Procurement Standards

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	1771-DR-IL
Applicant	Henderson County
Appeal Type	Second
PA ID#	071-99071-00
PW ID#	Audit DD-11-22
Date Signed	2013-09-20T00:00:00

Citation:  FEMA-1771-DR-IL, Henderson County, Procurement Standards

Cross-Reference:  Documentation, Reasonable Costs

Summary:  Severe storms resulting in widespread flooding of the Mississippi River between June 1, 2008, and July 22, 2008, caused a 2,000-foot breach in the Henderson County (Applicant) levee flooding areas in Henderson County, the Village of Gulfport, and approximately 5 miles of U.S. Route 34.  The Applicant entered into a sole-source, time and materials contract for all necessary emergency services to dewater the area and to restore county functions to normal.  The contract did not have a clear, well-defined scope of work.  Because the Applicant did not follow proper procurement procedures, FEMA based the eligibility of the final costs claimed by the Applicant on reasonable costs, supported by RS Means cost estimates that could be validated by supporting documentation.  FEMA approved final funding for PWs 1523 (temporary levee) and 1524 (emergency dewatering) for $413,871 and $2,721,712 , respectively, while the Applicant claimed actual, incurred costs, totaling $831,267 for PW 1523 and $13,208,692 for PW 1524.  The OIG conducted an audit of the grant funds provided to the Applicant. Finding A in the audit report questioned $3,645,431 provided under PWs 1523, 1524, and 1623, because the Applicant did not follow Federal procurement standards outlined in Title 44 of the Code of Federal Regulations (44 CFR) §13.36 for the two contracts discussed above and for a hazardous waste removal contract addressed under PW 1623.  FEMA did not address procurement or the reasonableness of the costs for the hazardous waste removal contract in the PW.  The FEMA Deputy Regional Administrator deobligated the costs questioned by the OIG under Finding A.  The Applicant submitted a first appeal objecting to the deobligation of $3,645,431 asserting that deobligating the funding four years after the event violates “any standard of estoppel, fairness, and any other legal applicable standard.”  The FEMA Deputy Regional Administrator denied the first appeal, stating that OMB Circular A-50 establishes the Regional Administrator’s authority and responsibility to implement corrective measures based on audit findings and recommendations.  The Applicant’s second appeal, essentially reiterates its position put forward in the first appeal. 

Issue: Is the funding questioned in Finding A of the audit report for reasonable costs incurred by the Applicant for eligible work performed?

Findings:  Yes, for PWs 1523 and 1524.  Regarding PW 1623, FEMA did not address the procurement in the PW, and the Applicant did not discuss PW 1623 in its appeal.

Rationale:  44 CFR § 13.36 Procurement; OMB A-87; FEMA 322 Public Assistance Guide (June 2007)

Appeal Letter

Appeal Analysis

Background

Severe storms resulting in widespread flooding of the Mississippi River between June 1, 2008, and July 22, 2008, caused a 2,000-foot breach in a levee maintained by Henderson County, Illinois (Applicant), flooding areas of the county, including the Village of Gulfport and approximately 5 miles of U.S. Route 34.  The flooding also damaged two pumps with a combined capacity of 110, 000 gallons per minute at the Drainage District Number 2 Pump Station.

The Applicant entered into a sole-source, time-and-materials contract with contractor for all necessary emergency services to dewater approximately 28,000 acres and to restore county functions to normal.  The contract did not have a clear, well-defined scope of work.  The contractors subcontracted out the work required to construct a 3,000-foot, temporary levee and to dewater the area.  The Applicant sought reimbursement for the costs it incurred under the contract from FEMA.

