Water Control Facility, Scope of Work, Codes and Standards, Support Documentation

Appeal Brief

Summary Paragraph

From March 29 to April 16, 2006, severe storms in Sonoma County, California destroyed a water diversion (Facility) owned and operated by the Applicant.  FEMA prepared Project Worksheet (PW) 578 to document eligible work to replace the Facility.  Upon completion of the project, the Applicant requested funding for actual costs of $2,396,810.90.  FEMA determined the Applicant completed unapproved construction work, improperly procured a professional services contract, and failed to document its professional services costs.  FEMA deobligated all funding.  On first appeal the Applicant argued that environmental laws and a protracted timeline justified the construction and professional services work, and it had procured its contract in accordance with regulations.  The Regional Administrator (RA) partially granted the appeal for $1,080,812.00 in funding.  The RA found some of the additional construction work eligible, however other items of work constituted improvements to the Facility’s predisaster design and were ineligible.  Additionally, though the Applicant procured its contract in accordance with regulations, the RA found it failed to document eligibility of most professional services costs.  On second appeal, the Applicant requests reimbursement for all actual costs, arguing that the remaining construction work is eligible either as a Federal requirement or a construction “best practice,” and professional services costs were reasonable considering project requirements.

Authorities and Second Appeals

• Stafford Act § 406.
• 44 C.F.R. §§ 13.30(d)(1), 206.206(a), 206.226(d).
• PA Guide, at 27-28, 115.
• Lawrence County Engineer, FEMA-4002-DR-OH, at 6.
• Department of Transportation, FEMA-4068-DR-FL, at 5.

Headnotes

• Per 44 C.F.R. § 13.30(d), an applicant must obtain FEMA’s approval prior to revising the scope of work (SOW).
  • The Applicant repaved the Facility access road without FEMA approval.
  • Work to repave the road is ineligible.
• Per 44 C.F.R. § 206.226(d), construction codes or standards must meet certain criteria to be eligible for funding.
  • The Applicant installed water flow monitoring devices that were not part of the predisaster design of the Facility.
  • Guidelines used to justify the work do not require specific devices, or allow for discretion in the types of devices used, and thus do not meet regulatory criteria.
  • Work to install the devices is ineligible.
• Per 44 C.F.R. § 206.206(a), an applicant must provide documentation justifying eligible work and costs.

  The Applicant provided documentation supporting deed acquisition costs.

  The available documentation does not support eligibility of the remaining professional services costs; the associated work is ineligible.

Appeal Letter

Appeal Analysis

Background

From March 29 to April 16, 2006, a series of severe storms struck Sonoma County, California.  Heavy rains and flooding impacted the Asbury Creek Water Diversion (Facility), and destroyed or severely damaged various components, including a concrete water weir, a water intake structure, an elevated pipeline, and a dirt access road.  The California Department of Developmental Services (Applicant) owns and operates the Facility to provide water for the nearby Sonoma Development Center (SDC).  FEMA prepared Project Worksheet (PW) 578 to document eligible Category D (water control facilities) work to remove the destroyed components and restore the Facility to its predisaster condition.

Continued erosion of the creek embankments at the site made it prohibitively difficult to rebuild the water intake component in its original location.  In consultation with FEMA and the California Governor’s Office of Emergency Services (Grantee), the Applicant modified its construction plans to build the new water intake structure approximately 125 feet downstream from the original location.[1]  FEMA amended the scope of work (SOW) to reflect the change, and obligated the PW with an estimated $1,067,000.00 in eligible restoration work.[2]  The California Department of General Services (Cal DGS), a State agency, facilitated the restoration on the Applicant’s behalf.  In addition to providing project management services, Cal DGS procured two contracts: one for construction work, and one for professional services including environmental compliance consulting, permitting, and project design.

The Applicant completed the project on January 6, 2012.  At project closeout, the Applicant requested funding for actual costs of $2,409,337.90.  The Applicant and Grantee maintained that cost overruns were the result of 12 change orders (COs) added to the construction contract,[3] as well as professional services costs resulting from project management and environmental compliance requirements.  To support its request, the Applicant submitted cost accounting spreadsheets, invoices, site photographs, and other project-related documentation.[4]

In a response dated March 2, 2015, FEMA determined that the Applicant had: (1) appropriately bid its construction contract, but had subsequently approved the 12 COs, which were not in the approved SOW or reviewed by the Grantee or FEMA; (2) submitted a cost accounting without the required detail to determine whether the requested costs met standards for eligibility; (3) accepted charges for professional services without conducting a cost analysis or determining a reasonable cost for units of work; and (4) failed to provide documentation that detailed its real property acquisition costs.[5]  FEMA classified the Facility restoration as an unauthorized improved project and prepared PW 578, version 1, deobligating all funding.

