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Overhead Costs and Security Wall
Appeal Brief
Appeal Letter
Appeal Analysis
Citation: FEMA-1008-DR-CA, City of Los Angeles, Department of Water and Power; Project Funding, DSR #s 92172, 33574, 33575, 33576, 33577, 92002 & 98749
Cross-reference: Grant Acceleration Program
Summary: As a result of the Northridge Earthquake, the City of Los Angeles, Department of Water and Power (LADWP) sustained damage to the Upper San Fernando Lake Dam and six receiving and switching stations: Receiving Station U, Rinaldi Receiving Station, Receiving Station E, Receiving Station J, Olive Switching Station and Sylmar Switching Station. Following acceptance of Grant Acceleration Program (GAP) settlement offers, FEMA approved GAP DSR 92172 in the amount of $1,093,458 for Upper San Fernando Lake Dam. LADWP submitted a Project Completion and Certification Report (P.4) claiming $74,640 for rental equipment and $17,364 for rental equipment overhead costs. FEMA denied the $17,364 claim on the basis that the overhead charges were not substantiated or documented. The actual costs claimed for the rental equipment were approved. FEMA also approved GAP DSRs 33574, 33575, 33576, 33577, 92002 & 98749 for a total amount of $49,271,297 for the site receiving stations. LADWP submitted a Project Completion and Certification Report (P.4) claiming actual costs for the repair work to each of the facilities. LADWP claimed rental equipment costs at the six facilities totaling $901,933, which included a 16% overhead markup. At closeout, FEMA denied the claim for the rental equipment and overhead on the basis that the overhead charges were not sufficiently supported through documentation. The final funding amount resulted in under runs for each project, which totaled $14,729,178. The under run amount was transferred by DSR 12250, approved on April 29, 2002, to various hazard mitigation projects. LADWP also claimed $100,455 in additional costs for the security wall at the Rinaldi Receiving Station.
Issues: (1) Has LADWP provided adequate documentation to support its claim for rental equipment overhead charges?
(2) Has LADWP provided documentation to support its claim for $100,455 in additional costs for the security wall at the Rinaldi Receiving Station?
Findings: (1) No. Actual costs for the rental equipment were approved; however, LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices. LADWP has not provided documentation to support its claim for rental equipment overhead charges.
(2)
(3) Yes. LADWP has provided supporting documentation for the security wall at the Rinaldi Receiving Station.
Rationale: 44 CFR § 206.203 (c)(1); 44 CFR § 206.228 (b)(2)
WATER SYSTEM APPEAL
BACKGROUND
The LADWP is requesting reconsideration of the Federal Emergency Management Agencys (FEMAs) determination on the eligibility of $14,972 (calculated at $17,364 in P.4 closeout and in first appeal, recalculated and reduced to $14,972 in second appeal) in overhead costs associated with rental equipment charges for the Upper San Fernando Dam project.
In January 1994, the Northridge Earthquake caused damage to the Upper San Fernando Lake Dam which is owned by LADWP. Following acceptance of a Grant Acceleration Program (GAP) settlement offer, FEMA approved GAP DSR 92172 on April 12, 1999, in the amount of $1,093,458 for Upper San Fernando Lake Dam. LADWP submitted a Project Completion and Certification Report (P.4) claiming $74,640 for rental equipment and $17,364 for rental equipment overhead costs. FEMA denied the $17,364 claim on the basis that the overhead charges were not substantiated or documented. The actual costs claimed for the rental equipment were approved.
First Appeal
LADWP appealed FEMAs determination to deny $17,364 of overhead charges in its first appeal dated April 1, 2003, claiming the accounting procedures for determining and allocating overhead costs were valid. LADWP stated that the rental equipment charges are the actual rental invoice amounts, with an additional 16-percent added for overhead costs added to the actual rental equipment to recover indirect costs associated with fleet operation. Examples of the indirect costs include fuel, minor repairs to rental equipment, dispatching, and operations/maintenance. FEMA denied the appeal on February 3, 2004, citing 44 CFR § 206.203(c)(1), which states that federal funding shall equal the federal share of the actual eligible costs documented by the grantee. LADWP did not submit documentation that clearly establishes a direct relationship between the overhead charges and the eligible rental vehicle costs.
