Support Documentation – Legal Responsibility – Scope of Work

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	FEMA-1909
Applicant	Clarksville Gas and Water
Appeal Type	Second
PA ID#	125-U00B3-00
PW ID#	(PW) 5459
Date Signed	2017-11-22T00:00:00

Conclusion: Clarksville Gas and Water (Applicant) did not demonstrate legal responsibility for service labor.  Additionally, revising the scope of work (SOW) is not supported due to the overlap of appealed items of work performed by the same contractors on other project worksheets (PW).  Accordingly, the appeal is denied with respect to those issues.  However, per the regulatory requirements for a large project, the amount of final funding for eligible work and costs as clarified in this decision must be determined upon reconciliation of the project’s actual costs at closeout.  The Applicant’s appeal rights are preserved with respect to the Agency’s determination of eligible costs.

 

Summary Paragraph

Beginning in April 2010, severe storms impacted the City of Clarksville.  Flooding from the event inundated the Applicant’s Facility.  FEMA prepared multiple PWs for the Applicant’s emergency protective measures.  FEMA documented the Applicant’s claim for actual and estimated contract costs for equipment rental and security to support the Facility’s temporary operations in PW 5459.  FEMA also included estimated direct administrative and construction management costs.  FEMA deducted costs for service labor charged by equipment suppliers because the Applicant did not explain the charges; and deducted equipment costs from invoices included on other PWs.  During PW review, FEMA determined that none of the work was eligible because the Facility was located within the boundaries of a United States Army Corps of Engineers (USACE) flood easement, which held harmless the United States Government from all losses resulting from flood.  The Applicant appealed the USACE ineligibility determination; the disallowed service labor; requested outstanding costs for equipment invoices; and additional emergency protective measures performed by two contractors, contending none of the work was included on other PWs.  The Regional Administrator (RA) partially granted the appeal, finding that the easement did not prohibit FEMA from providing assistance and a costs for the equipment invoices, and estimates for equipment rental and security, construction management, and direct administrative costs.  The RA denied: service labor because the Applicant did not provide rental equipment contracts or detail the work performed; the additional emergency protective measures because items or work were addressed on other PWs, and documentation was deemed insufficient to support changing the scope of work (SOW).  On second appeal, the Applicant: provides service labor documentation which does

not correspond to invoiced dates, but reasserts the work was too specialized for City staff; and reiterates that its contractors performed site wide emergency protective measures that should be funded on PW 5459. 

 

Authorities and Second Appeals

• Stafford Act § 403.

• 44 C.F.R. §§ 206.202(d)(1)(i), 206.203(c)(1), 206.205(b), 206.223(a)(3), 206.225.

• OMB Circular A-87, att. (C)(1)(a) and (j).

• Public Assistance Guide, at 40, 109.

 

Headnotes

• Stafford Act § 403, as implemented by 44 C.F.R. § 206.223(a)(3), requires work to be the legal responsibility of the Applicant.

  • The lease and proposal acceptance do not establish legal responsibility nor do they correspond to how service labor work was billed.

• 44 C.F.R. § 206.225(a) authorizes emergency protective measures necessary to eliminate or lessen immediate threats to life, public health, and safety, as well as threats of significant additional damage to improved property.

• 44 C.F.R. § 206.202(d)(i) provides that the PW identifies the eligible SOW.  Generally, costs that can be tied to the performance of eligible work are eligible.  Costs must also be found reasonable per OMB cost principles.

  • The approved SOW encompasses equipment rentals and security costs.

• 44 C.F.R. § 206.203(c)(1), large project funding shall equal the Federal share of the actual eligible costs documented by the grantee.

• 44 C.F.R. § 206.205(b) explains the project closeout process for grant applicants to reconcile the difference between a project’s estimated and actual costs.

  • FEMA is not permitted to award funding for large projects based on estimates.

  • As such, final funding will be determined by actual costs incurred for eligible work and reconciled at closeout.

