|Applicant||Central Coast Water Authority|
Cross Reference: Legal Responsibility, Permanent Restoration
Summary: The January storms of 1995 eroded the structures surrounding Central Coast Water District's water pipeline. The above noted DSRs were prepared in August 1995 to repair eroded areas near the pipeline including the adjacent slopes and roads. The damages occurred while the facilities were still under construction. In the review of the DSRs, the damage to the facility was determined ineligible because the facility is the legal responsibility of the contractor. In November 1996, a law firm submitted a first appeal on behalf of the subgrantee to OES. In February 1997, the law firm submitted supplemental information for the first appeal. The first appeal letters included copies of Schedules of Values (SOVs) which state that the pipeline and related facilities were partially or totally completed at the time of the disaster. In February 1997, OES forwarded the subgrantee's first appeal letters to FEMA, with their concurrence, stating that the contractor had been paid for the construction work completed. In August 1997, the Regional Director denied the first appeal on the basis that the subgrantee did not accept the work and did not have legal responsibility at the time of the disaster. The subgrantee's October 1997 second appeal is based on Section 14.4A of the contract that states that "title to the work and equipment covered by the application for payment passes to the owner at the time of payment." The subgrantee requests funding for 100% of the work under four DSRs and 75% under the fifth DSR.
Issues: Was the subgrantee legally responsible for the pipeline at the time of the disaster?
Findings: No. The contract documents do not establish that the subgrantee accepted completed portions of the pipeline at the time of the disaster. Therefore, it was not legally responsible for the facility or the disaster-related repair work.
Rationale:44 CFR 206.223(a)(3) and Stafford Act Section 406(e)(2).
Mr. Gilbert Najera
Governor's Authorized Representative
Governor's Office of Emergency Services
Public Assistance Section
74 North Pasadena Avenue
West Annex, 3rd Floor
Pasadena, California 91103
Dear Mr. Najera:
This letter is in response to your December 17, 1997, submittal of the Central Coast Water Authority's second appeal of Damage Survey Reports (DSRs) 94759, 94760, 94761, 94767, and 94768 under FEMA-1046-DR-CA. The subgrantee is appealing the Regional Director's determination that the subgrantee did not have legal responsibility for the pipeline, which was under construction.
I have determined that the submitted contract and the Payment Application and Certificate documents do not support that the subgrantee was legally responsible for (or the owner of) the pipeline at the time of the disaster declaration. Therefore, the appeal is denied. Please refer to the enclosed analysis for more detail.
Please inform the applicant of my determination. In accordance with the appeal procedure governing appeal decisions made on or after May 8, 1998, my decision constitutes the final decision on this matter. The current appeal procedure was published as a final rule in the Federal Register on April 8, 1998. It amends 44 CFR 206.206.
Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate
cc: Martha Z. Whetstone
FEMA Region IX
During the January storms of 1995, heavy rains and surface runoff eroded the structures surrounding the pipeline currently owned by the Central Coast Water District and directly damaged the pipeline. At the time of the disaster the pipeline was under construction. The above noted Damage Survey Reports (DSRs) were prepared on August 17, 1995, to repair eroded areas near a water pipeline including the adjacent slopes and roads. Repairs included repairing damaged pipe, placing backfilling eroded areas with soil, placing concrete and riprap and washouts, restoring slopes, repaving ditches, removing debris, replacing damaged fence sections, pumping out water, repairs to gabions, and providing stand-by equipment costs. In the review of the DSRs, the subgrantee was found ineligible because it was determined that the facility was the legal responsibility of the contractor.
The law firm of Hatch and Parent submitted a first appeal on behalf of the subgrantee to the State of California Governor's Office of Emergency Services (OES). On February 11, 1997, the law firm submitted supplemental information for the first appeal and maintained that the subgrantee had legal responsibility for the pipeline. The first appeal letters included copies of three Schedules of Values (SOVs) which are referenced in the construction contract and state that the pipeline and related facilities were partially or totally completed during the declared disaster. OES forwarded the first appeal letters to the Regional Director, with their concurrence, stating that the contractor had been paid for the construction work completed. On August 27, 1997, the Regional Director denied the appeal because the SOVs do not indicate that the work was accepted by the subgrantee, as provided by a Notice of Substantial Completion. Therefore, the subgrantee did not have legal responsibility at the time of the disaster.
On December 17, 1997, OES forwarded the subgrantee's second appeal that included pages of the contract's general conditions and Payment Application and Certificates. The subgrantee's second appeal is based on Section 14.4A of the general conditions, which states that "title to the work and equipment covered by the application for payment passes to the owner at the time of payment." The following table details the work that the subgrantee believes are eligible:
Percent of Eligibility Requested
100 to 95%
Legal Responsibility for the Pipeline
Generally, construction contractors are legally responsible for facilities under construction. The contractor's legal responsibility typically passes to the party contracting the work when final acceptance of the work has occurred as may be indicated by a Notice of Substantial Completion. The party contracting the construction will typically verify that the construction has been performed to the standards established by the contract (often through their engineer) before acceptance and final payment.
The subgrantee maintains that it had legal responsibility as noted in the table above and is eligible for funding. The subgrantee has submitted limited portions of the construction contract, three Payment Application and Certificates, and three SOVs to substantiate its position.
The documentation submitted demonstrates that the subgrantee neither took ownership nor legal responsibility for the segments of the pipeline in question at time of the disaster declaration (March 12, 1995). No documentation has been provided to indicate that the subgrantee inspected and accepted the constructed portions of the pipeline. No Notices of Substantial Completion or similar documents were accepted by the subgrantee. Article 14.3 of the contract's General Conditions provides for Progress Payments to be made to the contractor. Article 14.4, provides that title "will pass" to the owner for work covered by Progress Payments "no later than the time of payment free and clear of all liens." The subgrantee provided several Payment Application and Certificates, however, all are either not signed by the subgrantee (for approval and recommendation of payment) or are signed after the March 12, 1995 disaster declaration. In fact, only one is signed, and it is signed on October 5, 1995. The subgrantee has not provided FEMA with copies of the documentation of payment, release of liens, and Substantial Notices of Completion, though a request was made during the review of this appeal. In addition, no documents were provided in response to a request for the remaining portions of the general conditions of the contract. Further, it is not clear what particular facilities (pipe segments) are covered by the Payment Application and Certificates. Typically, pipelines are considered substantially complete when the pipeline is able to convey fluid (water). On a practical level, only then could an engineer and owner accept the facility.
In summary, the subgrantee did not own nor was it legally responsible for the damaged portions of the pipeline at the time of the disaster. Therefore, the damage to the facility is not eligible.
The contract documents and other documentation indicate that the subgrantee did not have legal responsibility for the damaged portions of the pipeline at the time of the disaster. Therefore, the damage to the facility is not eligible for public assistance funding and the appeal is denied.