Direct Administrative Costs – Reasonable Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	FEMA-4129
Applicant	Village of Mohawk
Appeal Type	Second
PA ID#	043-47823-00
PW ID#	PW 106
Date Signed	2019-05-30T00:00:00

Summary Paragraph

Rains and flooding impacted the Applicant from June 26 – July 10, 2013.  The Village of Mohawk (Applicant) completed emergency streambank stabilization work by August 21, 2013.  The Applicant hired a contractor on September 3, 2013, to assist with grant administration on multiple projects, including Project Worksheet (PW) 106.  In November 2013, FEMA obligated $142,290.85 in funding for PW 106, including $6,290.00 in DAC requested by the Applicant from September 23, 2013 to October 9, 2013.  During closeout in 2017, the Applicant requested $20,268.00 in additional DAC incurred from October 10, 2013 – March 30, 2017.  It submitted invoices containing generic task descriptions to document each cost.  FEMA denied the request, finding that the Applicant did not adequately explain what work the contractor performed to justify the additional DAC.  After the Applicant filed a first appeal, FEMA issued a Final Request for Information seeking documentation that described with specificity the work performed under each task description.  The Applicant did not submit documentation responsive to this request.  Consequently, the FEMA Region II Regional Administrator denied the additional requested DAC. 

 

Authorities and Second Appeals

• 2 C.F.R. Pt. 225, App. A(C)(1)(j).
• Memorandum on DAP 9525.9, Section 324 Management Costs and Direct Administrative Costs and Recovery Policy 9525.14, Grantee Administrative Costs (Sept. 8, 2009); DAP 9525.9, Section 324 Management Costs and Direct Administrative Costs (Nov. 13, 2007).

• Roman Catholic Bishop of Springfield, FEMA-1994-DR-MA, PW 249 (Apr. 4, 2019); N.D. Dep’t of Energy Servs., FEMA-1907-DR-ND (Jan. 12, 2018); Univ. of Tex. Medical Branch, FEMA-1791-DR-TX (Nov. 14, 2017); Central Bradford Progress Authority, FEMA-4030-DR-PA (Feb. 29, 2016); Cedar Rapids, FEMA-1763-DR-IA (Mar. 19, 2014).

 

Headnotes

• Under DAP 9525.9, applicants may be reimbursed for reasonable direct administrative costs that can be identified separately and assigned to a specific project.
  • The Applicant did not provide detailed documentation demonstrating that its DAC were reasonable. The claimed DAC for per diem costs were prorated based on the amount of time worked; thus, the claimed costs are not attributable to a specific project’s objectives and are not eligible as DAC.

 

Conclusion (Appeal decision issued 5/30/2019)

The Applicant did not establish the claimed costs are eligible DAC by providing documentation demonstrating the costs are reasonable, or that they are direct rather than indirect costs. 

 

 

 

Appeal Letter

Appeal Analysis

Background

 

During the incident period of June 26 – July 10, 2013, torrential rains and flooding caused significant scour and collapse to the banks of four creeks located within the Village of Mohawk, NY (Applicant).  The Applicant performed emergency work utilizing contract and force account labor and equipment to stabilize the collapsed banks with riprap and soil.  The Applicant certified it completed the emergency work by August 21, 2013.

 

On September 3, 2013, the Applicant contracted with Simmons Recovery Consulting (Simmons) to assist in administering multiple grants, including Project Worksheet (PW) 106.  On October 16, 2013, as part of its PW preparation, FEMA uploaded to its database a spreadsheet outlining Simmons’ costs from September 23, 2013 to October 9, 2013.  The spreadsheet included line items separated by date, stating among other matters: (1) the amount of hours worked; (2) the name of the consultant who performed the work; (3) a task description of the work performed (e.g., Scope Development); (4) the total amount of labor billed based on a rate of $155.00 per hour; (5) the amount of expenses charged based on a rate of $15.00 per hour; and (6) a detailed comment expanding on the specific direct administrative tasks performed (e.g., “Obtain all Hanson invoices and review, build invoice/cost table for stone deliveries.  Check NYSDOT bit list of pricing.  Discuss stone deliveries w/ K. Wheelock.”).  On November 8, 2013, FEMA obligated PW 106, approving total project costs of $142,290.85, including $6,290.00 in direct administrative costs (DAC) for work performed by Simmons.  FEMA noted in the PW that future DAC were anticipated for invoice processing, documentation for closeout, and closeout activities, and stated those costs would be settled at closeout.

