Improved Project

Appeal Brief

Summary Paragraph

Severe storms from December 17, 2005 to January 3, 2006 led to declaration FEMA-1628-DR-CA.  The event caused a buildup of sediment in the Noyo Harbor channel that impeded maritime navigation.  FEMA authorized PW 3818 for the permanent disposal of sediment deposited by the disaster with a cost estimate of $445,366.60.  Upon completion of the project, the Applicant requested reimbursement for cost overruns totaling $328,206.93.  FEMA found some of the work completed exceeded the scope of work (SOW) and the Applicant did not track the costs separately from the approved SOW.  FEMA classified PW 3818 as an improved project, and prepared PW 3818, Version 3 to cap the project at its estimated cost.  The Applicant appealed on the basis that PW 3818 was not an improved project and that all the overrun costs were eligible as they were related directly to the SOW.  FEMA found PW 3818 was an improved project, and thus funding was limited to its cost estimate, but also found PW 3818’s cost estimate omitted certain eligible costs and authorized an additional $145,909.78 in funding.  On second appeal, the Applicant seeks the balance ($182,297.15) of cost overruns on the same grounds of the first appeal.

Authorities and Second Appeals

• Stafford Act § 406, 42 U.S.C § 5176.
• 44 C.F.R. §§ 206.203(d)(1), 206.206.
• 2 C.F.R. § 225 App. A § C.3.a
• PA Guide, at 83 (1999).

Headnotes

• 44 C.F.R. § 206.203(d)(1), provides that when applicants make improvements while restoring a facility to predisaster function and capacity, FEMA is limited to funding the project based on the Federal share of the approved cost estimate. 
  • In project execution, the Applicant incurred multiple expenses, some of which were potentially eligible and others that were beyond the authorized SOW.  Upon project completion, the Applicant presented these costs for additional funding.  Unable to discern the eligible from ineligible expenses, FEMA properly classified the PW 3818 as an “improved project” and denied the Applicant’s request for additional funding for actual expenses.

Appeal Letter

Appeal Analysis

Background

Severe storms from December 17, 2005 to January 3, 2006 caused a buildup of sediment in the Noyo Harbor channel, which impeded maritime navigation.[1]  Noyo Harbor is a natural, maintained waterway near Ft. Bragg, California that supports commercial fishing, sport fishing, and recreational boating.  The channel is a Federal Navigation Project and the United States Army Corps of Engineers (USACE) has the responsibility to maintain it.  The Noyo Harbor District (Applicant) is a designated port district that manages and operates the boat docking area of the Noyo River.[2]

At the time of the disaster, the Noyo Harbor channel had accrued normal sedimentation for several years without the benefit of two prior biennially scheduled maintenance dredgings.[3]  The additional sedimentation resulting from the storms created navigation impediments, prompting the USACE to approve the dredging of the channel to restore it to established navigation specifications.[4]  A contractor commenced dredging operations in September 2006, but the discovery of unearthed bones in the temporary disposal site prompted the USACE to temporarily halt operations and require the Applicant to conduct an archeological investigation.[5]  The USACE authorized resumption of dredging a few days later, but directed the Applicant to delay permanently disposing of the sediment until the investigation’s conclusion and its approval.[6]  The investigation concluded in 2009 and the Applicant claims to have incurred over $224,000.00 in expenses related to the investigation.[7] 

The dredging operation yielded a total of 46,645 cubic yards (CY) of sediment[8] and the Applicant began searching for permanent disposal sites for the spoils in 2007.[9]  Due to restrictions imposed by local environmental requirements, the search for suitable permanent disposal sites took multiple years.[10]  In March 2008, FEMA approved project worksheet (PW) 3818 (Version 0) for the permanent disposal of 14,140 cubic yards of sediment (the amount FEMA initially calculated as attributable to the disaster) to be disposed at “the North Jetty Confined Disposal Site.”[11]  A year later, FEMA approved PW 3818 (Version 1), changing the location for the disposal site to the “Redwood Landfill.”[12]  The Applicant incurred expenses searching for additional disposal sites until 2010.[13] 