FEMA determined that the rate schedules for both labor and equipment included in the contract were unreasonable; therefore, FEMA prepared PW 1523 for the construction of the temporary levee and PW 1524 for the dewatering effort based cost estimates, in the amounts of $437,509 and $2,628,525, respectively.  Subsequently, the Applicant submitted requests for additional funding for both PWs based on actual, incurred costs that were well in excess of FEMA’s cost duplication, unreasonable costs, and costs and invoices related to different projects.  FEMA determined there was adequate and verifiable documentation to support $413,871 in total costs for PW 1523 and $2,721,712 for PW 1524.  FEMA determined that these amounts were reasonable for the work performed based on the documentation that the Applicant submitted.  FEMA adjusted total funding for each PW accordingly.

The Applicant also hired a contractor to perform hazardous waste removal and disposal.  FEMA prepared PW 1623 to fund the contract costs for this work; however, FEMA did not include the PW information about the procurement or the reasonableness of the costs.  FEMA ultimately approved $589,487 for the actual project costs and for direct administrative costs.

The Department of Homeland Security Office of the Inspector General (OIG) conducted an audit of the Public Assistance grant funds FEMA provided to the Applicant as a result of FEMA-1771-DR-IL.  It presented its findings and recommendations in a memorandum report dated September 27, 2011, to the Region V Regional Administrator (Audit Report Number DD-11-22).  The report’s Finding A questioned $3,645,431 provided under PWs 1523, 1524, and 1623.  The OIG recommended disallowing this amount because, it found,  the Applicant did not follow Federal procurement standards outlined in Title 44 of the Code of Federal Regulations (44 CFR) §13.36 for the three projects discussed above.  Region V Deputy Regional Administrator (acting in place of the Regional Administrator, who recused himself from the matter) concurred with the OIG report recommendations and notified the state of Illinois (Grantee)by letter dated March 15, 2012, that FEMA would deobligate the costs questioned by the OIG, including the $3,645,431 identified in Finding A.

First Appeal

The Applicant submitted a first appeal in a letter dated May 16, 2012, challenging the corrective actions put in place as the result of OIG Audit Report DD-11-22.  The Applicant specifically objected to the deobligation of $3,645,431 related to Finding A.  According to the Applicant, FEMA determined that the Applicant did not follow proper procurement procedures for the temporary levee construction or emergency dewatering, but nevertheless concluded that reasonable costs for eligible work performed were eligible.  The Applicant asserted that deobligating the funding four years after the event violates “any standard of estoppel, fairness, and any other legal applicable standard.”  The Grantee forwarded the Applicant’s appeal to FEMA on May 22, 2012, supporting the Applicant’s request. 

The Region V Deputy Regional Administrator denied the first appeal in a letter dated August 13, 2012, stating that Office of Management and Budget (OMB) Circular A-50 establishes the Regional Administrator’s authority and responsibility to implement corrective measures based on audit findings and recommendations.

Second Appeal

The Applicant submitted a second appeal on October 5, 2012, essentially reiterating its position it set forth in its first appeal.  The Applicant is not appealing the specific determination made regarding how it procured the contracts at issue.  Instead, the Applicant states that deobligating the funding is “improper” based on “common sense, fundamental fairness, and sound legal reasoning” and the purpose behind the Robert T. Stafford Disaster Relief and Emergency Assistance Act.  The Grantee forwarded the Applicant’s appeal to FEMA on November 14, 2012, supporting the Applicant’s request.  

Discussion

Procurement Requirements and Enforcement Options

In order for the costs of contracted work to be eligible for reimbursement by FEMA, local government Public Assistance applicants (such as the Applicant in this case), must adhere to set forth in 44 CFR §13.36, Procurement, when procuring contractors to perform the work.  These procurement standards require, among other things, full and open competition and avoidance of certain prohibited contract pricing structures.  Reimbursement of local government applicants’ costs also is subject to principles set forth in 2 CFR Part 225, Cost Principles for State, Local, and Indian Tribal Governments (OMB Circular A-87).  If an applicant materially fails to comply with such requirements, FEMA is authorized to take a variety of actions pursuant to 44 CFR §13.43, Enforcement, including disallowing “all or part of the cost of the activity or action not in compliance’ and taking “other remedies that may be legally available.” FEMA, therefore, has myriad options at its disposal when an applicant violates Federal regulations related to Public Assistance-related procurement.  Even when an applicant incurs costs under a contract procured through improper procurement procedures, FEMA may reimburse costs it determines are reasonable for the performance of eligible work.  As noted on page 53 of FEMA 322, Public Assistance Guide (June 2007), “FEMA may separately evaluate and reimburse costs it find and reasonable,” even if the costs are incurred through contracting that is deficient under 44 CFR Part 13.

