Reasonable Costs – Debris Removal – Monitoring

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	FEMA-4193
Applicant	City of Napa
Appeal Type	Second
PA ID#	055-50258-00
PW ID#	(PW) 250
Date Signed	2019-04-04T00:00:00

Summary Paragraph

On August 24, 2014, an earthquake and subsequent aftershocks caused widespread damage throughout the City of Napa (Applicant).  In response to the disaster the Applicant began and continued a debris collection and removal program.  The Applicant met with the California Governor’s Office of Emergency Services (Grantee) and the Federal Emergency Management Agency (FEMA) to prepare Project Worksheet (PW) 250 encompassing the debris collection and removal program.  On April 28, 2015, FEMA issued a Determination Memorandum denying all costs.  The Applicant filed its first appeal with the Grantee on August 28, 2015.  The Grantee then transmitted the Applicant’s appeal to FEMA on October 26, 2015. FEMA issued a basic Request for Information (RFI) on January 15, 2016, requesting several documents related to the Applicant’s debris program.  The Applicant responded on March 4, 2016, with the requested documents.  On May 9, 2016, FEMA issued a final RFI stating that the documents submitted by the Applicant in response to the basic RFI did not adequately support its position.  The Applicant submitted a letter to the Grantee, who forwarded it to FEMA on July 15, 2016, asserting FEMA did not provide enough guidance in the final RFI to allow the Applicant to respond with documents that would support any prior deficiencies. FEMA then issued the first appeal decision on May 30, 2018, denying all costs.  The Region IX Regional Administrator (RA) stated that the Applicant did not provide documentation to allow FEMA to determine the eligible debris removed.  Further, the RA noted that the Applicant did not competitively procure the debris removal services and used contracting methods that did not comport with FEMA regulations.  On second appeal the Applicant posits three arguments: 1) that FEMA’s denial improperly rests on the premise that the debris could not be identified as disaster-related debris; 2) that by denying all costs, FEMA defied a long-standing policy to award reasonable costs, even where procurement noncompliance exists; and 3) FEMA’s adherence to strict compliance with regards to debris monitoring requirements, despite its own procedural noncompliance is not “fair and impartial” administration of the PA grant program.

Authorities and Second Appeals

• Public Assistance Debris Management Guide, FEMA 325, at 30, 66, 105, 106, 108-10.
• Public Assistance Debris Monitoring Guide, FEMA 327, at 1, 5, 19-22.
• Public Assistance Guide, FEMA 322, at 41, 53.
• Disaster Assistance Policy DAP 9580.203
• 44 C.F.R. §§ 13.36(f)(4), 13.43(a).
• OMB CIRCULAR-87, COST PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS.

Headnotes

• The Debris Management Guide requires applicants to monitor debris removal operations to be eligible for Public Assistance funding.
  • The Applicant did not monitor a majority of its debris drop off sites and did not employ qualified monitors at the remaining sites who met the policy requirements for debris monitors.
• 44 C.F.R. allows FEMA to take discretionary enforcement actions when the applicants materially fail to comply with terms of an award.
  • The Applicant failed to provide documentation which would allow FEMA to determine whether the costs associated with the debris collection, removal, and monitoring were reasonable.
  • The Applicant failed to properly procure multiple contracts and as such, the RA undertook a discretionary enforcement action and awarded no costs because FEMA could not determine whether the costs claimed were reasonable.

Conclusion

The Applicant did not comply with debris monitoring requirements or submit monitoring documentation which would allow FEMA to determine whether the costs claimed by the Applicant were reasonable.  Further, the RA appropriately exercised his discretionary authority in denying all costs as an enforcement remedy for the Applicant’s material noncompliance with procurement requirements.  Therefore, the second appeal is denied.

