Equipment – Replacement Costs – Improved Project

Appeal Brief

Appeal Letter

Appeal Analysis

Background

On May 22, 2011, an E-5 tornado struck the City of Joplin, Missouri (Applicant), causing extensive damage throughout the community.  As a result of the tornado, some of the Applicant’s fire trucks suffered significant damage, with five of the vehicles a total loss.  In addition, three other fire vehicles and other pieces of fire equipment incurred repairable damage. 

FEMA wrote Project Worksheet (PW) 1939 for the permanent repair and replacement of fire vehicles and related equipment, for a total estimated award of $439,785.00.  In estimating the award, FEMA used either the actual cash value (ACV) from the Applicant’s insurer or the salvage value of the totaled vehicles.  The following totaled vehicles were included in PW 1939:[1]

• • 1997 Freightliner Pumper – ACV $102,500.00
  • 2004 Freightliner Pumper – ACV $141,500.00
  • 1992 GMC 4x4 Brush Truck – ACV $11,000.00
  • 2004 Chevy 4x4 Brush Truck – ACV $30,000.00
  • 24-foot HazMat Trailer – Insurance est. salvage value $6,145.00
     

On September 26, 2016, the Missouri State Emergency Management Agency (Grantee) submitted a request for a Large Project Final Accounting, in which the Applicant requested payment of $919,633.78.[2]  Included in this amount were costs for two new fire trucks (pumpers), as opposed to used trucks that were similar to the totaled trucks, and additional equipment not included in PW 1939.

FEMA issued a Determination Memorandum (DM) via letter dated February 23, 2018, denying the request for reimbursement.[3]  FEMA noted that per agency policy, eligible replacement costs for vehicles are based on used items of similar age, capacity, and condition.  The Applicant, however, purchased new vehicles without demonstrating that similar used items were either not available within a reasonable time or distance or not in accordance with national consensus standards.  In addition, FEMA noted that the Applicant purchased additional fire equipment not included in PW 1939.  Consequently, FEMA determined that the PW amounted to an improved project and capped the award at the obligated amount less actual insurance proceeds, for a total of $212,829.62.[4] 

First Appeal

The Applicant appealed in a letter dated April 18, 2018, arguing that the new trucks and upgraded equipment were eligible under FEMA Recovery Policy (RP) 9524.10.[5]   First, the Applicant claimed it had a history of only purchasing custom fire trucks that were specific to the needs of its fire department and that the totaled trucks were “custom specified trucks.”[6]  Standard commercial fire engines would not meet the needs of its fire department because used custom engines would be built to a different department’s specifications.  The Applicant did not explain what its department’s specifications were, but instead referred FEMA to a 2010 bid application that included requests for custom specifications.  In addition, the Applicant argued that it was impossible to find comparable used fire vehicles, and in support of that argument, provided a list of differences between used fire engines it purchased for temporary use under PWs 1929 and 1950[7] and its department’s custom fire engines. 

Second, the Applicant argued that it only purchased new police and fire vehicles for replacement because first responders used the vehicles, thus requiring reliable and safe vehicles.  The Applicant submitted its city budget for fiscal years 2000, 2003, and 2010, arguing that the budgets showed scheduled replacement of vehicles with new vehicles.  Moreover, the Applicant stated that it had purchased used vehicles for PW 1950 in the aftermath of the tornado because they would only be used temporarily while custom trucks were built.

Third, the Applicant argued that all of the equipment purchased and claimed for reimbursement in PW 1939 was standard equipment on fire engines.  It also provided a list of its standard equipment inventory since 2002, noting also if the National Fire Protection Agency (NFPA) required an item.  The Applicant argued it did not request an improved project because it simply replaced destroyed items and repaired items that were damaged.

Finally, the Applicant argued that FEMA should not have used the ACV from its insurance company to estimate the reimbursement costs because large project reimbursement is based on actual costs at the time of closeout.  The Applicant stated that even if FEMA chose not to reimburse the Applicant for the new trucks, FEMA should use the value of the used trucks purchased under PW 1950 as those would be the most comparable.    