Second Appeal
LADWP submitted a second appeal by letter dated May 14, 2004, requesting that FEMA reconsider the eligibility of rental equipment overhead costs in the amount of $14,972 (reduced from $17,364 as originally claimed on the closeout sheet due to recalculation). In the appeal, LADWP indicated it would establish a reasonable and appropriate overhead rate and provide adequate documentation to FEMA by July 2004. The Grantee, the State of California, Governors Office of Emergency Services (OES), did not support the second appeal because LADWP did not provide any additional information.
DISCUSSION
Costs for the rental equipment were approved, as determined from actual rental invoices. LADWP claimed an additional 16% on all rental equipment for overhead. In accordance with Title 44 Code of Federal Regulations, documentation is a fundamental requirement for approval of actual costs. LADWP failed to meet the basic FEMA and OMB requirements to adequately document and support costs for any overhead on rental equipment and, therefore, did not comply with the subgrantee record retention requirements in 44 CFR §13.42, and submit the proper documentation (invoices) for the claimed indirect costs. LADWPs documentation standards do not provide a level of detail necessary to support its claim and do not meet the standards set forth in 44 CFR §13.20(b)(5). It is not possible to determine if the claimed costs were reasonable or directly related to eligible work under the DSRs.
Furthermore, there is no supporting documentation to determine LADWPs responsibility for repairs to rental equipment, dispatching, and operations/maintenance as claimed. LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices. LADWP has not provided sufficient documentation to support its claim for rental equipment overhead charges.
POWER SYSTEM APPEAL
BACKGROUND
The LADWP is requesting reconsideration of FEMAs determination on the eligibility of $74,820 in rental equipment overhead costs at six receiving and switching stations. In January 1994, the Northridge Earthquake caused damage to the following facilities: Receiving Station U, Rinaldi Receiving Station, Receiving Station E, Receiving Station J, Olive Switching Station and Sylmar Switching Station, which are owned by LADWP. Following acceptance of Grant Acceleration Program (GAP) settlement offers, FEMA approved GAP DSRs 33574, 33575, 33576, 33577, 92002 & 98749, for a total amount of $49,271,297 for the site receiving stations. LADWP submitted a Project Completion and Certification Report (P.4) claiming actual costs for the repair work to each of the facilities. LADWP claimed rental equipment costs at the six facilities totaling $901,933, which included a 16% overhead markup. At closeout, FEMA denied the claim for the rental equipment and overhead on the basis that the overhead charges were not sufficiently supported through documentation. The final funding amount resulted in under runs for each project, which totaled $14,729,178. The under run amount was transferred by DSR 12250, approved on April 29, 2002, to various hazard mitigation projects.
First Appeal
LADWP submitted its first appeal to OES on August 2, 2002, and again on November 18, 2002. OES returned the appeals to LADWP when OES incorrectly asserted that, because the projects had been funded under the GAP, LADWP waived its right to appeal the closeout determinations. FEMA recommended that OES forward LADWPs appeal for FEMA consideration since acceptance of a GAP offer did not preclude the appeal of non-GAP issues. LADWP then submitted an appeal dated February 19, 2003, which OES forwarded to FEMA on August 13, 2003. The appeal requested that the funds totaling $901,933, that were re-directed through DSR 12250, be re-assigned back to the original DSRs. LADWP appealed the final funding determinations related to the closeout of the six projects, with respect to both eligibility of the direct rental equipment costs and the 16% overhead markup.
After review of the appeal submittal and closeout documentation, FEMA requested that LADWP submit additional information to support the equipment rental and overhead costs. Based on the summary spreadsheet and backup information submitted, FEMA partially approved the appeal. FEMA determined that rental equipment costs totaling $676,062 were eligible. The overhead charges were denied on the basis the fees charged were general in nature and LADWP had not supplied any additional documentation that supported the direct relation of the overhead fees to the eligible rental vehicle costs.
Second Appeal
LADWP submitted a second appeal by letter dated October 8, 2004, requesting that FEMA reconsider the eligibility of rental equipment overhead costs in the amount of $73,338. The appeal included a summary of LADWPs overhead calculation methodology, overhead rates for 1995 through 2000, and explanation regarding rate fluctuations, as well as a claim for two additional invoices totaling $1,482. LADWP claimed a total of $74,820. The appeal states that LADWPs methodology for calculation of overhereMA reconsider its current accounting practice for applying overhead to actual equipment rentals as an eligible cost. No additional supporting documentation was provided with the appeal to evaluate overhead costs.