First Appeal

The Applicant appealed on June 4, 2015 for the full amount of its claim ($2,409,337.90).  Regarding FEMA’s closeout findings, the Applicant stated: (1) the majority of the COs (9 of 12) were either required by Federal or State regulations or were considered “best practices;” (2) it provided all cost accounting documentation to the Grantee at project closeout; (3) Cal DGS procured the professional services contract from a pool of prequalified providers, in accordance with State regulation; (4) professional services costs were high due to a number of factors including project complexity, archeological and environmental considerations, and the weather; and (5) its acquisition costs were for easement access through privately-owned land, necessary to facilitate the site restoration.[6]  Finally, the Applicant acknowledged the remaining COs (numbers 5, 9, and 11, with actual costs totaling $12,527.00[7]), had been inadvertently included with the project.  The Applicant provided invoices (including a Cal DGS invoice and an accompanying spreadsheet that itemized all project costs), descriptions of the COs, and deed acquisition documentation.  The Grantee’s appeal transmittal reiterated the Applicant’s arguments and expressed support for the appeal.[8]

In the Final Request for Information (RFI), FEMA notified the Applicant that there was insufficient documentation in the administrative record to support eligibility of the actual costs claimed.  FEMA requested additional support for the services performed by Cal DGS, including a 28-page report referenced on the Cal DGS invoice, descriptions of specific project tasks, and a list of expenses billed by Cal DGS employees.  FEMA also requested information related to other aspects of the project, including: (1) a copy of the deed granting the easement through privately-owned property; (2) the National Marine Fisheries Service (NMFS) Biological Opinion (BO)[9] for the project; (3) citations to the California Water Resources Board regulations that required installation of Water Flow Monitoring Devices (WFMDs) at the Facility (COs 12 and 13); and (4) confirmation that COs 12 and 13 did not contain costs for items of work performed at a separate location.

In its response to the Final RFI, the Applicant provided all of the requested documentation, except for the 28-page report and the descriptions of the tasks performed by Cal DGS.  Additionally, the Applicant submitted a memorandum from the U.S. Army Corps of Engineers (USACE) that authorized environmental permits for the Facility’s restoration, and a cost accounting spreadsheet that showed 25 percent of the actual cost of CO 12 ($16,549.33) and the entire cost of CO 13 ($2,711.00) were for work at a separate facility.[10]

In a decision dated May 2, 2016, the FEMA Region IX Regional Administrator (RA) partially approved the appeal for $1,080,812.00.[11]  The RA found that COs 1-4 and 10 were eligible for Public Assistance (PA) funding.  However, the RA deemed COs 8 and 12 ineligible improvements to the Facility, because paving the access road with gravel (CO 8) exceeded the approved SOW, and the installation of WFMDs at the Facility (CO 12) was completed according to an ineligible construction standard.[12]  While the RA determined that Cal DGS’ procurement of the professional services contract was allowed under regulation, he did not find the Applicant demonstrated the extensive costs for such services were reasonable.  Therefore, the RA found that FEMA was justified to estimate reasonable costs under the professional services contract and, with one exception, that none of the costs for services performed by Cal DGS were reasonable.[13]

Second Appeal

In a letter dated July 12, 2016, the Applicant appeals the RA’s decision and requests re-evaluation of FEMA’s estimate for reasonable professional services costs, and reimbursement of $1,315,998.90 in project overruns.[14]  The Applicant argues that the restoration of the Facility was a “re-engineering” (versus improved) project due to difficulties in constructing the new water intake structure and the resulting revisions to its original construction plan.  Regarding professional services, the Applicant argues that compliance with State and Federal environmental requirements necessitated the hiring of numerous experts to conduct reviews over an extended period, and FEMA’s estimate of reasonable costs did not account for the associated increase in expenses.  To illustrate, the Applicant’s letter lists nine Federal, State, and Tribal organizations it was required to consult with to ensure compliance with environmental regulations.[15]  The Applicant also suggests that the Facility’s proximity to the SDC may exempt improvement work from code and standard criteria since the SDC is on the National Register of Historic Places (NRHP).[16]

