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  • Procurement
    Appeal Type: 
    2nd
    Report Type: 
    PW
    Appeal Categories: 
    Applicant Name: 
    Town of Vinton
    Disaster Number: 
    1607-DR-LA
    DSR: 
    564
    Date Signed: 
    Wednesday, August 20, 2014
    PA ID: 
    019-78820-00
    Summary/Brief: 

    Conclusion: Although the Applicant did not use competitive procurement procedures in contracting for debris removal services, FEMA has determined that the debris removal rates paid by the Applicant were reasonable, and, as such, the actual cost billed for debris removal in PW 564 is eligible for funding.  Accordingly, the additional amount of $119,934 requested by the Applicant is eligible.

    Summary Paragraph

    High winds due to Hurricane Rita resulted in downed tree limbs which severely interrupted electrical service throughout the Applicant’s service area.  The Applicant contracted to remove tree limbs from electric utility power lines.  Initially, FEMA obligated $319,976, as recorded on PW 564, for work that the contractor completed.  The OIG performed an audit of the Applicant’s Public Assistance sub-grant and recommended that FEMA de-obligate $119,934 in funding, to which FEMA agreed and de-obligated that amount.  The rationale for de-obligating the funding was that the Applicant “piggybacked” on a written contract between the Contractor and another local government.  In addition, FEMA contended that the Applicant did not follow proper procurement methods, as outlined in 44 C.F.R. § 13.36.  In its first appeal, the Applicant stated that its contract with the Contractor was not “piggybacking” because the Applicant did not adopt all of the terms, conditions, and charges set forth in the original contract between Lafayette and the Contractor.  The Regional Administrator (RA) denied the first appeal and added that the costs of the work performed were unreasonable.  The RA noted that there was no written contract that included language accepting higher rates for disaster conditions.  The RA determined that the eligible amount of the PW was $200,042 by deducting the excess contract costs charged by the contractor from the amount that FEMA originally obligated.  The Applicant submitted a second appeal on the basis that the contract is not “piggybacking” for the aforementioned reasons and that reasonableness of costs should not have been considered in the first appeal response because DHS-OIG did not question reasonable costs.  The Applicant cites 44 C.F.R. § 13.36(d)(4), Procurement, Procurement by noncompetitive proposals, as supporting its claim regarding the reasonableness of the contractor’s hourly rate.

    Authorities and Second Appeals

    • 44 C.F.R. § 13.36.
    • 44 C.F.R. § 13.43.
    • OMB Circular A-87, 2 C.F.R. § 225.

    Headnotes

    • Pursuant to 44 C.F.R. § 13.36(d)(4)(i)(B), noncompetitive procurement methods may be used in limited circumstances.  If “there is an emergency requirement that will not permit a delay for competition,” a subgrantee may use a noncompetitive proposal.

    o Due to the extenuating circumstances caused by Hurricanes Katrina and Rita, the widespread demand for debris removal services, and the immediate necessity to restore the Applicant’s electrical system, 44 C.F.R. § 13.36(d)(4) applies to the Applicant’s verbal contract with its Contractor. 

    • Pursuant to OMB Circular A-87, a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.

    o The Contractor charged the Applicant $319,976, or approximately $16.00 per CY to complete this project.  According to FEMA’s debris costs assessment, this rate is at the lower end of the range of market costs for debris removal in the area after Hurricane Rita.  The rate is reasonable, and the rates that the Contractor charged to the Applicant are eligible for reimbursement under the Public Assistance program.  

     

    Letter: 

    August 20, 2014

    Kevin Davis
    Director
    Governor’s Office of Homeland Security and Emergency Preparedness
    7667 Independence Boulevard
    Baton Rouge, LA 70806

    Re:  Second Appeal– Town of Vinton, PA ID 019-78820-00, FEMA-1607-DR-LA, Project Worksheet (PW) 564– Procurement

    Dear Mr. Davis:

    This is in response to a letter from your office dated December 20, 2012, which transmitted the referenced second appeal on behalf of the Town of Vinton (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $119,934 in contract costs for debris removal.

    As explained in the enclosed analysis, the contractor costs incurred by the Applicant for debris removal are reasonable and eligible.  Therefore, I am approving the Applicant’s appeal. 

    Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.   

    Sincerely,

    /s/

    Brad J. Kieserman
    Assistant Administrator
    Recovery Directorate

    Enclosure

    cc:  George A. Robinson
          Regional Administrator
          FEMA Region VI

    Analysis: 

    Background

    High winds from Hurricane Rita resulted in downed tree limbs, which severely damaged the electric system throughout the Town of Vinton (Applicant).  The Applicant obtained contract services, using a verbal time and material contract, to assist with the removal tree limbs from electric utility power lines.  FEMA obligated $319,976 in Project Worksheet (PW) 564 for the collection, removal and disposal of approximately 20,000 cubic yards (CY) of debris. 

    The Office of Inspector General (OIG) performed an audit of the Town of Vinton’s Public Assistance subgrants and outlined its findings in a report dated March 24, 2010.  The OIG recommended de-obligation of $119,934 in contractor costs because the Applicant “piggybacked” on a written contract between Asplundh Tree Expert Company (Contractor) and the Lafayette Consolidated Government (Lafayette) for trimming limbs around electric power lines, and paid the contractor higher rates than stated in the Lafayette written contract.  In a memorandum dated December 19, 2011, FEMA agreed with the OIG finding and de-obligated $119,934 from PW 564, the difference between the contract rates in Lafayette’s contract and the higher rates charged to the Applicant. 

    First Appeal

    The Applicant submitted a first appeal to the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness (Grantee) on February 20, 2012.  With the appeal, the Applicant requested reimbursement of $119,934 for the funding that FEMA de-obligated as the result of the OIG audit and recommendation.  The Applicant asserted that Louisiana law permits and encourages “piggybacking” to ensure efficiency.  However, the Applicant also asserted that the contract it entered into with the Contractor is not a “piggyback” contract because the terms that the Applicant agreed to were different than those in the contract between Lafayette and the Contractor.  The Applicant contended that it had a verbal agreement with the Contractor that provided debris removal services at the Contractor’s disaster rates.  Finally, the Applicant asserted that the rates that the Contractor charged were reasonable for the disaster-related work. 

    On August 15, 2012, the FEMA Region VI Regional Administrator denied the first appeal explaining that the Applicant chose to enter into a verbal agreement rather than follow federal procurement guidelines consistent with Title 44 of the Code of Federal Regulations (44 C.F.R.) § 13.36.  The Regional Administrator’s first appeal determination also indicated that the Applicant did not document agreed upon rates to be charged with a signed contract for services; no information was provided to show that the Contractor had a disaster condition contract with Lafayette predicated on disaster conditions that charged higher rates; and FEMA does not normally recognize “piggybacked” contracts because they do not reflect competition in the market place.  Accordingly, the Regional Administrator concluded that the eligible amount of PW 564 remained $200,042, the amount originally allocated in PW 564 less the higher rates charged in the disaster.  

    Second Appeal

    The Applicant submitted a second appeal on October 26, 2012, which the Grantee transmitted to FEMA on December 28, 2012.  In the second appeal, the Applicant again asserts that its contract is not a “piggyback” contract because the terms of its verbal contract with the Contractor are different from those in the written contract with Lafayette.  Further, the Applicant asserts that it entered into a verbal contract based on the emergency nature of the situation and the rates charged by the Contractor were reasonable and consistent with the verbal agreement.