Appeal Letter

Appeal Analysis

Background

 

On August 24, 2014, an earthquake and subsequent aftershocks caused widespread damage throughout the City of Napa (Applicant).  In response to the disaster the Applicant instituted a debris collection program and requested assistance from the Federal Emergency Management Agency (FEMA) to fund costs incurred related to debris collection, transportation, and disposal.  Upon creation of the debris collection program, the Applicant set up sites throughout the city for the collection of disaster related debris.  To perform this work the Applicant contracted with Napa Recycling and Waste Services (NRWS).  NRWS typically provided a single 30 cubic yard bin per collection site.  When the bins were full the citizens piled the rest of the debris on the ground surrounding the bin.  This led NRWS to perform extra work and incur extra costs by having to load the debris from the ground into bins before removal.  NRWS was already employed by the Applicant before the disaster to perform routine garbage and waste disposal for the city.  However, following the disaster, the Applicant significantly modified the contract with NRWS to include the disaster recovery work under a new scope of work.

 

Initially, the Applicant placed 8 ½ inch x 11 inch signs at the locations stating “earthquake debris only.”[1]  Once the number of sites was reduced from the high of 14, down to 2, round the clock security was implemented by the Applicant and carried out by the Security Enforcement Alliance (SEA), a private security firm.  SEA employees were directed to log the name, phone number, and address of each person depositing debris at the sites, as well as the type of debris deposited.  They were also directed to ask whether the debris was “earthquake debris only.”  Prior to the disaster the Applicant contracted with SEA to provide security at functions throughout the city.  The Applicant then significantly modified the original SEA contract to include monitoring the debris drop off sites as part of a new scope of work.

 

The Applicant, FEMA, and the California Governor’s Office of Emergency Services (Grantee) met several times to discuss the debris removal project, during which FEMA identified several issues affecting eligibility of the Applicant’s claim.  After multiple meetings FEMA reduced funding for Project Worksheet (PW) 250 to $0.00.  The PW summarized the Applicant’s debris collection program, monitoring, and associated costs.  It also noted the efforts made by both the Grantee and Applicant to document the Applicant’s costs as well as the eligibility issues identified with the Applicant’s debris program.

 

FEMA issued a Determination Memorandum denying all costs for nearly a dozen reasons including that: 1) there was no way to identify if the debris collected was eligible, that is, related to the earthquake; 2) there was inadequate monitoring of the debris collection sites; 3) the Applicant had not established that the debris program was necessary to ease the threat of public health and safety risks; 4) there was no competitive cost solicitation; and 5) the Applicant used a time and materials (T&M) contract beyond the allowable timeframe of 70 hours.

 

 

First Appeal

 

On August 28, 2015, the Applicant filed its first appeal with the Grantee challenging FEMA’s denial of $1,533,754.02 in costs for debris removal.  The Applicant responded to the issues in FEMA’s Determination Memo by arguing, among other things, that an analysis showed that the vast majority of the debris was consistent with earthquake-related damage; 94 percent of the debris could be validated as residential debris; the debris collection sites were adequately monitored; the city monitored its contractors and the self-hauling residents; and the debris removal was necessary to eliminate an immediate threat to public health and safety.  The Applicant further argued that the city paid its contractors reasonable rates in compliance with previously established procedures; the T&M contract costs were reasonable; and the small amount of commercial debris collected does not justify FEMA’s denial of 100 percent of costs.

 

The Grantee transmitted the Applicant’s appeal to FEMA in a letter dated October 26, 2015, along with supporting analysis discussing many of the same arguments made by the Applicant.  The Grantee claimed that the Applicant requested bids from debris monitoring companies but none responded, which led to the Applicant hiring SEA.  Further, the Grantee asserted that the Applicant used the same contract with NRWS following a previous disaster, and FEMA had no issues with the contract or with reimbursing the Applicant for the debris removal service costs incurred in that prior disaster.  Finally, the Grantee conceded that the debris removal operation had “room for improvement” as there were procurement issues (mainly the use of a T&M contract beyond the 70-hour time limit), along with issues surrounding the comingling of debris.[2]  However, the Grantee suggested that FEMA has the ability to approve costs that are reasonable despite a procurement violation and that FEMA should do exactly that in this case.

