Procurement & Contracting Requirements, Legal Responsibility

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4337
Applicant	St. Vincent’s Health System
Appeal Type	Second
PA ID#	031-UX880-00
PW ID#	GMP 30035, 30038, 30040
Date Signed	2021-02-18T17:00:00

Summary Paragraph

From September 4 to October 18, 2017, Hurricane Irma caused damage throughout Florida.  St. Vincent’s Health System (Applicant) requested PA funding for debris removal from the grounds of three major health facilities (Facilities) located in the Greater Jacksonville, Florida area with estimated costs totaling $31,517.02.  Medxcel Facilities Management, LLC (Medxcel), an affiliated entity within the Ascension Health Alliance (AHA), managed the debris removal on behalf of the Applicant, which also is a part of AHA.  FEMA created Grants Manager Projects 30035, 30038 and 30040 to capture the work.  FEMA issued Determination Memorandums concluding that the Applicant had not incurred any actual costs; any financial assistance would be a prohibited duplication of benefits; and the Applicant’s sole source, noncompetitive use of Medxcel was an improper procurement.  The Applicant appealed, asserting it incurred all costs as it had to reimburse Medxcel, its affiliated entity, so reimbursement would not be a duplication of benefits; and a noncompetitive bid was permissible due to the immediate need to ameliorate a public exigency.  The FEMA Region IV Regional Administrator denied the first appeals.  FEMA determined that Medxcel, not the Applicant, was responsible for the costs and the Applicant and Medxcel share a parent entity, creating a conflict of interest, so the contract violated federal procurement requirements requiring full and open competition.  Thus, the work completed under the contract was ineligible for assistance.  The Applicant submitted second appeals asserting that Medxcel engaged contractors on the Applicant’s behalf per AHA’s procurement policy and passed along those costs to the Applicant for reimbursement.  The Applicant asserts it was legally responsible for the costs and reimbursed Medxcel. 

 

Authorities and Second Appeals

• Stafford Act §§ 403(a)(3)(A), 407
• 2 C.F.R. §§ 200.22, 23, 330
• 44 C.F.R. § 206.223(a)(3)
• Procurement Disaster Assistance Team (PDAT) Field Manual

Headnotes

• An applicant must comply with federal procurement standards when procuring goods and services under a FEMA award. When determining whether federal procurement standards apply, FEMA analyzes the relationship between the parties to determine whether it resulted in a contract and contractor relationship.
  • The relationship between the Applicant and Medxcel did not result in a contract for the exchange of goods or services and was not a contractor relationship, so federal procurement standards do not apply to their arrangement.  Medxcel purchased on behalf of the Applicant in line with its defined duties for disaster response to perform debris removal.
  • Medxcel is acting like a purchasing agent on behalf of the Applicant for the procurement of disaster response services.  A purchasing agent is an agent of a non-federal entity that assists with the procurement of goods and services.
• FEMA is authorized to provide PA funding for the cost of removing debris resulting from a major disaster.  To be eligible for financial assistance, an item of work must be the legal responsibility of an eligible applicant.
  • The Applicant has demonstrated that it was legally responsible for the costs of debris removal and provided documentation demonstrating that it reimbursed Medxcel for the costs.

Conclusion

FEMA finds that the Applicant’s use of Medxcel did not violate federal procurement requirements.  Additionally, the Applicant has demonstrated that it incurred all costs associated with the debris removal.  As a result, this appeal is granted in the amount of $31,517.02.

 

Appeal Letter

Appeal Analysis

 

Background

From September 4 to October 18, 2017, strong winds, heavy rains, and storm surge from Hurricane Irma caused damage throughout Florida.  St. Vincent’s Health System, Inc. (Applicant) is a Private Nonprofit (PNP) that operates three major health facilities in Jacksonville, Florida.  The Applicant is part of the Ascension Health Alliance (AHA).  The Applicant requested Public Assistance (PA) through the Florida Division of Emergency Management (Grantee) for the costs to remove debris throughout the facilities.  The Applicant used Medxcel Facilities Management, LLC (Medxcel) to facilitate the debris removal work, including the hiring of third-party contractors.  Medxcel is a separate organization wholly owned by AHA that provides facility management services to the Applicant, including disaster response. 

FEMA created Grants Manager Projects (GMP) 30035, 30038 and 30040 to capture the requested debris removal scopes of work and total estimated costs for the three facilities.  On April 2, 2019, FEMA issued Determination Memorandums to the Grantee and Applicant.  FEMA concluded that the Applicant had not incurred any actual costs; FEMA reimbursement would create a prohibited duplication of benefits; and the Applicant’s sole source, noncompetitive use of Medxcel was an improper procurement that violated federal procurement standards.  FEMA therefore disallowed all costs.

 

First Appeal

On May 31, 2019, the Applicant appealed FEMA’s determinations, asserting that it incurred all claimed costs as it had to reimburse Medxcel, an affiliated entity, for the costs of debris removal performed by third-party contractors, so reimbursement from FEMA would not create a duplication of benefits.  Additionally, the Applicant asserted that its use of Medxcel was an acceptable procurement necessary to address an immediate need during a public emergency.  The Applicant requested that FEMA reverse the original determinations and reimburse the Applicant for debris removal costs totaling $31,517.02.  The Grantee supported the appeal in a July 3, 2019 letter.

