Procurement & Contracting Requirements – Allowable & Reasonable Costs – Duplication of Benefits – Mold Remediation

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	1603
Applicant	Stuart Hall School for Boys
Appeal Type	Second
PA ID#	071-UVZSE-00
PW ID#	PW 10743
Date Signed	2020-11-09T17:00:00

Summary Paragraph

Hurricane Katrina hit New Orleans on August 29, 2005, causing wind, rain, and flood damage to four buildings used by the Applicant, a Private Nonprofit school.  The Applicant owns two of the buildings and leases the other two.  All four buildings remained flooded for roughly three weeks.  After the floodwaters receded, the Applicant entered into a sole-source contract (Contract) for mold remediation with Certified Cleaning and Restoration.  The work began on September 12, 2005 and finished on October 16, 2005, remediating 109,433 square feet (SF) of mold at a total billed cost of $2,291,092.64.  Initially, FEMA wrote a separate Project Worksheet (PW) for each building for Category B (Cat B) emergency mold remediation.  In January 2016, FEMA wrote PW 10743 (Version 1), combining all Cat B mold remediation into a single PW.  As the Applicant had noncompetitively procured the Contract without a concurrent cost analysis, FEMA estimated reasonable costs.  Using the proportionate area of the owned buildings in a 64,000 SF footprint, FEMA found $747,295.16 in costs to be reasonable.  FEMA then deducted insurance proceeds of $931,106.86, resulting in a total eligible amount of zero dollars.  On first appeal, the Applicant stated that all Contract costs were reasonable, and FEMA had improperly taken insurance reductions, as its policies did not cover mold remediation.  The Regional Administrator for FEMA Region VI denied the appeal, stating that any award of reasonable costs following procurement noncompliance was discretionary.  The Applicant filed a second appeal, repeating its prior arguments, and claiming that FEMA’s decision failed to address documentation supporting eligibility that it submitted.   

Authorities and Second Appeals

• Stafford Act § 312
• 44 C.F.R. §§ 13.36(d), (f); 44 C.F.R. § 206.225(a)
• PA Guide (1999), at 34, 68, 73, and 95; PA Guide (2007), at 41, 95, and 103
• City of Pierre, FEMA-1984-DR-SD, at 9, 15; Lafourche Par. Sch. Bd., FEMA-4080-DR-LA, at 3; Williamsburg Reg’l Hospital, PW 718, FEMA-4241-DR-SC, at 8–10

 

Headnotes

• 44 C.F.R. § 13.36 required competitive bids for every procurement action, unless one of four exceptions apply, including public exigency.
  • Here, the mold remediation met the “public exigency” exception in 44 C.F.R. § 13.36(d)(4)(i)(B). 
• Even if a procurement exception applies, per 44 C.F.R. §§ 13.36(d)(4)(ii) and13.36(f)(1), an applicant must still conduct a concurrent cost or price analysis to determine whether the contract costs are reasonable.   
  • Neither the Applicant nor the Grantee performed such an analysis until submission of the first appeal.  FEMA therefore correctly found that a procurement violation existed.
• Notwithstanding the existence of a procurement violation, FEMA may still award reasonable costs for eligible work, if an applicant adequately supports those costs. City of Pierre, FEMA-1984-DR-SD, at 15.
  • The Grantee’s scope alignment comports with the scope of work prepared by one of the Applicant’s insurers at the time of the disaster and relies on RS Means to estimate itemized costs, establishing that $1,855,018.17 in remediation costs were reasonable.
• Stafford Act § 312 prohibits FEMA from providing funding for portions of disaster-related damages whose repair receives funding through other sources, including from insurance.
  • Here, the Applicant has submitted relevant portions of each of its insurance policies, which demonstrate that two of them contain categorical mold exclusions or limitations.  Benefits under those policies are therefore not duplicative of any funding under PW 10743.  However, proceeds under the Applicant’s NFIP policies are duplicative of funding, and FEMA must deduct these amounts from the PW.