 

On January 15, 2016, FEMA issued a basic request for information (RFI) requesting information related to:

 

• The contract between the Applicant and NRWS;
  • • Any change orders on the NRWS contract to perform specific earthquake debris removal work;
    • Any information regarding the ability of NRWS to hire subcontractors and how the subcontractors were to be governed; and
    • Records showing the monitoring of all contractors and subcontractors working under a T&M contract.

On March 4, 2016, the Applicant responded with the requested documents.  On May 9, 2016, FEMA issued a Final RFI which stated that the Applicant’s original documents and response to the basic RFI did not provide sufficient support for the Applicant’s position.  Generally, it noted that the information already provided did not support the claim that, despite the Applicant’s failing to adhere to procurement requirements, FEMA should apply reasonable costs.  The RFI also stated that this was the final opportunity for the Applicant to provide additional information regarding the procurement and reasonable cost issues “or any other matters that they believe [FEMA] should consider.”

 

The Applicant then responded to the Grantee stating that it could not properly respond to the RFI without a more detailed description of what information FEMA was requesting.  The Grantee then sent a letter to FEMA, dated July 15, 2016, stating that the Final RFI did not provide enough detail as to what information FEMA found insufficient, and without additional direction, the Applicant would be unable to provide the information that FEMA believed to be missing.

 

On May 30, 2018, FEMA issued the first appeal decision, denying all costs.  The FEMA Region IX Regional Administrator (RA) noted first that the Applicant substantially modified its existing contracts with NRWS and SEA to provide debris removal and monitoring services respectively.  Additionally, the RA found that the substantial change to these contracts occurred without following the proper procurement procedures.  The RA found numerous issues with the contract procurement including the lack of a competitive bid process, lack of a cost analysis, failure to include an effective price ceiling on the T&M contract, failure to negotiate profit, and use of a prohibited cost plus percentage of cost (CPPC) contract.  Moreover, the RA determined that the Applicant was unable to demonstrate that SEA was capable of providing the debris monitoring services to the standard required by FEMA policy.  Similarly, the RA determined that the Applicant was unable to demonstrate it properly validated the costs claimed by the contractors.  Considering all these factors, and based on the documentation provided by the Applicant, the RA concluded that the Applicant was unable to demonstrate that all the removal work was required as a direct result of the disaster and that the corresponding costs were reasonable.  The RA also disallowed all costs as an enforcement action for the Applicant’s material noncompliance with federal procurement requirements.  Therefore, FEMA denied the appeal.

 

Second Appeal

 

On July 26, 2018, the Applicant filed its second appeal with FEMA.  The Applicant argues that FEMA’s decision improperly rests on the premise that the debris could not be identified as disaster related debris.  The Applicant also argues that FEMA did not include this reason for denial in its final RFI and thus did not give it notice that the issue was one on which FEMA was going to deny the appeal.[3]  The Applicant further argues that FEMA failed to meet the requirements of its own policy of funding reasonable costs even where there is a procurement noncompliance.  Finally, the Applicant notes that FEMA did not comply with its own timeline and regulations with respect to the appeal procedures by failing to issue the first appeal decision within 90 days of receiving the Final RFI response.  The Grantee forwarded the Applicant’s appeal to FEMA on September 28, 2018, along with its own analysis which mirrors the arguments made in its first appeal.[4]

 

Discussion

 

Debris Monitoring

 

Applicants are required to monitor debris removal operations to document eligible debris quantities and expenses to ensure that the work is eligible for public assistance funding.[5]  Failure to do so may jeopardize funding.[6]  Monitoring debris removal is the means by which an applicant documents eligible work and costs for reimbursement.[7]  Monitoring debris removal requires comprehensive observation and documentation of work from the point of collection to final disposal.[8]  Monitoring must cover all aspects of the process including activities at all loading, staging, and disposal sites.[9]

 