FEMA issued a request for information (RFI) on June 22, 2018, requesting the following information:[8]

• Explanation of the Applicant’s process for determining that used fire vehicles were not available or did not meet applicable national consensus standards.
• An ordinance or written internal policy or other document, created prior to the disaster, demonstrating the Joplin Fire Department’s fire engine specifications.
• Documentation showing that NFPA standards required the purchase of only new trucks.
• Explanation of why the Applicant accepted the scope of work (SOW) as written and did not inform FEMA of the Applicant’s policy of only purchasing new, custom trucks; or, an explanation of how the SOW included the purchase of new trucks; and documentation showing the Applicant notified the Grantee of the need to purchase new trucks.
• Statement of whether or not the Applicant kept the temporary fire trucks in PW 1950, and if they were sold, for how much.
• Confirmation that since Applicant is requesting increased funding in excess of the cost of the temporary trucks in PW 1950 which were most comparable to the destroyed vehicles, this would constitute a duplication of benefits necessitating deobligation of PW 1950.

The Applicant responded to the RFI via letter dated July 20, 2018.  The Applicant stated that it searched the internet for comparable used trucks when it was looking for temporary trucks in PW 1950, but that it could not identify any used trucks that were comparable to the destroyed vehicles at issue in PW 1939.[9]  In addition, the Applicant stated that it did not have a written internal policy stating the specifications for the Joplin Fire Department (JFD) or that the JFD only purchased new replacement vehicles.  Instead, the Applicant directed FEMA to the bid documentation from 2010 for an aerial ladder truck.[10]  Although this was a bid package for a type of vehicle not at issue in PW 1939, the Applicant argued that it showed the pre-disaster required custom specifications, and since custom fire trucks have a lifespan of 15-25 years, the 2010 bid was the most recent.  The Applicant also stated that while it followed NFPA standards for some of its specifications, NFPA did not require new replacement trucks and moreover, the NFPA did not have authority to create standards for the Applicant.[11]  In addition, the Applicant directed FEMA to another bid package and to an e-mail in which the Joplin Fire Department’s fleet manager stated that even the temporary trucks in PW 1950 did not meet the JFD’s minimum standards.[12]  Finally, the Applicant stated that it did not agree that there would be a duplication of benefits between PW 1939 and PW 1950, and again requested that FEMA only use the value of PW 1950 in estimating the amount of the capped award in PW 1939.[13]

FEMA Region VII denied the first appeal on October 10, 2018.  The Regional Administrator (RA) found that no code or standard justified the purchase of new trucks and additional equipment under 44 C.F.R. § 206.226(d).[14]  In addition, the Applicant established that the JFD only had a preference for purchasing new trucks, but not a requirement, and the Applicant did not demonstrate that comparable used equipment or trucks of the same age, condition, and capacity were not reasonably available.[15]  Although large project reimbursement is funded based on actual documented costs, the RA noted that the Grantee is also responsible for ensuring that the incurred costs are associated with the approved SOW.[16]  Finally, the RA found that FEMA’s designation of an improved project was proper because the Applicant exceeded the SOW by purchasing new, custom trucks and equipment.[17]  The RA agreed with the Applicant that the eligible costs should be based on the costs of the most comparable vehicles to the ones destroyed in the disaster.[18]  However, the RA went on to find that FEMA should deobligate all funding in PW 1950 to avoid a duplication of benefits, given that the temporary trucks functioned as the permanent replacement trucks for PW 1939.[19]

Second Appeal

The Applicant submitted its second appeal in a letter dated December 7, 2018.  The Applicant argued that it had demonstrated the configuration of the totaled trucks through the bid documentation, budget documents, e-mail from the Fleet Manager, and photographs of the trucks pre- and post-disaster.[20]  While the Applicant had demonstrated a history of purchasing new replacement trucks, it stated that it could do no more than that, given that the Missouri Constitution does not allow the legislature to make an appropriation longer than one year.[21]  In addition, for an entity funded by taxpayer dollars, the Applicant argues it was not practical to adopt a policy for only purchasing new trucks.[22]  The Applicant disagrees that the temporary trucks constitute permanent replacement vehicles for the two destroyed fire trucks.  Furthermore, the SOW in PW 1950 and 44 C.F.R. § 13.32(e)(2) permitted the Applicant to retain the temporary fire trucks; FEMA amended PW 1950 on April 13, 2016, stating that the salvage value would be applied to the initial purchase price of the vehicles, which reduced the net purchase price.  Moreover, the Applicant never received a DM for PW 1950, but did receive a request from the Grantee requesting that the Applicant reimburse $325,287.56, approximately 75 percent of the amount approved and paid for in PW 1950.[23]

Discussion

Equipment – Replacement Costs

FEMA reimburses costs of restoring eligible facilities based on a facility’s existence immediately before the disaster.[24]  In addition, if a disaster damages equipment, including vehicles, beyond repair, FEMA will reimburse the costs of replacement with used items of approximately the same age, capacity, and condition as the destroyed items.[25]  FEMA may approve replacement with new items only if used items are not available within a reasonable time or distance, or do not meet applicable national consensus standards.[26]  Moreover, salvage value of the damaged items along with insurance proceeds should be deducted from the estimated replacement costs.[27]  