    Discussion

    Procurement Method

    Pursuant to 44 C.F.R. § 13.36(b), Procurement Standards, when procuring services under a federal grant, subgrantees use their own procurement procedures which reflect applicable state and local laws and regulations, provided that the procurements conform to applicable Federal law and the standards identified in section 13.36.  Consistent with 44 C.F.R. § 13.36(b), Grantees and subgrantees must maintain records sufficient to detail the significant history of a procurement.[1]  These records must include the rationale for the method of procurement, selection of contract type, contractor selection or rejection, and the basis for the contract price.[2]  In addition, all procurement transactions have to be conducted in a way that provides “full and open competition.”[3]

    However, 44 C.F.R. § 13.36(d)(4), Procurement by Noncompetitive Proposals, allows for noncompetitive procurement methods to be used in limited circumstances.  If “there is an emergency requirement that will not permit a delay for competition,” a subgrantee may use a noncompetitive proposal.[4]

    The Applicant asserts that it had to remove debris from its power lines to restore its electrical system and reduce immediate threats to an essential utility.  The Applicant solicited assistance from the Louisiana Energy and Power Association (LEPA) and volunteers from other local towns, Tennessee, and Oklahoma.  Even with this assistance, the Applicant notes the work to remove tree limbs from power lines was overwhelming.  Due to the high demand for debris removal in Louisiana following Hurricanes Katrina and Rita, the Applicant claims it entered into an emergency contract with the only available contractor it could procure.  The Applicant states that this contract is not a “piggybacked” contract, as stipulated in the OIG analysis and the FEMA Region VI determination letter, because the terms of the emergency contract differ from the terms of the written contract between Lafayette and the Contractor.  It appears that the interested parties in this case have used the term “piggyback contract” differently.[5]   However, the relevant fact is that regardless of the type of contract, the Applicant did not competitively procure the debris removal services.  In addition, the Applicant and Grantee both assert that the contract is oral and oral contracts are permitted in the state of Louisiana.  Although permitted in limited circumstances, the use of oral contracts violates 44 C.F.R. § 13.36(b)(9).  More importantly, there is no “exigent circumstance” exception provided in 44 C.F.R. § 13.36(b)(9), as there is for meeting the competition standards required by 44 C.F.R. § 13.36(c)(1).  Thus, although the oral contract between the Applicant and contractor may be permitted by Louisiana law, the contract must conform to applicable Federal law and the standards identified in 44 C.F.R. § 13.36, which it does not. 

    The Grantee argues that the Applicant should not be denied from Federal funding based on a failure to follow the proper procurement procedure because the Grantee believes the verbal agreement between the Applicant and the Contractor meets the non-competitive procurement exemption in 44 C.F.R. § 13.36(d)(4).  Noncompetitive procurement methods may be used in an emergency that will not permit a delay for competition, as is the case here.  Two massive storms, a month apart from each other, damaged the Applicant’s electrical system.  The Applicant declared a state of emergency by which the Mayor of Vinton took the necessary measures, prescribed by state law, to protect the lives of its citizens and protect property.  The Applicant made efforts to remove debris from power lines using force account labor and volunteers, but was still overwhelmed.  In order to ensure that tree limbs and other debris would be expeditiously removed from its power lines, the Applicant entered into a verbal contract with the Contractor.  Due to the extenuating circumstances caused by Hurricanes Katrina and Rita, the widespread demand for debris removal services, and the immediate necessity to restore the Applicant’s electrical system, FEMA agrees that the 44 C.F.R. § 13.36(d)(4) applies to the Applicant’s verbal contract with its Contractor.  However, this provision requires a cost analysis of noncompetitive proposals, which the Applicant has not provided to FEMA.      

    Reasonableness of Cost

    As stated above, FEMA requires a cost analysis of noncompetitive proposals to determine reasonableness because FEMA policy states that “contracts must be of reasonable cost.”[6]  A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.  FEMA will generally analyze cost reasonableness by use of historical documentation for similar work, average costs for similar work in the area, published unit costs from national estimating databases, and FEMA cost codes.[7]

    Enforcement

    Pursuant to 44 C.F.R. § 13.43(a), Remedies for Noncompliance, if an Applicant materially fails to comply with any term of an award, FEMA may temporarily withhold cash payments pending correction of the deficiency, disallow all or part of the cost of the activity or action not in compliance, wholly or partly suspend or terminate the current award for the grantee's or subgrantee's program, withhold further awards for the program, or take other remedies that may be legally available.[8]

    In the first appeal decision, the Regional Administrator used the terms of the contract between Lafayette and the Contractor, which used pre-disaster rates, in determining that the rates that the Applicant used were not reasonable.  Based on FEMA’s discretionary authority in 44 C.F.R. § 13.43(a), this rationale for determining rates was appropriate because the Applicant provided no documentation to reflect what the reasonable rate for debris removal was for this disaster.  In addition, because the agreement between the Applicant and the Contractor was oral, not written, FEMA could not derive the terms of the agreement, including the agreed upon price of the contracted work.  FEMA strongly discourages verbal agreements because they prevent FEMA from writing a sufficient scope of work or determining price reasonableness in order to justify reimbursement.[9]

    Nonetheless, due to the significant devastation that Hurricanes Katrina and Rita caused, contract labor for debris removal was common following these disasters, and FEMA developed a cost assessment of debris removal work in Louisiana performed as a result of these hurricanes.  According to PW 564, contract labor was used to collect, remove and dispose of approximately 20,000 CY of vegetative debris.  The Contractor charged the Applicant $319,976, or approximately $16.00 per CY to complete this project.  According to FEMA’s debris costs assessment, this rate is at the lower end of the range of market costs for debris removal in the area after Hurricane Rita.  Accordingly, the rate is reasonable, and the rates that the Contractor charged to the Applicant are eligible for reimbursement under the Public Assistance program.[10]

    Conclusion

    Although the Applicant did not use competitive procurement procedures in contracting for debris removal services, FEMA has determined that the debris removal rates paid by the Applicant were reasonable, and, as such, the actual cost billed for debris removal in PW 564 is eligible for funding.  Accordingly, the additional amount of $119,934 requested by the Applicant is eligible.


    [1] See 44 C.F.R. § 13.36(b)(9) (2005).

    [2] Id.

    [3] See 44 C.F.R. § 13.36(c)(1).  

    [4] See 44 C.F.R. § 13.36(d)(4)(i)(B).

    [5] The Applicant used the term “piggyback” to mean that it took advantage of the existing relationship that Lafayette had with Asplundh; but see Public Assistance Guide, FEMA 322 at 52 (June 2007) (stating “‘Piggyback contracting’ is a concept of expanding a previously awarded contract.”) and Recovery Fact Sheet 9580.212, Public Assistance Grant Contracting Frequently Asked Questions (FAQ) at 5 (Nov. 5, 2012) (stating “’Piggybacking’ occurs when an applicant has disaster-related work performed by another jurisdiction’s contractor.  Because the competitive process for the existing contract could not have included the full scope of the new work, the new work has not been competitively bid.  The resulting costs may therefore be higher than if the work had been bid out separately….”).  It is important to note that, while FEMA policy and guidance in effect at the time of the disaster did not define “piggyback contracting,” Recovery Division Fact Sheet, Debris Removal: Applicant’s Contracting Checklist at 4 (Apr. 10, 2006) defines it as utilizing a contract awarded by another entity and stresses that such a contract may jeopardize FEMA funding.    

    [6] See Office of Mgmt. & Budget, Exec. Office of the President, OMB Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, Attachment A, Section C.2 (2004); see also Public Assistance Guide, FEMA 322 at  39 (Oct. 1999) [hereinafter PA Guide].

    [7] PA Guide, at 34.

    [8] See 44 C.F.R. § 13.43(a)(1)-(5).

    [9] See FEMA Second Appeal Analysis, Jefferson Parish, FEMA-1603-DR-LA, at 2 (Dec. 17, 2008), in which the Applicant had a noncompetitive verbal contract for mold remediation/stabilization work.  FEMA denied the appeal on the basis that the Applicant “had not complied with federal procurement requirements contained in 44 C.F.R. § 13.36 and had not provided sufficient detail about the scope of work…”  

    [10] But see FEMA Second Appeal Analysis, City of Port St. Lucie, FEMA-1545/1561-DR-FL, at 2 (June 11, 2008) (denying the appeal because, based on a FEMA cost analysis, the costs incurred by the Applicant’s piggybacked contract were not reasonable because the costs were two to four times higher than the costs of similar work in the area.).

     



  • Debris Removal from Waterways
    Appeal Type: 
    2nd
    Report Type: 
    PW
    Appeal Categories: 
    Applicant Name: 
    Plaquemines Parish
    Disaster Number: 
    1603-DR-LA
    DSR: 
    18811 and 18826
    Date Signed: 
    Friday, August 15, 2014
    PA ID: 
    075-99075-00
    Summary/Brief: 

    Conclusion:  On second appeal, the Applicant has shown that the Empire and Buras Boat Harbors are eligible, improved and maintained natural features.  As such, the removal of sediment and debris deposited by Hurricane Katrina from the harbors is eligible for funding, based on the pre-disaster navigational draft depth levels.

