Allowable Costs & Reasonable Costs, Codes and Standards, Improved Project

Appeal Brief

Appeal Letter

Appeal Analysis

Background

During the incident period of January 20 to 21, 2017, severe storms, tornados, straight-line winds, and flooding caused damage in the state of Mississippi.[1] The City of Hattiesburg (Applicant) owns Fire Station #2 (Facility), which sustained damage during the event. The Facility is a 3,200 square foot (SF) one-story building constructed in 1972. The Applicant applied for Public Assistance (PA) to restore the Facility, and FEMA prepared Project Worksheet (PW) 11 to document the Category E project. In April 2017, FEMA prepared a Cost Estimating Format (CEF) for repair totaling $263,295.00, while the Applicant submitted a replacement cost estimate of $640,000.00. Since the estimated repair cost was less than 50 percent of the replacement estimate, FEMA initially awarded PW 11 for repair of the Facility. The Applicant subsequently requested that FEMA increase the square footage of the Facility to comply with required codes and standards upgrades and recalculate its 50 percent repair versus replacement determination.

After FEMA issued a Determination Memorandum (DM) and first appeal decision stating that the Facility was not eligible for replacement under its calculation of the 50 Percent Rule, the Applicant submitted a request for arbitration to the Civilian Board of Contract Appeals (CBCA). On July 29, 2021, the CBCA ruled in favor of the Applicant, agreeing with the Applicant’s analysis that the 3,200 SF Facility was eligible for replacement with a 5,900 SF facility to comply with applicable codes and standards. The CBCA directed FEMA to fund the replacement facility. 

On November 9, 2021, the Applicant submitted a scope of work change request to FEMA, requesting relocation of the Facility to an alternate location. On September 21, 2023, FEMA issued a new DM, denying the Applicant’s request. FEMA explained that relocation was not cost-effective, and the original site was not subject to repetitive damage. FEMA revised the total project cost to $1,850,738.00 to construct a replacement facility at the original location, which reflected the CBCA arbitration decision and FEMA’s determination that the facility was not eligible for relocation. FEMA noted that the Applicant could request an improved project for relocation of the Facility with costs capped at the cost to replace the Facility at its original location.

First Appeal

On November 17, 2023, the Applicant submitted a first appeal, requesting $3,857,754.00 based on its estimate to construct a 5,900 SF fire station at the original location, which included a 20 percent cost adjustment for inflation. On December 8, 2023, the Mississippi Emergency Management Agency (Recipient) transmitted the appeal to FEMA, expressing its support. Also, on November 17, 2023, the Applicant separately submitted a request for an improved project to relocate the Facility. On December 12, 2023, the Recipient transmitted the request to FEMA with its approval.

On February 7, 2024, FEMA issued a Request for Information (RFI) seeking a detailed breakdown and explanation from the Applicant for the replacement facility. FEMA included a CEF for a replacement two-story facility at the original site. On March 7, 2024, the Applicant replied to the RFI, providing its own CEF to construct a replacement facility at a proposed new location.

On September 18, 2024, the FEMA Region 4 Regional Administrator partially approved the first appeal, explaining that PW 11 would become an improved project for relocation of the Applicant’s replacement facility with costs capped at the eligible replacement costs at the original site. FEMA stated that, after reviewing the Applicant’s cost estimate, it found a total of $2,284,997.00 in eligible replacement costs for PW 11, therefore approving an additional $434,259.00.

Second Appeal

On November 15, 2024, the Applicant submitted a second appeal, requesting an additional $328,460.06 it claims is necessary to design and build a replacement 5,900 SF facility at the original site, including a breakdown of individual items. The Applicant emphasizes that an accurate cost estimate is important since this is an improved project, so the award is based on the estimate and cannot be adjusted later to reflect actual costs. In a letter dated November 26, 2024, the Recipient transmitted the appeal to FEMA.

Discussion

FEMA may provide PA funding to eligible applicants to restore facilities damaged or destroyed by a major disaster based on predisaster design and function in conformity with current applicable codes and standards.[2] An improved project is a project that restores the predisaster function, and at least the same capacity, of the damaged facility and incorporates improvements or changes to its predisaster design.[3] For improved projects, FEMA caps the amount of PA funding based on the lesser of the estimated cost to restore the damaged facility to its predisaster design and function, or the actual costs of completing the improved project.[4] To be eligible, costs must be necessary and reasonable.[5]

Concrete Floor

The Applicant requests $19,114.21 for installing a six-inch concrete floor in the administrative area of the Facility. FEMA had denied this request in its first appeal decision, explaining that the Applicant submitted costs for 488 SF beyond the eligible 5,900 SF scope of work, and that the Applicant’s claim for a six-inch-thick concrete floor in the administrative area was overdesigned and unreasonable. Instead, FEMA found that a four-inch-thick concrete floor reasonable for the administrative area (while thicker concrete is reasonable for the apparatus bay where the fire trucks are housed). On second appeal, the Applicant explains that firemen may bring heavy equipment inside the new building, including the administrative areas. The Applicant contends the fire chief cannot prohibit individuals from doing this and the heavy equipment could crack the slab. Thus, the Applicant asserts that a six-inch-thick floor is reasonable.