 

On November 22, 2017, the New York State Division of Homeland Security and Emergency Services (Grantee) forwarded the Applicant’s request for closeout and supporting documentation of a large project final accounting (LPFA) that included the Grantee’s Final Inspection Report.  The Grantee recommended FEMA approve additional costs totaling $23,459.66: $2,766.66 for work performed by Tracy Road Equipment; $20,268.00 for Simmons’ DAC; and $425.00 for Simmons’ project management (PM) work.  It forwarded supporting documentation that included: (1) the original Simmons contract as well as contract extensions that covered the relevant time period of claimed DAC;  (2) cancelled checks substantiating payment to Simmons; and (3) Simmons invoices for multiple PWs.  Simmons’ invoices itemized the costs by date, listing among other items, the amount of hours worked, the name of the consultant who performed the work, a task description of the work performed (e.g., Cost Submittal Preparation, Transmittal Preparation, PW Grants Management, and PW Closeout Activities), and the total costs billed.

 

FEMA denied the $23,459.66 in additional costs via an April 5, 2018 letter to the Grantee.  FEMA first stated it was unable to verify the Tracy Road Equipment costs because the equipment rental dates did not coincide with the timeframe the Applicant performed the work.  FEMA next determined the Applicant did not explain what work Simmons performed to justify the additional DAC.  FEMA also noted that: 1) the Applicant completed the scope of work (SOW) for PW 106 in August 2013 prior to hiring Simmons; and 2) FEMA had previously awarded $6,290.00 in DAC for work performed between September 23, 2013 and October 9, 2013.  FEMA determined that the Applicant failed to explain why it incurred additional DAC and PM costs on a completed project and failed to specifically describe what additional work Simmons performed as part of its grant administration activities.   

 

First Appeal

 

The Applicant appealed the denial in a letter dated May 5, 2018.  First, the Applicant contended that the Tracey Road Equipment costs incurred prior to PW 106’s formulation were mistakenly omitted in the original PW.  Second, the Applicant stated that the PM costs were eligible because they were included in its contract with Simmons.  Third, the Applicant argued that the additional DAC were eligible because: (1) all proof of payment for work completed needed to be transmitted during closeout along with the appropriate invoices as “no proof of payment was given in the work completed section of EMMIE”;[1] and (2) FEMA had commented in PW 106 that future DAC would be included at closeout. 

 

The Grantee transmitted the Applicant’s first appeal, supporting documentation, and a concurrence memorandum, in a letter dated May 24, 2018.  First, the Grantee noted that the Tracy Road Equipment costs involved a truck rental to effectuate the project’s objectives and that FEMA erroneously omitted those costs from the original SOW and should approve the $2,766.66.  Second, the Grantee clarified that Simmons had mis-identified the $425.00 as PM costs rather than DAC.[2]  Third, the Grantee acknowledged that the Applicant contracted with Simmons to oversee 17 different PWs, but the asserted DAC were eligible because the documentation from Simmons demonstrated it properly performed project formulation activities, PW management, and closeout activities related to PW 106.  Consequently, it recommended funding of $20,425.00 in DAC, with zero dollars approved for PM costs.  In support, it also forwarded a spreadsheet detailing the claimed DAC, which generally included the same task descriptions contained in Simmons’ invoices.  The spreadsheet listed $20,425.50 in additional DAC beyond the original $6,290.00 previously awarded.

 

On August 9, 2018, FEMA issued a Final Request for Information (RFI) to the Applicant and the Grantee requesting supplemental documentation demonstrating the reasonableness of the truck rental fees and additional DAC.  Specifically, FEMA requested documentation:

 

• clarifying the definition of “unit” used in the Tracy Road Equipment invoice, because  the Applicant claimed costs for one truck, but the invoice charged for two units;
• confirming the total DAC and PM costs at issue, to resolve the discrepancy between the LPFA and the Grantee’s first appeal claim;
• describing with specificity, the work claimed as DAC, performed from October 10, 2013 through March 30, 2017;
• demonstrating that claimed DAC travel costs and expenses are directly chargeable to PW 106 rather than prorated across multiple PWs; and
• justifying the increase in Simmons’ billing rate from $155.00 per hour to $170.00 per hour.