The Grantee expresses support for the appeal in its September 8, 2016 transmittal letter, and states that FEMA’s estimate of reasonable costs for professional services ignored the complexity of the construction plan and the cost of expert consultants required for environmental compliance.  The Grantee offers an analysis of the CEF worksheet used to create the estimate, with recommended revisions.  Finally, the Grantee states that the remaining COs are eligible for funding, as paving the access road with gravel (CO 8) was “an extension of the logic/best practices” used at a nearby site, and the installation of WFMDs (CO 12) was a legal Federal requirement imposed by NMFS, and thus constituted an eligible construction standard.[17]

Discussion

Work Exceeding the Approved SOW – Facility Access Road (CO 8)

Section 406 of the Stafford Act authorizes FEMA to provide funding to a State or local government for the repair, restoration, reconstruction, or replacement of a public facility damaged or destroyed by a major disaster.[18]  An applicant must obtain FEMA’s approval prior to revising the scope or objectives of the project, regardless of whether there is an associated budget revision requiring prior approval.[19]  FEMA policy advises an applicant that it must notify the grantee as soon as possible when a change of scope or need for additional funding is discovered.[20]  Moreover, an applicant should not assume that it can report scope change costs at the end of the project and FEMA will automatically fund the new costs.[21]

Regarding repairs to the Facility access road (CO 8), the approved SOW explicitly stated that such repairs were to consist of grading and widening the dirt road surface only.  A description of CO 8 shows that the Applicant instead paved the road’s surface with aggregate base (gravel), on a length that exceeded that which was damaged by the disaster.[22]  This constitutes work completed in excess of the approved SOW.  The Applicant did not submit documentation showing it requested approval from the Grantee or FEMA for the work, prior to completing it.  The Applicant therefore chose to complete work that exceeded the SOW, without prior approval.  The work and its associated cost ($42,504.00) are ineligible for PA funding.[23]

Codes and Standards – WFMDs (CO 12)

FEMA may reimburse costs of Federal, state, and local repair or replacement codes or standards.  Such costs are eligible only if the codes or standards: (1) apply to the type of repair or restoration required; (2) are appropriate to the predisaster use of the Facility; (3) are found reasonable, in writing, and formally adopted and implemented by the state or local government on or before the disaster declaration date or are a legal Federal requirement applicable to the type of restoration; (4) apply uniformly to all similar types of facilities within the jurisdiction of the owner of the facility; and (5) were enforced during the time the standards were in effect.[24]  All five conditions must be met in order to be eligible for funding.[25]  FEMA policy states that an eligible code or standard cannot allow selective application or be subject to discretionary enforcement by public officials.[26]

The Grantee states that the NMFS BO constituted a legal Federal requirement that mandated the installation of the WFMDs at the Facility as a condition for permitting, and therefore the work and costs to purchase and install the devices are eligible for PA funding.  Documentation submitted with the response to the Final RFI substantiates part of the Grantee’s argument, in that USACE conditioned permit authorization on the Applicant’s compliance with the BO.[27]  However, the BO discussed the use of the WFMDs as part of the Applicant’s operation of the Facility, after the decision to use and install them had been made.  The available documentation does not show that NMFS mandated the use of a specific type of device, and does not otherwise describe why the Applicant or DGS selected the WFMDs that were installed.[28]  Furthermore, State guidelines pertaining to water flow monitoring, offered by the Applicant to demonstrate the WFMD requirement, allow for discretion in the types of devices used, and do not mandate the use of such devices if they are deemed not cost effective.[29]  The guidelines are therefore subject to discretionary enforcement by State officials.

Insofar as the installation of the WFMDs used at the Facility represented a standard for construction, the Applicant has not demonstrated that such a standard was required by NMFS, or that the standard was uniformly applied and enforced at similar facilities.  As such, the standard does not meet the criteria required by 44 C.F.R. § 206.226(d) for eligible codes or standards.  Consequently, the work and its associated cost ($49,647.98[30]) are ineligible for PA funding.