In August 2012, FEMA obligated PW 3818 (Version 2) reducing the volume of sediment authorized for disposal to 7,759 CY.[14]  The final cost-estimate for PW 3818 was $445,366.60.[15]  The Applicant requested State assistance for the disposal of the remaining sediment, and received approval in February 2013.[16]  As part of the overall disposal plan, the Grantee opened a state-run companion project, “DSR 3267,” to fund the disposal of 14,646 CY of sediment determined to be out of PW 3818’s scope of work (SOW).[17]  The Applicant incurred some common costs in the performance of PW 3818 and DSR 3267 which it apportioned by the cubic yardage for each project.[18]

The Applicant completed the work on September 30, 2013 and requested reimbursement for cost overruns totaling $328,206.93, which included expenses associated with the archeological investigation and the research associated with numerous potential disposal sites.[19]  FEMA denied the Applicant’s request for additional funding because it deemed the completed work exceeded PW 3818’s approved SOW, and the Applicant did not substantiate its claimed costs for environmental permitting.[20]  FEMA also classified the work on PW 3818 as an improved project, and informed the Applicant that, pursuant to 44 C.F.R. § 206.203(d)(1), all Federal funding was “capped” to the approved cost-estimate.  FEMA prepared PW 3818 Version 3 to reflect these determinations.[21] 

First Appeal

The Applicant appealed on May 16, 2014, arguing that PW 3818 was not an improved project because all the completed work related directly to the removal of the 7,759 CY of sediment authorized in PW 3818.[22]  The Applicant also argued that the $328,206.93 in overrun costs incurred were for work directly related to the SOW, specifically for regulatory compliance, and should be deemed eligible.[23]  In a supplemental letter dated June 18, 2014, the Applicant revised the total cost for the project to $1,149,692.00 (amounting to a total cost overrun of $704,325.40).[24]  The Grantee forwarded the appeal recommending that FEMA provide funding for overrun costs totaling $307,416.64 for a total project cost of $752,783.24.[25] 

The FEMA Region IX Regional Administrator (RA) found that PW 3818 was correctly classified as an improved project because the amount of sediment authorized under PW 3818 was part of a larger disposal project than was necessary to restore the Noyo Harbor channel to its pre-disaster condition.[26]  The RA also recognized that FEMA omitted foreseeable expenses when calculating the cost estimate for PW 3818 and determined that, notwithstanding the project’s classification as an improved project, “FEMA is able to adjust the capped funding amount if the Applicant is able to separate out costs for the approved [SOW] from the overall project costs.”[27] 

The RA examined the overruns of the actual costs and deemed some sufficiently documented to show they were directly related to the SOW, and therefore eligible for additional funding.[28]  These eligible costs consisted of: 1) $411,227.00 of actual hauling costs; 2) $131,292.32 of acceptance and environmental fees; and 3) FEMA’s share of costs apportioned between PW 3818 and DSR 3267 amounting to $48,757.06.[29]  The RA found the total, actual eligible costs for PW 3818 amounted to $591,276.38 (i.e., $145,909.78 in eligible cost overruns above the approved cost estimate of $445,366.60).[30]  With regard to the remaining costs associated with archeological and disposal site investigations, the RA deemed them to be outside the SOW and ineligible.[31]

Second Appeal

The Applicant’s second appeal requests $182,297.15 in additional funding for cost overruns.[32]    The Applicant argues FEMA improperly classified PW 3818 as an improved project within the meaning of 44 C.F.R. § 206.203(d)(1) because none of the work done was to improve any state facility, and the overrun costs for PW 3818 were all directly related to PW 3818’s approved SOW.[33]  

