Timeliness, Improved Project

Appeal Brief

In 2004, Hurricane Ivan damaged the Applicant’s Facility.  In PW 1684, Versions 0-3, FEMA authorized $2,440,223.92 based on estimates for eligible permanent repairs and hazard mitigation.  After closeout, in Version 4, FEMA determined only $1,185,600.25 was eligible ($8,005,517.45 for repairs and $908,624.38 for hazard mitigation, less $7,728,541.58 for insurance), and deobligated $1,254,623.67.  In a first appeal dated Oct. 15 and delivered on Oct. 24, 2012, the Applicant argued that Version 4 deobligated funding in error.  It explained that it knowingly incorporated improvements to the Facility that would not be covered by insurance or FEMA, but paid for by local sales tax revenue.  However, because at closeout it accounted for all of the costs in its report of total project expenditures, FEMA was unable to distinguish costs for the improvements from eligible work and inadvertently included expenses that should not have been considered.  It argued FEMA’s misunderstanding of costs resulted in a deduction of additional anticipated insurance on top of what it reported as actually received.  In a support letter dated Jan. 10 but transmitted on Feb.12, 2012, the Grantee forwarded the first appeal.  The Grantee sent a clarification letter on Oct. 29, 2013 to revise the Applicant’s first appeal amounts and itemize the improvements funded by the tax.  On June 6, 2014, the Regional Administrator (RA) reclassified the work in PW 1684 as an improved project, and capped funding based on FEMA’s estimated repair costs through Version 3, actual mitigation costs claimed at closeout, and actual insurance proceeds claimed on appeal.  However, because the Applicant’s insurance proceeds exceeded the capped total for the improved project, the RA limited eligible funding to only the actual mitigation costs.  The Applicant was notified on July 2, 2014.  In a second appeal dated Aug. 27 and transmitted Aug. 28, 2014, the Applicant revises costs based on discrepancies discovered in an internal audit, and seeks additional costs for repair and mitigation.  It argues that the work cited by the RA as improvements does not meet improved project criteria, and that it was separately funded.  In a second appeal dated Oct. 22 and forwarded on Dec. 23, 2014, the Grantee also contests the improved project designation. 

Authorities and Second Appeals

• Stafford Act §§ 423(a), 406(e).
• 44 C.F.R. §§ 206.206(c), 206.226, 206.203(d)(1).
• Department of Transportation, FEMA-4068-DR-FL, at 2 (Aug. 5, 2016).

Headnotes

• Stafford Act § 423, as implemented by 44 C.F.R. § 206.206(c), allows an eligible applicant to appeal any PA eligibility determination.  Pursuant to § 206.206(c)(1), an applicant must submit an appeal within 60 days of receiving notice of the appealable action.  Upon receipt, pursuant to § 206.206(c)(2), a grantee has 60 days to forward it together with a written recommendation to FEMA.  Neither the Stafford Act nor 44 C.F.R. provide FEMA with the authority to grant time extensions for filing appeals. 

• The Grantee forwarded the second appeal 117 days after receiving it from the Applicant, rendering the appeal untimely.

• Stafford Act § 406(e), as implemented by 44 C.F.R. § 206.226, authorizes funding to restore facilities on the basis of their predisaster design in conformity with current codes and standards.  Pursuant to 44 C.F.R. § 206.203(d)(1), when applicants make additional improvements while still restoring the facility to predisaster function and capacity, FEMA caps the funding based on the Federal share of the approved estimate of eligible costs.
  • The Facility’s predisaster function and capacity was restored but the Applicant incorporated improvements beyond what was necessary to restore the Facility and outside the FEMA-approved scope of work.

Appeal Letter

Appeal Analysis

Background                                                                                      

In September 2004, winds, rain, and flooding from Hurricane Ivan severely damaged City Hall (Facility), a seven-story building owned by the City of Pensacola (Applicant) in Escambia County, Florida.  In Project Worksheet (PW) 1684 (Versions 0 through 3), FEMA authorized $2,440,223.92 in Public Assistance (PA) funding based on estimates for eligible permanent repairs, upgrades for codes and standards, and hazard mitigation of the Facility.  Upon review of the Applicant’s actual costs at closeout, in Version 4, FEMA determined that only $1,185,600.25 was eligible (allowing $8,005,517.45 for repairs and $908,624.38 for hazard mitigation, less $7,728,541.58 for insurance).  This resulted in a net deduction of $1,254,623.67 from previously estimated costs for the project.[1]   

First Appeal

In a letter dated October 15, 2012, the Applicant appealed FEMA’s determination, and requested FEMA correct accounting inaccuracies that, it argued, led to an erroneous deobligation of funding.  A summary of the costs at issue are shown in Table 1 at the end of this section, and are briefly discussed below. 

