Procurement & Contracting Requirements/Allowable Costs & Reasonable Costs

Appeal Brief

Summary Paragraph

Severe storms, tornadoes, straight-line winds, and flooding in the state of Kentucky, during the period of December 10 to December 11, 2021, resulted in a major disaster declaration on December 12, 2021, authorizing Public Assistance (PA) in several Kentucky counties. Pennyrile Rural Electric Cooperative Corporation (Applicant), a Private Nonprofit entity, requested PA funding for the costs to remove debris it said consisted of broken poles from rights of way throughout Christian County (county). FEMA prepared Grants Manager Project 671327 to document the associated costs of $21,305.27. FEMA denied the total project cost, determining that the Applicant lacked documentation to show it complied with procurement and contracting requirements, and did not show it had monitored the debris removal operations. The Applicant appealed, stating the debris removal costs were directly tied to the performance of eligible work and were necessary and reasonable to accomplish the work properly and efficiently. Kentucky Emergency Management forwarded the Applicant’s appeal to FEMA requesting approval of the debris removal costs. FEMA denied the appeal stating: (1) it was unable to determine if the Applicant complied with all applicable procurement and contracting requirements; (2) the Applicant did not substantiate the quantity, original location, or type of removed debris; and (3) the Applicant’s debris monitoring documentation is incomplete and insufficient to validate the performance of eligible work or to verify if the claimed costs were reasonable. The Applicant submits a second appeal for the denied costs and provides a procurement section under its documented procedures. The Applicant states that it complied with this section and, as such, the claimed debris removal is eligible. 

Authorities

• Stafford Act § 407(a).
• 2 C.F.R. §§ 200.318(a), (b), (i), (j)
• 44 C.F.R. §§ 206.223(a)(1), 206.225(a)(1), 206.225(a)(3)(i).
• PAPPG, at 51, 63-65, 76-78, 80, 82-83, 97, 99.
• City of Seneca, FEMA-4542-DR-SC, at 3.

Headnotes

• FEMA provides PA funding for contract costs based on the terms of the contract if an applicant meets federal procurement and contracting requirements. 
  • The Applicant has not provided information demonstrating it complied with federal procurement and contracting requirements.
• 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. 
  • The Applicant did not provide documentation to substantiate that the claimed contract costs are directly tied to eligible work and reasonable. 

Conclusion

FEMA finds the Applicant did not demonstrate that it complied with federal procurement and contracting requirements and has not substantiated that the claimed costs are reasonable. Therefore, this appeal is denied. 

Appeal Letter

Appeal Analysis

Background

From December 10 to December 11, 2021, severe storms, tornadoes, straight-line winds, and flooding impacted the state of Kentucky.[1] Pennyrile Rural Electric Cooperative Corporation (Applicant), a Private Nonprofit (PNP) entity, requested Public Assistance (PA) funding for debris removal operations it conducted from December 27, 2021 to January 5, 2022. Specifically, the Applicant stated it removed 10,760 pounds of broken poles from rights of way (ROWs) to a landfill. FEMA prepared Grants Manager Project (GMP) 671327 to document the associated contract costs of $21,305.27. The Applicant provided invoices, contract work summaries, ROW bids and bid letters, and a description of its procurement process to support its request.

In response to a Request for Information regarding the number and size of poles removed, the Applicant stated that debris was scattered everywhere, that it did not count each pole as it was removed or dumped, and that the poles would have been counted as they were replaced.[2] In a separate communication, the Applicant informed FEMA it did not have any photographs of the debris it removed for this project. 

On March 17, 2023, FEMA transmitted a Determination Memorandum, denying all the requested costs. FEMA determined that the Applicant lacked procurement and contract documentation and did not monitor the debris removal operations. FEMA stated it was unable to determine: (1) if the Applicant complied with its own and federal procurement and contracting requirements; and (2) if it conducted the debris removal work based on the terms of the contract. Further, FEMA stated it could not validate any of the Applicant’s debris removal work and costs. 

First Appeal 

The Applicant filed a first appeal in a letter dated May 15, 2023. The Applicant stated the debris removal costs were directly tied to the performance of eligible work and were necessary and reasonable to accomplish the work properly and efficiently. The Applicant stated it removed a total of 10,760 pounds of broken poles (about 61.38 cubic yards) from the ROWs. The Applicant stated that it took some of the debris to a landfill and left other debris at the site.[3] The Applicant stated one of its contractors deposited 10,760 pounds of debris at the landfill on December 27, 2021. The Applicant pointed to documentation it had previously submitted that included a landfill ticket reflecting the disposal, invoices for the debris removal services which provided specifics about the dates worked, and the labor and equipment the contractors used between the dates of December 27, 2021 to January 5, 2022. 

The Applicant stated it used three contractors to perform the debris removal work: A&G Tree Service, Inc. (A&G), Beaver Tree Service, LLC (Beaver Tree), and Bucks N Bison Farm (Bucks N Bison). The Applicant attached a contract with A&G, and a Hold Harmless Agreement with Beaver Tree. The Applicant stated it did not have formal contracts in place for Beaver Tree or Bucks N Bison but that it had a previous relationship with both contractors and knew their rates from prior work. In a letter dated May 17, 2023, Kentucky Emergency Management (Recipient) forwarded the Applicant’s appeal and recommended approval.