    Authorities and Second Appeals

    • Stafford Act § 406(a)(1)
    • 44 C.F.R. § 206.201(c), Definitions—Facility.
    • 44 C.F.R. § 206.223(a), General Work Eligibility.

    Headnotes

    • Stafford Act § 406(a)(1) authorizes FEMA to make contributions to a local government  to restore eligible facilities on the basis of the design of such facilities as they existed immediately prior to the disaster.
    • Under 44 C.F.R. § 206.201(c), provides that a facility means, “an improved and maintained natural feature.”
      • FEMA reviewed design plans submitted by the Applicant and determined that the harbors are “improved” natural features.
      • FEMA also determined that the Applicant’s assertion that it designed the harbors to be maintenance free is reasonable based on: (1) the Applicants constructed bulkheads at both harbors to restrict the tidal flow of the river from entering the harbor, and (2) the Applicant maintained the functional depth of the harbors through “prop wash,” a documented, valid, and effective maintenance technique.
      • According to 44 C.F.R. § 206.223(a), an eligible item of work must be required as the result of the disaster event.
      • The Applicant was unable to pre-disaster provide maintenance records.  However, it provided a 2008 survey of estimated storm-related damage to the harbors.
      • PA funding is contingent upon the Applicant’s ability to provide sufficient documentation, such as the navigational drafts of vessels which used the facility, nautical charts, Local Notices to Mariners, Coast Pilots, or other documents demonstrating the pre-Katrina depth of the harbors.

     


    Summary Paragraph

    On August 29, 2005, as a result of Hurricane Katrina, a tidal surge of up to 20 feet of water with accompanying silt, mud, and debris inundated Plaquemines Parish’s (Applicant) four boat harbors, including the Empire Boat Harbor and Marina and the Buras Boat Harbor (harbors).   The Applicant requested Public Assistance funding to remove the excess silt and debris from the harbors.  FEMA initially denied Category A Project Worksheets (PWs) to the Applicant for both harbors.  FEMA agreed to obligate PWs for Category G work if the Applicant could show prior maintenance to the harbors.  In August 2011, FEMA obligated PWs 18811 (Empire Boat Harbor) and 18826 (Buras Boat Harbor) for $0.00 because the Applicant failed to show the pre-disaster level of sedimentation; therefore, an eligible scope of work could not be developed.  In the first appeals, the Applicant asserted that routine dredging was unnecessary because the harbors are designed to be maintenance free.  Accompanying the first appeals, the Applicant submitted a Hydrographic and Topographic survey, dated March 31, 2008, demonstrating pre-disaster levels.  The Regional Administrator (RA) determined that the Applicant failed to demonstrate the harbors were designed to not require routine maintenance and that the survey, conducted by the Applicant’s contractor after the disaster, was subjective and did not conclusively establish any disaster-related sediment.  In the second appeal, the Applicant asserts that the harbors were actively maintained, the harbor floors did not require regular dredging to maintain the functional depth of harbors, the floors of the harbors were maintained through “prop wash,” and post-disaster surveys are reliable sources to determine and establish the amount of disaster-related sediment. 


     

    Letter: 

    August 15, 2014

    Kevin Davis
    Director
    Governor’s Office of Homeland Security and Emergency Preparedness
    7667 Independence Boulevard
    Baton Rouge, LA 70806

    Re: Second Appeals–Plaquemines Parish, PA ID 075-99075-00, FEMA-1603-DR-LA, Project Worksheets (PWs) 18811 and 18826 – Debris Removal- Waterways

    Dear Mr. Davis:

    This is in response to your letter dated August 5, 2013, which transmitted the referenced second appeals on behalf of Plaquemines Parish (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $700,000 (PW 18811) and $1,000,000 (PW 18826) for funding associated with removing sediment from two of its harbors.

    As explained in the enclosed analysis, I have determined that both harbors are eligible facilities and the removal of sediment from them is required as the result of the declared event.  To validate the survey submitted with the appeal and assertion that the facility’s depth is essentially maintained through use, these appeals are approved contingent upon the Applicant’s provision of sufficient documentation demonstrating the drafts of vessels which used the facilities prior to Hurricane Katrina.  The documentation must specifically demonstrate the navigable depth of the entry channels and the pier-side depth where vessels moored.  The Applicant must submit this documentation to FEMA Region VI within 30 days of this decision.  Failure to submit the required documentation within 30 days will result in a denial of this appeal. 

    Please inform the Applicant of my decision.  This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.

    Sincerely,

    /s/

    William W. Roche
    Director
    Public Assistance Division

    Enclosure

    cc: George A. Robinson
          Regional Administrator
          FEMA Region VI



     

    Analysis: 

    Background

    In 2005, during Hurricane Katrina, a tidal surge of up to 20 feet with accompanying silt, mud, and debris inundated four boat harbors in Plaquemines Parish (Applicant), including the Empire Boat Harbor and Marina and the Buras Boat Harbor.  In June 2008, FEMA prepared Category A Project Worksheets (PW) 18142 and 18143 to remove disaster related silt and debris from the harbors.  FEMA found both PWs to be ineligible because silt deposits in navigable waterways did not pose an immediate threat to public health and safety.  The Applicant appealed this determination requesting FEMA approval of $700,000 and $1,000,000 for the removal of an estimated 21,000 cubic yards (CY) and 60,000 CY of silt deposited as the result of Hurricane Katrina to restore the pre-disaster function and capacity of the Empire Boat Harbor and Marina and the Buras Boat Harbor, respectively.[1]  The Applicant submitted a post-disaster Hydrographic and Topographic survey (Survey), dated March 31, 2008, completed by its consultant, which established the estimated quantity of sediment to be removed.  However, the Applicant provided no maintenance records or documentation demonstrating the pre-disaster capacity of its harbors. 

    The FEMA Region VI Acting Regional Administrator (RA) granted the appeal on March 18, 2009, approving the sediment removal as permanent work “contingent upon the applicant’s ability to produce maintenance records and surveys to demonstrate the pre-disaster capacity of its harbors and supporting the estimate of eligible sediment to be removed.[2]”   In late 2009, FEMA prepared Category G PWs 18811 and 18826 for the removal of sediment from the Empire Boat Harbor and Buras Boat Harbor, respectively, and held them pending the Applicant’s submission of additional documentation.  The Applicant submitted budget documents to support it actively maintained the harbors.  FEMA determined that documentation to be insufficient, and in June 2011, found PWs 18811 and 18826 to be ineligible, because the Applicant did not provide documentation demonstrating the “pre-disaster level of sedimentation or provide a history of previous sediment removal as required” by the first appeal response of PWs 18142 and 18143.[3]   

    First Appeal

    The Applicant submitted a first appeal of both PWs to the Grantee on November 22, 2011 and reiterated that the records supplied to FEMA demonstrated that the harbors are eligible for FEMA funding.  Those records included photographs, construction records, financial records, and budgets.  In addition, the Applicant asserted that the Survey establishes that Hurricane Katrina caused the silt build-up in each of the harbors as well as the pre-disaster level of silt build-up.  Further, the Applicant explained that they did not have maintenance records for dredging because the harbors were designed to avoid silt build-up and the depth of the waterway was maintained through the “prop wash” of transiting vessels. 

    In a letter, dated March 19, 2013, the FEMA Region VI RA denied the appeals because the Applicant did not produce the pre-disaster records and surveys that FEMA required in response to the first appeals of PWs 18142 and 18143 and found that the Applicant’s assertion that the harbors were designed to be maintenance-free was not supported by any corresponding technical design criteria or specifications.  In addition, the RA stated that “operating budget expenditures submitted by the applicant for routine, day-to-day operations of the harbors… does not support prior maintenance of the natural feature.”  Therefore, the Applicant could not conclusively establish any disaster-related sediment.  Consequently, the RA determined that sediment removal from the Applicant’s harbors was not eligible for Public Assistance funding.

    Second Appeal

    The Applicant submitted a second appeal for each PW on June 5, 2013, which the Grantee transmitted to FEMA on August 9, 2013.  In the second appeal, the Applicant requests reimbursement of the cost required to remove Hurricane Katrina storm-generated silt and sediment, reasserting that it is permanent work that will restore the harbors’ pre-disaster capacities and is, thus, an eligible cost.  The Applicant claims that the harbors were actively maintained.  In addition, the harbor bottoms did not require regular dredging to maintain the functional depth because it designed the harbors to not permit Mississippi River water tidal flow, which is the typical cause of silt build-up.  Prior to Hurricane Katrina, the harbors had never “silted up” to the point of needing dredging and its depth was maintained through “prop wash.”  Finally, the Applicant asserts that the March 2008 Survey is a reliable source to determine and establish the amount of sediment deposited as the result of the disaster.    

