Allowable Costs & Reasonable Costs

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From October 7-19, 2018, Hurricane Michael impacted the Florida Panhandle. The School Board of Bay County Florida (Applicant) requested Public Assistance (PA) for the repair of damage to several Lynn Haven Elementary School portable classrooms and buildings. The Applicant’s contractors completed site inspections from March 20 through August 23, 2019. FEMA, in turn, developed Grants Manager Project (GMP) 103041 for the portable classrooms, GMP 111598 for Buildings 1-6, and GMP 111599 for Buildings 7, 8, 9a and 12, with combined initial Applicant-provided estimated project costs of $3,239,835.59.

FEMA issued Requests for Information (RFI) for each project seeking documentation supporting how the costs were formulated. The Applicant responded with documentation and revised the total cost estimate for all three projects to $2,535,362.36. FEMA issued a Determination Memorandum for each project, approving a total of $2,169,876.31 but denying a total of $365,486.05, finding that the costs were unreasonable or were duplicative costs from other projects.[1] 

First Appeal 

The Applicant filed three separate first appeals, requesting previously denied funding for all three projects.[2] The Applicant stated that: (1) the Site Inspection Reports (SIR) were signed by licensed architects, engineers, and electricians; (2) FEMA erred in removing soft costs factors or misapplied them; and (3) FEMA should obligate estimated costs, which could be reconciled at closeout. The Florida Division of Emergency Management (Recipient) forwarded the appeals to FEMA with its support.

FEMA sent the Applicant an RFI on July 15, 2022, requesting documentation to substantiate its claimed costs. FEMA noted that in a separate appeal for GMP 113459, the Applicant provided an invoice from Childers Construction Company (Childers) that included costs for the three projects on appeal here. The invoice indicated that all three projects were nearly complete as of January 31, 2022, at a cost of $877,147.77, which was significantly less than what FEMA had previously approved. 

The Applicant responded on September 13, 2022, decreasing its total costs claimed to $1,164,018.10 and providing supporting documentation, such as cost spreadsheets. The Applicant stated that even if some costs were not properly documented, FEMA must still fund reasonable costs.

The FEMA Region 4 Regional Administrator (RA) partially granted the Applicant’s appeals in a single first appeal decision dated January 9, 2023. FEMA found that the Applicant did not substantiate that the completed work and associated costs were solely attributable to disaster-related damage.[3] Neither the bids, contract, amendments, nor invoice provided by the Applicant gave a quantitative description of the scope of work (SOW) for the work performed. The contract costs were based on lump amounts by trade, and invoicing was completed using a schedule of values developed after the contract was signed. Therefore, FEMA could not ascertain if the completed work for associated with each funding request was limited to the repair of eligible damage that was incurred as a direct result of the disaster.[4] Nonetheless, FEMA, performed a reasonable cost analysis by comparing FEMA’s previous validation of the Applicant’s cost estimates to the actual costs claimed by the Applicant in accordance with certain considerations. 

FEMA’s reasonable cost analysis resulted in some previously validated estimated costs being decreased when compared against the actual costs, while others were increased. For instance, the Applicant’s claimed costs for the portable classroom buildings in GMP 103401 were based on total costs, not the cost of individual buildings; therefore, FEMA broke down the estimated costs for the individual portable buildings by trade and then totaled the cost for the various trades for comparison to the claimed costs. For GMPs 111598 and 111599, the Applicant provided a breakdown of costs by trade for each building that were compared to the estimated costs by trade on an individual basis. Costs not directly attributable to a specific trade cost or building were distributed on a prorated basis. Next, FEMA added soft costs for Buildings 7, 8, 9a, and 12 that were present in the FEMA’s previously validation. Originally, GMP 111599 was a small project and thus soft costs were not included in the project, but since the Applicant contracted for all work under one large contract the reasonable cost analysis introduced this cost item for that project. Lastly, FEMA accepted certain actual costs related to repaired drywall, stucco, and painting in favor of the estimated costs. FEMA concluded that the Applicant’s total reasonable cost for all three projects was $807,012.45 and that federal law did not prohibit FEMA from deobligating the remaining unreasonable costs.[5]

Second Appeal

The Applicant filed a second appeal on March 10, 2023, requesting FEMA approve the previously denied funding of $365,486.05, stating that the contracted work could be tied to work required as a direct result of the incident. Furthermore, the Applicant states that it completed the work for significantly less than what FEMA initially approved; FEMA’s cost estimate is flawed due to allocating the lump sum costs by disaster inventory; FEMA provided no rationale for its reasonable cost analysis; and it was prudent for the Applicant to procure lump sum contacts to get the best pricing.[6] The Recipient forwarded the second appeal to FEMA, supporting the Applicant’s position.

Discussion

FEMA may provide PA funding to a local government for the repair of a public facility damaged by a major disaster.[7] To be eligible, costs must be directly tied to the performance of eligible work; adequately documented; and necessary and reasonable to accomplish the work properly and efficiently.[8] 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 applicant makes the decision to incur the cost.[9] FEMA determines reasonableness by evaluating whether the cost is of a type generally recognized as ordinary and necessary for the type of work.[10] If FEMA determines any of the costs to be unreasonable based on its evaluation, FEMA may disallow all or part of the costs by adjusting eligible funding to an amount it determines to be reasonable.[11] The applicant is responsible for providing documentation to demonstrate its claimed costs are reasonable.[12] An appeal must contain documented justification supporting the appellant’s position.[13]

Here, the Applicant states that the documentation previously provided already substantiates the claimed actual costs. However, the Applicant did not provide an explanation of the documentation with its appeal letter that would substantiate its assertion regarding awarding costs claimed, or otherwise demonstrate how the documentation supports its assertion that it substantiated costs claimed.[14] The Applicant asserts that FEMA’s reasonable cost analysis was flawed, and that FEMA did not provide its rationale for how costs were determined reasonable. However, FEMA provided the rationale for its analysis, for example, it accounted for the Applicant’s lump sum contract by reintroducing soft costs into GMP 111599. Further, the Applicant does not make any specific arguments, such as noting particular line items from the analysis, with which it finds fault. Therefore, the Applicant has not demonstrated the additional requested costs are reasonable.  

Conclusion

The Applicant has not demonstrated that the additional claimed costs are reasonable. Therefore, this appeal is denied.