Supporting Documentation – Deed Acquisition and Professional Services Costs

Per 44 C.F.R.§ 206.206(a), an appeal must contain documented justification supporting an applicant’s position.  It is the Applicant’s responsibility to demonstrate how its support documentation justifies any claim for PA grant assistance on appeal.[31]  The requirement to submit documented justification of a claim is relevant to eligibility determinations for the following items of work and costs on appeal:

      i.  Easement Grant Deed

On first appeal, FEMA was unable to determine from the available documentation whether numerous costs associated with Cal DGS labor were reasonable.  The easement grant deed, and the labor associated with its acquisition, were among these ineligible costs.  On second appeal, the Grantee notes that FEMA’s estimate of reasonable professional services costs did not include any amount for access, storage, and staging contingencies.[32]

The Applicant required the easement grant deed to gain access to the location of the new water intake structure, a requirement that was unanticipated during the project’s initial development.  Cal DGS acquired the deed on the Applicant’s behalf.  The Applicant submitted documentation related to the acquisition including the deed, purchase records, the transfer of jurisdiction from the State to the Applicant, a property survey, and a spreadsheet recording 183 hours of labor billed by Cal DGS employees.  The documents demonstrate the amount and variety of work associated with the acquisition tasks, including discussions with the property owners and coordination with State agencies for approval of the acquisition action.  In the aggregate, the extent of the work described by the documentation supports eligibility of the associated costs.  Funding for labor and other costs associated with the acquisition of the easement grant deed, totaling $35,040.50,[33] is therefore approved.

      ii.  Professional Services Costs

The Cal DGS cost accounting spreadsheet submitted at project closeout depicts all costs associated with the project, itemized by task, and totaling $2,409,337.90. [34]  This spreadsheet provides a single, comprehensive depiction of all costs and work in the Applicant’s claim.  Thus, the costs associated with Cal DGS employee labor (totaling $508,724.81), as well as the total cost of the construction contract and COs ($786,294.00) are clearly depicted.  However, the claimed cost of the professional services contract ($1,040,797.41) cannot be differentiated from the remaining costs on the spreadsheet (which total $1,114,319.09, a difference of $73,521.68).  Additional documentation that might explain this discrepancy is either contradictory[35] or does not contain the requisite detail to attribute the remaining costs, and therefore the associated tasks, to any party involved with the project.  As a result, the tasks performed under the professional services contract associated with eligible work cannot be determined.  Moreover, excepting the deed acquisition tasks discussed above, the supporting documentation for all professional services work on appeal consists of invoices or spreadsheets that list costs and abbreviated task names only.  The Applicant did not provide accompanying information explaining each task performed, how it was associated with the SOW, or how the cost for each task was justified by the work.  The only descriptions provided are general narrative statements included in the Applicant and Grantee appeal letters, which do not note, discuss, nor document specific tasks.

Therefore, it is not possible to determine work or cost eligibility with the information provided.  The Applicant failed to demonstrate the eligibility of its claim for professional services, despite repeated notification from FEMA that project funding was at risk.  There is nothing to suggest the RA’s first appeal decision regarding this matter was in error.  As such, all items of professional services work and costs, with the exception of costs associated with the easement as described above, remain ineligible for PA funding.

Additional Considerations

The Applicant submitted documentation with the first appeal showing that some of the work completed under CO 12, and all of the work under CO 13, was for the installation of WFMDs at the Mill Creek water diversion.[36]  Such work was unrelated to the Facility and PW 578.  The Applicant nevertheless submitted these costs with its claim.  In the Final RFI, FEMA requested clarification.   In its response, the Applicant provided a spreadsheet showing 25 percent of the actual cost of CO 12 ($16,549.33) and all of the cost of CO 13 ($2,711.00) was for work to install WFMDs at Mill Creek.  FEMA therefore understood the costs and the associated work to be withdrawn from the Applicant’s claim,[37] and the RA’s first appeal decision did not consider them.  However, on second appeal the Applicant again requests reimbursement for the total costs of both COs.  As the RA did not issue a decision on these costs or associated items of work, they are unrelated to the Facility discussed in this appeal and will not be funded pursuant to this determination, which is related to PW 578.

Finally, the Applicant’s second appeal letter suggests that due to the Facility’s proximity to the historic SDC, 44 C.F.R. § 206.226(f)(3) exempts improvements claimed on appeal from compliance with a specific code and standard criteria.  However, 44 C.F.R. § 206.226(f)(3) provides a limited exception for facilities eligible for or on the National Register of Historic Properties.  The Applicant did not specify the work to be considered, any documentation demonstrating a relationship between the Facility and the SDC, or any consideration of eligibility for NRHP registry underway by the National Parks Service.  Without such, any argument to use § 206.226(f)(3) as a means to obtain funding for the Applicant’s project is not compelling.

Conclusion

The Applicant submitted documentation supporting the eligibility of work to acquire the easement grant deed, as required by 44 C.F.R.§ 206.206(a).  Accordingly, funding is granted for associated costs in the amount of $35,040.50.  All other work and costs considered on appeal remain ineligible and funding for them is denied.