Change in Scope of Work, EHP and Other Compliance

Appeal Brief

Appeal Letter

Appeal Analysis

Background

From May 5, 2015, through June 22, 2015, the State of Oklahoma was impacted by severe storms, straight-line winds, and flooding.^[1] The City of Ardmore (Applicant) requested reimbursement under FEMA’s Public Assistance (PA) program for replacement and repair of culverts, roads, curbs, and gutters at three sites. FEMA developed Project Worksheet (PW) 878 with an estimated cost of $130,259.81 and a scope of work (SOW) to restore the damaged facilities to their predisaster condition. FEMA reviewed the project for Environmental and Historic Preservation (EHP) compliance, and based on the approved SOW, determined the project was statutorily excluded from National Environmental Policy Act (NEPA) review.^[2] The EHP review included conditions that stated, “any change to the approved SOW will require re-evaluation for compliance with NEPA and other [EHP] laws and executive orders” and, “failure to comply with these conditions may jeopardize federal assistance[,] including funding.”^[3]

On April 29, 2019, the Oklahoma Department of Emergency Management and Homeland Security (Recipient) requested that FEMA close out the large project with final reported costs of $267,785.39 in completed work, which represented a $137,525.58 cost overrun. The closeout package included an April 24, 2019 letter from the Applicant that stated that final costs were higher than estimated because the damage was found to be more extensive than originally identified and the more modest repairs in the original scope proved to be unfeasible.

In a letter dated July 12, 2022, FEMA transmitted a Determination Memorandum to the Applicant denying the full amount of $267,785.39.[4] FEMA found that the Applicant had changed the SOW at Sites 1 and 3 without prior approval from FEMA; therefore, the work did not comply with PA regulations and policy.[5] Specifically, for Site 1, FEMA noted that the Applicant replaced the damaged 72-inch corrugated metal pipe (CMP) with a 54-inch x 88-inch semi-elliptical reinforced concrete pipe (RCP). Additionally, the Applicant replaced the damaged asphalt street with concrete. For Site 3, FEMA found that instead of replacing the damaged culvert’s wing wall as described in the approved SOW, the Applicant replaced the entire headwall. In addition, the Applicant replaced the two damaged 48-inch diameter CMPs with two 54-inch diameter RCPs. FEMA considered the completed work to be improvements that went beyond restoring the facilities to predisaster design and determined that the change in SOW required an EHP evaluation and a hydrologic and hydraulic study. FEMA stated that the Applicant did not inform the Recipient of the change of scope prior to completing the work and therefore, did not receive approval from FEMA to ensure that the project complied with appropriate EHP laws, regulations, and executive orders.

First Appeal

In a first appeal letter dated September 15, 2022, the Applicant claimed that it was not possible to identify the full extent of the damage until it started the repair work; and the PW’s SOW did not reflect the full scope of damages and the necessary repairs. Additionally, the Applicant claimed that, throughout the project, it worked closely with FEMA field staff who were fully aware of the changes to the SOW and the need for them. The Applicant claimed that FEMA staff did not express concerns about its failing to request formal approval for a SOW change and did not believe a new EHP review was necessary. The Applicant stated that any work performed was with the overt, direct, and continuous approval of FEMA personnel and it did not have specific guidance stating it needed FEMA’s written concurrence to proceed with the work. Finally, the Applicant claimed that FEMA’s action to deny all of the project funding is punitive and unreasonable, arguing that the changes to the SOW did not constitute an improved project that otherwise required further studies and pre-work engineering. On November 10, 2022, the Recipient transmitted the appeal, supporting the Applicant’s position. The Recipient stated that the Applicant should be entitled, at a minimum, to the original amount obligated for the project as there were no EHP issues with the originally approved portion of the project.

On January 17, 2023, FEMA denied the appeal, finding the Applicant did not notify FEMA of SOW modifications prior to the commencement of the revised work, which precluded FEMA from completing an EHP review. FEMA stated that because the Applicant completed the modified SOW after the original EHP review, FEMA was unable to determine if any studies or consultations were necessary; thus, the Applicant violated the terms and conditions of the PA grant.

Second Appeal

On February 7, 2023, the Applicant submitted its second appeal, without any additional claims or arguments. The Recipient transmitted the Applicant’s appeal with an April 6, 2023 letter, supporting the appeal and reiterating the Applicant’s first appeal arguments. The Recipient states that the Applicant encountered problems regarding the appropriate information to be included on its quarterly report, and that FEMA field staff were informed of the potential changes to the SOW. The Recipient contends that FEMA has discretion in this matter and denying the full project amount substantially impacts the economic position of the Applicant.

Discussion

FEMA may provide PA funding for the costs to repair, restore, reconstruct, or replace a facility damaged or destroyed by a major disaster to its predisaster design, function, and capacity.^[6] If an applicant discovers hidden damage or additional work that is necessary to complete a project, the applicant should notify the Recipient as soon as possible.^[7]

• Applicants must obtain the prior approval of FEMA for any revision of the scope or objective of the project.
• ^[8] FEMA policy cautions applicants not to assume that such costs can be reported at the end of the project and that the additional funds will be approved automatically.^[9] When an applicant materially fails to comply with any term of an award, FEMA may take appropriate enforcement actions, including disallowing all or part of the grant award.^[10] FEMA must consider a range of federal statutes, regulations, and executive orders related to EHP prior to providing PA funding.^[11] When an applicant initiates or completes work on a project before FEMA is able to conduct the necessary EHP compliance review, the work is generally not eligible for PA funding.^[12]

The approved SOW for the project was based on restoring the damaged facilities to their predisaster design, function, and capacity. While the Applicant restored the function of the damaged facilities, it changed the capacity of the damaged culverts by upsizing the diameter and reconfigured the design by replacing CMPs with RCPs. The Applicant claims that it was not possible to identify the full extent of the damage until it started the repair work, that the PW’s SOW did not reflect the full scope of damages and the necessary repairs, and that FEMA staff were aware of the changes in project scope. However, the Applicant acknowledges that it did not identify or report additional damages in a SOW change request or receive written approval from FEMA or the Recipient prior to proceeding with the revised SOW. The administrative record shows that conditions placed on the grant award advised the Applicant that changes to the SOW would require re-evaluation for compliance with NEPA and other EHP laws and executive orders. Even if FEMA field staff were aware of the changes, this would not alter the conditions of the grant award or the underlying regulations regarding eligible work.[13]

FEMA’s EHP review and determination regarding NEPA were based on the approved SOW. However, because the Applicant revised the SOW and did not convey this information to FEMA until after the project was complete, the Applicant violated the terms and conditions of the grant and precluded FEMA from performing its necessary EHP reviews prior to completion of the revised SOW. FEMA’s termination of funding for the project was an appropriate enforcement action in response to this noncompliance.

Conclusion

The Applicant completed a revised SOW without prior FEMA approval. This violated the terms and conditions of the grant and precluded FEMA from performing its necessary EHP reviews prior to completion of the revised SOW. Therefore, this appeal is denied.