Direct Administrative Costs

Appeal Brief

Citation:  FEMA-1763-DR-IA, Linn County, Direct Administrative Costs, Project Worksheet (PW) 5856

Cross- Reference:  Administrative Costs, Reasonable Cost

Summary:  Severe storms and flooding beginning on May 25, 2008, caused severe damage in Linn County (Applicant) affecting its courthouse and two other buildings housing essential community services.  FEMA prepared PW 5856 in the amount of $189,043 to provide funding for the costs to lease temporary space while the three buildings were repaired.  Included in the cost estimate was $5,083 in approved Direct Administrative Costs (DAC).  Due to a contract extension, FEMA later adjusted the total eligible cost to $373,004.  After the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs, FEMA closed out PW 5856 and decreased the total eligible project cost to $364,383 based on the Grantee’s recommendation.  The adjusted total included $3,165 ($1,915 less than previously approved and obligated) in DAC.  The Applicant requested an additional $2,502 in DAC; however, FEMA determined that the Applicant’s documentation did not support the eligibility of 1) $2,416 in DAC associated with a consultant’s hourly rate that exceeded $155, and 2) $86 in DAC claimed for travel costs.  In the first appeal, the Applicant asserted that both categories of DAC were eligible for reimbursement.  In the appeal response, the Regional Administrator noted that the Applicant did not provide the documentation to substantiate the hourly rate above $155 or the travel costs and determined that the claim for $2,502 was ineligible.  In the second appeal, the Applicant reiterates that the DAC charged at an hourly rate above $155 is eligible because the protocol used to procure the contract established the rate as a reasonable cost and justified the rate as appropriate for a program manager’s skill level/expertise.  The Applicant cites 44 CFR §13.36(b), Procurement, Procurement standards, and OMB Circular A-87, Attachment A, section C, and Attachment B paragraph 32 as supporting its claim regarding the reasonableness of the consultant’s hourly rate.  Upon receipt of the second appeal, the Regional Administrator requested additional information to facilitate analysis and transmittal to HQ.  The Applicant submitted documentation reiterating the information provided in the 2^nd appeal, but did not provide the specific descriptions of the administrative tasks performed that were explicitly requested by FEMA.

Issue:  Has the Applicant provided sufficient documentation identifying specific administrative tasks that would enable FEMA to determine whether the claimed Direct Administrative Costs are eligible for reimbursement?

Finding:  No.

Rationale:  44 CFR §13.36 Procurement, Disaster Assistance Policy 9525.9, Section 324 Management Costs and Direct Administrative Costs

Appeal Letter

Appeal Analysis

Background

Severe storms and flooding beginning on May 25, 2008, damaged the Linn County Courthouse, the Witwer Building, which housed the Juvenile Probation Department, and the Administrative Office building housing essential community services.  The buildings were uninhabitable while repairs were being completed, and Linn County (Applicant) leased temporary facilities for the continuation of services.  FEMA prepared PW 5856 to provide funding for the costs to lease temporary space at the Palmer Building.  Initially, FEMA provided funding for six months of lease costs and subsequently increased the funding estimate to a total of $373,004 based on a request from the Applicant for a time extension.  The cost estimate included a line item for $5,083 in actual Direct Administrative Costs (DAC).  During project closeout, the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs and recommended that FEMA decrease the total eligible cost to $364,383.  In addition to $361,218 for an eligible lease contract, the final PW costs included $3,165 ($1,915 less than previously approved and obligated) in contracted DAC.

First Appeal

The Applicant submitted a first appeal to the Grantee on January 16, 2012.  With the appeal, the Applicant requested reimbursement of $2,502 for DAC which comprised $2,416 for DAC that were charged at an hourly contract rate above $155, and $86 for contractor’s travel costs.  The Applicant asserted that the actual work performed by its contractor “relating to the provision of temporary facilities is clearly a level of work requiring special skills, training, and experience to satisfactorily complete.”  Further, the Applicant claimed that the contractor’s project manager rate of $285 per hour was eligible because the Applicant followed a proper procurement process, in accordance with federal regulations, and awarded the contract based on fair market value.  The Grantee forwarded the Applicant’s first appeal to FEMA with a letter partially supporting the Applicant’s request on March 20, 2012.

The FEMA Regional Administrator denied the first appeal on May 21, 2012, stating that the Applicant did not substantiate the reasonableness of its DAC that were billed at an hourly rate above $155 or that the travel costs were actual costs attributable to PW 5856.  FEMA would consider contract rates higher than $155 per hour reasonable if the Applicant provided a cost analysis and supporting justification demonstrating that the administrative review on the PW required highly technical expertise.  In addition, the Applicant should provide justification for the activity or task performed and the qualifications and credentials of the contractor to substantiate the cost rate.  Finally, the Applicant should provide documentation demonstrating that it accepted and paid similar rates higher on non-disaster contracts.