Debris monitors must be qualified for the task they perform.[10]  Monitors need not be professional engineers or other certified professionals to perform the duties.[11]  However, “monitors should have experience working on construction sites and be familiar with safety regulations . . . .  Primarily, debris monitors should be able to estimate debris quantities, differentiate between debris types, properly fill out load tickets, and follow all site safety procedures.”[12]  Monitors are necessary to ensure the debris is placed into the appropriate bins, “and to ensure that the site does not become a dumping ground for non-disaster related debris.”[13]

 

According to the documentation submitted by the Applicant, it opened debris collections sites on the day after the disaster – August 25, 2014.[14]  These sites were open for anywhere from 2-54 days.[15]  However, the Applicant acknowledges that until September 1, 2014, when the number of sites was reduced to two and the Applicant began using SEA security personnel at the remaining collections sites, it did not have any continuous monitoring in place.[16]  The Applicant performed interspersed spot checks, but there is insufficient documentation to demonstrate that this would have satisfied FEMA’s monitoring requirements.  This was the only type of monitoring at any of the sites between August 25-September 5, 2014.  Without monitors the Applicant would be unable to determine who was dropping off debris at the locations and unable to determine whether that debris was disaster related.  Therefore, up until September 6, 2014, the Applicant clearly failed to satisfy necessary monitoring requirements.

 

On September 6, 2014, the Applicant employed SEA to monitor the remaining two locations.  SEA was originally employed by the Applicant to provide security for events taking place throughout the city.  The Applicant executed an amendment to the original contract to include providing monitoring services for the two debris collection sites.  These monitors manned the collection sites 24/7 and maintained a log for individuals dropping off debris to include their names, phone numbers, and addresses, and whether the debris was related to the disaster.

 

While FEMA policy does not require monitors to be certified professionals it notes that they should have experience working on construction sites and that they should be able to estimate debris quantities, differentiate debris types and follow all safety procedures.  The SEA monitors may have been able to guard the sites and require those dropping off debris to fill out the log book; however, the Applicant has not demonstrated that the SEA employees monitoring the debris collections sites had the experience or skills to adequately perform the task for which they were contracted, including experience working on construction sites and skill in estimating debris quantities or discerning debris type.  In fact, the Applicant notes that only one drop off was turned away—a clean load of dirt.  Through an analysis of this process it is clear that the Applicant did not employ qualified monitors for the debris sites and as such did not satisfy FEMA policy.

 

Contract Procurement

 

In the first appeal, the RA found and analyzed several issues surrounding the Applicant’s contract procurement.  These issues included the failure to competitively bid two contracts as well as the use of prohibited CPPC contracts[17] and a T&M contract that the Applicant used beyond the allowable 70-hour timeframe.[18]  As a result, the RA denied all claims associated with these contracts.  The Applicant does not provide any argument on second appeal contesting these procurement violations.  Therefore, FEMA notes that the issue of the Applicant’s contract procurement noncompliance is not in dispute on second appeal.

 

Reasonable Costs/Enforcement Remedy

 

If an applicant materially fails to comply with a term of an award, including procurement requirements contained in federal regulations, FEMA may take discretionary enforcement actions.[19]  FEMA may utilize several remedies for an applicant’s noncompliance including: disallowance of all or part of the costs, temporary withholding of payments or a more severe enforcement action, or any other remedies that are legally available.[20] 

 

Pursuant to the Office of Management and Budget Circular A-87, a cost is reasonable if, in its nature or amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the costs.[21]  Reasonable costs can be established through the use of historical documentation for similar work, average costs for similar work in the area, published unit costs from national cost estimating databases, or FEMA cost codes.[22]  FEMA makes the final determination on the reasonableness of costs.[23]

 