 

Conclusion

The Applicant submitted adequate documentation demonstrating that it incurred $1,855,018.17 in reasonable costs, less $689,485.35 in insurance proceeds.  Therefore, this appeal is partially granted in the amount of $1,165,532.82

Appeal Letter

Appeal Analysis

Background

Stuart Hall School for Boys (Applicant) is a Private Nonprofit (PNP) school, located in New Orleans.  The Applicant’s campus consists of four buildings, two of which it owns (Lower Grade/Early Childhood Building and Upper Grades/Gymnasium Building) and two of which it leases (Middle Grades/Cafeteria Building and Main/Administration Building) (collectively, Campus).  The Applicant leases these two buildings from Carrollton Presbyterian Church (Church).  In the lease executed between the Applicant and the Church, the Applicant assumed responsibility for all repairs to the leased buildings’ premises–including all electrical, gas, and plumbing repairs necessitated by their use.  The Church remained responsible for all major structural repairs.

Hurricane Katrina hit New Orleans on August 29, 2005, causing wind, rain, and flood damage to the Campus.  All four buildings remained flooded for approximately three weeks, with the bottom floors submerged in 1.5–4 feet of brackish water during that time.  On September 10, 2005, shortly after the floodwaters sufficiently receded to allow inspection of the Campus, the Applicant entered into a sole-source contract (Contract) for mold remediation with Certified Cleaning and Restoration (CCR).  The Contract’s scope of work (SOW) grew out of an assessment and remediation protocol (Mold Remediation Assessment and Protocol) that one of the Applicant’s insurance carriers had commissioned[1] before determining that it was not responsible for mold damage under the policy. 

Emergency mold remediation work began on September 12, 2005 and finished on October 16, 2005.  The documented total area of mold remediated was 109,433 square feet (SF),[2] for which CCR billed $2,291,092.64.  As a result of the rapid remediation work performed by CCR, the Applicant reopened for classes on November 7, 2005, two months before most other schools impacted by Hurricane Katrina.

In January of 2016, FEMA prepared Project Worksheet (PW)10743 (Version 1), combining all Category B (Cat B) mold remediation work for the Campus into a single PW based on a “useable” SF calculation of 64,000.  The PW noted the total invoiced amount from CCR for mold remediation to all four buildings amounted to $2,291,092.65.  However, FEMA determined that the Applicant had not competitively procured the contract with CCR.  Having found the Contract was the result of a non-competitive procurement, FEMA performed a cost analysis based on RS Means Building Construction Cost data of claimed costs for mold remediation and determined the contract costs to not be reasonable. 

As part of this analysis, FEMA found that the Applicant was not legally responsible for permanent repairs to the Middle Grades/Cafeteria Building and the Main/Administration Building, as the Church owns both.  However, FEMA noted that the Applicant was legally responsible for the insurable contents and had incurred eligible equipment costs to perform mold remediation.  In addition, at the time of the disaster, the Applicant was in the process of completing a construction project.  FEMA found that because the Upper Grades/Gymnasium Building was still under construction at the time of the disaster, it was ineligible for PA funding.

Using the proportionate area of the Campus’s buildings out of a 64,000 SF footprint, FEMA found $747,295.16 to be reasonable.  FEMA then deducted actual insurance proceeds of $931,106.86, resulting in a total eligible amount of zero dollars. 

 

First Appeal

The Applicant appealed FEMA’s deobligation in a letter dated September 18, 2016, seeking reinstatement of $1,991,092.64 in unpaid contractor invoices.  In its first appeal, the Applicant claimed that FEMA had improperly taken insurance reductions from PW 10743, as the Applicant had applied its proceeds to other projects.  The Applicant also claimed several of its insurance policies contained specific limits and/or exclusions for mold remediation.  The Applicant explained that to prevent the growth or spread of mold, time was of the essence.  The Applicant stated that by entering into its Contract with CCR, it was able to resume classes several weeks before most other schools in the New Orleans area.

As part of its first appeal, the Applicant submitted a Scope Alignment, analyzing costs generated from the RS Means online tool, along with a comparison to FEMA’s RS Means estimation.[3]  In the Scope Alignment, the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) noted that FEMA simply based its SOW on the SF of the Campus’s total building footprint, but claimed the SOW should also have included thousands of SF of ceilings and walls, along with removal and salvage of mold-infested furnishings.  Using the initial Mold Assessment and Remediation Protocol in conjunction with CCR’s invoices, the Scope Alignment determined the total area of mold infestation to be 109,433 SF.