    Discussion

    Facility Eligibility

    The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) Section 406(a)(1) authorizes FEMA to make contributions to a local government  to restore eligible facilities on the basis of the design of such facilities as they existed immediately prior to the disaster. [4]  Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.201(c), Definitions—Facility, provides that a facility means, “an improved and maintained natural feature.”  The improvement of the natural feature should be based on a documented design that changes and improves natural characteristics of the feature.[5]  In addition, routine maintenance must be done to ensure the improvement performs as designed.[6]

    The Applicant has consistently asserted that the harbors were actively maintained before the disaster.  As evidence, the Applicant provided photographs showing boats and cargo ships accessing the harbors.  The Applicant asserts that if the harbors were not maintained, this would not be possible.  In addition, the Applicant states that the harbor bottoms did not require regular dredging to maintain a functional depth because both were designed to inhibit Mississippi River water tidal flow, which is normally the cause of silt build up in facilities along the Mississippi River.  The Applicant submitted design plans demonstrating that it improved upon the natural features through excavation and dredging as part of the design of the harbors.  Finally, the Applicant states that the harbor floors are maintained through “prop wash,” a process that involves the hydrodynamics of the vessels transiting the harbor to create a pushing effect that moves excess silt and sediment from reducing the depth of navigated waterways.   

    Based on a review of the design plans submitted by the Applicant, the harbors are “improved” natural features, as required by 44 C.F.R. § 206.201(c).  Moreover, the Applicant’s assertion that it designed the harbors to be maintenance free is reasonable as the Applicant constructed bulkheads at both harbors to restrict tidal flow from entering the harbor.  Further, the Applicant’s assertion that the functional depth of both harbors could be maintained through “prop wash” is valid.  Prop wash agitation dredging is a documented, valid maintenance technique that is effective under very specific conditions.[7]  This is a cost-effective method of maintaining a harbor and one, if used, would not necessarily be documented by the operator of the facility.  Based on the design of the harbors, the location along the Mississippi River, the type of soil that exists at that location, and the fact that the harbors were fully operational prior to the event, it is reasonable to conclude that the Applicant both improved and maintained them, and as such, the harbors are eligible facilities. 

    Eligibility of the Debris Removal

    Pursuant to 44 C.F.R. § 206.223(a), General Work Eligibility, an eligible item of work must be required as the result of the disaster event.  The March 2008 Survey, reports the findings of post-event field surveys and related analysis conducted by the Applicant’s consultant.  To determine storm-related debris and sediment, the consultant took soil samples from the harbor floors, analyzed the samples for varying sediment characteristics, and estimated the profile of the pre-storm harbor floors using a linear interpolation of the sediment characteristics found at each sample location.[8]  Based on the Survey results, the consultant estimated that Hurricane Katrina deposited 21,000 CY of sediment at Empire Boat Harbor and 60,000 CY of sediment at Buras Boat Harbor.  As stated in the RA’s decision, FEMA cannot rely on surveys conducted after the disaster without pre-disaster records.  The Acting RA made the same determination in response to the appeals of PWs 18142 and 18143, by requiring that the Applicant “produce maintenance records and surveys to demonstrate the pre-disaster capacity of its harbors and supporting the estimate of eligible sediment to be removed.” (emphasis added.)  The Applicant continues to maintain that it has no records to demonstrate the pre-disaster level of sediment in the harbors but should be able to produce documentation which establishes the depth of the waterways and maximum draft of ships which used each facility prior to the event.  Such documentation, applied in conjunction with the data presented in the Survey, can be used to estimate the quantity of sediment deposited in each harbor as a result of the event.  Accordingly, FEMA will provide funding to restore the harbors to its pre-Katrina navigational depth, contingent upon the Applicant’s ability to provide FEMA Region VI with sufficient documentation, such as the navigational drafts of vessels which used the facility, nautical charts, Local Notices to Mariners, Coast Pilots, or other documents demonstrating the pre-Katrina depth of the harbors.[9]

    Conclusion

    The Applicant has shown that the Empire and Buras Boat Harbors are eligible, improved and maintained natural features.  The removal of sediment and debris deposited by Hurricane Katrina from the harbors is eligible for funding, contingent upon the Applicant’s ability to provide FEMA Region VI with sufficient documentation to demonstrate the depth of the harbors prior to Hurricane Katrina.  In delineating the scopes of work for PWs 18811 and 18826, the documentation must specifically demonstrate the navigable depth of the channels and the pier-side depth where vessels moored within six months of the disaster.  The documentation must demonstrate depth levels consistent with the standards prescribed in RP 9523.5.


    [1] See First Appeal Letter, Plaquemines Parish, FEMA-1603-DR-LA (Nov. 10, 2008).

    [2] FEMA First Appeal Analysis, Plaquemines Parish, FEMA-1603-DR-LA, at 2 (Mar. 18, 2009).

    [3] See Plaquemines Parish, Project Worksheet (PW) 18811, Version 0 at 3 (May 25, 2011); see also Plaquemines Parish, PW 18826, Version 0 at 3 (May 25, 2011).

    [4] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 406, 42 U.S.C. § 5172 (2000).

    [5] See Public Assistance Guide, FEMA 322 at 16 (Oct. 1999) [hereinafter PA Guide].

    [6] Id.

    [7] See Engineering and Design: Dredging and Dredged Material Disposal, Engineer Manual 1110-2-5025, at §3-12(d) (Mar. 25, 1983), http://planning.usace.army.mil/toolbox/library/ERs/ER1110.2.5025.pdf. 

    [8] See Hydrographic and Topographic Surveys for Repairs to Boat Harbor Facilities, Plaquemines Parish, LA, at 6-7 (Mar. 31, 2008).

    [9] At the time of the incident, there was no FEMA policy that specifically addressed Public Assistance reimbursement for removal of debris from waterways.  However, FEMA has subsequently issued Recovery Policy (RP) 9523.5, Debris Removal from Waterways, at 6 (Mar. 29, 2010) (stating FEMA may reimburse the removal of debris from a navigable waterway to a depth equal to the maximum draft of the largest vessel that utilized the waterway prior to the storm plus two feet).

     

     



  • Legal Responsibility
    Appeal Type: 
    2nd
    Report Type: 
    PW
    Appeal Categories: 
    Applicant Name: 
    Erie County
    Disaster Number: 
    1857-DR-NY
    DSR: 
    963, 964, 966, 967 and 968
    Date Signed: 
    Tuesday, August 12, 2014
    PA ID: 
    029-99029-00
    Summary/Brief: 

    Conclusion: On second appeal, Erie County (Applicant) demonstrated that it was legally responsible for repairs to the Buffalo Southern Railway Line 1246 (facility) at the time of the disaster.
     

    ParagraphSummary                  

    • 44 C.F.R. § 206.223(a)(3)
    • PA Guide, at 23, 30, 31.

    Headnotes

    • Pursuant to 44 C.F.R. § 206.223 (a)(3), in order to be eligible for PA funding, an item of work must be the legal responsibility of an eligible applicant. 
    • According to the PA Guide, ownership of a facility is generally sufficient to establish legal responsibility.  This holds true even if the owner leases out an eligible facility, except when the controlling lease states that the lessee is responsible for repairs to the facility or maintains insurance for repairs. The lease usually contains general repair and maintenance language; however, responsibility for damage resulting from a disaster may not be established.   In the absence of any mention in the lease, the owner of the facility will be assumed responsible for the repair.    
    • The Applicant owned the facility at the time of the disaster.
    • The two controlling leases do not clearly establish that ECIDA or BSR were responsible for the level of repairs resulting from disaster damage.
    • Pursuant to FEMA policy, absent a clear delegation of legal responsibility for disaster-related repairs, the Applicant, as the owner of the facility, is legally responsible for such repairs.

