Procurement – Engineering and Design Services
Appeal Brief
| Disaster | 1604-DR-MS |
| Applicant | City of Pass Christian |
| Appeal Type | Second |
| PA ID# | 047-55400-00 |
| PW ID# | 8402 and 10959 |
| Date Signed | 2015-06-26T00:00:00 |
Conclusion: On second appeal, the City of Pass Christian (Applicant) failed to demonstrate that the overtime rates charged were adequately documented in the service contract pursuant to OMB Circular A-87 and FEMA policy guidance. As such, they are not eligible for FEMA reimbursement.
Summary Paragraph
In August 2005, Hurricane Katrina caused damage throughout the City of Pass Christian. The Applicant used an engineering firm to repair its small craft harbor (Project Worksheet (PW) 8402) and sewer system (PW 10959). At final inspection, FEMA determined that the Applicant included invoices from the engineering firm that contained costs that were inconsistent with the terms of the contract. As such, FEMA disallowed $3,598.75 from PW 8402 and $11,101.00 from PW 10959. In separate first appeal letters, the Applicant asserted that FEMA erred in disallowing architectural and engineering (A&E) costs associated with work to restore its sewer system and harbor because FEMA has no legal authority to interpret its contract with the engineering firm. The Applicant argued that FEMA’s interpretation of the contract was clearly contrary to the two parties’ intent and past practices under the contract and would mean that the Applicant made “unlawful donations” to the engineering firm. The Region IV Regional Administrator (RA) denied the appeals determining that the contract’s payment provisions did not provide a payment at a premium rate for hours worked over 40. The RA stated that the hourly rates to be charged for each identified position were clearly stated in the Standard Hourly Rates Schedule of the contract. In the second appeal, the Applicant again asserts that it is not appropriate for FEMA to independently interpret the contract at issue in these appeals. In addition, the Applicant argues that the only issue for FEMA to decide is whether the A&E costs were reasonable and necessary to accomplish the work.
Authorities and Second Appeals
- Stafford Act § 406, 42 U.S.C. § 5172.
- OMB Circular A-87, 2 C.F.R. § 225.
- PA Guide, at 33-35, 75.
Headnotes
- OMB Circular A-87 provides that procurement costs must be necessary and reasonable to accomplish the work and adequately documented to be eligible for FEMA reimbursement. Moreover, pursuant to OMB Circular A-87, FEMA should analyze the adequacy of the contractual agreement for services, including the rate of compensation, when determining allowable costs.
- The A&E service contract at issue did not include a premium rate for hours worked over 40 hours per week.
- Therefore, the overtime charges billed to the Applicant are not eligible for FEMA reimbursement.
Appeal Letter
6/26/2015
Mr. Robert Latham, Jr.
Executive Director
Mississippi Emergency Management Agency
220 Popps Ferry Road
Biloxi, Mississippi 39531
Re: Second Appeal – City of Pass Christian, FEMA-1604-DR-MS, PA ID 047-55400-00, Project Worksheets (PWs) 8402 and 10959 – Procurement – Engineering and Design Services
Dear Mr. Latham:
This is in response to your letter dated November 17, 2014, which transmitted the referenced second appeal on behalf of the City of Pass Christian (Applicant). The Applicant is appealing the U.S. Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) denial of $14,699.75 in Public Assistance funding for overtime work associated with the restoration of the Applicant’s small craft harbor and sewer system.
As explained in the enclosed analysis, I have determined that the Applicant failed to demonstrate that the premium rate for overtime work was adequately documented in the contractual agreement for architectural and engineering services. Therefore, I am denying the appeal.
Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.
Sincerely,
/s/
William W. Roche
Director
Public Assistance Division
Enclosure
cc: Gracia Szczech
Regional Administrator
FEMA Region IV
Appeal Analysis
Background
In August 2005, Hurricane Katrina caused damage throughout the City of Pass Christian (Applicant). Hurricane Katrina washed away covers on the Applicant’s sewer system causing debris and sand to enter the system and destroying many service lines. FEMA prepared Project Worksheet (PW) 10959 to address work to restore the sewer system. In addition, the disaster’s heavy winds and storm surge damaged the Applicant’s small craft harbor — a facility consisting of 368 recreational and commercial slips, a small beach, picnic and recreation areas, a fishing pier, and parking areas. Regarding the damaged harbor, FEMA drafted PW 8402 to address repair work. The Applicant used architectural and engineering (A&E) services from the same engineering firm for both projects. At final inspection, FEMA determined that the Applicant included invoices from the engineering firm that contained costs that were inconsistent with the terms of the contract. As such, FEMA disallowed $3,598.75 from PW 8402 and $11,101.00 from PW 10959.
