Support Documentation, Improved Project

Appeal Brief

Appeal Letter

Appeal Analysis

Background

Between April 30, 2010 and May 18, 2010, severe rainstorms, tornadoes, and straight-line winds impacted Nashville-Davidson County (Applicant).  The rainstorms caused the Cumberland River to overflow, and the resulting floodwaters damaged Applicant’s Central Wastewater Treatment Plant as well as the Applicant’s Metropolitan Water Services Biosolids Facility (Biosolids Facility).  A multi-building and multi-component facility, the Biosolids Facility processes solids generated at the Central Wastewater Treatment Plant as well as at the Applicant’s Whites Creek Wastewater Treatment Plant.

Building 40, part of the Biosolids Facility, contains five anaerobic digesters.  During the weather event, as floodwaters began to inundate the Wastewater Treatment Facility, operators cut power to protect Building 40’s electrical systems.  The power outage rendered certain sprayers inoperative, resulting in damage to digesters #1, #4, and #5.  FEMA subsequently prepared PW 5593 documenting necessary repairs to those three anaerobic digesters.

The original PW documented repairs to deflated membranes and membrane seals on digesters #4 and #5.[1]  Documentation provided with the Applicant’s second appeal submission shows contractors, after beginning repairs, found tears in both sets of membranes.  After attempting to repair the tears, the contractors determined the membrane and membrane seals were irreparable.[2]  The contractors did not discover these tears until after they began work and after FEMA prepared the original PW.[3]

A detailed understanding of the digester system helps clarify the Applicant’s appeal.  Each individual digester system includes a cover system; these cover systems contain several components including canvas membranes sealed to the digester— these are the membranes and membrane seals described above.   

Of special relevance in this appeal analysis is a High Gas Take Off (HGTO) cover, a digester cover system with a modified configuration.  According to the manufacturer, Siemens Water Technologies, this modified configuration entails placing the valve that withdraws gas (the gas take-off) from the digester at the top of the cover rather than on the side of the digester.  This prevents damage to the gas take-off due to foaming biosolids.[4]  Both the HGTO configuration and the standard configuration include membranes and membrane seals.

On April 6, 2011, the Applicant made an improved project request to install an HGTO system on Digesters #4 and #5.  FEMA subsequently approved the improved project request in version 2 of the PW and capped the costs at $1,502,148.86—$1,500,955.0 for estimated repair costs and $1,193.86 for direct administrative costs (DAC).  This figure reflected the estimated cost to repair the membrane and membrane seals as originally contemplated in the PW, not membrane replacement.   

First Appeal

In a June 3, 2011 letter, the Applicant submitted its first appeal and argued FEMA erred in estimating DAC and resident engineering costs—the Applicant also requested reimbursement of costs to replace the membranes and membrane seals on anaerobic digesters #4 and #5.  The total disputed amount, including associated construction management costs, totaled $1,041,873.44.  The Applicant argued it did not intend construction management costs to cover resident engineer costs.  As to the membranes and membrane seals, the Applicant contended FEMA’s delay in preparing PWs and a lack of time in the field both contributed to FEMA’s errors in estimating only repair work.

The FEMA Region IV Regional Administrator (RA), through a June 1, 2012 letter, denied the Applicant’s first appeal, determining that the activities claimed as DAC actually involved procurement and payment activities, making them project management costs not DAC.  The RA acknowledged the appropriateness of special engineering services for this project and concluded it met the “large and complex” requirement.  However, he denied the request stating the documents provided did not highlight specific tasks on daily reports, nor specific daily hours of the personnel attributed to oversight of the facility.  And lastly, as to the costs to replace membranes and their seals, the RA determined the costs could not be reimbursed because the replacement was part of an improved project to which costs were already capped. 

Second Appeal

In a letter dated August 10, 2012, the applicant submitted its second appeal, this time requesting only resident engineering costs and costs to replace membranes and membrane seals—the total amount requested was $623,712.00 and included associated construction management costs.  FEMA Headquarters received the second appeal on February 4, 2014.

Through its submission, the Applicant argues that the lack of adequate documentation of resident engineering costs resulted from FEMA’s delay in completing the PWs and decision to prepare individual PWs for each building at the facility.  The Applicant indicated that it verified and supported each resident engineer’s activities through daily timesheets.  Through its second appeal submission as well as a subsequent response to a FEMA request for additional information, the Applicant provided more detailed summary sheets reflecting the work performed by resident engineers. 

Regarding the replacement of the membranes and membrane seals, the Applicant asserts the replacement was not an improvement—but recognized the HGTO configuration was.  The Applicant argues the cost to replace membranes and membrane seals reflect the actual cost to restore the facility to pre-disaster condition as the membranes and membrane seals were not repairable.  The Applicant is requesting an increased cap of $1,892,796.00. 