In a letter dated November 21, 2016, the Grantee forwarded the Applicant’s appeal, along with a letter of support.  The Grantee argued that, considering the shortage of skilled labor following this disaster, the Applicant’s noncompetitive procurement was reasonable and prudent, as were the associated costs.  It also argued FEMA erred in violation of the Office of Management and Budget Circular No. A-122 in determining that the mold remediation costs were unreasonable.  The Grantee noted that the Applicant met two of four possible criteria that would independently allow for noncompetitive procurement: lack of available providers and rapidly spreading mold.  This rapid spread, the Grantee stated, “did not permit any delay that might result” from competitive bidding requirements, per Title 44 of the Code of Regulations (44 C.F.R.) § 13.36(d)(4)(i)(B).[4]  It further claimed that FEMA had improperly substituted its judgment for that of the Applicant, in contravention of the FEMA Field Manual entitled “Public Assistance Grantee and Subgrantee Procurement Requirements under 44 C.F.R. Pt. 13 and 2 C.F.R. Pt. 215.”  The Grantee objected to FEMA’s use of estimated costs, rather than documented actual costs, which it believed FEMA’s Public Assistance Guide (PA Guide) required.[5]  Pointing to its Scope Alignment, the Grantee also disputed FEMA’s use of estimated SF of floor space of the four buildings (i.e., 64,000 SF), rather than the calculated total SF of mold infestation (i.e., 109,433 SF).  The Grantee also argued that FEMA erroneously determined that one of the buildings was ineligible because it was under construction at the time of the disaster.[6] 

The FEMA Region VI Regional Administrator (RA) denied the appeal in a letter dated April 23, 2019.  FEMA upheld its cost analysis on the grounds that the PA Guide “provides that FEMA staff makes the final determination on the reasonableness of costs.”[7]  FEMA stated that, “[w]hile square footage may not account for walls and other surfaces, these are unknown with the absence of building specifications.”  FEMA stated a review of the insurance policy did not show an exclusion for mold remediation.  FEMA ultimately concluded that the Applicant had neither submitted documentation establishing that FEMA’s cost estimate was unreasonable, nor demonstrated that payment of funds under PW 10743 would avoid a duplication of benefits.

Second Appeal

The Applicant appeals in a letter dated June 24, 2019, and requests FEMA approve the entire $2,216,092.64 in unreimbursed expenses for Cat B mold remediation.[8]  In the alternative, the Applicant contends that FEMA should only deobligate a total of $289,151.88 in insurance proceeds. 

The Applicant argues the first appeal decision is inconsistent with 44 C.F.R. § 13.36(d)(4)(i)(B), as it believes it met the requirements for noncompetitive procurement under the exigency/emergency provisions of the regulation.  It also states that FEMA’s decision is inconsistent with section 312(a) of the Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act,[9] as the Applicant argues it has substantiated its claims that reimbursement under this PW would not constitute a duplication of benefits.  Finally, the Applicant argues FEMA’s RS Means calculation relied on the SF of the Campus buildings’ footprint, rather than the total square footage of area remediated.  It asserts that CCR’s invoices provide the necessary evidence for what it claims was the total SF of remediated area.  Finally, the Applicant takes issue with FEMA’s analysis of the exclusions and limitations contained in its insurance policies and contends that FEMA failed to address the substance of the Grantee’s Scope Alignment.[10]

In a letter dated August 16, 2019, the Grantee supports the Applicant’s appeal, largely reiterating its arguments from its first appeal.

Discussion

Procurement & Contracting Requirements / Mold Remediation

Applicants for PA funding must follow all federal procurement requirements, including procuring contracts through competitive bids.[11]  Regulations permit noncompetitive procurement of an award (e.g., solicitation of a proposal from a single source) after other competitive methods are found infeasible, provided at least one of the required circumstances applies, such as the public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation.[12]  However, a cost analysis is necessary to establish price reasonableness when adequate price competition is lacking and for sole source procurement.[13] 

Category B Emergency Protective Measures include those efforts that are necessary to “eliminate or reduce an immediate threat to life, public health, or safety.”[14]  Particularly in the case of facilities which serve vulnerable populations such as the young, sick, or elderly, mold infestation can pose such a threat,[15] which may not permit a delay resulting from competitive solicitation.[16]  Depending on the totality of circumstances, Cat B mold remediation may therefore constitute work for which noncompetitive procurement is permissible.