According to the Applicant, during project design, it decided to fund additional improvements and changes to the Facility.  It expended $2.5 million from local sales tax revenue for the additional improvements because it understood that none of the extra costs would be covered by insurance or reimbursed by FEMA.^[2]  The Applicant pointed to an analysis of total project expenditures (Analysis)[3] and enclosed various committee meeting memoranda[4] in support of these assertions.  It also offered the Analysis as confirmation that it accounted for the $2.5 million within the total expenses that it reported at closeout.  Furthermore, the Applicant stated that despite incurring $9,986,633.56 in total costs for the entire project, it requested only $7,486,633.56 in reimbursement from FEMA, as supported by its Analysis and original closeout request that it submitted through the Florida Division of Emergency Management’s (Grantee) grants management system (FloridaPA.org).[5]  However, it argued that FEMA wrote Version 4 for a higher amount than it claimed, and attributed this error to FEMA’s inability to distinguish individual costs for the additional improvements from eligible costs.  The Analysis presented an accounting of all expenditures for the entire project with the $2.5 million for improvements listed as a single lump sum deduction.^[6]  Further to this point, the Applicant argued that FEMA’s overrun should have been lower because FEMA’s cost reconciliation did not take into account the full $2.5 million that the City paid for the improvements.[7]  The Applicant also disagreed with FEMA’s deduction of anticipated insurance proceeds ($3,135,980.27), taken in addition to the actual insurance proceeds ($4,592,561.31) that were also deducted at closeout.  The appeal was mailed to the Grantee on October 23, 2012.  In a recommendation letter dated January 10, 2013, the Grantee submitted the Applicant’s appeal to the Region IV Regional Administrator (RA).[8] 

In a supplemental clarification letter dated October 29, 2013, requested by the Region in a conference call to discuss the appeal with the Applicant and Grantee, the Grantee revised costs claimed on first appeal based on additional information from the Applicant, including the amount of actual insurance received by the Applicant ($4,647,611.48).  It clarified that the Applicant’s $2.5 million funded “improvements” such as the relocation of the customer services department from the fourth to the first floor, purchase of audio visual equipment, and other items that it acknowledged were “not pre-existing.”[9]  However, it maintained that the full $2.5 million was expended and should have been deducted from the overall project costs.  Additionally, it restated the Applicant’s main argument that FEMA’s decision to deduct some but not all of the costs for improvements from project costs, resulted in both the higher overrun amount and the anticipated insurance deduction that generated the net deobligation at closeout. 

On June 6, 2014, the RA denied the first appeal.  The RA concluded that the Applicant planned to make improvements, including relocating its Finance Office function beginning in January 2005, and began working on other improvements to the Facility, including the installation of a generator, the relocation of its customer service department from the fourth to the first floor, and the updating of both its audio visual and security systems throughout 2005 and 2006.  Because the Applicant completed improvements outside the scope of work to repair the Facility to its predisaster design, the RA determined that PW 1684 met improved project criteria pursuant to Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.203(d)(1), which required the Applicant to obtain the Grantee’s approval for the project, and limited PA funding to the Federal share of the approved estimate of eligible repair costs.[10]  

The RA capped eligible funding for repairs based on the approved estimate ($4,051,603.00) and capped eligible funding for hazard mitigation based on the Applicant’s actual costs ($908,624.38), for a total of $4,960.227.38 in improved project funding.  However, because the Applicant’s actual insurance payout ($4,647,611.48) exceeded the capped total for repairs ($4,051,603.00), the RA determined that only the actual mitigation costs were eligible for funding, on the condition that the Grantee subsequently approve an improved project request from the Applicant.  Lastly, the RA also specifically noted the 60 day submission timeframes for the Applicant and Grantee to submit any potential second appeal.[11]  In a June 17, 2014 letter, the Grantee notified the Applicant that the first appeal was denied. 

Table 1: Summary of Costs in Dispute through the Second Appeal

Second Appeal

In a second appeal dated August 27, 2014, the Applicant disputes the RA’s decision.  The Applicant requests that FEMA reverse the improved project designation and adjust PW 1684’s funding to $3,313,233.30 based on the summary of actual costs and documented expenses provided with the appeal, resulting in $2,404,608.92 in increased funding.[15]  The Applicant claims that an internal audit of project costs completed after the first appeal revealed discrepancies within the closeout determination, and as a result, contends it can support revised eligible costs totaling $6,737,667.65 for completed repairs and $1,223,177.13 for completed hazard mitigation work.  It confirms $4,647,611.48 as the proper amount of insurance proceeds received, and agrees that the proceeds should be applied to offset the project’s overall eligible repair costs.