Here, for the temporary levee and dewatering work documented in PWs 1523 and 1524, respectively, the Applicant entered into a time-and-materials contract.  The use of that type of contract is restricted under 44 CFR §13.36.  In addition, the contract did not contain a clear scope of work.  In light of the contracting deficiencies, the OIG recommended deobligating costs associated with PWs 1523 and 1524.  Concurring with the recommendation, the Region V Deputy Regional Administrator deobligated $343,376 associated with PW 1523 and $2,721,712 associated with PW 1524.  As discussed, however, FEMA is authorized to reimburse allowable costs associated with eligible work under 44 CFR §13.22, even if the costs are incurred under contracts that an applicant improperly procures.  Although the Applicant was not able to provide sufficient documentary support for the total amount of costs it claimed under PWs 1523 and 1524, it has provided documentation supporting the $343,376 associated with PW 1523 and $2,721,712 associated with PW 1524 that the OIG questioned and that the Region V Deputy Regional Administrator deobligated.

Supporting Documentation for PW 1523

Specifically as to PW 1523 (temporary levee), the following documentation associated with prime contractors and subcontractors supports reimbursement of the deobligated $343,376:

JESCO Construction:

Invoice #DD10-0001-8, dated October 14, 2008, $272,880.74

This invoice supports $272,880.74 in claimed costs. The backup documentation consisted of time sheets, subcontractor invoices, equipment hour logs, expense claims and daily labor hour reports. The supporting data, however, also contained excessive hourly billing and hourly rates.  In addition, two subcontractor invoices (MEPCO #83155 and #83154) were determined to be for work at other sites and deleted from the Applicant’s claim.

ATC Associates:

Invoice #1526193, dated October 23, 2008, $68,270.76

This subcontractor presented an invoice in the amount of $93,500, which was supposedly based upon the final billing of JESCO.  This invoice was rejected and further documentation was requested to support the invoice amount. The subcontractor subsequently provided an 8-page attachment to the original invoice, which provided the details for labor and other expenses for this project. FEMA determined that a majority of the labor hours expended on this project were for site visits and monitoring the progress of the levee construction. There is no evidence of any design or engineering services in the labor detail.  The documentation provided sufficient evidence to show that project management functions and field testing was performed.  The contractor provided documentation to support $68,270.76, which is entered on the contracts sheet.

JMM & Associates:

Invoice #JMM09-01, dated May 23, 2009, $1,018.00

Invoice #JMM09-02, dated June 30, 2009, $1,206.50

These invoices support $2,224.50 in claimed costs. This backup consisted of contractor invoices, a detailed description of work, salaries, travel and lodging expense claims, and daily labor hour reports.  This contractor assisted in the administration of this PW.  The invoices submitted indicated an hourly rate of $220 per hour, which FEMA determined to be unreasonable for direct administrative costs.  Based on a reasonable hourly rate of $72.68 per hour, which was rounded to $75.00 per hour, the adjusted amount is $2,224.50.

Supporting Documentation for 1524

As to PW 1524 (dewatering), the following documentation associated with prime contractors and subcontractors supports reimbursement of the deobligated $2,721,712:

JESCO Construction:

Invoice #DD10-00001-1, dated August 26, 2008, $574,866;

Invoice #DD10-00001-2, dated August 26, 2008, $190,776;

Invoice #DD10-00001-3, dated August 26, 2008, $111,386;

Invoice #DD10-00001-4, dated August 26, 2008, $35,166;

Invoice #DD10-00001-6, dated September 1, 2008, $591,201;

Invoice #DD10-00001-7, dated September 1, 2008, $67,200.