First Appeal
In appeal letters dated March 6, 2013 (PW 8402) and March 26, 2013 (PW 10959), the Applicant asserted that FEMA erred in disallowing A&E costs associated with work to restore its sewer system and harbor because FEMA has no legal authority to interpret its contract with the engineering firm. The Applicant stated that it used the engineering firm for various public works projects since 1985, meaning there was a longstanding relationship between the two parties. In addition, the Applicant stated that, for routine projects, the engineering firm rarely accumulated overtime, and this explained why the contract did not have a provision that directly governed overtime compensation. However, for the projects embodied in PWs 8402 and 10959, the engineering firm’s employees did work more than 40 hours a week. The Applicant argued that FEMA’s interpretation of the contract was clearly contrary to the two parties’ intent and past practices under the contract and would mean that the Applicant made “unlawful donations” to the engineering firm. Finally, the Applicant argued that FEMA’s sole authority is to determine whether the A&E services are eligible for PA funding, meaning the costs are reasonable and necessary for the work performed.
In a letter dated July 2, 2014 the Region IV Regional Administrator (RA) denied the appeals determining that the contract’s payment provisions did not provide a payment at a premium rate for hours worked over 40. The RA stated that the standard hourly rates to be charged for each level of engineer were clearly stated in the Standard Hourly Rates Schedule of the contract.
Second Appeal
In an appeal dated September 26, 2014, the Applicant again asserts that it is not appropriate for FEMA to independently interpret the contract at issue in these appeals. The Applicant argues that FEMA’s determination that the terms of the contract prohibited the Applicant from paying overtime charges is arbitrary and capricious and not supported by the laws and court decisions of the State of Mississippi. Finally, the Applicant restates it position that the only issue for FEMA to decide is whether the A&E costs were reasonable and necessary to accomplish the work.
Discussion
Pursuant to the Stafford Act § 406(a), FEMA may reimburse a state or local government for work associated with the repair, restoration, reconstruction, or replacement of a public facility damaged or destroyed by a declared disaster.[1] Costs that can be directly tied to the performance of eligible work generally are eligible for reimbursement.[2] FEMA may reimburse basic engineering and design services associated with eligible repair or restoration work.[3] To be eligible for FEMA reimbursement, procurement costs must be necessary and reasonable to accomplish the work and adequately documented.[4] When determining whether costs are allowable under the PA program, FEMA analyzes the adequacy of the contractual agreement for services, including the rate of compensation.[5]
The Applicant seeks reimbursement for service charges based on a premium rate for hours worked over the standard 40 hour work week, i.e., overtime charges. In addition, the Applicant argues that it is not appropriate for FEMA to independently interpret the terms of its contract with the engineering firm. Moreover, the Applicant contends that FEMA’s conclusion is that the Applicant is prohibited from paying the overtime charges.
Pursuant to OMB Circular A-87, the contract is the mechanism for adequately documenting costs.[6] FEMA determines whether costs are allowable by reviewing the terms of the contract and aligning invoices with the terms of the contract.[7] The contract at issue explicitly provides standard hourly rates, but is silent regarding overtime or premium rates. The Applicant acknowledges this and explains that, due to the long-standing relationship between the engineering firm and it for regular, routine maintenance where overtime is not worked, there was no need to include a clause regarding overtime in the contract. Attached to the contract is a Standard Hourly Rates Schedule addendum that sets forth the standard rate to be charged for each level of engineer. When determining allowable costs, FEMA must follow the terms of the contract. The contract at issue only allows a standard rate to be charged for hours worked, regardless of whether they are beyond the standard 40 hours.[8] Therefore, FEMA correctly deobligated the overtime costs in PWs 8402 and 10959. While the Applicant argues that FEMA concluded that the Applicant was prohibited by the contract from paying overtime charges, FEMA merely concluded that the overtime charges are not eligible for FEMA reimbursement because they were not adequately documented in the contract.
Conclusion
Pursuant to OMB Circular A-87 and FEMA policy guidance, the overtime rates charged to the Applicant were not adequately documented in the service contract. As such, they are not eligible for FEMA reimbursement. Accordingly, the appeal is denied.
[1] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 406(a), 42 U.S.C. § 5172(a) (2003).
[2] Public Assistance Guide, FEMA 322, at 33 (October 1999) [hereinafter PA Guide].
[3] PA Guide, at 75.
[4] OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB CIRCULAR A-87, COST PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS, at Attachment C(1)(a) and (j) (2004) (codified at 2 C.F.R. § 225).
[5] See id., at Attachment B(32)(b)(8).
[6] Id.
[7] See generally PA Guide, at 33-35.
[8] Pursuant to 44 C.F.R. § 206.206(a), the Applicant has the burden of substantiating appeal claims with supporting documentation. Here, the Applicant failed to demonstrate any past practice of paying overtime rates that were implicitly incorporated into its contract nor a way for FEMA to ascertain the reasonableness of cost.