In a letter dated August 4, 2020, the FEMA Region IV Regional Administrator denied the first appeals.  FEMA determined that the Applicant did not incur the costs for the damages claimed.  Further, the Applicant and Medxcel share a parent entity creating a conflict of interest, which rendered the Applicant unable to conduct an impartial procurement action and resulted in a violation of federal procurement requirements.  Finally, the Applicant’s sole-source contract with Medxcel violated Federal procurement regulations requiring free and open competition.

 

Second Appeal

The Applicant submitted second appeals on October 2, 2020, asserting that it seeks reimbursement for work completed by third-party contractors, not a related entity.  Medxcel engaged contractors on the Applicant’s behalf per AHA’s procurement policy and passed along those costs to the Applicant for reimbursement.[1]  The Applicant explains that FEMA misinterpreted a letter from Medxcel, believing it stated that Medxcel was legally responsible for the debris removal costs.[2]  Instead, the Applicant explains that Medxcel, as part of its emergency management duties, is responsible for contracting with third-party vendors for services rather than the Applicant directly doing so.  The Applicant explains that it must pay for all services associated with its buildings.  Therefore, the Applicant asserts that it incurred the costs associated with the debris removal and it reimbursed Medxcel through standard funds transfer procedures.  The Grantee supported the appeal in a November 28, 2020 letter.

 

Discussion

Procurement & Contracting Requirements

A PNP applicant must comply with federal procurement standards outlined in Title 2 of the Code of Federal Regulations §§ 200.317- 200.326 when it procures goods and services under a FEMA award.  When determining whether federal procurement standards apply, FEMA analyzes the relationship between the parties to determine whether it resulted in a “contract” and “contractor” relationship.[3]  A contract means “a legal instrument by which a non-federal entity (NFE) purchases property or services needed to carry out the project or program under a federal award,” while a contractor means “an entity that receives a contract.”[4]   

Both the Applicant and Medxcel are subsidiaries of AHA and are subject to AHA requirements.  The relationship between the Applicant and Medxcel was not a contractual relationship that resulted in a contract for the exchange of goods or services.[5]  Rather, Medxcel was purchasing on behalf of the Applicant as required by AHA’s defined duties for disaster response services such as managing debris removal work.  As the relationship between the Applicant and Medxcel did not result in a contract for the exchange of goods or services and was not a contractor relationship, the Applicant’s use of Medxcel did not trigger the federal procurement requirements.  Medxcel is acting like a purchasing agent on behalf of the Applicant for the procurement of disaster response services.  A purchasing agent is an agent of a non-federal entity that assists with the procurement of goods and services.[6]

 

Legal Responsibility

Section 403, in relevant part, and Section 407 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act authorize FEMA to provide financial assistance in the form of grants to a State, local government, and certain non-profit organizations for the cost of removing debris resulting from a major disaster from publicly and privately owned lands or waters.[7]  To be eligible for financial assistance, an item of work must be the legal responsibility of an eligible applicant.[8]

Here, the Applicant has demonstrated that it was legally responsible for the debris removal work, engaged Medxcel to facilitate the debris removal, and incurred the costs.[9]  Further, the Applicant provided documentation showing that it reimbursed Medxcel through standard funds transfer procedures.[10]  Therefore, the Applicant has demonstrated that it was legally responsible for the debris removal performed by third-party contractors.  As such, the costs for debris removal are eligible for assistance.

 

Conclusion

FEMA finds that the Applicant’s use of Medxcel did not violate federal procurement requirements.  Additionally, the Applicant has demonstrated that it was legally responsible for the work and incurred all costs associated with the debris removal.  As a result, this appeal is granted in the amount of $31,517.02.

 

[1] See Procedures # OL-15, Resource and Supply Management Organization and Operation and # OL-16, Resource and Supply Management Contracting Process (Apr. 21, 2011).

[2] Letter from Dir. of Finance, Medxcel (undated). Letter is included as an attachment to Letter from Project Manager, Medxcel to Dir., Recovery Division, FEMA Region IV (Oct. 2, 2020) [hereinafter Letter from Dir. of Finance].

[3] Title 2 Code of Federal Regulations (C.F.R.) §§ 200.22 – 200.23 (2016).

[4] Id.

[5] See also 2 C.F.R. § 200.330(b) (“A contract is for the purpose of obtaining goods and services for the non-Federal entity’s own use and creates a procurement relationship with the contractor.”).

[6] FEMA Procurement Disaster Assistance Team (PDAT), Field Manual, at 132 (2019).

[7] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act, as amended, §§ 403(a)(3)(A) and 407, 42 U.S.C. § 5170b(a)(3)(A) and 5173 (2013).

[8] 44 C.F.R. § 206.223(a)(3).

[9] Letter from Dir. of Finance, at 1. 

[10] Letter from the attorneys for St. Vincent’s Health System, to FEMA, at 7 (Oct. 2, 2020) (showing Medxcel financial ledgers with ad-hoc funding deposits).