DISCUSSION
As part of the scope of work identified in DSR 33576 for the Rinaldi Receiving Station, $104,488 was approved for repair of a security wall. LADWP submitted their final claim for the project (DSR 33576). Upon review of the claim by FEMA, it was determined that the cost summaries and other supporting documentation submitted did not substantiate the cost for the security wall portion of the project. Therefore, the costs were denied. The initial First Appeal, dated August 2, 2002, argued that the claim for the security wall in the amount of $100,455 should be approved. However, as stated above, the initial appeal letter was (incorrectly) returned by OES to LADWP. When LADWP re-submitted their First Appeal, the new letter did not specifically identify the security wall, but rather incorporated by reference all issues raised in the August 2, 2002, appeal letter. No cost summary or supporting documentation was provided. FEMA did not address the security wall claim in its First Appeal response, nor did LADWP specifically raise it as an issue in the Second Appeal. However, subsequent to submitting the Second Appeal, LADWP initiated several telephone conversations with FEMA inquiring about the status of the costs for the security wall. In January 2005, LADWP requested that FEMA address this issue in the ongoing Second Appeal. On February 7, 2005, LADWP faxed FEMA a revised P.4 claim that identified the amount claimed ($100,455) and provided supporting documentation in the form of a Summary Spreadsheet for the in-house labor, equipment and material costs for the work performed. This type of documentation has been uniformly accepted in support of LADWPs projects for force account costs throughout the 1008 disaster closeout effort.
LADWP claimed $100,455 in additional costs for the security wall at the Rinaldi Receiving Station and had provided supporting documentation. Telephone conversations with FEMA Northridge Long Term Recovery Area Office staff confirmed the validity of the security wall cost claim in the amount of $100,455.
Costs for the rental equipment were approved, as determined from actual rental invoices. LADWP claimed an additional 16% on all rental equipment for overhead. In accordance with Title 44 Code of Federal Regulations, documentation is a fundamental requirement for approval of actual costs. LADWP failed to meet the basic FEMA and OMB requirements to adequately document and support costs for any overhead on rental equipment and, therefore, did not comply with the subgrantee record retention requirements in 44 CFR §13.42, and submit the proper documentation (invoices) for the claimed indirect costs. LADWPs documentation standards do not provide a level of detail necessary to support its claim and do not meet the standards set forth in 44 CFR §13.20(b)(5). It is not possible to determine if the claimed costs were reasonable or directly related to eligible work under the DSRs.
Furthermore, there is no supporting documentation to determine LADWPs responsibility for repairs to rental equipment, dispatching, and operations/maintenance as claimed. LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices. LADWP has not provided sufficient documentation to support its claim for rental equipment overhead charges.
CONCLUSION
Based on a review of the information provided, LADWP has not provided sufficient documentation to support its claim for rental equipment overhead charges. Further, 44 CFR § 206.228(b)(2) precludes the payment of indirect costs to subgrantees. Accordingly, the equipment overhead charges portion of the appeal is denied.
LADWP has provided supporting documentation for its claim of $100,455 in additional costs for the security wall at the Rinaldi Receiving Station. Therefore, this amount is approved. The Regional Director will take appropriate action to implement this decision. LADWPs appeal is partially granted.
Appeal Brief
| Disaster | FEMA-1008-DR |
| Applicant | City of Los Angeles, Dept of Water & Power |
| Appeal Type | Second |
| PA ID# | 037-91079 |
| PW ID# | 92172, 33574, 33575, 33576, 33577, 92002 & 98749 |
| Date Signed | 2005-09-27T04:00:00 |
(2) Has LADWP provided documentation to support its claim for $100,455 in additional costs for the security wall at the Rinaldi Receiving Station?
(2)
(3) Yes. LADWP has provided supporting documentation for the security wall at the Rinaldi Receiving Station.