Here, the Applicant is a PNP school, whose student population is particularly vulnerable to mold impacts due to their age.[17]  Following the recession of the floodwaters, mold was spreading rapidly throughout the Campus and required immediate action to remediate it.  Moreover, there was an admitted shortage of appropriately skilled labor throughout Hurricane Katrina’s impacted area.  Therefore, noncompetitive procurement for the Applicant’s mold remediation work was permissible. 

However, the Applicant was nevertheless under an obligation to conduct a cost reasonableness analysis at the time of procurement.  The administrative record shows that the Grantee completed a cost analysis to demonstrate that the costs incurred were reasonable, but not at the time of contracting.  Because 44 C.F.R. § 13.36(d)(4)(ii) required such an analysis prior to entering into the Contract, the Region correctly found that the Applicant violated federal procurement standards.

Allowable & Reasonable Costs

Notwithstanding procurement noncompliance, FEMA has discretion to award reasonable costs.[18]  Here, because it found that there had been a procurement violation, FEMA completed a cost estimate using RS Means building construction cost data and the combined area of the buildings’ footprint to determine what costs were reasonable.  However, documentation submitted on appeal, if sufficient to substantiate the SOW for which an applicant seeks reimbursement, may also serve as a basis for the award of reasonable costs for eligible work.[19] 

In this instance, the Scope Alignment estimated reasonable remediation costs to be $2,126,083.27, versus FEMA’s estimate of $747,295.19.  The work items in the Scope Alignment closely adhered to the Mold Remediation Assessment and Protocol developed at the time of the disaster.  When read concurrently with the accompanying spreadsheet, the Scope Alignment substantiates the SOW completed by CCR.  As the first appeal decision notes, however, this amount included costs for work conducted in the two leased buildings, for which FEMA determined the Applicant had no legal responsibility.  Recognizing this, the Grantee also provided an estimate which only included equipment costs for those two buildings.  Therefore, on appeal, FEMA finds that the Applicant has substantiated $1,855,018.17 in eligible costs.

Duplication of Benefits

Section 312 of the Stafford Act prohibits FEMA from providing funding for portions of disaster-related damages whose repair receives funding through other sources, including from insurance.[20] 

On review, FEMA finds that two of the Applicant’s four insurance policies contain categorical mold exclusions or limitations.[21]  The Applicant’s Fidelity National and Travelers Insurance policies[22] did not exclude mold damages under these circumstances, as both policies were part of the National Flood Insurance Program (NFIP).[23]  The Applicant received $371,897.97 in insurance payments from Travelers, of which $92,746.09 was for building contents.[24]  The Applicant concedes that FEMA may apply the remaining $279,151.88 to PW 10743.[25]  In addition, FEMA previously determined that the Applicant received $410,333.47 in proceeds under its Fidelity NFIP policy.[26]  Therefore, FEMA will reduce funding by $689,485.35 for payments received under the Applicant’s NFIP policies – $279,151.88 from the Traveler’s policy and the $410,333.47 from the Fidelity policy – to avoid a duplication of benefits.

 

Conclusion

The Applicant demonstrated that it incurred $1,855,018.17 in reasonable costs, less $689,485.35 in insurance proceeds.  Therefore, this appeal is partially granted in the amount of $1,165,532.82.[27] 

 

 

 

[1] See Letter from Stuart Hall School for Boys to Director, Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (GOHSEP or Grantee) (Sept. 18, 2016) [hereinafter Applicant First Appeal], Ex. 4 (Mold Remediation Assessment and Protocol).

[2] Mold Remediation Assessment and Protocol, at 5–7; Applicant First Appeal, Ex. 15, at 2 (Scope Alignment).  Rather than 109,433 square feet (SF), the Scope Alignment uses 110,681 SF in the actual scope of work (SOW); the 1,248 SF difference appears to come from a portion of the Administration building that needed several “layers” of remediation (carpet and underlying concrete, drop tile ceiling and drywall ceiling, etc.).

[3] See Applicant First Appeal, Ex. 15–16 (Grantee scope alignment methodology and comparison spreadsheet, respectively); see also Letter from Stuart Hall School for Boys to Director, GOHSEP (Mar. 28, 2018), Attachments 4–5 (same).