On first appeal, the RA found that without additional monitoring documentation which would allow FEMA to establish the eligible amount of debris collected and removed, FEMA was unable to conclude whether the costs submitted were reasonable.  Therefore, the RA affirmed FEMA’s initial cost eligibility determination and denied all costs.  The RA also identified material noncompliance with regard to the Applicant’s procurement procedures.  Therefore, the RA exercised his discretionary authority and undertook the legally available remedy of denying all costs as an enforcement action.  The RA has wide latitude to undertake an enforcement action and, upon review, was within his discretion to deny the claim for reasonable costs, particularly given the difficulty with determining reasonable costs discussed in the first appeal decision.  Thus, this second appeal decision will not modify the enforcement action employed by FEMA on first appeal.[24]

 

Conclusion

 

The Applicant did not comply with debris monitoring requirements or submit monitoring documentation which would allow FEMA to determine whether the costs claimed by the Applicant were reasonable.  Further, the RA appropriately exercised his discretionary authority in denying all costs as an enforcement remedy for the Applicant’s material noncompliance with procurement requirements.  Therefore, the second appeal is denied.

 

[1] Determination Memorandum from FEMA Region IX, to City of Napa, at 1 (Apr. 28, 2015).

[2] Letter from Governor’s Authorized Representative, Cal. Governor’s Office of Emergency Serv. (Cal OES), to Reg’l Adm’r, FEMA Region IX, at 4, 6 (Oct. 26, 2015).

[3] Despite the Applicant’s claim, the issue of disaster related debris and comingling of debris was included in both the PW and in the Determination Memo.  Therefore, the Applicant had sufficient notice that the appeal may be denied on this basis.

[4] Grantee again acknowledges that the majority of the costs incurred by the Applicant under the T&M contract were after the 70 hour timeframe.  Letter from Governor’s Authorized Representative, Cal OES, to Assistant Adm’r, Recovery Directorate, FEMA, through Reg’l Adm’r, FEMA Region IX, at 5 (Sept. 28, 2018).

[5] Public Assistance Debris Management Guide, FEMA 325, at 30, 105 (July 2007) [hereinafter Debris Management Guide].

[6] Id. at 30.  See also Disaster Assistance Policy DAP 9580.203, Debris Monitoring, at 1 (May 2, 2007).  

[7] Public Assistance Debris Monitoring Guide, FEMA 327, at 1, 19-22 (Oct. 2010) [hereinafter Debris Monitoring Guide]; Debris Management Guide, at 108-10.

[8] Debris Monitoring Guide, at 1; DAP 9580.203, at 1.

[9] Debris Monitoring Guide, at 5.

[10] Debris Management Guide, at 106.

[11] Id.

[12] Id.

[13] Id. at 66. 

[14] Letter from Admin. Serv. Manager, City of Napa, to Acting Reg'l Adm’r, FEMA Region IX, through Dir., Cal OES, at 4 (Aug. 28, 2015).  The Applicant opened nine collection centers the day after the disaster (Aug. 25, 2014).  The Applicant then closed eight of those nine the next day (Aug. 26, 2014).  The Applicant then opened four new sites (Aug. 26, 2014) and opened a fourteenth site (Aug. 27, 2014). The three sites which were open the longest closed September 1, September 14, and October 19, 2014.

[15] Id. at 5.

[16] Id.

[17] Title 44 Code of Federal Regulations (44 C.F.R.) § 13.36(f)(4) (2013).

[18] Public Assistance Guide, FEMA 322, at 53 (June 2007) [hereinafter PA Guide]; see also 44 C.F.R. 13.36(b)(10).

[19] 44 C.F.R. § 13.43(a).

[20] Id.

[21] OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB CIRCULAR A-87, COST PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS (2013) (codified at Title 2 Code of Federal Regulations § 225).

[22] PA Guide, at 41.                                                                                                                                             

[23] Id.

[24] This is unlike the City of Fort Lauderdale second appeal, where FEMA awarded reasonable costs, despite issues of procurement noncompliance, because the Applicant’s debris removal costs were otherwise eligible and consistent with FEMA’s debris removal policy, as demonstrated by proper documentation and oversight to illustrate that the debris and work performed was reasonable. FEMA Second Appeal Analysis, City of Fort Lauderdale, FEMA-1609-DR-FL PW 2932 (Nov. 25, 2015).