Appeal Letter
September 27, 2005
Paul Jacks
Governors Authorized Representative
California Office of Emergency Services
P. O. Box 419047
Rancho Cordova, CA 95741
RE: Second Appeal City of Los Angeles, Department of Water and Power; PA ID # 037-91079, Overhead Costs and Security Wall,
FEMA-1008-DR-CA
Dear Mr. Jacks:
This letter is in response to the referenced second appeal transmitted by your letter dated December 6, 2004. In its appeal, the City of Los Angeles, Department of Water and Power (LADWP) requested additional funding for rental equipment overhead costs totaling $89,792 ($14,972 for the Water System and $74,820 for the Power System facilities) and $100,455 in additional costs for the security wall at the Rinaldi Receiving Station.
As explained in the enclosed analysis, I have determined that LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices to support its claim for rental equipment overhead charges. LADWP has provided supporting documentation for the security wall at the Rinaldi Receiving Station. Therefore, the appeal is partially approved. By copy of this letter, I am requesting the Regional Director take appropriate action to implement this determination.
Please inform the LADWP of my determination. My determination constitutes the final decision on this matter as set forth in 44 CFR § 206.206.
Sincerely,
/S/
Daniel A. Craig
Director
Recovery Division
Emergency Preparedness and Response
Enclosure
cc: Karen Ames
Acting Regional Director
FEMA, Region IX
Paul Jacks
Governors Authorized Representative
California Office of Emergency Services
P. O. Box 419047
Rancho Cordova, CA 95741
RE: Second Appeal City of Los Angeles, Department of Water and Power; PA ID # 037-91079, Overhead Costs and Security Wall,
FEMA-1008-DR-CA
Dear Mr. Jacks:
This letter is in response to the referenced second appeal transmitted by your letter dated December 6, 2004. In its appeal, the City of Los Angeles, Department of Water and Power (LADWP) requested additional funding for rental equipment overhead costs totaling $89,792 ($14,972 for the Water System and $74,820 for the Power System facilities) and $100,455 in additional costs for the security wall at the Rinaldi Receiving Station.
As explained in the enclosed analysis, I have determined that LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices to support its claim for rental equipment overhead charges. LADWP has provided supporting documentation for the security wall at the Rinaldi Receiving Station. Therefore, the appeal is partially approved. By copy of this letter, I am requesting the Regional Director take appropriate action to implement this determination.
Please inform the LADWP of my determination. My determination constitutes the final decision on this matter as set forth in 44 CFR § 206.206.
Sincerely,
/S/
Daniel A. Craig
Director
Recovery Division
Emergency Preparedness and Response
Enclosure
cc: Karen Ames
Acting Regional Director
FEMA, Region IX
Appeal Analysis
The City of Los Angeles, Department of Water and Power (LADWP), submitted two second appeals, one with respect to overhead charges for equipment rental costs incurred by LADWPs Water System, and the other with respect to the overhead charges for rental equipment costs incurred by LADWPs Power System. The Power System appeal also requests consideration of additional actual rental equipment costs. The two appeals cross reference each other and LADWP submits that the methodology used to compute overhead charges for the Water System and the Power System is identical; therefore, the two appeals were transmitted together.WATER SYSTEM APPEAL
BACKGROUND
The LADWP is requesting reconsideration of the Federal Emergency Management Agencys (FEMAs) determination on the eligibility of $14,972 (calculated at $17,364 in P.4 closeout and in first appeal, recalculated and reduced to $14,972 in second appeal) in overhead costs associated with rental equipment charges for the Upper San Fernando Dam project.
In January 1994, the Northridge Earthquake caused damage to the Upper San Fernando Lake Dam which is owned by LADWP. Following acceptance of a Grant Acceleration Program (GAP) settlement offer, FEMA approved GAP DSR 92172 on April 12, 1999, in the amount of $1,093,458 for Upper San Fernando Lake Dam. LADWP submitted a Project Completion and Certification Report (P.4) claiming $74,640 for rental equipment and $17,364 for rental equipment overhead costs. FEMA denied the $17,364 claim on the basis that the overhead charges were not substantiated or documented. The actual costs claimed for the rental equipment were approved.