Administrative areas have minimal load requirements, as opposed to the apparatus bay, so a four-inch-thick concrete floor is reasonable for the administrative areas. The Applicant has not provided documentation, such as structural and load calculations, to support that the administrative area slab will be subject to heavier traffic and load requirements or that a thicker slab is required due to codes and standards. Therefore, FEMA finds that additional funding for the concrete floor is ineligible.

Trench Drain

The Applicant requests $9,000.00 for formwork to install a trench drain in the foundation. FEMA had denied this request in its first appeal decision, explaining that the premade floor drain is encased without the need for any formwork; thus, the Applicant’s claimed costs for forming and reforming steel were ineligible. On second appeal, the Applicant explains that pouring the concrete slab without forms risks that the slab would disturb or float the preformed trench drain, which would then require expensive, labor-intensive work to cut the newly poured concrete slab. The Applicant asserts that it is better construction sequencing to form the trench drain, pour the concrete slab, and then install the preformed trench drain.

Multiple construction sequencing methods exist to install trench drains and both methods proposed by FEMA and the Applicant are possible, and the Applicant has not demonstrated that the requested work is required by applicable codes and standards; thus, FEMA should consider the least-cost alternative. Installation of the trench drain should be performed by a competent contractor with experienced personnel, which should prevent the risks the Applicant describes in its appeal. The Applicant’s proposal to include formwork requires additional costs for material and labor; thus, it is not the least-cost alternative. Therefore, the Applicant’s additional claimed costs for formwork are ineligible.

EIFS 

The Applicant requests $35,378.32 for the exterior insulation and finish system (EIFS) and associated concrete fill and reinforcement. FEMA had denied this request in its first appeal decision, finding that it was an upgrade from the existing concrete block exterior wall, and the Applicant did not provide a codes and standards requirement that would trigger the upgrade. On second appeal, the Applicant explains that the existing concrete block exterior wall from the damaged Facility was not the typical size; thus, the Applicant claims that use of the nontypical size block would require considerably higher labor costs for installation. The Applicant claims that the EIFS exterior is the least-cost alternative. 

The concrete block design is most suitable for load bearing and wind resistance, and the Applicant’s EIFS alternative would have additional costs for concrete fill, reinforcement, and insulation. The Applicant has not demonstrated that the requested work is required by applicable codes and standards, and FEMA finds that the Applicant’s alternative is more expensive than the concrete block design. Therefore, the Applicant’s additional claimed costs for EIFS are ineligible.

HVAC

The Applicant requests $39,942.00 for two 3,000 SF heating, ventilation, and air conditioning (HVAC) units. FEMA had denied this request in its first appeal decision, finding that the cost for a single 10,000 SF multizone system was more reasonable. FEMA added that the Applicant did not demonstrate that two separate units were required and noted that two units would double the cost for mobilization, installation, and other related costs. On second appeal, the Applicant claims that two HVAC systems are necessary because they will better address the temperature disparity between the housing area and the administrative areas.

HVAC systems must be designed to provide adequate ventilation and maintain indoor air quality, and the number of units depends on several factors, including the building’s layout, occupancy, and functional requirements. The damaged Facility functioned with only one HVAC unit. A multizone system can handle different temperature needs for various areas, such as the administrative area, living spaces, and apparatus bays, within a single unit, but it needs to be designed to provide the right airflow and capacity for each zone. The Applicant has not demonstrated that the two systems it proposes would cost less or are required to meet the design need. FEMA finds that the multizone system is the least-cost alternative. Therefore, the Applicant’s additional claimed costs for two HVAC units are ineligible.

Soft Costs and Design Costs

The Applicant requests $103,434.53 for soft costs and $121,591.00 for design phase scope contingencies. FEMA had denied the request for soft costs in its first appeal decision, explaining that the Applicant used a soft cost factor of 17.5 percent to account for construction cost contingencies at the preliminary engineering analysis stage. FEMA found that the preliminary engineering analysis had been completed, so the soft cost factor should be zero. FEMA did approve $121,591.00 for a 9 percent working and drawing stage factor because working drawings had not been produced. On second appeal, the Applicant explains that FEMA failed to recognize that there are not finished design plans, specifications, drawings, or contract documents.

The Applicant does not provide a detailed breakdown of its additional claimed soft costs and design scope costs. The preliminary engineering analysis has been completed so the soft cost factor should be zero and should only include the nine percent working drawings factor that has already been factored in. Therefore, FEMA finds that the Applicant’s additional claimed soft costs and design scope costs are ineligible.

Finally, the Applicant requests that any changes to the cost estimate be adjusted for inflation. FEMA’s first appeal decision used 2024 RS Means cost data, which is an acceptable method to capture the inflation cost. Since FEMA is not recommending any changes to the cost estimate in this decision, no additional adjustments for inflation are necessary.

Conclusion

The Applicant’s additional claimed costs for the replacement facility are ineligible. Therefore, this appeal is denied.