 

 

 

Appeal Letter

Appeal Analysis

Background  

From April 30 through May 18, 2010, severe storms, flooding, straight-line winds, and tornadoes impacted Clarksville, Tennessee.  Flooding from the event inundated Clarksville Gas and Water’s (Applicant) Waste Water Treatment Plant (Facility).  FEMA prepared multiple Category B Project Worksheets (PWs) to document the work and costs associated with various emergency protective measures for the Facility, including PW 5459.

In PW 5459’s scope of work (SOW), FEMA detailed the Applicant’s actual and estimated contract costs for the rental of equipment, including temporary pumps, generators, blowers, ventilation fans, truck-mounted vacuums, forklifts, and other equipment required by the Applicant to temporarily operate the Facility.  Due to a damaged gate mechanism and card reader, the SOW also included costs for short-term security guard labor and to relocate a portable building to the Facility for the guards.  Although the PW estimated funding for construction management and direct administrative costs (DAC), FEMA indicated that actual costs would be subject to verification at closeout.[1]  However, FEMA deducted costs for service labor charged by equipment suppliers on invoices because the costs were not explained.[2]  As noted on the PW’s Rented Equipment Summary Record, FEMA also deducted costs for equipment that were allowed on separate PWs.   

FEMA estimated a total of $1,230,523.81 in costs.[3]  However, during review, FEMA determined that none of the work was eligible because the Facility was located within a United States Army Corps of Engineers (USACE) flood easement, which held harmless the United States Government from all losses resulting from flood.  As such, FEMA amended the PW to deny all funding.[4]

First Appeal

In a first appeal dated June 24, 2011, the Applicant claimed a total of $5,326,468.53 in costs.[5]  The Applicant argued that FEMA incorrectly denied funding because the USACE easement did not contain an indemnification provision in favor of the United States, and also disputed FEMA’s understanding of the SOW and amount of its initial claim.  The Applicant contended FEMA identified an incorrect amount in actual costs from its contractor, Belfor USA, Ltd.’s (Belfor), invoices for rented equipment.  It also appealed the costs that FEMA disallowed for service labor performed by another contractor, Aggreko, LLC (Aggreko), and charged to Belfor.  In explanation, the Applicant stated the service labor costs were incurred for an on-site representative to maintain Aggreko’s rented equipment because the work was too specialized for the Applicant’s own employees to perform. 

The Applicant also requested that FEMA expand the SOW and allow $4,067,728.34 in additional costs for site wide emergency protective measures performed by Shermco Industries (Shermco) and Allied Technical Services (Allied).  The Applicant stated that FEMA did not create a PW addressing site wide emergency protective measures and further, that Shermco’s and Allied’s costs for this work were allocated to PW 5459 on advice from FEMA.  It also claimed that Allied’s costs for labor were not allocated to any PW and requested that associated funding be added to either PW 5459 or PW 5374, which funded permanent work for the Applicant’s Primary Clarifier Complex.  The Tennessee Emergency Management Agency (Grantee) concurred with the Applicant and forwarded the appeal in a letter dated August 17, 2011.

On May 11, 2015, the Region IV Regional Administrator (RA) partially approved the first appeal for $1,597,359.25, finding the easement did not prohibit FEMA from providing PA and all costs previously denied because of the easement, as well as the additional actual costs requested for Belfor’s rented equipment, were eligible.  However, the RA denied the service labor costs because the Applicant did not provide (1) rental equipment contracts which may have demonstrated what maintenance and service was needed within the monthly equipment rental invoices; and (2) documentation describing the work performed that was necessary to determine cost reasonableness.[6] 

The RA also denied funding associated with the additional emergency protective measures for both Shermco and Allied, finding overall that the Applicant’s documentation did not support the costs claimed as eligible.  The RA stated that many of Shermco’s cost items supported emergency work covered by other PWs.  Furthermore, she found that descriptions of items included under “Harlan Purchases,” “Site Rentals,” and “Moffitt Diesel Fuel – Shermco Purchases” were vague and incomplete.  Regarding the Allied labor expenses, the RA (1) reiterated that FEMA found the same labor costs ineligible, previously, in denying another of the Applicant’s first appeals (PW 5374); and (2) found that the documentation submitted to support the remainder of the labor costs did not address why the work was eligible, nor did it distinguish previously identified scope and costs from the specific appealed scope addition or cost increase for PW 5459. 