First Appeal
LADWP appealed FEMAs determination to deny $17,364 of overhead charges in its first appeal dated April 1, 2003, claiming the accounting procedures for determining and allocating overhead costs were valid. LADWP stated that the rental equipment charges are the actual rental invoice amounts, with an additional 16-percent added for overhead costs added to the actual rental equipment to recover indirect costs associated with fleet operation. Examples of the indirect costs include fuel, minor repairs to rental equipment, dispatching, and operations/maintenance. FEMA denied the appeal on February 3, 2004, citing 44 CFR § 206.203(c)(1), which states that federal funding shall equal the federal share of the actual eligible costs documented by the grantee. LADWP did not submit documentation that clearly establishes a direct relationship between the overhead charges and the eligible rental vehicle costs.
Second Appeal
LADWP submitted a second appeal by letter dated May 14, 2004, requesting that FEMA reconsider the eligibility of rental equipment overhead costs in the amount of $14,972 (reduced from $17,364 as originally claimed on the closeout sheet due to recalculation). In the appeal, LADWP indicated it would establish a reasonable and appropriate overhead rate and provide adequate documentation to FEMA by July 2004. The Grantee, the State of California, Governors Office of Emergency Services (OES), did not support the second appeal because LADWP did not provide any additional information.
DISCUSSION
Costs for the rental equipment were approved, as determined from actual rental invoices. LADWP claimed an additional 16% on all rental equipment for overhead. In accordance with Title 44 Code of Federal Regulations, documentation is a fundamental requirement for approval of actual costs. LADWP failed to meet the basic FEMA and OMB requirements to adequately document and support costs for any overhead on rental equipment and, therefore, did not comply with the subgrantee record retention requirements in 44 CFR §13.42, and submit the proper documentation (invoices) for the claimed indirect costs. LADWPs documentation standards do not provide a level of detail necessary to support its claim and do not meet the standards set forth in 44 CFR §13.20(b)(5). It is not possible to determine if the claimed costs were reasonable or directly related to eligible work under the DSRs.
Furthermore, there is no supporting documentation to determine LADWPs responsibility for repairs to rental equipment, dispatching, and operations/maintenance as claimed. LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices. LADWP has not provided sufficient documentation to support its claim for rental equipment overhead charges.
POWER SYSTEM APPEAL
BACKGROUND
The LADWP is requesting reconsideration of FEMAs determination on the eligibility of $74,820 in rental equipment overhead costs at six receiving and switching stations. In January 1994, the Northridge Earthquake caused damage to the following facilities: Receiving Station U, Rinaldi Receiving Station, Receiving Station E, Receiving Station J, Olive Switching Station and Sylmar Switching Station, which are owned by LADWP. Following acceptance of Grant Acceleration Program (GAP) settlement offers, FEMA approved GAP DSRs 33574, 33575, 33576, 33577, 92002 & 98749, for a total amount of $49,271,297 for the site receiving stations. LADWP submitted a Project Completion and Certification Report (P.4) claiming actual costs for the repair work to each of the facilities. LADWP claimed rental equipment costs at the six facilities totaling $901,933, which included a 16% overhead markup. At closeout, FEMA denied the claim for the rental equipment and overhead on the basis that the overhead charges were not sufficiently supported through documentation. The final funding amount resulted in under runs for each project, which totaled $14,729,178. The under run amount was transferred by DSR 12250, approved on April 29, 2002, to various hazard mitigation projects.
First Appeal
LADWP submitted its first appeal to OES on August 2, 2002, and again on November 18, 2002. OES returned the appeals to LADWP when OES incorrectly asserted that, because the projects had been funded under the GAP, LADWP waived its right to appeal the closeout determinations. FEMA recommended that OES forward LADWPs appeal for FEMA consideration since acceptance of a GAP offer did not preclude the appeal of non-GAP issues. LADWP then submitted an appeal dated February 19, 2003, which OES forwarded to FEMA on August 13, 2003. The appeal requested that the funds totaling $901,933, that were re-directed through DSR 12250, be re-assigned back to the original DSRs. LADWP appealed the final funding determinations related to the closeout of the six projects, with respect to both eligibility of the direct rental equipment costs and the 16% overhead markup.