The FEMA Region 4 Regional Administrator denied the appeal in a letter dated October 11, 2023, finding that: (1) FEMA was unable to determine if the Applicant complied with all applicable procurement and contracting requirements; (2) the Applicant did not substantiate the quantity, original location, or type of removed debris; and (3) the Applicant’s debris monitoring documentation was incomplete and insufficient to validate the performance of eligible work or to verify if the claimed costs were reasonable. Accordingly, FEMA found the requested costs ineligible.

Second Appeal

In a letter dated December 8, 2023, the Applicant submitted a second appeal, reiterating its request for $21,305.27. In addition to previously raised arguments, the Applicant states that it complied with its documented procurement procedures, submitting an excerpt from a section of its procurement requirements that stated each borrower may determine the procurement method that best meets its needs to award contracts in amounts of up to a cumulative total of $750,000 or three percent of Net Utility Plant (not to exceed $6,000,000), whichever is greater, per calendar year of distribution line construction. The Applicant then states that the foreman of each of the three contract crews performing the debris removal activities monitored the debris removal operations and reported the activities to the Applicant. In a letter dated December 14, 2023, the Recipient forwarded the appeal to FEMA recommending approval. 

Discussion

Procurement & Contracting Requirements/Allowable Costs & Reasonable Costs

FEMA is authorized to provide PA funding for debris removal, clearance, and disposal when it is in the public interest because it is necessary to eliminate immediate threats to lives, public health and safety, eliminate immediate threats of damage to improved public or private property; or ensure economic recovery, as a result of the disaster.^[4] For PNPs, eligible debris removal is limited to that associated with an eligible facility, including debris on the property of the eligible facility.^[5]

FEMA provides PA funding for contract costs based on the terms of the contract if an applicant meets federal procurement and contracting requirements.[6] Applicants, including PNPs, must comply with federal procurement regulations as a condition of receiving PA funding for contract costs for eligible work and must maintain records to detail the history of the procurement.[7] The applicant must also comply with its own documented procurement procedures provided that those procurement procedures conform to applicable federal law and standards.[8] If a PNP applicant’s own requirement is different from a federal requirement, the applicant must use the more restrictive requirement.[9] In addition, non-federal entities, including PNP applicants, must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts.[10] FEMA may reimburse costs incurred under a time and materials contract only if the following conditions apply: 1) no other contract was suitable; 2) the contract has a ceiling price that the contractor exceeds at its own risk; and 3) the applicant provides a high degree of oversight to obtain reasonable assurance that the contractor is using efficient methods and effective cost controls.[11] 

In the case of non-compliance with federal procurement requirements, FEMA determines a reasonable cost for the eligible work completed based on all available information and documentation.[12] To be eligible, costs must be directly tied to the performance of eligible work and adequately documented.[13] Documentation should provide the “who, what, when, where, why, and how much” for each item claimed.[14] It is the applicant’s responsibility to substantiate its claim as eligible.[15] If the applicant does not provide sufficient documentation to support its claim as eligible, FEMA cannot provide PA funding for the work.[16]

Here, although the Applicant asserts it complied with its own documented procurement procedures, it has not demonstrated that it has likewise complied with federal procurement regulations. For example, the Applicant had a time and equipment contract with A&G but did not show that no other contract was suitable; nor did the contract the Applicant provided include a ceiling price that the contractor would exceed at its own risk. In addition, the Applicant did not show it provided a high degree of oversight to obtain reasonable assurance that A&G was using efficient methods and effective cost controls. Instead, the Applicant stated that the foreman for the contractor directly monitored the debris removal work and reported to the Applicant. Thus, the Applicant did not maintain oversight to ensure that A&G performed in accordance with the terms, conditions, and specifications of the contract by directly monitoring the debris removal work the contractor performed. In the case of Beaver Tree and Bucks N Bison, the Applicant did not provide contracts or other documentation to support that it properly procured their services. The Applicant did not maintain records to detail the history of procurement, such as its rationale for selecting the chosen contractors but stated it had a previous relationship with both contractors. Thus, the Applicant was unable to demonstrate compliance with federal procurement regulations in procuring the services of A&G, Beaver Tree, or Bucks N Bison.

Because the Applicant did not demonstrate it complied with federal procurement regulations, FEMA examined the available documentation in an attempt to determine reasonable costs. The Applicant submitted invoices for all three contractors containing the amounts claimed for each contractor in this project. The A&G and Beaver Tree invoices list the dates on which their employees performed the work and describe the work only as “Storm” or “Storm Work.” The Applicant also submitted daily logs for A&G and Beaver Tree that list employee names, positions, work hours and/or equipment used but provides no further description of the work, debris type or location to support the claimed costs, and no photographs of the debris. For Bucks N Bison, the one invoice for claimed work in this project provides minimal descriptions of the work as “Clean Up Storm Debris.”[17]

It is unclear from the invoices and daily logs the Applicant provided that the claimed work was eligible. The Applicant has claimed that it removed broken poles from ROWs. However, the documentation does not substantiate the type of debris removed, the location of the debris removed, or show that the Applicant was required to remove the debris to access a facility.Therefore, because the Applicant has not substantiated with supporting documentation that the claimed costs are directly tied to the performance of eligible work, the claimed costs are not reasonable. 

Conclusion

FEMA finds the Applicant did not comply with federal procurement and contracting requirements and has not substantiated that the claimed costs are reasonable. Therefore, this appeal is denied.