     Authorities Discussed

    From August 8 to August 10, 2009, severe storms and flooding damaged sections of the Buffalo Southern Railway Line 1246 (facility) owned by the Applicant.  However, the facility is leased to the Erie County Industrial Development Agency (ECIDA), and sub-leased to the Buffalo Southern Railroad, Inc. (BSR)—a private company.  Culverts were plugged, and ballast

    alongside and underneath the railway ties were damaged in different sections along the track from track mile markers 10.8 to 32.6.  A total of five PWs—963, 964, 966, 967 and 968—were drafted to address the damage along this stretch of the facility.  Upon review of the two controlling leases, FEMA field personnel determined the repair work for the facility was ineligible because the Applicant was not legally responsible for the facility at the time of the disaster event.  In the first appeal, the Applicant asserted that it and ECIDA both understood that major capital repair was the responsibility of the Applicant.  The Region II Acting Regional Administrator (RA) denied the first appeal because she determined that the Applicant—although owner of the facility—was not legally responsible for repairs to the facility because the leases in effect at the time of the disaster explicitly state BSR was responsible for all repair work. 

     

     

     

     

    Letter: 

    August 12, 2014

    William R. Davis Jr.
    Acting Director
    New York State Office of Emergency Management
    1220 Washington Avenue
    Building 22, Suite 101
    Albany, New York 12226-2251

    Re: Second Appeal – Erie County, FEMA-1857-DR-NY, PA ID 029-99029-00, Project Worksheets (PWs) 963, 964, 966, 967 and 968 – Legal Responsibility

    Dear Mr. Davis:

    This is in response to your letter dated February 24, 2014, which transmitted the referenced second appeal on behalf of Erie County (Applicant).  The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $293,805.03 in Public Assistance funding resulting from a determination that the Applicant was not legally responsible for the facility at the time of the disaster. 

    As explained in the enclosed analysis, I have determined that the leases at issue demonstrate that the Applicant had legal responsibility of the facility at the time of the disaster.  Therefore, I am approving the appeal.  By copy of this letter, I am requesting the Regional Administrator take appropriate action to implement this determination. 

    Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.

    Sincerely,

    /s/

    William W. Roche
    Director
    Public Assistance Division

    Enclosure

    cc: Jerome Hatfield
         Regional Administrator
         FEMA Region II

     

    Analysis: 

    Background

    From August 8 to August 10, 2009, severe storms and flooding damaged sections of the Buffalo Southern Railway Line 1246 (facility).  The facility is owned by the County of Erie (Applicant), leased to the Erie County Industrial Development Agency (ECIDA), and sub-leased to the Buffalo Southern Railroad, Inc. (BSR)—a private company.  FEMA prepared PWs 963, 964, 966, 967 and 968 to address repairs necessary to restore the facility to pre-disaster condition.  Upon review of the two controlling leases, FEMA field personnel determined the repair work for the facility was ineligible because the Applicant did not have legal responsibility for the facility at the time of the disaster event. 

    First Appeal

    In its first appeal, dated May 4, 2011, the Applicant asserted that it and ECIDA both understood that major capital repair was the responsibility of the Applicant.  Further, the type of repairs necessary to restore the facility to pre-disaster condition is major, not routine maintenance.  The Applicant asserted that evidence was submitted showing the Applicant—through ECIDA—hired a contractor to perform major repair projects since 1998.

    The Region II Acting Regional Administrator (RA) denied the first appeal because she determined that the Applicant—although owner of the facility—was not legally responsible for repairs to the facility.  She determined that the lease between Erie County and ECIDA and the lease between ECIDA and BSR were in effect at the time of the disaster.  Moreover, the leases spell out who was legally responsible for repairs to the facility—BSR.  Finally, the Acting RA stated that the Applicant had provided no examples where it previously stepped in and made repairs in a similar non-federally declared event, and did not charge those repairs back to BSR.  Accordingly, there was no evidence that the Applicant was legally responsible for repairs and maintenance of the facility. 

    Second Appeal

    The Applicant’s second appeal, dated November 6, 2013, was transmitted to FEMA by the Grantee on February 24, 2014.  In the second appeal, the Applicant asserts that as the leases have been administered by ECIDA, the Applicant has held BSR responsible for normal maintenance; however, the Applicant has assumed responsibility for major repairs to the facility.  The Applicant states that the new documentation it provides on second appeal should be sufficient proof of ECIDA’s undertaking and managing of major repairs to the facility. 

    Discussion

    Legal Responsibility

    Pursuant to Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.223 (a)(3), in order to be eligible for PA funding, an item of work must be the legal responsibility of an eligible applicant.  FEMA interprets this provision to mean “at the time of the disaster.”[1]  Ownership of a facility is generally sufficient to establish legal responsibility even if the owner leases out an eligible facility.[2]  This is true except when the controlling lease states that the lessee is responsible for repairs to the facility or maintains insurance for repairs.[3]  The lease usually contains general repair and maintenance language; however, responsibility for damage resulting from a disaster may not be established.[4]  In the absence of any mention in the lease, the owner of the facility will be assumed responsible for the repair.[5]

    As stated in the first appeal determination, there are two leases that control in this appeal.  However, there is no clear delegation of legal responsibility for major or disaster-related repairs in either lease.  In fact, the lease between ECIDA and BSR creates a limitation for responsibility of maintenance of not less than $20,000, meaning BSR is not legally required to spend more than that amount for maintenance.[6]  In addition, the lease between ECIDA and BSR defines “maintenance” and “rehabilitation”, and neither definition includes major repair work or repairs resulting from disaster damage.[7] Lastly, the lease authorizes BSR to terminate the agreement if performance was rendered impossible due to Force Majeure. [8]

    Regarding maintenance, the lease between the Applicant and ECIDA only stipulates that ECIDA must return the facility to the Applicant in as good condition as received, reasonable wear and tear excepted, when the lease expires.[9]  The lease does not speak to legal responsibility regarding repairs resulting from disaster damage or catastrophic events.  However, the lease does explicitly provide that ECIDA may terminate the lease without repairing the facility if an event or occurrence renders the facility inoperable as a railroad without major reconstruction.[10]  In addition, ECIDA was permitted to terminate the lease in the event that it was unable to continue railroad operations because rail service was suspended due to substantial faults with the railbed, tracks, ties, bridges, crossings, or right-of-way “for which funding to cure such faults” was not available.[11]  When these clauses are read together, the Applicant’s argument that the parties understood that the Applicant was legally responsible for all major repairs is logical.

    Notwithstanding the Applicant’s assertion that it is responsible for all major repairs, FEMA policy stipulates that the owner of a facility is legally responsible for disaster-related repairs absent a clear delegation to a lessee.[12]  Here, the Applicant owned the facility at the time of the disaster.  Accordingly, since neither lease delegates responsibility for major repairs resulting from disaster damage, legal responsibility lies with the Applicant.

    Conclusion

    At the time of the disaster, the Applicant owned the facility.  While the facility was leased to a quasi-governmental entity and sub-leased to a private company, neither lease delegated legal responsibility for major repairs resulting from disaster damage to the Lessee or sub-Lessee.  Pursuant to FEMA policy, in the absence of such delegation, the owner is legally responsible for such repair work.  Accordingly, the Applicant is responsible for the repair work addressed in PWs 963, 964, 966, 967 and 968.


    [1] See Public Assistance Guide, FEMA 322 at 30 (June 2007) [hereinafter PA Guide].

    [2] Id. at 23.

    [3] Id.

    [4] Id. at 31. 

    [5] Id.

    [6] See Lease Agreement between Erie County Industrial Development Agency and Buffalo Southern Railroad, Inc. at Section 6.01, Maintenance in Lieu of Rent, (Nov. 22, 1991) (on file with FEMA).

    [7] Id. at Section 1.01, Definition of Terms, (defining “maintenance” as “normal and regular work required to keep the Railroad Properties in minimum safe condition…” and “rehabilitation” as “the work required, in addition to maintenance, including capital improvements, to improve or upgrade the condition of the Railroad Properties…”).

    [8] See Lease Agreement between Erie County Industrial Development Agency and Buffalo Southern Railroad, Article Seven§7.01(c). Termination of Agreement (November 22, 1991) (on file with FEMA). See also, definitions in § 1.01 which defines Force Majeure as an act of God, including, among other things  lightening; earthquakes; fire; and flood so long as such causes or events are not reasonably in control of the Lessee.