After review of the appeal submittal and closeout documentation, FEMA requested that LADWP submit additional information to support the equipment rental and overhead costs. Based on the summary spreadsheet and backup information submitted, FEMA partially approved the appeal. FEMA determined that rental equipment costs totaling $676,062 were eligible. The overhead charges were denied on the basis the fees charged were general in nature and LADWP had not supplied any additional documentation that supported the direct relation of the overhead fees to the eligible rental vehicle costs.
Second Appeal
LADWP submitted a second appeal by letter dated October 8, 2004, requesting that FEMA reconsider the eligibility of rental equipment overhead costs in the amount of $73,338. The appeal included a summary of LADWPs overhead calculation methodology, overhead rates for 1995 through 2000, and explanation regarding rate fluctuations, as well as a claim for two additional invoices totaling $1,482. LADWP claimed a total of $74,820. The appeal states that LADWPs methodology for calculation of overhereMA reconsider its current accounting practice for applying overhead to actual equipment rentals as an eligible cost. No additional supporting documentation was provided with the appeal to evaluate overhead costs.
DISCUSSION
As part of the scope of work identified in DSR 33576 for the Rinaldi Receiving Station, $104,488 was approved for repair of a security wall. LADWP submitted their final claim for the project (DSR 33576). Upon review of the claim by FEMA, it was determined that the cost summaries and other supporting documentation submitted did not substantiate the cost for the security wall portion of the project. Therefore, the costs were denied. The initial First Appeal, dated August 2, 2002, argued that the claim for the security wall in the amount of $100,455 should be approved. However, as stated above, the initial appeal letter was (incorrectly) returned by OES to LADWP. When LADWP re-submitted their First Appeal, the new letter did not specifically identify the security wall, but rather incorporated by reference all issues raised in the August 2, 2002, appeal letter. No cost summary or supporting documentation was provided. FEMA did not address the security wall claim in its First Appeal response, nor did LADWP specifically raise it as an issue in the Second Appeal. However, subsequent to submitting the Second Appeal, LADWP initiated several telephone conversations with FEMA inquiring about the status of the costs for the security wall. In January 2005, LADWP requested that FEMA address this issue in the ongoing Second Appeal. On February 7, 2005, LADWP faxed FEMA a revised P.4 claim that identified the amount claimed ($100,455) and provided supporting documentation in the form of a Summary Spreadsheet for the in-house labor, equipment and material costs for the work performed. This type of documentation has been uniformly accepted in support of LADWPs projects for force account costs throughout the 1008 disaster closeout effort.
LADWP claimed $100,455 in additional costs for the security wall at the Rinaldi Receiving Station and had provided supporting documentation. Telephone conversations with FEMA Northridge Long Term Recovery Area Office staff confirmed the validity of the security wall cost claim in the amount of $100,455.
Costs for the rental equipment were approved, as determined from actual rental invoices. LADWP claimed an additional 16% on all rental equipment for overhead. In accordance with Title 44 Code of Federal Regulations, documentation is a fundamental requirement for approval of actual costs. LADWP failed to meet the basic FEMA and OMB requirements to adequately document and support costs for any overhead on rental equipment and, therefore, did not comply with the subgrantee record retention requirements in 44 CFR §13.42, and submit the proper documentation (invoices) for the claimed indirect costs. LADWPs documentation standards do not provide a level of detail necessary to support its claim and do not meet the standards set forth in 44 CFR §13.20(b)(5). It is not possible to determine if the claimed costs were reasonable or directly related to eligible work under the DSRs.
Furthermore, there is no supporting documentation to determine LADWPs responsibility for repairs to rental equipment, dispatching, and operations/maintenance as claimed. LADWP has not provided information to establish the direct link between the overhead charges and the eligible rental vehicle invoices. LADWP has not provided sufficient documentation to support its claim for rental equipment overhead charges.
CONCLUSION
Based on a review of the information provided, LADWP has not provided sufficient documentation to support its claim for rental equipment overhead charges. Further, 44 CFR § 206.228(b)(2) precludes the payment of indirect costs to subgrantees. Accordingly, the equipment overhead charges portion of the appeal is denied.
LADWP has provided supporting documentation for its claim of $100,455 in additional costs for the security wall at the Rinaldi Receiving Station. Therefore, this amount is approved. The Regional Director will take appropriate action to implement this decision. LADWPs appeal is partially granted.