Result of Declared Incident, Allowable Costs & Reasonable Costs

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From October 7-19, 2018, Hurricane Michael impacted the Florida Panhandle. The School Board of Bay County Florida (Applicant) requested Public Assistance (PA) for the repair of damage to several Rosenwald High School classrooms and buildings. The Applicant’s contractors completed site inspections from July 29 through September 7, 2019. FEMA, in turn, developed Grants Manager Project (GMP) 112188 to document the identified damage in Buildings 9, 11, 12, and 13 and to reimburse eligible costs, including repair work, and to address mold related contamination in the Building 12 Heating, Ventilation, and Air Conditioning (HVAC) system. The proposed work for the HVAC system consisted of ductwork and grill cleaning with replacement for limited components.

FEMA issued a request for information (RFI) seeking, in part, cost documentation for mold and HVAC inspections/assessments. The Applicant responded that it did not perform mold remediation or technical assessments. 

FEMA issued a Determination Memorandum on August 10, 2021, approving $630,678.97 for repairs in Buildings 9, 11 and the majority of work claimed for Buildings in 12 and 13. However, FEMA denied costs for the replacement of HVAC components at Building 12, finding that the Applicant had not provided technical evaluations of the HVAC system components, mold testing, or any other documentation to substantiate damages claimed.[1]

First Appeal 

The Applicant submitted a first appeal dated October 8, 2021, requesting $446,720.70 for the replacement of damaged HVAC components for Building 12.[2] The Applicant asserted that damages were identified by its licensed engineer, who performed site inspections based on FEMA guidance due to the absence of available FEMA site inspectors. It also asserted that the documentation provided substantiated that the work to replace HVAC components was required as a direct result of the disaster. The Applicant objected to FEMA’s request for mechanical/mold remediation inspections, submitting that there is no FEMA policy requirement for that additional inspection. The Florida Division of Emergency Management (Recipient) forwarded the appeal in a letter dated November 30, 2021, to FEMA with its support.

FEMA sent the Applicant an RFI on September 1, 2022, requesting documentation to substantiate its claimed additional work and costs. Specifically, FEMA noted that the mechanical building inspection reports for Building 12 and 13 were insufficient to establish that the Applicant’s claimed costs correlated to eligible disaster-related work and FEMA requested the original building inspection reports for Buildings 12 and 13, and mold and technical assessments for Building 12 HVAC.

The Applicant responded on September 13, 2022, increasing its total costs claimed to $1,161,208.72, and providing supporting documentation, such as cost spreadsheets. The Applicant explained that the additional costs claimed were based on invoiced actual costs for completed work, including repair work that FEMA previously approved for Buildings 9, 11, 12, and 13 based on estimates. The Applicant stated that, even if some costs were not properly documented, FEMA must still fund reasonable costs.

The FEMA Region 4 Regional Administrator partially granted the Applicant’s appeal in a decision dated January 13, 2023.[3] First, FEMA denied costs associated with the replacement of HVAC components, finding that the Applicant did not substantiate how the repair method found in the original building inspection report of replacement of ductwork and cleaning of components was insufficient to restore the HVAC to its predisaster condition and why complete replacement of HVAC components was instead required. 

Second, regarding the Applicant’s request to approve actual costs for completed repair work, FEMA found that the bids, contract, amendments, and invoice provided by the Applicant did not provide a quantitative description of the scope of work (SOW) for the work performed. The contract costs were based on lump sum amounts by trade, and invoicing was completed using a schedule of values developed after the contract was signed. Therefore, FEMA could not ascertain if the completed work associated with each funding request was limited to the repair of eligible damage that was incurred as a direct result of the disaster. Nonetheless, FEMA performed a reasonable cost analysis by comparing FEMA’s previous validation of the Applicant’s cost estimates to the actual costs claimed by the Applicant in accordance with certain considerations. FEMA’s reasonable cost analysis revised estimates based on documentation, available information, and other evaluation criteria.[4] FEMA concluded that the Applicant’s documentation supported total project costs of $498,293.85.[5]

Second Appeal

The Applicant filed a second appeal dated March 14, 2023, requesting that FEMA approve $662,914.87, the difference between its total claimed costs and the amount approved on first appeal, stating that the contracted repair work was required as a direct result of the incident. The Applicant states that FEMA overemphasized a single comment in the building inspection report recommending limited HVAC remediation without addressing other HVAC components identified in the report. Furthermore, the Applicant states that FEMA should determine that its actual costs were reasonable based on competitively procured contracts. It also asserts it completed the work forsignificantly less than what FEMA initially approved; FEMA’s cost estimate is flawed due to allocating the lump sum costs by disaster inventory; it was prudent for the Applicant to procure lump sum contacts to get the best pricing; and FEMA provided no rationale for its reasonable cost analysis.[6] The Recipient forwarded the second appeal to FEMA on May 15, 2023.

Discussion

Result of Declared Incident 

FEMA provides PA funding to eligible applicants for the repair, restoration, reconstruction, or replacement of facilities damaged or destroyed by disasters.^[7] To be eligible for PA funding, work must be required as a direct result of the declared incident.^[8] It is the applicant’s responsibility to demonstrate that claimed damage was caused directly by the declared incident.[9]

The Applicant has requested funding for replacement of all HVAC components in Building 12, where FEMA previously approved ductwork and grill cleaning with replacement for limited components. The Applicant claims that the HVAC contractor bid package, in addition to identifying the damage in the building inspection report, also stated that the additional work of replacing components was required. However, the report only identifies the components as contaminated, and the Applicant does not offer any documentation showing that the repair work approved by FEMA was insufficient to return the HVAC components to their predisaster condition. The replacement of several components, beyond previously approved ductwork, goes beyond what the documentation shows is work required as the result of the disaster. Therefore, the additional work and costs claimed by the Applicant is not required as a direct result of the disaster.

Allowable Costs and Reasonable Costs

FEMA may provide PA funding to a local government for the repair of a public facility damaged by a major disaster.[10] To be eligible, costs must be directly tied to the performance of eligible work; adequately documented; and necessary and reasonable to accomplish the work properly and efficiently.[11] A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the applicant makes the decision to incur the cost.[12] FEMA determines reasonableness by evaluating whether the cost is of a type generally recognized as ordinary and necessary for the type of work.[13] If FEMA determines any of the costs to be unreasonable based on its evaluation, FEMA may disallow all or part of the costs by adjusting eligible funding to an amount it determines to be reasonable.[14] The applicant is responsible for providing documentation to demonstrate its claimed costs are reasonable.[15]

Here, the Applicant states that the documentation previously provided substantiates the actual costs. However, the Applicant did not provide an explanation of the documentation with its appeal letter that supports its assertion. The Applicant also disputes FEMA’s reasonable cost analysis but does not make any specific arguments, such as noting particular line items from the analysis with which it finds fault. FEMA properly conducted a reasonable cost analysis based in part on its own estimates due to the documentation issues with the Applicant’s contract costs and provided the rationale for its analysis. For example, it accounted for the Applicant’s lump sum contract by reintroducing soft costs. Therefore, the Applicant has not demonstrated the additional requested costs are reasonable.  

Conclusion

The Applicant has not demonstrated that the additional work is eligible for PA funding and the additional claimed costs are reasonable. Therefore, this appeal is denied.