    [9] See Lease Agreement between Erie County and Erie County Industrial Development Agency at Section 10(a) and (b), Maintenance, (June 1, 1985)(on file with FEMA).

    [10] Id. at Section 11, Inoperability.

    [11] Id. at Section 13(a)(4), Termination.

    [12] PA Guide, at 31.

     

     



  • Request for Public Assistance
    Appeal Type: 
    2nd
    Report Type: 
    PW
    Appeal Categories: 
    Applicant Name: 
    New Creation Christian Church
    Disaster Number: 
    1603-DR-LA
    DSR: 
    20454
    Date Signed: 
    Tuesday, August 12, 2014
    PA ID: 
    071-UGADM-00
    Summary/Brief: 

    Conclusion: The Applicant did not provide sufficient documentation to demonstrate that it has an eligible Private Nonprofit (PNP) facility or legal responsibility for disaster-related repairs to the facility.

    Summary Paragraph

    The Applicant’s facility sustained over 8 feet of floodwaters during Hurricane Katrina in August 2005.  FEMA provisionally approved the Applicant’s Request for Public Assistance (RPA) in December 2011, based on the Applicant’s claim that it operated a community center, a shelter for the homeless, and a feeding program.  The Applicant did not provide sufficient documentation to support its RPA claim, and FEMA obligated PW 20454 for zero-dollars in January 2013.  In its first appeal, the Applicant requested funding without providing adequate supporting documentation.  The Regional Administrator denied the appeal because the Applicant did not demonstrate that its facility was primarily used for eligible PNP activities or that it had legal responsibility for disaster-related repairs to the facility.  In its second appeal, the Applicant again requested FEMA funding and stated that it could not provide any documentation because everything was lost during Hurricane Katrina.  FEMA upheld the Regional Administrator’s determination that the Applicant did not provide sufficient documentation to demonstrate that it has an eligible PNP facility or legal responsibility for disaster-related repairs to the facility. 

    Authorities and Second Appeals

    • 44 C.F.R. § 206.206(a)
    • 44 C.F.R. § 206.222(b)
    • 44 C.F.R. § 206.223(a)(3)
    • RDP 9521.3, Private Nonprofit Facility (PNP) Eligibility (May 23, 2003), at 2.

    Headnotes

    • 44 C.F.R. § 206.222(b) specifies that a PNP organization or institution which owns or operates an eligible PNP facility is eligible to apply for Public Assistance (PA).
    • There is insufficient documentation demonstrating that the Applicant owns or operates an eligible facility.  Accordingly, the Applicant is not eligible to apply for PA funding.  
    • 44 C.F.R. § 206.223(a)(3) requires that an item of work must be the legal responsibility of an eligible applicant in order to be eligible for financial assistance.
    • The Applicant did not provide any documentation showing that it owned or leased the facility and has legal responsibility for any disaster-related repairs.  Without legal responsibility, the Applicant is not eligible for financial assistance. 
    • RDP 9521.3, Private Nonprofit Facility (PNP) Eligibility explains that an eligible applicant must meet requirements as listed in 44 C.F.R. § 206.221 – 44 C.F.R. § 206.226 , including the need to own or operate an eligible facility and to be legally responsible for disaster-related repairs.   The policy also states that the facility must be primarily used for one of the services or facilities listed in 44 C.F.R. § 206.221(e).
    • Without meeting the requirements to own or operate an eligible facility and have legal responsibility for disaster-related repairs, the Applicant is not eligible for PA funding.
    Letter: 

    August 12, 2014

    Kevin Davis
    Director
    Governor’s Office of Homeland Security and Emergency Preparedness
    7667 Independence Boulevard
    Baton Rouge, LA 70806

    Re: Second Appeal – New Creation Christian Church, PA ID 071-UGADM-00, FEMA-1603-DR-LA, Project Worksheet (PW) 20454, Request for Public Assistance – Private Nonprofit

    Dear Mr. Davis:

    This is in response a letter from your office dated June 10, 2014, which transmitted the referenced second appeal on behalf of New Creation Christian Church (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of its Request for Public Assistance as a private nonprofit (PNP) applicant and zero-dollar obligation of PW 20454. 

    As explained in the enclosed analysis, I have determined that the Applicant did not provide sufficient documentation to demonstrate that it has an eligible PNP facility or legal responsibility for disaster-related repairs to its facility.  Therefore, I am denying this appeal.

    Please inform the Applicant of my decision.  This determination constitutes the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.

    Sincerely,

    /s/

    William W. Roche
    Director
    Public Assistance Division

    Enclosure

    cc: George A. Robinson
          Regional Administrator
          FEMA Region VI

    Analysis: 

    Background

    On August 29, 2005, heavy rains and flooding from Hurricane Katrina resulted in extensive damages to the New Creation Christian Church’s (Applicant) two story brick building (Facility).  The Facility also sustained over eight feet of floodwaters for several weeks.  Prior to any opportunity for FEMA’s inspection, the Facility was demolished and its contents were destroyed.

    From November 16, 2010 to October 7, 2011, FEMA accepted new Requests for Public Assistance (RPA) from faith-based private nonprofit (PNP) organizations that had not previously applied for Public Assistance (PA) due to extenuating circumstances in the aftermath of Hurricane Katrina.  The Applicant applied for Public Assistance (PA) under this program.

    On December 7, 2011, FEMA provisionally approved the Applicant’s RPA, based on the Applicant’s claim that it operated a food bank facility at the time of the disaster.  During the Kick-Off Meeting on January 19, 2012, the Applicant stated that the Facility housed a church upstairs and a community center downstairs, in addition to a shelter for the homeless and a feeding program. Despite FEMA’s multiple requests for documentation between January and July 2012, the Applicant did not provide sufficient documentation to support its facility eligibility claims.

    On January 17, 2013, FEMA obligated PW 20454 for zero-dollars.  FEMA’s determination was based on the Applicant not providing sufficient documentation to demonstrate that the Facility was primarily used for eligible PNP purposes or that it had legal responsibility for disaster-related damages to the Facility.

    First Appeal

    In an undated first appeal letter received by the Grantee on March 21, 2013, the Applicant appealed FEMA’s denial of its RPA and zero-dollar obligation of PW 20454.  On May 20, 2013, the Grantee transmitted the Applicant’s first appeal to the Region, indicating its support of the appeal. 

    On March 6, 2014, the FEMA Region VI Regional Administrator (RA) denied the first appeal.  The RA found the Applicant failed to sufficiently demonstrate that it had an eligible facility primarily used for eligible PNP activities at the time of the disaster, and that it was legally responsible for disaster-related repairs to the facility.

    Second Appeal

    In an undated second appeal letter received by the Grantee on May 21, 2014 and transmitted to FEMA by the Grantee on June 10, 2014, the Applicant again appealed FEMA’s denial of its RPA and zero-dollar obligation of PW 20454.  The Applicant did not make any arguments regarding its PNP eligibility, but claimed that it lost everything, including any documents or pictures, during Hurricane Katrina, and stated that it was not possible to present any supporting documentation of the lost building contents.  The Applicant listed, from memory, 32 lost building content items worth $240,608.00, plus rebuilding cost of $733,000.00, for a total requested funding amount of $973,608.00.