Discussion

Resident Engineering Costs

Pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) § 406, FEMA is authorized to provide reimbursement for the associated expenses incurred by a local government during the repair, restoration, reconstruction, or replacement of a facility damaged as the result of a declared disaster.[5]  FEMA determines allowable costs in accordance with the Office of Management and Budget (OMB) cost principles.[6]  As a local government, the Applicant must follow the OMB Circular A-87[7] requirement that costs must be necessary for proper and efficient performance and administration of the Federal award.[8]  It also mandates that costs are adequately documented and allocable to the specific project completed with Public Assistance funds.[9]   Generally, costs that can be directly tied to the performance of eligible work are eligible for FEMA reimbursement.[10]  Further, FEMA policy provides that services of a resident engineer may be required for some projects, and that such services are estimated separately from standard engineering and design service costs.[11]

As acknowledged earlier, FEMA does not dispute that this project meets the complexity requirement necessary to reimburse costs associated with resident engineering services.[12]  Consequently, the sole issue with regard to resident engineering costs is whether the Applicant provided adequate documentation to show the costs are allocable to PW 5593.

Before FEMA can reimburse resident engineering costs, any provided documentation must adequately show necessary work within the eligible scope of work.[13]  Submitted with its second appeal, the Applicant has provided additional information associated with the daily activities performed by resident engineers.  Specifically, detailed time sheet reports clearly demonstrate hours worked on various parts of the facility, the date the work was performed, the number of hours worked, and the rate billed for the work performed.  These daily time sheet reports also show task codes that provide a description of resident engineering services performed, which include the following: evaluating damaged equipment; tagging-out equipment for inspection, repair, and startup; inspecting equipment for cause of malfunction; preparing scope of work for facility repairs; monitoring contractor and vendors repair work for compliance with scope of work; coordinating contractor work schedules; assisting with testing and re-commissioning of the facility; and monitoring the installation of repaired equipment. 

The information submitted in conjunction with Applicant’s second appeal, as well as documentation provided in response to FEMA’s subsequent request for additional documentation, provides adequate documentation of resident engineering services performed on the anaerobic digesters at building 40.  Therefore, $220,026.00 in costs associated with resident engineering services are eligible for reimbursement. 

Replacement of Digester Membranes and Membrane Seals

FEMA reimburses applicants to restore damaged eligible facilities to pre-disaster design.[14]  Applicants performing restoration work on a damaged facility may use the opportunity to make additional improvements while still restoring the facility to its pre-disaster function and capacity.[15]  Projects that incorporate such improvements are called “improved projects.”[16]  Federal funding for improved projects is limited to the federal share of the estimated cost of the original project or the federal share of the actual costs of completing the improved project, whichever is less.[17]  The balance of the funds is a non-federal responsibility.[18]

During the performance of work on a project, the applicant may discover hidden damage, additional work that is necessary to properly complete the project, or that certain costs are higher than those used to make the original estimate for the PW.[19]  In version 2 of the PW, FEMA approved, as an improved project, the installation of the HGTO configuration on digesters #4 and #5 and capped the project at $1,502,148.86, of which $1,500,955.00 included the estimated cost to repair the membranes, a repair item originally contemplated in the PW. 

As discussed above, the Applicant’s contractors discovered hidden tears in the membranes and membrane seals and determined the membranes and membrane seals were damaged beyond repair.[20]  These tears were examples of hidden damage.  In summary, to restore the membranes back to pre-disaster condition, the membranes would need to be completely replaced, not just repaired.  Accordingly, the improved project cap must be adjusted to reflect replacement, not repair.

The actual costs that the Applicant incurred to replace the membranes and membrane seals on digesters #4 and #5 totaled $1,662,984.00.  This amount is eligible because the work is required to restore the facility back to pre-disaster condition.  The cost of $136,440.00 associated with the improved HGTO configuration installed on digester #4 is ineligible and can be separately documented.[21]  The cost to perform work prior to the discovery of the tears, $229,812.00, is also eligible for funding—it was done in the scope of eligible work at the time the contractors performed it.      

In summary, the total cost for in-scope work to restore digesters #4 and #5 to pre-disaster condition totals $1,892,796.00.  This includes $1,662,984.00 to replace the membranes and membrane seals plus and the additional $229,812.00 for work performed prior to discovery of the tears.[22]  Subtracting the cap amount of $1,500,955.00 from the in-scope work figure of $1,892.796.00 leaves an additional unaccounted for $391,841.00.  This $391,841.00 should be reflected in the PW as well as $11,845.00 in construction management for a total of $403,686.00 in additional funding.

Conclusion

The Applicant provided adequate documentation to support the incurred costs associated with resident engineering services in the amount of $220,026.00.  The Applicant’s documentation also demonstrated that the replacement of the digesters membranes and membrane seals was not an improvement but necessary to restore the facility to pre-disaster condition at a cost of $403,686.00.