Hamilton High School Roads and Grading

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Desastre	FEMA-1203-DR
Applicant	Hemet Unified School District
Appeal Type	Second
PA ID#	065-91016
PW ID#	21837
Date Signed	2000-10-06T04:00:00

Citation: Hamilton High School Roads and Grading, Hemet Unified School District, FEMA-1203-DR, CA, P.A.I.D. #065-91016, DSR 21837.

Cross-Reference: Subject: Contract for construction, Contractor's responsibility; FEMA Record: DSR #21837.

Summary: The storm damage from the disaster affected completed portions of work that was under construction and thus subject to the construction contract that provides that the Contractor is responsible until it is formally accepted by the owner. The Subgrantee claimed that by making interim payments for the work, it had in fact accepted the work. The Subgrantee is seeking $214,265 in costs.

Issues: The Subgrantee has claimed that (1) "District had accepted the roads and had paid for the roads prior to the Flood," and that (2) "the Contract delegates the financial responsibility for all emergency work to the District." If these claims were true, would it shift the burden of responsibility to the Subgrantee, and thus provide a basis for FEMA eligibility? (3) Is the Subgrantee correct in asserting that the absence of the specific listing of "floods" and "rain damage" from the California Public Contrast Code 7105, which prohibits public agencies from requiring contractors to be responsible for the cost of repair of damage from "acts of God", violates the fourteenth amendment.

Findings: (1) FEMA has determined that the verification of work done by the architect and payment of the interim bills by the Subgrantee do not constitute the kind of formal acceptance of the work provided for by the contract. (2) The contractual provision for compensation for emergency work to protect against damage does not apply to permanent work done to repair disaster damage. (3) The District has no privileges and immunities under the fourteenth amendment since it is contesting the validity of its own state statute.

Rationale: Stafford Act "Special Rule," Section 406(e)(2), 42 U.S.C. (e)(2), 44 CFR 206.223(a)(3).

Appeal Letter

Appeal Analysis

BACKGROUND
This appeal concerns damage caused by water runoff from El Ni?o storms over an extended incident period from February 3 until April 14, 1998. The storm eroded the new roads and utilities that had already been installed on the site of a new school campus, which was under construction at the time of the storms.

The original inspection date for this DSR was October 22, 1998. This project is a $214,265 project to repair storm damage to roads and utilities on a 30-acre school site under construction at the time of the disaster. The FEMA inspector determined that, under the terms of the contract, the work was the responsibility of the contractor, and that none of the work had been formally accepted by the Hemet Unified School District (Subgrantee). Therefore, the work was ineligible for public assistance funding. The Subgrantee's request for an independent FEMA/State review was granted, and on January 6, 1999, at the conclusion of the review process, the California Office of Emergency Services (OES) informed the Subgrantee that the review team had determined that the contract clearly placed the responsibility of the repair and control of the work upon the contractor. Thus, in accordance with 44 CFR 206.223(a)(3), FEMA cannot provide assistance because the contractor is not an eligible applicant.

THE DAMAGE
The 30-acre school facility was under construction at the time of the flooding. Roads, storm drains and utility trenches were damaged after portions of those items had been completed under a contract that included other work not yet completed.

DSRs WRITTEN
DSR #21837 was prepared for $214,265 to cover repairs to the site work required because of storm damage. This amount was determined to be ineligible following an independent FEMA/State review because of a lack of evidence that the owner, rather than the contractor, was responsible for the cost of the damage under the terms of the contract.

FIRST APPEAL
A first appeal was submitted to OES by letter dated August 5, 1999, and forwarded to FEMA on August 7, 1999. It was denied by FEMA by letter dated January 18, 2000. The reason for the denial was the determination that the contractor, rather than the Subgrantee, was legally responsible for the site under the terms of the construction contract. The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), USC 5121 et seq specifically denies eligibility in such situations under the "Special Rule," Section 406(e)(2), (42 USC 5172(e)(2)).

SECOND APPEAL REQUEST
A second appeal was submitted to OES by letter dated March 22, 2000, with a follow-up letter dated May 22, 2000. It was forwarded to FEMA by OES on June 19, 2000 with a cover letter stating that OES "cannot support the District's appeal" because the District had not proved its case. The Subgrantee is seeking $214,265 in costs.

DISCUSSION
The Subgrantee has responded to the FEMA first appeal response conclusion with the following arguments:

1. The Subgrantee claims that the "District had accepted the roads and had paid for the roads prior to the Flood."
   
2. The Subgrantee claims that "regardless of the District's acceptance of the roads, the Contract delegates the financial responsibility for all extra work caused by emergencies to the District."
   
3. The Subgrantee claims that the California Public Contract Code (P.C.C.) 7105, which prohibits public agencies from requiring contractors to be responsible for the cost of repair of damage from "acts of God", should be interpreted as including flood damage, despite its absence in that section of the code's definition of "act of God."
   
4. The Subgrantee also asserts that 7105 of the P.C.C. as applied violates the fourteenth amendment of the U.S.Constitution (Equal Protection) because it does not include flood damage in the definition of "act of God".

(1) Prior Acceptance of the Work: FEMA has determined that the verification of work done by the architect, and payment of the interim bills by the Subgrantee, do not constitute the kind of formal acceptance of the work provided for by the contract. OES reviewed the Subgrantees first contention, based on the records submitted (contractor payment requests and certificates of payment), prior to forwarding this appeal to FEMA. OES reviewers concluded that the evidence submitted failed to verify this part of the Subgrantee's claim. They state, "OES concludes that, while it is evident that the District remitted payment to the contractor for completed portions of the construction project, the certificates of payment clearly indicate that the District had not formally accepted the work. Additionally, the District has not provided a Notice of Completion recorded prior to the disaster which would indicate that they had accepted any portion of the construction project. As such, it can be reasoned that the contractor was still legally responsible for the subject facility at the time of the disaster."