 

The Grantee responded in an August 21, 2018 memorandum, forwarded to FEMA on August 28, 2018.  First, the Grantee clarified that the Tracey Road Equipment invoice’s “one unit” referred to one day of equipment rental, which accounted for the charge of one truck rented for two days, effectuating the project’s objectives.  Second, the Grantee verified that the claimed costs were DAC instead of PM costs, and that the correct amount for additional DAC was $20,425.50.[3]  Third, the Grantee noted that although the original period of performance expired January 12, 2014, FEMA extended this deadline specifically to allow for closeout activities. 

 

Fourth, the Grantee contended that Simmons’ task codes indicated it performed other eligible administrative activities in addition to closeout activities.  The Grantee asserted the codes used were consistent with FEMA guidance regarding DAC in effect at the time of the disaster.[4]  It contended therefore the documentation provided reasonable assurance of performance in line with FEMA policy.

 

Fifth, the Grantee stated that the claimed travel costs were not prorated by project, but rather corresponded to the number of labor hours the employee spent working on each project.  It stated that although the contract provided for additional travel costs, none were incurred on this project.

 

Finally, the Grantee disputed FEMA’s characterization that the hourly billing increased from $155.00 to $170.00, and instead argued that Simmons had simply changed the billing format.  From September 23, 2013 to February 20, 2014, Simmons itemized the $155.00 labor rate separately from the $15.00 per diem rate.  Thereafter, it combined those charges into one rate of $170 per hour.    

 

On December 3, 2018, the FEMA Region II Regional Administrator (RA) partially granted the appeal, approving additional reimbursement of $2,766.66 for the truck rental fees paid to Tracy Road Equipment because the Applicant had established those costs were related to the original SOW completed.  This resulted in revised project costs totaling $145,057.51.  The RA however denied the $20,425.50 in additional requested DAC.  The RA found that the documentation related to the labor costs constituted generic task descriptions that did not describe with specificity the work performed.  Moreover, the RA determined that the Applicant did not demonstrate the costs claimed as “expenses” were attributable to PW 106.  The RA was consequently unable to determine that the claimed costs were either reasonable, or that they constituted administrative activities in direct support of the project.

 

Second Appeal

 

The Applicant appealed through a January 24, 2019 letter, seeking $20,425.50 in DAC.  The Applicant first argues that the administrative record demonstrates the additional costs (related to closeout work and other administrative requirements) are reasonable, and directly chargeable to this specific project.  It contends Simmons’ task descriptions: (1) comply with Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative Costs (Nov. 13, 2007) (hereinafter DAP 9525.9); and (2) conform with FEMA practices in effect at the time of the disaster.  The Applicant notes that FEMA previously approved DAC for the project incurred through October 9, 2013, to assert that FEMA arbitrarily required more-detailed documentation for DAC after the LPFA.  Last, the Applicant states that its per diem costs were “assigned” to each PW based on the number of hours worked per cost objective (i.e., PW), and argues that these types of allocated pro rata costs, assigned in accordance with the relative benefit to each PW, are eligible DAC.

 

The Applicant additionally argues that the costs for a senior consultant’s performance of low-skilled work in small amounts are reasonable compared to the additional travel and per diem costs of dispatching a lower-skilled consultant to perform the low-skilled work.  Alternatively, the Applicant requests that FEMA fund the costs at the hourly rate for the appropriate skill level relative to the task’s complexity rather than deny the costs entirely.   

 

The Grantee transmitted the Applicant’s appeal and its own supporting memorandum via March 20, 2019 letter.  In addition to reiterating the Applicant’s arguments, the Grantee expands on the request for approval of the $15.00 per hour per diem rate/expenses.  It states that including a flat rate markup as a way to pay for incidental expenses is a reasonable practice that provides all parties with an agreed-upon, stable payment rate.  The Grantee contends that because the cost is easily assigned to a specific PW based on the hours charged to that PW, it is appropriate to classify this charge as a direct expense.