 

Second Appeal

In a second appeal dated July 31, 2015 for $3,990,552.23, the Applicant disputes the RA’s denial of funding for service labor and the additional emergency protective measures for Shermco and Allied.  The Applicant also corrects the amount of service labor costs and the amount of actual costs attributed to Belfor’s portion of rented equipment.  The Applicant provides over 6,800 pages of cost documentation to support its appeal.[7] 

In reference to the items appealed for Aggreko’s service labor and the adjustment of costs for Belfor’s rented equipment, the Applicant explains that Aggreko initially subcontracted to Belfor to provide emergency power and maintenance services for its generators and equipment, which included lubricating parts, maintaining fuel, and changing filters.  The Applicant provides Aggreko’s standard rental agreement terms and conditions (Agreement), and asserts that the Agreement required it to operate and maintain the equipment.  However, the Applicant reiterates that the nature of the work was too specialized for its own staff.  The Applicant states it later contracted directly with Aggreko, and provides Aggreko’s price proposal dated August 18, 2010, and the City of Clarksville’s proof of acceptance dated August 27, 2010.  In addition, the Applicant argues the service labor was necessary and the costs were reasonable under the circumstances because they were incurred to keep equipment operating efficiently.[8]  Lastly, the Applicant corrects the amount claimed for service labor from $307,700.17 to $300,140.17 and argues that because the difference of $7,560.00 is actually for rented equipment which was part of what the RA approved, FEMA should increase the total of Belfor’s rented equipment to $667,461.52.

The Applicant reiterates it allocated $2,505,174.62 of labor, equipment, and materials to PW 5459 for site wide emergency protective measures performed through January 2011 by Shermco based on guidance from FEMA, “even though the PW referenced equipment rental only.”[9]  In addition, the Applicant states the work performed included providing temporary power such as a mobile substation and generator rental, air movers and dehumidifiers, evaluation of the power/control cables for the electrical distribution system, temporarily restoring electrical equipment, providing food, water, and ice for employees, and performing a load study on the distribution system.[10]  The Applicant argues that although it may appear that the costs relate to other PWs, the services were performed site wide, near specified locations/structures as shown on Shermco’s spreadsheet.[11]  The Applicant also attaches additional documentation to support the following items questioned by the RA, explaining that (a) Harlan Purchases include costs for electrical work such as the replacement of light fixtures, panels, and transformers; (b) Site Rentals include costs for multiple equipment items such as a crane, trailer, vehicles, pumps, and generators; and (c) Moffitt Diesel Fuel – Shermco Purchases address fuel costs supplied throughout the Facility.[12]

The remainder of the appeal requests reconsideration of $1,177,677.44 for labor, equipment and associated costs for Allied’s site wide emergency protective measures performed through January 2011.  The Applicant states the work performed included mobilization; transport of rental equipment; providing temporary power, lighting, and food, water and ice to the sewer plant; repair of cranes, control panels, and other miscellaneous items; dewatering; removal of debris; evaluation and set up of temporary processes; and coordination with Applicant staff to determine utility location and layouts.[13]  It reiterates the costs have not been included on any other PWs, and should be allowed on PW 5459 per guidance from a FEMA representative.  Lastly, the Applicant submits invoices[14] together with an affidavit from Allied’s President and Chief Executive Officer in support of the work.[15]  Through a letter dated August 14, 2015, the Grantee agreed with the Applicant and forwarded the second appeal. 

