.R.) § 200.405, since 2 C.F.R. § 200.110 expressly excludes all disasters declared prior to December 26, 2014 from the allocation principles codified in 2 C.F.R. § 200.405.[21]  Further, the RA found that the Applicant had not substantiated its contention that travel expenses associated with project coordination tasks should be treated as contract costs, since DAP 9525.9 and the DAC Guidance “specifically define[] DAC as including costs associated with the preparation and submission of PWs.”[22]

 

Second Appeal

 

The Applicant submitted its second appeals via letters dated September 10, 2018 and reiterated its prior arguments from its first appeals.[23]  On September 10, 2018, the Grantee transmitted the Applicant’s second appeals, supporting them.

 

Discussion

 

Direct costs are those that can be “identified separately and assigned to a specific project,” such as staff time to conduct an initial inspection, prepare and submit PWs, and make interim and final inspections of the project.[24]  By contrast, “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” are indirect costs. [25]  Travel expenses related to one specific PW qualify as DAC, while travel expenses “related to general support and not directly tied to one specific project” are indirect costs.[26]  Indirect costs are not eligible for reimbursement as DAC.[27]  More pertinently, an applicant cannot allocate expenses to every task for all PWs in proportion to the hours worked on the task, and then claim such expenses as DAC.[28]   

 

Here, the Applicant attempts to claim as DAC and/or contract costs certain travel expenses that its contractors incurred, despite its acknowledgment that CDM Smith’s employees worked on several PWs over the course of each trip at issue.  Specifically, the Applicant seeks pro rata allocations of travel and lodging expenses across multiple PWs, based upon the hours worked on a given PW during the course of a given trip.[29]  The Applicant believes it is entitled to reimbursement for the hourly travel expense rate for a given employee multiplied by the number of hours that employee billed for each PW in a given billing period, since it does not attempt to claim a pro rata share of travel expenses for hours spent on indirect tasks.

 

As an example, in PW 3724, the Applicant claims a CDM Smith employee spent “150.5 hours performing work on 18 projects which has been individually tracked and documented on CDM Smith’s invoice #14.”[30]  This employee incurred a total of $6,763.91 in travel, lodging, and meal expenses during the period covered by CDM Smith’s invoice #14.  To allocate these expenses, the Applicant first divided the total travel expenses by the hours worked during the invoice period to obtain an hourly expense rate for that period ($44.94/hour).  This CDM Smith employee claimed 3 hours of work eligible as DAC (or, in the alternative, as contract costs) during the period covered by invoice #14, and therefore the Applicant seeks reimbursement for $134.83 ($44.94/hour x 3 hours) in travel expenses for this employee that it associates with PW 3724.

 

However, as noted, a pro rata allocation of expenses across every task for all PWs on the basis of hours worked on the task does not make such expenses eligible for reimbursement as DAC.[31]  Since the travel expenses at issue benefitted more than one PW, they are indirect costs.  Accordingly, under DAP 9525.9, the Applicant cannot allocate or otherwise assign such expenses to individual projects as DAC or contract costs.  Such costs are only reimbursable as management expenses, if at all.[32]  The Applicant also relies on the cost allocation principles set forth in 2 C.F.R. § 200.405(d) in support of its appeal; however, this regulation does not apply to disasters declared before December 26, 2014.[33]

 

Conclusion

 

Since the travel expenses at issue benefitted more than one PW, they are indirect costs as defined under DAP 9525.9, and the Applicant cannot allocate or otherwise assign such expenses to individual projects as DAC or as contract costs.  The appeal is accordingly denied.

 

 

[1] Email from N.Y. St. DR-4085 PA Operations Lead, to N.Y. Sandy Branch Chief, FEMA Region II

(Oct. 4, 2016); CDM Smith Memorandum, Determination and Allocation of Expense Portion of Project Costs

(Jan. 8, 2013) [hereinafter Expense Analysis Memo].

[2] See Expense Analysis Memo (“The expenses and hours incurred on the project are totaled for each team member… then divided by the total hour value for each team member.”).

[3] IdSee, e.g., Letter from Dep. Dir., Nassau Cty. Off. Of Mgmt. and Budget (OMB), to Comm’r, New York State Division of Homeland Security and Emergency Services (NYSHSES), at 2 (June 1, 2018) [hereinafter PW 3724 RFI Response] (“Regardless of the eligibility or ineligibility of a specific task on a specific project, Travel Expenses [sic] are allocated based on the actual work performed on said project in accordance with the methodology established in the expense analysis memo.”).

[4] Letter from N.Y. Sandy Branch Chief, FEMA Region II, to Dep. Dir., Nassau Cty. OMB, at 2 (Jan. 6, 2017) (“FEMA will not amend the PWs to include apportioned travel expenses spread across multiple PWs as DAC.”).