In disputing FEMA’s improved project designation, the Applicant counters that the activities singled out by the RA as improvements (i.e., the installation of a new generator, relocating the customer service department, and updating both the audio visual system and the security system) constitute “non-restorative” modifications.[16]  Furthermore, it argues the non-restorative modifications do not meet the definition of an improved project pursuant to FEMA guidance, because completing them did not impact the Facility’s location, footprint, size, function, or capacity, nor interfere with or change the scope of work authorized by FEMA for repair and mitigation.[17]  Moreover, the Applicant indicates that all of the work to complete the modifications outside the approved scope of work was separately funded by local tax dollars.[18]  The Applicant also claims to have coordinated closely with the Grantee throughout project formulation and that at no time during the process did the Grantee or FEMA communicate that PW 1684 would be handled as an improved project, which is why it did not request prior approval for one.  With its appeal, it provides a copy of the Grantee’s improved project approval letter that was generated to comply with the first appeal decision.

In a letter recommending approval dated October 22, 2014, and forwarded on December 23, 2014, the Grantee submitted the Applicant’s second appeal.  The Grantee asserts the appeal is timely.[19]  It reasserts that funding from PW 1684 was used exclusively for eligible work and that the Applicant’s tax funded “the additional modifications completed outside”[20] of what FEMA approved in the PW.  The Grantee also states that the costs of the additional modifications were not covered by the Applicant’s insurance because they were not related to damages caused by the event.  As such, it argues “the accidental inclusion of these expenses” with the PW’s final costs does not create the potential for additional proceeds that would duplicate PW funding.[21]  As verification, it cites to a 2012 letter from the Applicant’s insurance carrier which notes the Facility’s insurance claim was settled and final payment was made in 2009.[22]  Finally, the Grantee reports it was kept informed of and never disapproved of the Applicant’s modifications because they did not alter the project.  Although it disagrees with the RA’s decision, in order to avoid further concern, in September 2014, it retroactively approved the Applicant’s request for an improved project.[23] 

Discussion

Timeliness

Section 423 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), as implemented by 44 C.F.R. § 206.206, allows an eligible applicant to appeal any PA eligibility determination.[24]  44 C.F.R. § 206.206(c) outlines clear procedures for the filing of appeals within a prescribed period of time based on when notice is received.  Pursuant to § 206.206(c)(1), an applicant must submit an appeal within 60 days of receiving notice of the appealable action.  Upon receipt of an applicant’s appeal, a grantee has 60 days to forward it together with a written recommendation to the regional administrator.[25]  Neither the Stafford Act nor 44 C.F.R. provide FEMA with the authority to grant time extensions for filing appeals.[26]  In addition, both prongs of § 206.206(c) must be met in order for an appeal to be timely.[27]  In this instance, the Applicant’s second appeal rights lapsed prior to FEMA’s receipt of its second appeal.[28] 

In an effort to evaluate whether the Applicant and Grantee complied with appeal filing timeframes, FEMA reviewed all of the available submission date information.  In this instance, it is important to note that the Grantee uses a sophisticated system (FloridaPA.org) to manage, monitor, and track all aspects of the PA grants process, including appeals.  Applicants have access through individual accounts.  The system provides a mechanism to submit documentation for appeals, enables the exchange of communication between the Grantee and Applicant, and automatically records the dates of all actions performed by those using the system. 

On second appeal, the timeframe for the Applicant to submit its appeal is triggered by the date the Applicant received notice of the RA’s first appeal decision (i.e., appealable action).  In a notification letter dated June 17, 2014, the Grantee informed the Applicant of the RA’s decision and also reiterated that upon receipt, the Applicant had 60 days to appeal.[29]  However, according to FloridaPA.org, the notification was not sent to the Applicant until July 2, 2014.[30]  The Applicant’s second appeal letter is dated August 27, 2014, but was not acknowledged in the system as received by Grantee staff, until August 28, 2014.[31]  Thus, using these actual receipt dates (July 2 through August 28), FEMA finds that the Applicant complied with § 206.206(c)(1) in submitting the appeal to the Grantee within the established timeframe.  However, although the Grantee’s second appeal letter displays an earlier date of October 22, 2014, correspondence records substantiate that it was not transmitted to Region IV until 117 days later, on December 23, 2014.[32]  Therefore, because the 60-day period expired prior to submittal, the second appeal is untimely.[33]