 

Discussion

Support Documentation – Legal Responsibility

Pursuant to Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.223, to be eligible for financial assistance, an item of work must be the legal responsibility of an eligible applicant.[16] 

According to Aggreko’s rental agreement, the lessee shall at its own expense operate, maintain and keep equipment in good repair throughout the duration of the rental period which begins from the date of shipment until returned.  Although the agreement establishes that the lessee is responsible for equipment maintenance, it does not identify the lessee.[17] 

The Applicant asserts it later contracted directly for the work, and submits proof of acceptance of Aggreko’s price proposal, which establishes that the customer (City of Clarksville) is responsible for maintaining and servicing equipment throughout the project’s duration.  The proposal acceptance form was signed by the City of Clarksville on August 27, 2010.[18]  However, the proposal does not correlate to how the costs were billed.  The proposal documents an agreement between Aggreko and the City, whereas the Aggreko invoices are billed to Belfor.  The Applicant provided no documentation of its agreement with Belfor.  Moreover, the proposal stipulates that service labor performed by Aggreko would be charged on a time and material basis,[19] whereas the charges shown on the invoices are lump sum.  Furthermore, according to the invoices, the dates of service indicate Aggreko performed the work before the proposal’s effective date.[20]  Therefore, the proposal was not in place at the time the costs were incurred.  As such, FEMA finds that the documentation provided does not establish the Applicant’s legal responsibility for the work pursuant to 44 C.F.R. § 206.223(a)(3).  Therefore, the amount requested for service labor ($300,140.17) is denied.[21]

 

Scope of Work

Pursuant to Section 403 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, FEMA Public Assistance funding may be provided to a local government to meet immediate threats to life and property resulting from a disaster.[22]  Implementing this authority 44 C.F.R. § 206.225(a) authorizes emergency protective measures necessary to eliminate or lessen immediate threats to life, public health, and safety, as well as threats of significant additional damage to improved property.[23]  The PW identifies the eligible SOW,[24] and, generally, costs that can be directly tied to the performance of eligible work are eligible.[25]

 

Even though PW 5459 ultimately denied funding due to the USACE easement issue, FEMA specifically defined both ineligible and eligible items of work.  With the exception of the two items related to security guard costs, the approved SOW encompassed equipment rentals.  The first appeal decision approved the adjustment of costs but did not authorize changing the SOW because the RA determined that the Applicant was requesting funding for work that was determined ineligible previously (e.g., PW 5374), and because some of the appealed items overlapped with work already identified on other PWs.  On second appeal, FEMA reviewed the Applicant’s other Category B PWs in addition to the information provided with the Applicant’s second appeal. 

 

The Applicant openly acknowledges it has allocated costs for work performed by Shermco and Allied that are outside of PW 5459’s approved SOW and although it contends this was done at FEMA’s direction, it offers no information to support this statement.[26]  It also maintains that none of the appealed items of work are included on other PWs.  However, FEMA disagrees.  As explained previously, PW 5459 specifically noted that some of the costs for rented equipment were addressed in separate PWs.[27]  For example, according to the second appeal’s descriptions of work activities and cost records claimed under PW 5459, Shermco provided temporary power and a mobile substation; evaluated cabling and other components for the damaged electrical distribution system; and temporarily restored electrical equipment.  In PW 5273 (Cat B), FEMA funded the installation and rental of a mobile substation for the distribution of temporary power to various buildings and systems within the Facility.  Shermco also performed electrical work utilizing Harlan Electric as a subcontractor, work that was reimbursed through PW 5273.[28]  The Applicant’s appeal does not explain how this work is distinguishable.[29]

 

In PW 4774, FEMA funded emergency protective measures, explaining that Shermco subcontracted with Belfor to handle cleaning and sanitation of plant surfaces, buildings, equipment, tankage, and piping.[30]  However, the Applicant includes with its second appeal Shermco invoices addressing labor, material, and supply costs for cleaning and sanitation work performed by Belfor under PW 5459.[31] 

 

According to the Applicant, Allied performed mobilization, dewatering, transported rental equipment, provided temporary power distribution to the sewer plant, completed miscellaneous repairs, and removed debris.  The majority of work described is outside PW 5459’s approved SOW.  Moreover, just as with Shermco, appealed work items for Allied overlap with work addressed on PW 5273.  In addition, Allied also performed dewatering activities and provided pump rentals as a subcontractor on PW 3694.[32]   

 

For these reasons, FEMA finds that revising the SOW for PW 5459 is not supported, and is denied.  However, as explained in the next subsection, PW 5459 is a large project and must be handled accordingly. 