    Discussion

    Pursuant to 44 C.F.R. § 206.222(b) and § 206.223(a)(3), to be eligible for PA funding, a PNP applicant must own or operate an eligible PNP facility, and it must have legal responsibility for disaster-related damages.[1]  Furthermore, per 44 C.F.R. § 206.206(a), it is the Applicant’s responsibility to provide sufficient documentation to support its appeal.[2]

    Eligible PNP facilities are defined in 44 C.F.R. § 206.221(e) and include facilities providing essential governmental type services such as community centers and homeless shelters.[3]  PNP facility eligibility requirements are further clarified in RDP 9521.3, Private Nonprofit Facility (PNP) Eligibility, which provides that a PNP facility must be primarily used for one of the eligible PNP services to be eligible for PA funding.[4]  Primary use is determined by first considering the space that a facility is used for eligible services, whereby over 50 percent of a facility’s space must be dedicated to an eligible purpose.[5]  For mixed-use facilities, primary use is determined by the amount of time that the facility is used for eligible services.[6]

    FEMA provisionally approved the Applicant’s RPA based on the claim that it operated a food bank at the time of the disaster.  During the Kick-Off Meeting, the Applicant also claimed that it operated a community center, a homeless shelter, and a feeding program, in addition to a regular church, all within the same building.  Previously submitted documentation consists of letters of support written by church congregants and a summary of activities the Applicant claims to have provided at the Facility. However, this information does not demonstrate that the Facility was primarily used for one of the eligible PNP activities in accordance with requirements outlined in regulation[7] and policy.[8]

    Additionally, the Applicant provided a court document dated August 29, 2007, naming the Applicant’s church pastor, Marie Galatas, as the Administrator with legal authority to make any decisions regarding the Facility.  However, legal authority is not synonymous with legal responsibility, and any legal authority granted to the Applicant’s church pastor does not automatically extend to the Applicant.  Even if, arguendo, it could, this court document is dated post-disaster and was not in effect at the time of the disaster. As the RA correctly determined, this document does not establish ownership of the Facility by the Applicant, nor the Applicant’s legal responsibility for disaster-related repairs at the Facility at the time of the disaster.  Pursuant to regulation, any work that is not the legal responsibility of an eligible applicant is not eligible for PA funding.[9]

    Moreover, RDP 9521.3 states that “[c]ontents that are the responsibility of an ineligible occupant are not eligible for reimbursement if damaged.”[10]  Without an eligible facility or documentation of legal responsibility for an eligible facility, the Applicant is effectively considered an ineligible occupant of the damaged Facility for the purposes of PA funding.  Accordingly, the Applicant is not eligible to receive PA funding for any contents within the Facility damaged during the disaster.

    Conclusion

    The Applicant failed to provide sufficient documentation to demonstrate that its Facility was used primarily for eligible PNP activities and that it is legally responsible for disaster-related repairs.  Therefore, the Applicant’s Facility is not eligible for PA funding.  Furthermore, without an eligible facility, any contents therein are also ineligible for PA funding. 


    [1] See 44 C.F.R. §§ 206.222(b), 206.223(a)(3) (2005).

    [2] See 44 C.F.R. § 206.206(a).

    [3] See 44 C.F.R. §206.221(e).

    [4] See Recovery Directorate Policy RDP9521.3, Private Nonprofit Facility (PNP) Eligibility, at 2 (May 23, 2003).

    [5] See Id. at 3.

    [6] See Id.

    [7] See 44 C.F.R., supra note 2.

    [8] See RDP 9521.3, supra note 3.

    [9] See 44 C.F.R. § 206.223(a)(3).

    [10] See RDP 9521.3, supra note 4.

     



  • OIG Audit – Fringe Benefits
    Appeal Type: 
    2nd
    Report Type: 
    PW
    Appeal Categories: 
    Applicant Name: 
    North Carolina Department of Transportation
    Disaster Number: 
    1553-DR-NC
    DSR: 
    652, 756, 758, 783, 978, 998, 1013, 1089, 1100, 1125, 1151, 1158, 1201, 1234, 1237, 1246, 1263, 1280, 1293, 1299, 1325, and 1335
    Date Signed: 
    Monday, August 11, 2014
    PA ID: 
    000-UZZTS-00
    Summary/Brief: 

    Conclusion: On second appeal, the Applicant provided sufficient additional documentation to demonstrate that all fringe benefit charges were accurately calculated and claimed.

    Summary Paragraph

    The Office of Inspector General (OIG) conducted an audit of the Applicant’s projects related to Hurricane Ivan and recommended disallowing $202,984 from 22 Project Worksheets (PWs), due to ineligible overtime fringe benefit charges.  FEMA concurred and de-obligated $202,984 from the 22 PWs.  In its first appeal, the Applicant asserted that its project systems team conducted an internal audit of its SAP financial accounting system and confirmed that the system accurately calculated the payroll overtime additives.  The Applicant argued that the OIG’s misunderstanding of its financial accounting system led to the misinterpretation of the accounting data.  The Regional Administrator denied the first appeal because the Applicant offered no additional documentation on which to base a challenge to the OIG’s conclusion.  In its second appeal, the Applicant reiterated its argument and provided additional documentation addressing the ineligible overtime fringe benefit costs identified by the OIG audit.

    Authorities and Second Appeals

    • 44 C.F.R. § 206.228(a)(4).
    • PA Guide, at 37.

    Headnotes

    • 44 C.F.R. § 206.228(a)(4) states that for the performance of eligible permanent work, straight-time salaries and benefits of a subgrantee’s permanent employees are eligible for reimbursement.
    • Fringe benefits are calculated differently between straight-time and overtime labor.  The OIG audit found that the Applicant incorrectly claimed some fringe benefits applicable to regular time on overtime labor.  The Applicant disagreed and provided additional documentation to demonstrate that its SAP financial accounting system accurately calculated all fringe benefits on both regular and overtime labor.
    • PA Guide provides that fringe benefits actually paid as part of an established policy are eligible.  The fringe benefit rates are different for regular and overtime hours, because certain items in a benefits package, such as health insurance, are not dependent on hours worked. 
    • The Applicant argued that the OIG misunderstood its financial accounting system and disallowed certain fringe benefits that should be allowed on overtime hours.  The Applicant provided sufficient documentation to show that its SAP financial accounting system accurately calculated fringe benefit rates that are appropriately different for regular and overtime hours.
    Letter: 

    August 11, 2014

    Michael Sprayberry
    Director
    North Carolina Division of Emergency Management
    4713 Mail Service Center
    Raleigh, North Carolina 27699-4713

    Re:       Second Appeal – North Carolina Department of Transportation, PA ID 000-UZZTS-00, FEMA-1553-DR-NC, Project Worksheets (PWs) 652, 756, 758, 783, 978, 998, 1013, 1089, 1100, 1125, 1151, 1158, 1201, 1234, 1237, 1246, 1263, 1280, 1293, 1299, 1325, and 1335 – OIG Audit – Fringe Benefits

    Dear Mr. Sprayberry:

    This is in response to your office’s letter dated April 11, 2014, which transmitted the referenced second appeal on behalf of North Carolina Department of Transportation (Applicant).  The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) de-obligation of $202,984 in ineligible overtime fringe benefits claimed on 22 PWs, based on the result of an Office of Inspector General (OIG) audit.

    As explained in the enclosed analysis, I have determined that the Applicant provided sufficient additional documentation with the second appeal to demonstrate that all overtime fringe benefits were correctly calculated and claimed on the 22 PWs.  Accordingly, I am granting this appeal in the amount of $202,984.  By copy of this letter, I am requesting that the Regional Administrator take appropriate action to implement this determination. 

    Please inform the Applicant of my decision.  This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.

    Sincerely,

    /s/

    Brad J. Kieserman
    Assistant Administrator
    Recovery Directorate

    Enclosure

    cc:  Andrew Velasquez, III
          Acting Regional Administrator
          FEMA Region IV

    Analysis: 

    Background 

    During the Hurricane Ivan incident period from September 16 to September 23, 2004, facilities operated by the North Carolina Department of Transportation (Applicant) sustained a variety of storm-related damages.  The Applicant received approximately $27.1 million in Public Assistance (PA) funding for eligible work related to debris removal, emergency protective measures, road repairs and replacement of bridges. FEMA prepared and obligated a total of 86 large projects and 634 small projects.[1]

    On April 15, 2011, the Department of Homeland Security Office of Inspector General (OIG) issued Audit Report Number DA-11-15 (Audit Report) based on an audit of large project totaling $11.4 million.[2]  The OIG initially reviewed 10 large projects totaling $6.3 million and then selected 18 additional large projects totaling $5.2 million, after it determined that some of the Applicant’s projects contained excessive overtime fringe benefit charges.[3]  The OIG audit found that the Applicant claimed $1,346,890 in force account overtime labor and fringe benefits under Project Worksheets (PWs) 652, 756, 758, 783, 978, 998, 1013, 1089, 1100, 1125, 1151, 1158, 1201, 1234, 1237, 1246, 1263, 1280, 1293, 1299, 1325, and 1335, including $202,984[4] in fringe benefits that should be applicable to only regular time, not overtime, labor.[5] The OIG recommended disallowing $202,984 from those 22 PWs as ineligible overtime fringe benefit charges.[6]  Prior to the issuance of the Audit Report, the OIG provided written summaries of its findings and recommendations to the Applicant and discussed them at an exit conference on January 20, 2011, where the Applicant concurred with its findings.[7]

    On August 8, 2011, the Applicant submitted a written response to the Audit Report, refuting the OIG audit findings.  The Applicant stated that although it initially agreed with the audit results based upon the assumption that the OIG audit team had met with its project systems team and that its SAP financial accounting system was in error, it subsequently tested the accounting system and found no errors and that all payroll overtime additives (i.e., fringe benefit charges) were calculated correctly.  The Grantee notified the Applicant on January 11, 2013 of FEMA’s de-obligation of $202,984 from 22 PWs based upon the OIG audit findings.  