 

Discussion

 

Under DAP 9525.9, FEMA may reimburse DAC that are properly tracked, documented, directly chargeable on a PW for a specific project,[5] and reasonable.[6]  FEMA’s September 8, 2009 memorandum providing additional guidance on implementing DAP 9525.9[7] (hereinafter DAC Memo) provides a non-exhaustive list of PA administrative activities that are examples of activities which may be eligible as DAC,[8] but only if they are fully documented[9] to allow FEMA to determine that the amount of time spent on the activities was reasonable and allocable to one specific project.[10]  To allow FEMA to evaluate this, grantees and applicants must provide sufficiently detailed information about each activity performed.[11]  Such information enables 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 to be assessed.[12]

 

DAP 9525.9 defines indirect costs as “costs a grantee or [applicant] incurs for a common or joint purpose benefiting more than one cost objective that are not readily assignable to the cost objectives specifically benefitted.”[13]  An applicant may not assign costs to a PA project as DAC if those costs constitute indirect costs or if similar costs incurred for the same purpose in like circumstances have been allocated to indirect costs.[14]  The DAC Memo states that “[t]ravel and per diem costs for contractor employees that work on eligible [PA] projects are eligible as direct costs if such costs can be and are attributed to individual projects.”[15]  “While FEMA reimburses travel expenses that can be attributed to specific projects, travel expenses allocated to multiple PWs in proportion to the hours worked are not eligible as DAC.”[16]

 

Contract Labor DAC

 

The Applicant argues that FEMA arbitrarily altered the level of detail it requires to substantiate DAC, stating that the same documentation which served as the basis for the approved DAC incurred through October 9, 2013, is now deficient to support a claim for additional DAC.  FEMA, however, disputes this assertion.  The DAC spreadsheet provided to FEMA in October 2013 contained comments detailing the specific work performed by Simmons.  For instance, the spreadsheet listed detailed notes in the comments section describing the work performed (e.g., “Obtain all Hanson invoices and review, build invoice/cost table for stone deliveries.  Check NYSDOT bit list of pricing.  Discuss stone deliveries w/ K. Wheelock.”).  In contrast, the documents provided on first appeal (i.e., Simmons’ invoices and the DAC spreadsheets forwarded by the Grantee) contain only non-specific references to activities that lack detail to indicate the actual work performed.  The descriptions of work included in those documents were limited to generic entries, such as: Cost Submittal Preparation, Transmittal Preparation, PW Grants Management, and PW Closeout Activities.  In addition, Simmons’ invoices contain similar costs incurred for the same purpose, duplicated across multiple PWs.  For example, the July 8, 2015 charge for “FEMA/State Documentation Request” is also billed to PWs 140, 173, and 174 (the duplicate charges identify the same consultant, task description, amount of time charged, and date for work performed).  This also exists in the March 30, 2017 cost for “PW Grants Management,” billed similarly to PWs 53, 98, 174, 175, and 294.

 

In the Final RFI, FEMA requested the Applicant provide documentation describing with specificity the work claimed as DAC.  In response, the Grantee re-submitted the previously provided DAC spreadsheet (with two minor revisions), listing the task descriptions associated with each charge, with no further explanation or detail concerning the direct administrative work completed.  Therefore, the Applicant has not demonstrated that its additional DAC are either reasonable or direct costs that are allocable only to this project, regardless of FEMA’s note in the original grant that contemplated the possibility of future DAC for closeout.

 

On first appeal, the RA considered the Applicant’s arguments and the documentation provided, and exercised discretionary authority in affirming FEMA’s initial eligibility determination concerning the additional requested labor DAC.  Based on FEMA’s second appeal review as discussed above, it finds no compelling grounds to overturn the RA’s decision.  Accordingly, all requested DAC associated with labor are ineligible for Public Assistance funding.

 

Per Diem Expenses

 

The Applicant concedes that Simmons calculated its per diem costs by allocating them proportionally to the labor hours billed.  Simmons’ invoices additionally demonstrate it implemented this practice across multiple PWs.  The claimed expenses were therefore prorated, and do not represent specific actual costs incurred to carry out the project objectives of this award; thus, the Applicant has not demonstrated the claimed costs are attributable only to PW 106.  Consequently, they are not eligible as DAC.[17]

 

Conclusion

 

The Applicant did not establish the claimed costs are eligible DAC by providing documentation demonstrating that the claimed costs are reasonable and direct (rather than indirect) costs.  Accordingly, the appeal is denied.