The Applicant has not demonstrated that comparable used fire trucks were not available within a reasonable time or distance, nor incompatible with national consensus standards.[28]  The Applicant argues that it was impossible to prove that comparable used trucks did not exist and also argues that it had a practice of only purchasing new vehicles for replacement of first responder vehicles.  Although the Applicant states that it searched the internet and could find no comparable used vehicles, it never provided all of the specifications of its fire trucks that were destroyed during the disaster.  Without that information, it is impossible to know whether or not comparable trucks were reasonably available.  In addition, the Applicant does not argue that used fire trucks did not meet national consensus-based standards.  Rather, the Applicant argues that its fire department had a practice of only purchasing new vehicles because of public safety concerns.  First, this is not a national consensus standard, and second, the Applicant has not shown why used trucks would not have provided comparable safety and reliability for first responders.  The Applicant also maintains that used trucks would not have been comparable because they would have come from different fire departments that would have had different specifications from that of the Applicant.  But again, the Applicant never detailed what those specifications were.  Even though the Applicant provided bid packages for other fire trucks, prior budgets,[29] and a list of fire equipment inventory, this does not provide information to show what specifications were included in the destroyed trucks and why other trucks would not have been comparable.  Therefore, costs for purchasing used fire trucks of a comparable age, capacity, and condition would have been eligible for reimbursement, but not costs of purchasing new trucks.  

Improved Project and PW 1950

An Applicant may make improvements to a project while still restoring the pre-disaster function of a damaged facility.[30]  FEMA funding for improved projects is limited to the Federal share of the costs that would be associated with repairing or replacing the damaged facility to its pre-disaster design, or the actual costs of completing the improved project, whatever is less.[31]  In addition, when an Applicant no longer needs original or replacement equipment for an original project, the Applicant may retain or sell the equipment if its value exceeds $5,000, but must reimburse FEMA its share of the current fair market value by the time of closeout of the disaster.[32]  FEMA defines fair market value as the value of the equipment as determined by sale “in a completive market or [by] researching advertised prices for similar items on the used market.”[33]  FEMA calculates the current fair market value at the time when the approved deadline has expired or when the Applicant no longer needs the equipment for the authorized purpose.[34]

FEMA’s decision to treat PW 1939 as an improved project was appropriate.  Although the Applicant purchased new trucks instead of comparable used trucks, it still set out to restore the pre-disaster function of the fire trucks.[35]  Therefore, because the costs of the new fire trucks greatly exceeded that of the approved original costs, FEMA properly capped funding at the approved original costs, less insurance proceeds, to fund the PW as an improved project.      

In PW 1950, FEMA stated that per 44 C.F.R. § 13.32(e)(2), the Applicant could choose to retain or sell the temporary used trucks at the end of their use, but would have to reimburse FEMA accordingly.  The Applicant chose to do so, and FEMA reduced the award in that project accordingly, based on the salvage value of the trucks.[36]  Notably, even if the Applicant would have purchased comparable used trucks in PW 1939 instead of new trucks, the Applicant still would have been able to retain the temporary used trucks in PW 1950.  The Applicant’s decision to retain the temporary fire trucks as training and backup fire trucks was appropriate, and would not have been a duplication of benefits.  There is nothing in FEMA regulation or policy stating that the Applicant had to forfeit the award in PW 1950 entirely if it chose to make improvements in PW 1939.  While the Applicant suggested that FEMA should use the value of the trucks in PW 1950 to calculate the eligible costs of PW 1939 as an improved project, that does not mean that FEMA needed to treat the temporary used trucks as permanent replacement vehicles for PW 1939.  FEMA should have maintained the decision in the DM to treat PW 1939 as an improved project and capped funding at the original, approved eligible costs, and should not have deobligated all funding for PW 1950.  

Conclusion

The Applicant has not demonstrated that used comparable vehicles were not reasonably available nor incompatible with national consensus standards.  For this reason, FEMA is denying the request for additional funding for the new fire vehicles and the award in PW 1939 will remain capped at $212,829.62.  However, FEMA is partially granting the appeal by reinstating funding in PW 1950, as FEMA policy permits the Applicant to retain the temporary fire trucks, provided the Applicant reimburses FEMA the fair market value.  FEMA Region VII is directed to reinstate funding for PW 1950 in the amount of $667,267.74, minus the fair market value of the vehicles.