These invoices support $1,570,595 in claimed costs for labor only, as requested by the Applicant.  These costs include salaries for JESCO employees as well as the subcontractors.  The backup documentation included contractor and subcontractor invoices, equipment hour logs, travel and lodging expense claims, and daily labor hour reports.

Paul Williams:

Invoice #080726-01, dated July 26, 2008, $9,815.00;

Invoice #080808-02, dated August 8, 2008, $8,775.00;

Invoice #0800820-03, dated August 20, 2008, $13,195.00;

Invoice #080903-01P, dated September 3, 2008, $1,741.09.

These invoices support $33,526.09 in claimed costs.  The backup documentation consists of an independent consultant agreement, time sheets, subcontractor invoices, equipment hour logs, expense claims, and daily labor hour reports with work descriptions.

Service Pump & Compressor:

Invoice #23700700-001, dated August 4, 2008, $44,460.05;

Invoice #23657543-002, dated August 26, 2008, $84,833.10;

Invoice #23657543-003, dated August 29, 2008, $14,804.18;

Invoice #23657543-004, dated September 3, 2008, $47,310.07

These invoices support $191,407.40 in claimed costs. The backup documentation consists of equipment invoices identifying trash pumps (by model and serial number), hoses, freight charges, time sheets, contractor invoices, equipment hour logs, expense claims, and daily labor hour reports.

RSC Equipment Rental:

Invoice #3796367-1, dated August 7, 2008, $2,683.56

Invoice #38019322-1, dated August 13, 2008, $8,224.02

Invoice #38019322-2, dated August 21, 2008, $940.11

Invoice #3796671-2, dated September 2, 2008, $2,683.56

Invoice #38019322-3, dated September 2, 2008, $1,827.41

Invoice #38530232-1, dated September 112008, $608.01

These invoices support $16,966.67 in claimed costs.  The backup documentation consists of time sheets, contractor invoices, equipment hour logs, expense claims, and daily labor hour reports.

Godwin Pumps:

Invoice #725394, dated July 29, 2008, $1,800.00

Invoice #728100, dated August 8, 2008, $21,560.00

Invoice #732037, dated August 28, 2008, $84.04

Invoice #732977, dated September 3, 2008, $7,416.20

Invoice #732986, dated September 3, 2008, $2,847.80

These invoices support $33,708.04 in claimed costs. The backup documentation consists of contractor invoices with type, make, model and description of each piece of equipment, hours in/hours out equipment hour logs, expense claims, and daily labor hour reports.

Godwin Pumps:

Invoice #726477, dated July 31, 2008, $192,008.00

Invoice #726705, dated August 4, 2008, $176,508.00

Invoice #728470, dated August 11, 2008, $176,508.00

Invoice #728660, dated August 12, 2008, $25,837.00

Invoice #731442, dated August 26, 2008, $199,666.60

These invoices support $680,527.60 in claimed costs. The backup documentation consists of contractor invoices with type, make, model and description of each piece of equipment, hours in/hours out equipment hour logs, expense claims, and daily labor hour reports.

CS & Associates:

Invoice dated August 28, 2008, $19,200.00

Invoice dated September 8, 2008, $21,600.00

Invoice dated November 20, 2008, $26,573.57

Invoice dated March 3, 2009, $23,700.00

These invoices support $91,073.87 in claimed costs. The backup documentation consists of contractor invoices, time sheets, expense claims, and daily labor hour reports.

MEPCO:

Invoice #83155, dated August 5, 2008: $10,612.50

Invoice #83154, dated August 5, 2008: $15,937.50

These invoices support $26,550 in claimed costs. The backup documentation consists of contractor invoices with unit prices, quantities, and work descriptions.