    First Appeal

    On February 15, 2013, the Applicant sent its first appeal request to the Grantee, appealing FEMA’s de-obligation based on the OIG audit findings.  The Grantee transmitted the Applicant’s first appeal to Region IV on February 18, 2013, indicating its support of the appeal.

    The Applicant asserted its project systems team conducted an internal audit of the SAP financial accounting system and confirmed that the system accurately calculated the payroll overtime additives.  The Applicant stated that the OIG audit team was familiar with the previous legacy accounting system, but not the SAP financial accounting system newly introduced in 2003, and opined that the lack of understanding of the new system’s report format led to OIG’s misinterpretation of its accounting data. 

    The FEMA Region IV Regional Administrator (RA) denied the first appeal on January 17, 2014.  The RA stated that while the Applicant made clear its disagreement with the OIG audit conclusions, it offered no additional data, documentation, or detailed methodology to explain the audit differences with its own findings to support its position.  The RA determined that there was no information provided by the Applicant to merit a challenge to the OIG’s conclusions and FEMA’s de-obligation based upon it.

    Second Appeal

    On April 11, 2014, the Grantee transmitted and positively endorsed the Applicant’s second appeal letter dated March 27, 2014.  The second appeal reiterated the Applicant’s first appeal argument.  Additionally, the Applicant stated that it conducted a detailed review of individual line items of questioned costs in the Audit Report, provided spreadsheets with its comments disputing the OIG finding on each cost item, and addressed the following issues found in the Audit Report:

    • Misinterpretation of account titles
    • Inconsistencies in questioned costs:
      • Disallowed fringe benefits associated with regular hours
      • Questioned costs that were not claimed on the projects
      • Inconsistency in the type of fringe benefits disallowed among projects
      • Key-punch and/or transposition errors in the Audit Report

    The Applicant explained that “Cost Element Account Titles” detailed in the labor reports are used to describe the status of employees who charge time to disaster projects, as opposed to identifying a work hour as regular or overtime.  The Applicant acknowledged that the Account Titles, as currently displayed in its SAP accounting system, are not intuitive and could be misleading without an understanding of the FEMA Payroll Master document, which details the payroll additives calculated for each FEMA activity type.

    The Applicant also stated that it found two fringe benefit labeling errors during the internal review of its accounting system.

    Discussion

    Title 44 Code of Federal Regulations (44 C.F.R.) § 206.206 requires that the Applicant’s appeal “contain documented justification supporting the [applicant’s] position...”[8]  The Applicant disputed the OIG audit findings regarding ineligible fringe benefits, and provided annotated spreadsheets as additional documentation to support its position.

    The Applicant attributed some of the OIG audit findings to a potential misunderstanding of Account Titles used by its SAP accounting system, which could have led to the misinterpretation of the accounting data.  As an example, the Applicant explained that the FEMA Labor Secondary Cost Element “920000011 Perm Labor Subject: Allow Ovtime/Compt” means the employee is eligible to make overtime but has not yet reached his/her regular 40 hours worked for the week.  If the same employee has reached 40 work hours for the week, he or she would charge to “920000014 Perm Labor Subject: Overtime.”

    Along with this explanation, the Applicant provided a copy of the FEMA Payroll Master (Payroll Master) document detailing the payroll additives applicable to each labor type.  This Payroll Master document provided helpful information to understand the difference between regular and overtime labor types in the Applicant’s accounting data.  The details in this Payroll Master document, along with the Applicant’s comments in the backup spreadsheets, enabled FEMA to verify the Applicant’s claim that the majority of the disallowed ineligible overtime fringe benefits were actually eligible fringe benefits applicable to regular time labor.

    FEMA regulations provide that “[f]or the performance of eligible permanent restoration under section 406 of the Act, 42.U.S.C. 5172, straight-time salaries and benefits of a subgrantee’s permanently employed personnel are eligible.[9]  Public Assistance guidance further explains that “[f]ringe benefits that are actually paid as part of an established policy are eligible.  Because certain items in a benefit package are not dependent on hours worked, such as health insurance, the fringe benefit rate will be different for regular and overtime hours.  The overtime fringe benefit rate is usually significantly lower.”[10]

    The Applicant agreed that some fringe benefits, such as Holiday, Sick Leave, Annual Leave, and Hospital Medical, should not be calculated on overtime labor.  The Payroll Master document confirmed that the Applicant’s accounting system does not calculate these fringe benefits on overtime labor.  The Applicant also explained that the cost of Public Liability, Disability Insurance, Compensatory Leave, and Retirement calculations are related to the number of hours worked and should be eligible for overtime hours, even though they were identified as ineligible overtime fringe benefits by the OIG.  The Payroll Master document showed that these fringe benefits are indeed applicable to both regular and overtime labor.  Therefore, FEMA agrees with the Applicant that these fringe benefits should be considered eligible for overtime labor.

    The Applicant also contended that some of the costs questioned in the Audit Report were not claimed on the related PWs, and marked them accordingly in the supporting spreadsheet.  FEMA confirmed this and agrees that these costs should not be disallowed.

    Furthermore, the Applicant claimed that it identified several types of inconsistencies and errors in the Audit Report, and noted them in a separate comments column in the supporting spreadsheets.[11]  Based on the supporting documentation submitted, FEMA agrees with the Applicant that all of these fringe benefits identified by the OIG as ineligible should be eligible.

    Additionally, the Applicant identified a few key-punch and transposition errors in the Audit Report.  It appears that such errors were made in the Audit Report.  However, these errors are limited to the Audit Report text regarding the claimed labor, and do not actually impact the dollar amount that the OIG recommended for disallowance.

    Lastly, the Applicant acknowledged the discovery of its accounting system mislabeling the following two items: 1) the calculation for “Comp Leave Fringe (920000081)” for a permanent employee working Comp Time was mislabeled as “CL Perm Not Subj: Holiday Wktime” when it should read “CL Perm Subject: Comp Time”; and 2) the calculation for “Comp Leave Fringe (920000166)” for a permanent employee earning Comp Time was mislabeled as “CL Perm Exempt: Holiday Wktime” when it should read “CL Perm Subject: Overtime.”  The Applicant maintained that the fringe benefit calculations for these mislabeled labor hours are correct, despite the incorrect labels.  Although the Applicant did not provide any explanation for the cause of this labeling error, FEMA confirmed that the associated fringe benefits were calculated correctly.

    Conclusion

    The Applicant submitted sufficient additional documentation with the second appeal to support its assertion that all overtime fringe benefits were calculated and claimed correctly.  Based on this new information, the previous de-obligation of $202,984 from 22 PWs should be restored.


    [1] See 68 FR 59414 (Oct 15, 2003), which set the large project threshold at $54,100 for FY2003.

    [2] All dollar amounts referenced in the second appeal analysis are from the OIG Audit Report Memo and the Applicant’s second appeal letter.  Any rounding of the amounts  was performed by the OIG, and used in the second appeal analysis for consistency.

    [3] Memorandum from OIG to FEMA regarding Audit Report Number DA-11-15 (April 15, 2011).

    [4] $202,984  is a rounded amount used by the OIG throughout the Audit Report, and also by the Applicant throughout its first and second appeal requests.  For consistency, this rounded amount is also used in the second appeal analysis.

    [5] Id.

    [6] Id.

    [7] Id.

    [8] 44 C.F.R. § 206.206(a)(2004).

    [9] 44 C.F.R. § 206.228(a)(4).

    [10] Public Assistance Guide, FEMA 322, at 37 (October 1999).

    [11] Specifically, the Applicant identified the following inconsistencies: Public Liability was disallowed on 20 of 22 PWs; Retirement was disallowed on 4 of 22 PWs; and Unemployment and Workers Comp line items were disallowed on 1 of 22 PWs.

     



 

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