Discussion

Section 406(e) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988 (Stafford Act) grants FEMA authority to provide PA funding to restore damaged facilities as they existed immediately prior to the disaster in accordance with applicable codes and standards.^[34]  When an applicant restores a facility to its predisaster function, FEMA typically bases Federal funding on the actual eligible costs of the project.^[35]  However, when an applicant makes additional improvements during restoration, the Federal funding for such projects is limited to the Federal share of the approved cost estimate for the authorized SOW.^[36]  Funding is limited in improved projects to ensure only statutorily authorized work is funded.  In the case of improved projects, it is typically difficult to discern restoration work from improvement work.^[37]  The consequence of FEMA’s classifying PW 3818 as an improved project is that 44 C.F.R. § 206.203(d)(1) limits the amount FEMA can fund to the project’s approved cost estimate.[38] 

The Applicant’s argument that all work was directly related to the SOW is unpersuasive because, in calculating the total actual cost of the project, the Applicant comingled eligible costs with ineligible costs.[39]  The SOW for PW 3818 specifically authorized the permanent disposal of 7,759 CY of sediment and listed the hauling costs and “landfill tipping fees” as the eligible costs, and noted that federal funding was contingent upon compliance with federal, state, and local environmental laws and obtaining all necessary permits.  The total amount of sediment dredged from Noyo Harbor under supervision of the USACE was 46,645 CY, of which, the 7,759 CY within the SOW of PW 3818 constituted less than 17 percent of the overall dredging project.^[40]

Nonetheless, the Applicant submitted invoices from its project manager for work related to two categories of work that were clearly outside the SOW: 1) the archeological investigation, and 2) the selection of disposal sites for sediment exceeding the amount authorized in PW 3818. 

Archeological Investigation Eligibility 

The dredging operation began under USACE oversight in September 2006 and shortly thereafter, was temporarily halted upon the discovery of bones in the staging area for the dredged sediment.^[41]  USACE directed the Applicant to conduct an archeological investigation and a few days later, authorized the resumption of the dredging operation.  The Applicant was advised by USACE to refrain from disposing any of the material until completion of the investigation.^[42]  The archeological investigation had been in progress for approximately 18 months by the time FEMA approved PW 3818 in March, 2008, was notably excluded from PW 3818’s SOW, and the Applicant did not request amendment of the SOW to include it.  Many of the invoices submitted by the Applicant during this time refer to work related to the archeological investigation; others do not provide sufficient detail to establish the work’s eligibility pursuant to the Stafford Act.  Accordingly, the commingling of ineligible costs with what might have been eligible costs justifies classification of the project as an improved project.  The Applicant has not demonstrated that the cost estimate for the project should be adjusted.

Disposal Site Selection Eligibility

Due to various environmental constraints, selection of disposal sites for the dredged material required extensive research, analysis and permitting.^[43]  The Applicant’s search for qualified sites began in 2007 and ran until sometime in 2010, during which time the Applicant explored no less than six different potential sites.^[44]  Early in the process, the Applicant informed FEMA that the Redwood landfill (the ultimate destination for the sediment covered by PW 3818) was the most economical of available sites for the project, and requested a version to PW 3818 for increased hauling costs.^[45]  FEMA authorized PW 3818 (Version 1) in response to that request.  Nevertheless, the Applicant continued searching for other disposal sites for more than a year.  The continued search indicates the Applicant was also looking for a site to dispose of the sediment beyond the SOW for PW 3818.  The Applicant’s invoices do not specifically separate the various engineering, sampling, coordinating, and other costs associated with the disposal of 7,759 CY destined for the Redwood landfill from those associated with the excess sediment.^[46]  They also do not distinguish costs associated with contracting the Redwood landfill for the disposal of sediment within PW 3818’s scope from expenses related to searching for other disposal sites.  As in the case of the archeological investigation, because the Applicant provided insufficient documentation, FEMA is unable to adjust the cost estimate for the project.

Conclusion

The Applicant incurred and comingled costs for eligible and ineligible work and was unable to distinguish such costs.  Consequently, FEMA properly classified PW 3818 as an improved project consistent with 44 C.F.R. § 206.203(d)(1), which limits funding to the approved cost estimate.  Accordingly, the Applicant’s appeal for an additional funding in the amount of $182,297.15 for cost overruns in actual expenses is denied.