Improved Project

FEMA provides PA funding for work to restore damaged eligible facilities on the basis of the design of such facilities as they existed immediately prior to the disaster and in conformity with current applicable codes, specifications, and standards.[34]  Applicants performing restoration work on a damaged facility may use the opportunity to make additional improvements while still restoring the facility to its predisaster function and capacity.[35]  However, PA funding for such improved projects is limited to the federal share of the estimated costs associated with repairing or replacing the damaged facility to its predisaster design.[36]  In general, the funding for approved work in an improved project cannot be tracked because of physical changes or contracting arrangements.[37] 

A review of the information provided confirms clearly that the Applicant’s modifications resulted in changes that enhanced and/or expanded equipment and systems, and reconfigured the physical layout of interior spaces within the Facility beyond what existed before the disaster, and beyond the FEMA approved scope of work for restoration and mitigation.  For example, the predisaster security system provided only minimum protection, whereas the new system provides a much higher level of security to include card readers, motion detectors, video cameras, and a year of monitoring by the contractor.[38]  Prior to the disaster, only a handful of its conference rooms had permanently installed audio visual systems.  With the Applicant’s modifications, the larger rooms were outfitted with “multiple screens and built-in audio” and the smaller conference rooms were equipped with “basic capabilities” sufficient to handle smaller meetings.[39]  Prior to the disaster, the Facility was equipped with an emergency generator that could not sustain supporting the Facility’s electrical load during loss of power.  The Applicant installed a new 750 KW generator that is capable of running all electrical systems including HVAC.[40]  The Applicant also identified additional modifications categorized as miscellaneous interior upgrades and general building improvements such as the “replacement of brass finishes with stainless steel” for “easier maintenance.”[41]  The Applicant argues this work does not meet improved project criteria because it did not change the Facility’s function nor did it impact the Facility’s location, footprint, size or capacity.  However, it is because the location, footprint, size or capacity did not change, and the Facility’s function was preserved, that this work is all part of the regulatory definition of an improved project.[42] 

Because this work meets improved project criteria, PA funding is limited to the federal share of the estimated costs associated with restoring the damaged facility to its predisaster design.[43]  However, the Applicant argues that it is owed additional funding from FEMA for repair and mitigation work.  In support thereof, the Applicant accounted for all of its costs over the course of the entire renovation project inclusive of both eligible repairs and mitigation work and ineligible improvements.  Both the Applicant and Grantee acknowledged that this all-inclusive accounting method and the Applicant’s decision to report the costs of improvements as a lump sum therein, caused confusion, inflated the claim for reimbursement, resulted in deobligated funding, and triggered the first appeal.[44]  Nonetheless, the Applicant asserts that its one-page cost table (Cost Summary) distinguished between the modifications that were separately funded and repair and mitigation work.  However, the Cost Summary lists only lump sum amounts for restoration, mitigation and the modifications.[45] 

In addition, the Applicant provides an expenditure transaction analysis that organizes expenditures by vendor (Vendor Analysis)[46] for the overall renovation project.  It does not separate the expenditures by the work associated with the restoration, mitigation, and modifications.  This is of particular importance since the Applicant utilized the same contractors for construction, engineering services, and architectural services for all work.  On the Cost Summary, the Applicant includes $685,945.65 among the restoration costs claimed to FEMA for work completed by various smaller vendors,[47] and highlights the individual expenditures that add up to this amount within the Vendor Analysis.  FEMA reviewed all of the highlighted expenditures and finds they include ineligible costs related to the Applicant’s modifications.[48]  Even in the instances where the Applicant has identified expenditures for the modifications, according to memoranda about the project submitted on first appeal, other costs associated with completing them were charged against the general construction contract.[49]  The modifications were planned and executed concurrent with FEMA-funded repairs, mitigation, and code-driven upgrades as part of the same renovation project.[50]  The Applicant’s memoranda illustrate that it decided to complete elective work in recognition of the cost-savings opportunity afforded by combining all of the work under a single project.[51]  Subsequent memoranda also show that the Applicant was aware that it was responsible for the costs associated with the elective improvements.[52]  According to the record, the renovation was complete in April 2009 and the project was closed in August 2012.  The Applicant revised its actual cost claim three times during the two years following closeout even though construction was complete in 2009, five years prior to the last adjustment in 2014.  The various adjustments in the amounts claimed demonstrate difficulties the Applicant had tracking and identifying the costs related to the various work initiatives.  Based on the totality of the information evaluated, FEMA finds that the work related to the modifications meets improved project criteria and as such, PW 1684 was appropriately designated and capped.

Conclusion

The second appeal was not submitted to FEMA in a timely fashion and consequently the Applicant’s appeal rights lapsed prior to FEMA’s receipt of the second appeal.  Regardless, the Applicant incorporated improvements beyond what was necessary to restore the Facility and therefore the work reflected in PW 1684 was appropriately designated and capped as an improved project.  As such, the second appeal is denied.