Cost Reconciliation

Pursuant to 44 C.F.R. § 206.203(c)(1), large project funding shall equal the Federal share of the actual eligible costs documented by the grantee.[33]  Section 206.205(b) explains the project closeout process for grant applicants to reconcile the difference between a project’s estimated and actual costs.  Upon completion of a large project, an applicant must submit documentation to account for all incurred costs to the grantee.[34]  The grantee is responsible for ensuring that all incurred costs are associated with the approved SOW and otherwise compliant with FEMA standards and policies.[35]  Once the grantee submits the documentation to FEMA for review, FEMA determines the final eligible amount of the project and either obligates or deobligates funds for the project.[36]  Costs must be allocable to the subgrant, adequately documented, and reasonable.[37]

 

The first appeal approved a total of $1,597,359.25, which included adjusted actual costs for Belfor’s rented equipment, and estimated costs for Shermco’s and Allied’s rented equipment; relocating the portable building; construction management; and DAC.  With the exception of the corrected amount for Belfor’s rented equipment, the Applicant’s second appeal presents actual costs by contractor, but does not reconcile them with FEMA’s previously approved estimates.  Per the regulatory requirements, FEMA must reconcile at closeout actual costs incurred.[38]  As such, the Applicant will retain its appeal rights associated with this determination.  Prior to requesting closeout, the Applicant should organize its claim to include only its actual costs for the approved SOW.  Documented, actual reasonable costs that can be directly linked to PW 5459’s approved SOW, as clarified in this decision, may be considered at that time.      

 

Conclusion

The documentation provided does not demonstrate that the Applicant is legally responsible for service labor.  Likewise, the documentation provided does not show that the additional emergency protective measures are eligible for PA reimbursement.  In addition, FEMA Region IV must reconcile and adjust the total eligible amount associated with the approved SOW, as clarified in this decision, based on actual costs at closeout.  The Applicant maintains its appeal rights stemming from any determination made as the result of closeout.

[1] Project Worksheet 5459, Clarksville Gas & Water, Version 0 (Dec. 16, 2010) (noting in the scope of work, for example, “[w]hen these actual costs are provided, the DAC may be adjusted at the time of closeout.”).  FEMA also attached a note to the PW explaining generally that “[t]he accounting of costs at closeout of the large project will determine final eligible cost.”

[2] PW 5459, Clarksville Gas & Water (Version 0), Rented Equipment Summary Record, at 2-3 [hereinafter Equipment Summary] (deducting costs for service labor claimed on three of Aggreko’s invoices under Belfor for a total of $300,140.17).

[3] FEMA initially estimated a cost of $1,258,740.19 and later reduced construction management costs for a final estimated cost of $1,230,523.81.

[4] PW 5459, Clarksville Gas & Water (Version 0), Subgrant Application Workflow History.

[5] The Applicant identified this figure as the total appeal amount, using $1,258,740.19 as the amount denied plus $4,067,728.34 in costs for additional emergency work.

[6] Letter from Reg’l Adm’r, FEMA Region IV, to Deputy Comm’r, Tenn. Emergency Mgmt. Agency, at 1-3 (May 11, 2015).  In addition, the RA acknowledged that the project’s period of performance was extended by the Grantee through November 2011.

[7] Letter from Mayor, City of Clarksville, to Dir., Tenn. Emergency Mgmt. Agency, at 1 (July 31, 2015) [hereinafter Applicant’s Second Appeal].  The Applicant provided a CD containing approximately 6,891 pages of cost support documentation for FEMA review.

[8] Applicant’s Second Appeal, Exhibit 2, at 2 (citing to Office of Mgmt. & Budget, Exec. Office of the President, OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, att. B (2004) (codified at 2 C.F.R. § 225).

[9] Id.

[10] Id. at 3.

[11] Id. (explaining “Shermco’s employees attempted to identify areas in which they were working, which may give the impression that the particular work was performed at that specific structure.”).

[12] Id.

[13] Id. at 5.

[14] Id. at att. 3-2.

[15] Id. at Exhibit 3, 1-2.

[16] 44 C.F.R. § 206.223(a)(3) (2009).