R.E. Huber:

Invoice #71876, dated September 8, 2008; $3,000.00

This invoice supports $3,000 in claimed costs. The backup documentation consists of a contractor invoice, a letter of dispute and a letter from the vendor explaining the rationale for the charge, quantities, and work descriptions.

D&S Excavators:

Invoice #87221, dated August 11, 2008, $23,979.38

Invoice #5008, dated October 23, 2008, $5,500.00

These invoices support $29,478.38 in claimed costs. The backup documentation consists of contractor invoices with type, make, model and description of each piece of equipment, unit prices, quantities, and work descriptions; fuel receipts and labor sheets.

JMM & Associates:

Invoice #JMM09-01, dated May 23, 2008, $1,358.41

Invoice #JMM09-02, dated June 30, 2008, $621.50

Invoice #JMM09-03, dated September 1, 2009, $880.00

Invoice #JMM09-04, dated September 9, 2009, $2,035.00

These invoices provide supports $4,894.91 in claimed costs.  The backup documentation consists of contractor invoices, a detailed description of work, salaries, travel and lodging expense claims, and daily labor hour reports.  This contractor assisted in the administration of this PW.  The invoices submitted indicated an hourly rate of $220 per hour, which FEMA determined to be unreasonable for direct administrative costs.  Based on a reasonable hourly rate of $72.68 per hour, which was rounded to $75.00 per hour, the adjusted amount is $4,894.91.

Ann B. Shavers (Master Accountant)

Invoice, dated September 1, 2008, $15,708.04

Victoria Cornea (Accountant)

Invoice, dated September 17, 2008, $12,500.00

These invoices support $28,208.04 in claimed costs. This backup documentation consists of contractor invoices, a detailed description of work, salaries, travel and lodging expense claims, and daily labor hour reports.  These contractors assisted in the accounting and administration of this project.

ATC Associates:

Invoice #1516531, dated August 24, 2008, $8,175.00

These invoices support $8,175 in claimed costs. This backup documentation consists of contractor invoices, a detailed description of work, salaries, travel and lodging expense claims, and daily labor hour reports.

Lee Mathews Equipment:

Invoice #87095, dated July 23, 2008, $1,800.00

Invoice #87327, dated August 22, 2008, $1,800.00

These invoices support $3,600 in claimed costs. The backup documentation consists of contractor invoices with type, make, model and description of each piece of equipment.

In sum, the costs associated with the temporary levee construction (PW 1523) and the dewatering (PW 1524) were incurred in the performance of eligible work, are reasonable and supported by RS Means cost estimates that could be validated by supporting documentation.  Accordingly, the amounts questioned by the OIG for PWs 1523 ($343,376) and 1524 ($2,721,712) and subsequently deobligated are reasonable and eligible for reimbursement.

PW 1623

As to PW 1623 (hazardous waste removal), although the amount requested by the Applicant in its appeal includes the funding de-obligated from that PW ($580,343), the Applicant does not address the PW, the hazardous waste removal contract, or the associated costs in its appeal.  FEMA approved funding under PW 1623 based on the actual contract costs.  Because the OIG determined that the Applicant did not follow proper procurement or contracting procedures and the Applicant provided no documentation to justify the reasonableness of the costs it claimed, the costs are ineligible and should remain deobligated.

Conclusion

FEMA, the OIG, the Grantee, and the Applicant agree that the Applicant did not satisfy applicable procurement standards when procuring the contracts at issue in this appeal.  However, the Applicant did incur costs associated with eligible work addressed in PWs 1523 and 1524, and FEMA was able to determine eligible, reasonable costs associate with those two PWs.  The funding deobligated from PWs 1523 and 1524 as recommended by the OIG was reasonable for the work performed and, therefore, eligible.  Because the Applicant did not address in its appeal the costs associated with PW 1623, those costs shall remain deobligated.