 

[1] Letter from Mayor, Village of Mohawk, to Disaster Assistance Mgr., Pub. Assistance Recovery Program, N.Y. State Div. of Homeland Sec. and Emergency Servs. (NY DHSES) (May 5, 2018).

[2] Specifically, the costs for June 25 – 26, 2014, $255.00 and $170.00, respectively, were no longer classified as “project” costs, which had been the prior designation assigned by Simmons in its invoices.

[3] In addition, the Grantee noted the previously submitted DAC spreadsheet contained an error regarding the work performed on July 8 – 9, 2014, so it submitted a revised spreadsheet amending the task descriptions from “Project Formulation” (used in the Simmons invoice) to “Project Management” for those dates. 

[4] Memorandum from Representative, NY DHSES, to Disaster Assistance Mgr., NY DHSES, at 2 (Aug. 21, 2018) (citing Memorandum from Ass’t Adm’r, Disaster Assistance Directorate, to Reg’l Adm’rs, et al., Disaster Assistance Policy DAP9525.9, Section 324 Management Costs and Direct Administrative Costs and Recovery Policy 9525.14, Grantee Administrative Costs (Sept. 8, 2009) [hereinafter DAC Memo]; and Disaster Assistance Policy DAP 9525.9, Section 324 Management Costs and Direct Administrative Costs (Nov. 13, 2007) [hereinafter DAP 9525.9]).

[5] DAP 9525.9, at 1, 5.

[6] Id. at 5.  See also FEMA Second Appeal Analysis, Central Bradford Progress Authority, FEMA-4030-DR-PA, at 4 (Feb. 9, 2016); FEMA Second Appeal Analysis, City of Cedar Rapids, FEMA-1763-DR-IA, at 2 (Mar. 19, 2014).

[7] DAC Memo.

[8] Id. at Attachment (breaking down general categories of DAC, such as “PW Management and Closeout,” into more specific activities of “Project Payment Requests” and “Project Cost Reconciliations.”).

[9] Title 2 Code of Federal Regulations Pt. 225, App. A(C)(1)(j) (2013) (to be allowable, costs must be adequately documented).

[10] DAP 9525.9, at 2.  See DAC Memo, at 2-3.  See also FEMA Second Appeal Analysis, Univ. of Tex. Medical Branch, FEMA-1791-DR-TX, at 7 (Nov. 14, 2017) (citing FEMA Second Appeal Analysis, Los Angeles Cty., FEMA-1810-DR-CA, at 2 (Mar. 18, 2014), FEMA Second Appeal Analysis, Linn Cty., FEMA-1763-DR-IA, at 2-3 (Aug. 9, 2013), and FEMA Second Appeal Analysis, Cedar Rapids Community Sch. Dist., FEMA-1763-DR-IA, at 5 (Apr. 22, 2013) (all providing examples of descriptions that are too broad to describe a specific administrative task as required by DAP 9525.9, such as “Project Formulation,” “Project Administration,” “Project Management,” “PW Assembly,” and “Documentation Development,” “Financial Compliance Review,” “Other Funding Anticipation,” and “Other Program Administration”)); Central Bradford Progress Authority, FEMA-4030-DR-PA, at 4-5. 

[11] City of Cedar Rapids, FEMA-1763-DR-IA, at 2.

[12] Id. at 2-3.

[13] DAP 9525.9, at 2.

[14] Id.

[15] DAC Memo, at 3.

[16] Univ. of Tex. Medical Branch, FEMA-1791-DR-TX, at 8.

[17] See FEMA Second Appeal Analysis, Roman Catholic Bishop of Springfield, FEMA-1994-DR-MA, PW 249, at 11-12 (Apr. 4, 2019) (travel expenses prorated across multiple PWs were not eligible DAC as they could not be tied to the specific project); FEMA Second Appeal Analysis, N.D. Dep’t of Energy Servs., FEMA-1907-DR-ND, at 3 (Jan. 12, 2018) (travel costs incurred for the benefit of multiple PWs are indirect rather than direct costs).