[5] Memorandum from Assistant Adm’r, Disaster Assistance Directorate, to Reg’l Adm’rs, Acting Reg’l Adm’rs, Trans’l Recovery Office Dirs., Fed. Coord. Officers, and Disaster Assistance Div. Dirs. (Sept. 8, 2009) (concerning Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs (Nov. 13, 2007) and FEMA Recovery Policy 9525.14, Grantee Administrative Costs (Sept. 8, 2009)) [hereinafter DAC Guidance].

[6] See Letters from Pub. Assistance (PA) Branch Chief, N.Y. Sandy Branch, FEMA Region II, to Dep. Comm’r, NYSHSES and Dep. Budget Dir., Nassau Cty. OMB, at 2 (Oct. 31, 2017 through Jan. 16, 2018) [collectively, LPFA Determinations] (table showing indirect travel costs as ineligible for reimbursement as either contract costs or as DAC).

[7] Letters from Dep. Dir., Nassau Cty. OMB, to Comm’r, NYSHSES (Jan. 5, 2018 through Mar. 23, 2018) [collectively, Applicant’s First Appeals].  

[8] Id. at 1 (emphasis in original).

[9] Id. at 3 (emphasis in original).

[10] Title 2 of the Code of Federal Regulations (2 C.F.R.) §§ 200.404 and 200.405(d) (2014).

[11] As defined in 2 C.F.R. § 200.404; see Applicant’s First Appeals, at 3.

[12] Applicant’s First Appeals, at 4 (quoting 2 C.F.R. § 200.405(d)) (emphasis from original omitted).

[13] Letter from Section Chief, Appeals & Audits, Recovery Div., FEMA Region II, to Dep. Comm’r, NYSHSES and Dep. Budget Dir., Nassau Cty. OMB (Apr. 16 through May 14, 2018) [hereinafter Final RFIs].

[14] Final RFIs, at 2.

[15] Letters from Dep. Dir., Nassau Cty. OMB, to Comm’r, NYSHSES (Apr. 24, 2018 through June 1, 2018) [hereinafter Final RFI Responses]

[16] See Final RFI Responses, at 1 – 2.

[17] Id. at Attachments (undated memorandum entitled “Nassau County Position Paper – Consultant Expenses as [DAC],” referring to “FEMA’s current statement that a consultants [sic] expenses would only be eligible as DAC if that consultant worked on a single project all day” as “void of logic”).

[18] See Public Assistance Guide, FEMA 322, at 62 (June 2007).

[19] 8 Letters from Reg’l Adm’r (RA), FEMA Region II, to Dep. Comm’r, NYSHSES and Dep. Budget Dir., Nassau Cty. OMB (July 9, 2018), enclosing the RA’s determinations in each appeal (collectively, First Appeal Determinations).  With the exception of the procedural background of each appeal, the accompanying administrative record indices, and the examples of how the Applicant applied the Expense Allocation Methodology in each PW (found on page 2 of the First Appeal Determinations), the First Appeal Determinations are otherwise identical.

[20] DAP 9525.9, at 2.

[21] First Appeal Determinations, at 5 (citing 2 C.F.R. § 200.110 (specifying the effective date for the Uniform Rules under 2 C.F.R. pt. 200 as December 26, 2014); 79 Fed. Reg. 75,867, 75,872 (Dec. 19, 2014) (“For grants authorized under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, this rule is applicable for emergency or major disaster declarations issued on or after December 26, 2014.”)); see also 2 C.F.R. pt. 225 (2012) (codifying OMB CIRCULAR A-87, which sets forth the applicable cost principles for the Applicant in FEMA-4085-DR-NY based on the October 30, 2012 declaration date).

[22] First Appeal Determinations, at 6.

[23] Letters from Dep. Dir., Nassau Cty. OMB, to Comm’r, NYSHSES (Sept. 10, 2018) [hereinafter Applicant Second Appeals].

[24] DAP 9525.9, at 2 (citing 44 C.F.R. §§ 207.2, 207.6(c))

[25] Id.

[26] See DAC Guidance, at Attachment (emphasis in original).

[27] DAP 9525.9, at 6.

[28] FEMA Second Appeal Analysis, City of Duluth, Multiple PWs, FEMA-4069-DR-MN, at 5 (June 15, 2015) [hereinafter City of Duluth].

[29] See Expense Analysis Memo.

[30] PW 3724 Second Appeal, at 2.

[31] City of Duluth, FEMA-4069-DR-MN, at 5.

[32] DAP 9525.9, at 2 – 4; DAC Guidance, at 3 and Attachment; City of Duluth, FEMA-4069-DR-MN, at 4.  See also DAP 9525.11, Payment of Contractors for Grant Management Tasks, at 1 (Apr. 22, 2001) (although grantees may receive reimbursement for “all eligible” contractor costs, including travel and per diem, “[t]here is no similar provision for subgrantees because all of their grant management and administrative costs are required by statute to be considered under the Statutory Administrative Costs allowance (also known as the subgrantee’s Administrative Allowance or sliding scale).”).

[33] See 2 C.F.R. § 200.110 (2014); 79 Fed. Reg. 75,867, 75,872 (Dec. 19, 2014).

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