Second Appeal

The Applicant submitted a second appeal on August 1, 2012, which the Grantee transmitted to FEMA on September 27, 2012, requesting $2,502 for the actual DAC incurred, plus an additional estimated amount of $2,950 for DAC associated with the preparation of its first and second level appeals.  In the second appeal, the Applicant maintains that the temporary relocation of government services was complex and required a “thorough understanding of, and actual experience with, the relevant provisions of the Stafford Act and related regulations and policies.”  The Senior Consultant had the experience, training, and certifications required to research and advise the Applicant on the complex matters.  Further, the Applicant states that it established cost reasonableness through its competitive procurement process, thereby determining market price through review of three proposals.  The Applicant selected the contractor based on the established criteria of costs, particular skills, training, and experience, and found the selected contractor’s cost reasonable in accordance with Office of Management and Budget (OMB) Circular A-87 as codified in Title 2 of the Code of Federal Regulations (2 CFR) §225.  Regarding the denied DAC related travel expenses, the Applicant states that it has provided documentation that connected the travel costs to PW 5856.

FEMA’s Request for Additional Information

On October 16, 2012, the Regional Administrator requested additional documentation from the Applicant regarding its second appeal to facilitate analysis and transmittal to FEMA HQ.  The request was for documentation to support each direct administrative task performed including: professional designations/titles of employees; specific descriptions of tasks perform; explanation of skill level required to perform task; and non-FEMA related historical costs for similar tasks.  The Applicant submitted documentation reiterating the information provided in the 2^nd appeal, but did not provide the specific descriptions of the administrative tasks performed that were explicitly requested by the Regional Administrator.

Discussion

In its second appeal, the Applicant takes issue with the Regional Administrator’s use of “unpublished and informally adopted policies and operating procedures” in the analysis of its first appeal.  The Applicant states that it did not have guidance on reasonable DAC at the time that it procured its FEMA Grant Management and Consulting Services contract.  The Applicant states that at the time, what constituted a direct cost and allowable cost for DAC was governed by the Disaster Mitigation Act of 2000, 2 CFR § 225, and FEMA Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Cost.

DAP 9525.9 describes grant management and administrative costs that are eligible under FEMA’s Public Assistance (PA) Program.  The policy defines direct administrative costs as “costs incurred by the grantee or subgrantee that can be identified separately and assigned to a specific project.”  In accordance with OMB Circular No. A-87, “treatment of direct costs must be consistent across all federal awards and other activities of the grantee or subgrantee.”  DAC include costs that can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspection and preparation of a PW.  Eligible DAC must not only be in compliance with 44 CFR §13.22, and, by extension, OMB Circular A-87, but the costs must be reasonable and properly documented in order to qualify for reimbursement.  Such costs cannot be assumed eligible if the costs are not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.

DAP 9525.9 also defines indirect costs as “costs a grantee or subgrantee incurs for a common or joint purpose benefitting more than one cost objective that are not readily assignable to the cost objectives specifically benefitted.”  A grantee or subgrantee cannot direct charge costs to a PA project that are considered indirect costs for any other federal award or activity of the grantee or subgrantee or if similar costs incurred for the same purpose in like circumstances have been allocated to indirect costs. (See OMB Circular No. A-87, Attachment A.)  Indirect costs are considered to be eligible Section 324 management costs and are not eligible as DAC.

The Applicant’s contract with Adjusters International includes tasks that are defined as indirect costs, project management, or consulting activities.  For example, the scope of work includes the following items:

• Provide general grant management advice
• Assist in the development of a disaster recovery team
• Assist in the development of a comprehensive recovery strategy
• Provide advice to disaster recovery team
• Prepare program management plan
• Prepare weekly report

It also includes insurance adjusting services that are not eligible for FEMA funding as DAC or indirect grant management costs.

FEMA’s records indicate that the Applicant submitted funding requests for DAC related activities performed by Adjusters International for 134 PWs totaling approximately $331,295.  Given the Applicant’s contract for services with Adjusters International included project management, indirect cost activities, consulting and insurance adjusting services, and the number of PWs that Adjusters International charged against, it is incumbent upon the Applicant to provide sufficiently detailed and descriptive documentation to demonstrate that the tasks performed were, in fact, eligible direct administrative costs directly attributable to PW 5856.