[17] Aggreko, North America Rental Agreement Terms & Conditions, at 1.

[18] Email from Sales Rep., Aggreko, LLC, to City of Clarksville, at 1-5 (Aug. 18, 2010 09:45 AM) (submitting Aggreko’s price proposal prepared for the City of Clarksville, a listing of equipment and associated rates based on shift schedules, and the proposal acceptance form to be signed by the customer).

[19] Id. at 3.

[20] On Aggreko’s invoices under Belfor the dates of service labor charges are: May 15 ($83,236.52), June 28 ($114,173.26), and Aug. 6, 2010 ($102,730.39).  The proposal, dated Aug. 18, 2010, was signed by the City on Aug. 27, 2010.

[21] Even if the Applicant had demonstrated legal responsibility, its support documentation does not explain what work was performed in the level of detail and specificity necessary to demonstrate that costs were reasonable.  For example, the Applicant states in general, that Aggreko lubricated parts, maintained fuel levels and changed filters.  However, it does not explain what work was performed on which units, locations, the number of hours worked, or any other detail necessary for FEMA to evaluate the reasonableness of costs.

[22] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988 § 403, 42 U.S.C. § 5170b (2007).

[23] 44 C.F.R. § 206.225(a).

[24] Id. § 206.202(d)(1)(i).

[25] Public Assistance Guide, FEMA 322, at 40 (June 2007) [hereinafter PA Guide].

[26] Applicant’s Second Appeal, Exhibit 2, at 2 (stating, for example in reference to costs requested for Shermco, that “[Clarksville Gas & Water] included these charges under site-wide [emergency protective measures] under guidance from a FEMA representative, even though the PW referenced equipment rental only.”).

[27] Equipment Summary, at 1 (deducting costs from four of Allied’s invoices claimed on PW 5459 that were included on other PWs).

[28] Project Worksheet 5273, Clarksville Gas & Water, Version 0 (Dec. 8, 2010).  On the PW, the damaged facility is identified as “WWTP Temporary Power Distribution.”  The scope of work specifies funding for long-term monthly equipment rental of the mobile station, but also states that some of the contractor’s labor and material costs are included on a companion PW for the Applicant’s permanent electrical distribution work (PW 4663, Ref. No. CLFMH43).  Similar work initiatives were executed by the same contractors, concurrently, in 2010-2011.

[29] See generally, Applicant’s Second Appeal, att. 2-2-1 (providing Harlan’s Summary and Supply Invoices for labor, material and supply charges incurred for electric work); Shermco Invoice WWTP Shermco PB2.

[30] Project Worksheet 4774, Clarksville Gas and Water (Dec. 2, 2010) (allowing estimated costs for steam cleaning masonry, washing with high pressure, sanitizing with chemicals; and handwashing of electrical and mechanical equipment, handrails, and other areas that could not be cleaned with a pressure washer).

[31] Shermco Invoices WWTP Shermco PB1 & WWTP Shermco PB2.  Descriptions of work performed on Belfor labor crew sheets indicate staff oversaw cleanup; pressure washed inside the building; sprayed sporocide (260, 266-366); cleaned the blower building electrical room (277); and cleaned primary clarifier tank railings (366).

[32] Project Worksheet 3694, Clarksville Gas & Water, Version 2 (Sep. 29, 2016).  In addition, although the Applicant’s appeal narrative summarizes the work performed by Allied, the invoices broadly describe work as “emergency flood response” and present weekly lump sum charges for labor, material, and fuel.  Although weekly labor reports indicate technicians’ names, rates, and hours by day, they do not describe the actual work performed, and supplemental summaries are not provided for each week.

[33] 44 C.F.R. § 206.203(c)(1) (emphasis added).

[34] PA Guide, at 109.

[35] 44 C.F.R. § 206.205(b); PA Guide, at 109.

[36] Id.

[37] OMB Circular A-87, att. C(1)(a) and (j) (2004).

[38] It is recommended that the Region review the Applicant’s closed Category B PWs for this Facility to prevent duplicated funding and to ensure that actual costs are evaluated consistently.