FEMA agrees that mere payment for the work is insufficient evidence that the contractual responsibility for damage to the work had been transferred to the owner. Any subsequent payment by the Subgrantee for the work out of settlement of claims with the contractor or even because of the Subgrantee's determination that it is fair does not transfer that obligation to the Federal government under the terms of the Stafford Act, which specifically precludes the eligibility of such costs. Insurance is normally obtained to cover such losses, and the failure to obtain it does not overcome the restrictions placed on eligibility for FEMA funding cited in the Stafford Act itself.

(2) Contract Provision for Emergency Work: The cited provision in Section 41 of the General Conditions of the Contract, which allows for the contractor to seek "agreement" following the undertaking of added work to "prevent.threatened loss or injury," relates to emergency work carried out by the contractor without the owner's approval prior to a threat, not the permanent repair of damage as directed by the owner after that threat already has its damaging effect. The provision at the top of the same Section 41 states "The Contractor shall be responsible for.the proper care and protection of all materials delivered and work performed until completion and final acceptance by the District" is what is determined to apply in this case.

(3) California Public Contract Code (P.C.C.) 7105: Section 7105(a) of the P.C.C. states in pertinent part that, "Construction contracts of public agencies shall not require the contractor to be responsible for the cost of repairing or restoring damage to the work, which damage is determined to have been proximately caused by an act of God.." Further, act of God under section 7105(b)(2) only includes earthquakes in excess of a magnitude of 3.5 on the Richter Scale and tidal waves. The absence of flood damage in this provision, and its inclusion in other provisions of the P.C.C. does not mean that its absence here is an oversight. Flood risks are more common than the above cited risks, and thus the legislature in its wisdom decided that contractors should bear the responsibility for insuring against that risk (and including such insurance costs in their bid calculations) rather than passing the costs back onto the public purse. (The exception being where the contract between the parties specifically addresses the assumption of that risk by the public agency during the construction period, with a commensurate reduction in the cost of the contract.) In any case, the absence of that risk in the cited code provision is determinative of FEMA eligibility.

(4) Equal Protection:o tention that P.C.C. 7105 violates its fourteenth amendment rights. Township of River Vale held that a municipal corporation is a "person" within the meaning of the fourteenth amendment. Subgrantee, however, has cited a case that is clearly inapplicable to the issues raised in this appeal. In Township, plaintiffs, a municipal corporation in the State of New Jersey, sued the Town of Orangetown located in the State of New York for damages stemming from a change in zoning laws. The court reasoned that because plaintiffs were not challenging a law in their own state, they could invoke the rights granted under the fourteenth amendment. In the instant appeal, Subgrantee is challenging a California State law, specifically California Public Contract Code (P.C.C.) 7105. Subgrantee cannot invoke the rights granted under the fourteenth amendment because it is challenging a statute in its own State of California. It is well established that "a municipal corporation, created by a state for the better ordering of government, has no privileges or immunities under the federal constitution which it may invoke in opposition to the will of its creator," Williams v. Baltimore 289 U.S. 36, 40 (1933). See also Brooklyn & Richmond Ferry Co., Inc. v United States 167 F.2d 330 (1948), City of Sault Ste. Marie v. Andrus 532 F.Supp 157 (D.D.C. 1980). Further, in City of Sault Ste. Marie, the court was critical of the holding in Township of River Vale. "It is well settled that a municipality is a creature of the state, created by the state legislature for the exercise of such powers as the state sees fit. . [A] state cannot confer a constitutional status upon a municipality which the state does not itself enjoy, since the municipality performs the same function as the state," 532 F.Supp at 167. Since the subgrantee in this appeal is only a department of the State of California, the State can withhold or withdraw privileges if it so determines, Brooklyn & Richmond Ferry Co., Inc. v United States 167 F.2d 330 (1948).

FEMA has determined that Subgrantee's claim that its constitutional rights have been violated due to the State's failure to include floods in the definition of "acts of God" under 7105, has no merit. The law is not ambiguous--it specifically does not include rainstorm runoff or floods in its provision. In the instant appeal, FEMA is simply applying the clear and unambiguous language of 7105. Any issue that the Subgrantee may have with the language of 7105 must be addressed by the California State Legislature, not by FEMA. In addition, 7105(d)(2) states, "Paragraph (1) shall not apply to contracts entered into pursuant to any statute expressly requiring that contracts be let or awarded on the basis of competitive bids."

CONCLUSIONS
After a thorough review of the documentation provided by the Subgrantee with this appeal, Article No. 41 in the "General Conditions" of the contract between the Subgrantee and the contractor, unequivocally places the responsibility and risk for this project, including its repair, upon the contractor at the time of the disaster. According to Stafford Act Section 406(e)(2)(42 USC 5172 (e)(2)), a facility under construction is not eligible unless it has been formally accepted by the owner, or the contract places responsibility for the cost of the damage repair upon the Subgrantee during its construction. This did not occur, and, consequently, the storm damage to the work under construction was the responsibility of the contractor. The fact that the Subgrantee had paid for some or all of the work by making progress payments (which are common in such large projects) does not change this fact.

For the reasons cited above, I have determined that the responsibility for repair of the damages remained with the contractor at the time of the disaster. In accordance with the Stafford Act and 44 CFR 206.223(a)(3), assistance cannot be provided to the private contractor.

The appeal is denied.