However, the documentation provided by the Applicant lacked sufficient detail to discern the specific tasks or work performed by Adjusters International.  Without this information FEMA is unable to determine eligibility and reasonableness of cost.  As an example, the billing information from Adjusters International uses the term “Project Formulation” to describe an “Administrative Task”.  In FEMA’s guidance, “project formulation” describes a project “Phase” (which may include activities that are considered either “Direct” or “Indirect” costs).  Other terms used in the Applicant’s documentation such as “Project Administration”, and “PW Assembly” are broad and vague and do not provide sufficient detail to determine if the activities were eligible DAC as required in DAP 9525.9.  The Applicant did not provide any deliverables, work products, meeting notes, or any other documentation to substantiate that any of the claimed costs were eligible DAC.

Another area of concern related to the Applicant’s documentation is reflected in the claimed $5,085 for DAC obligated in the original PW and certified by the Applicant’s Risk Manager on the DAC summary sheet.  At closeout, not only is the certified DAC summary sheet not submitted, but another spreadsheet for actual DAC incurred is provided by the Applicant, which includes different personnel names, different task descriptions, different dates, and a claimed cost which is $1,915 less than originally obligated.

FEMA requested additional information specifically addressing the DAC documentation submitted by the Applicant.  The request detailed documentation to support each direct administrative task performed including: professional designations/titles of employees; specific descriptions of tasks perform; explanation of skill level required to perform task; and non-FEMA related historical costs for similar tasks.  The Applicant responded by reiterating the information provided in the 2^nd appeal, but did not provide the specific descriptions of the administrative tasks performed that were explicitly requested by FEMA.

Relative to the travel costs denied by the Regional Administrator, the Applicant states that it has provided documentation to relate the travel costs to PW 5856; however, the only documentation provided are the contractor’s invoices.  The invoices show the travel costs billed by the contractor, but they do not show how the costs are directly attributable to PW 5856.  The Applicant also requested additional DAC to cover costs associated with the first and second appeals.  However, the Applicant has provided no documentation that would enable FEMA to determine whether the claimed DAC for preparing the appeals was reasonable and eligible.

Reasonableness of $285 per hour contract rate

As stated previously, due the lack of sufficiently detailed descriptions of the tasks performed, FEMA is unable to determine whether the $285 per hour rate is reasonable.  However, notwithstanding the problems identified with the documentation of DAC, the reasonableness of the contract rate of $285 per hour is a central issue in the appeal.

FEMA’s September 8, 2009, guidance memo states that in evaluating the reasonableness of requested administrative costs, FEMA must consider: “(1) method of contracting for the services, (2) the skill level of persons performing the activities, and (3) the amount of time required to perform an activity.  FEMA usually considers costs resulting from competitively procured contracts to be reasonable, provided the skill levels are appropriate for the activities performed.”

There is no indication from the information in the file or provided by the Applicant that the administrative grant management tasks for this project were complex.  The Applicant states that it used the Senior Consultant’s expertise in the development of the lease agreement for the temporary relocation to ensure that utility costs were not included in the lease agreement and in the selection of the temporary facility ensuring that it leased space “of like size” to what was used for the services prior to the event.  The Applicant asserts that the project addressed under PW 5856 was programmatically and logistically complex and required special skills, training, and experience.  However, the eligibility criteria relative to temporary relocation of essential services are clearly outlined in FEMA Recovery Policy (RP) 9523.3, Provision of Temporary Location Facilities and the Public Assistance Guide, FEMA 322, dated June 2007.  The guidance provided in these documents states that utility and other operating costs are not eligible for reimbursement and that the capacity of temporary facilities must not exceed the pre-disaster capacity of the facility that housed the displaced services.  PW 5856 documented the scope of work and contract costs for leasing temporary facilities.  From a grant management standpoint, this PW was not complex and did not require the skills or experience of a Senior Consultant compensated at $285 per hour to review the PW.  As stated in FEMA’s September 8, 2009 guidance memo, “[f]or most Public Assistance projects, a junior or mid-level technical or program specialist (or equivalent) is appropriate for the effort.”

Conclusion

The documentation submitted by the Applicant does not demonstrate that the costs incurred for contracted labor at $285 per hour were reasonable for grant administration work.  Furthermore, the documentation provided by the Applicant was not sufficiently detailed and descriptive to enable FEMA to determine that the previously funded contracted DAC activities are eligible or reasonable.  Based on these findings, all such costs claimed are ineligible and the Regional Administrator must de-obligate all contracted DAC previously determined eligible in PW 5856.