[4] Letter from Deputy Dir., Disaster Recovery, GOHSEP to Reg’l Admr., FEMA Region VI [hereinafter Grantee First Appeal Analysis], at 9–10 (Nov. 21, 2016).

[5] The appropriate version of FEMA 322, Public Assistance Guide (PA Guide) is from 1999, not 2007; however, the relevant language initially cited by the Grantee is identical.

[6] Grantee First Appeal Analysis, at 8; see also Applicant First Appeal, Exhibit 8.

[7] Letter from Reg’l Admr., FEMA Region VI, to Director, GOHSEP (Apr. 23, 2019), Enclosure [hereinafter First Appeal Decision], at 7 (citing PA Guide (1999), at 34).  However, the language referenced regarding the final determination as to reasonableness of costs does not appear in any PA Guide/FEMA 322 prior to the 2007 edition.  Compare PA Guide (1999), at 34 and PA Guide (1996), at 34with PA Guide (2007), at 41. 

[8] This is in contrast with the first appeal, which did not seek reimbursement for the $300,000.00 that the Applicant previously paid to CCR.  The second appeal does seek reimbursement for this amount, but also accounts for the $75,000.00 payment from the Church to the Applicant for its portion of the Settlement.

[9] Title 42 United States Code (42 U.S.C.) § 5155(a) (2000).

[10] Applicant Second Appeal, at 4 (citing Applicant First Appeal, Ex. 15).

[11] 44 C.F.R. § 13.36(d)(2)–(3).

[12] 44 C.F.R. § 13.36(d)(4)(i)(A)–(D).

[13] 44 C.F.R. § 13.36(f)(1).

[14] PA Guide, at 47 (1999) (emphasis added); 44 C.F.R. § 206.225(a)(1);

[15] Heseltine, E., Rosen, J., et al., World Health Organization (WHO) Regional Office for Europe, WHO Guidelines for Indoor Air Quality: Dampness and Mould [sic] [hereinafter WHO Guidelines], at 1 (2009) (Noting that in “residences, day-care centres [sic], retirement homes and other special environments” mold and other indoor air pollutants impact “population groups that are particularly vulnerable due to their health status or age.”).

[16] See, e.g., FEMA Second Appeal Analysis, Williamsburg Regional Hospital, PW 718, FEMA-4241-DR-SC, at 8–10 (Dec. 20, 2019) (denying in part because of failure to take sufficiently prompt measures to contain/remediate mold); FEMA Second Appeal Analysis, Lafourche Par. Sch. Bd., FEMA-4080-DR-LA, at 3 (Apr. 4, 2019) (mold remediation in immediate aftermath of disaster eligible as Cat B work because it was necessary “to address an immediate threat to the health and safety of students and faculty” impacted); FEMA Second Appeal Analysis, City of Pierre, FEMA-1984-DR-SD, at 9 (May 27, 2015) (City of Pierre) (noting inhaled molds and fungi as among health hazards caused by contaminated floodwaters, which “made time of the essence to effectuate the repairs and address threats to public health.”).

[17] WHO Guidelines, at 1.

[18] See, e.g., City of Pierre, FEMA-1984-DR-SD, at 15.

[19] FEMA Second Appeal Analysis, Jefferson Parish Mold Remediation, FEMA-1603-DR-LA, at 2 (Sept. 27, 2010).

[20] 42 U.S.C. § 5155.

[21] Zurich American Insurance Company Policy #CPO2992978-01; Indian Harbor Insurance Company Policy #ICI1776100965801.

[22] Fidelity National Insurance Company Flood Policy #172510030808; Travelers Insurance Company Flood Policy #6004958507.

[23] The Applicant was not negligent in its efforts to remediate the conditions which caused or contributed to the growth of mold, and therefore neither the Fidelity nor Travelers policies bar payment for mold remediation expenses in the circumstances presented on appeal.

[24] First Appeal Decision at 8 (bulleted list describing category and amount of payments under the Applicant’s Travelers NFIP policy).

[25] Applicant Second Appeal, at 4.

[26] First Appeal Decision, at 8 n.17.

[27] In light of this decision, and the Applicant’s claims with regards to its allocation of proceeds/benefits, the Region should evaluate the Applicant’s other PWs to verify, and then reimburse/deobligate the other PWs accordingly.