Repair vs. Replacement

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4086
Applicant	Atlantic Highlands Harbor
Appeal Type	Second
PA ID#	085-UEBHG-00
PW ID#	PW 4229
Date Signed	2021-04-06T16:00:00

Summary Paragraph

During the incident period from October 26 through November 8, 2012, the Atlantic Highlands Harbor’s (Applicant) Restroom/Office building (Facility) was damaged by floodwater from Hurricane Sandy storm surge and collisions from floating boats and docks.  FEMA initially approved the Scope of Work to repair the Facility, however, FEMA later determined the Facility eligible for replacement and obligated Project Worksheet (PW) 4229 for $82,544.86.  FEMA obligated four additional versions of the project, including approval of an Improved Project to add a second floor with two offices and storage, block walls instead of wood frame, and flood doors.  In January 2020, FEMA adjusted costs to account for building elevation and state historic preservation requirements and increased the total eligible amount to $712,687.83 but was not able to validate the Applicant’s bid proposal as reasonable as it included improvements deemed unnecessary for restoration or code compliance.  The Applicant submitted a first appeal requesting additional funding for construction costs.  The FEMA Region II Regional Administrator denied the appeal.  FEMA re-examined repair and replacement costs and determined that only repair and elevation of the Facility were eligible, not replacement.  FEMA denied the request for additional funding and indicated it would deobligate $191,439.22 and reduce the obligated funding amount to $521,248.61.  The Applicant’s second appeal requests reconsideration of the Improved Project designation and $159,887.90 of the deobligated amount.  The New Jersey Governor’s Division of State Police, Public Assistance Unit adds that the Facility should still be eligible for replacement.

 

Authorities and Second Appeals

• Stafford Act § 406.
• 44 C.F.R. §§ 206.223(a)(1), 206.226(d), 206.226(f).
• Response and Recovery Policy (RRP) 9524.4, Repair vs. Replacement of a Facility under 44 CFR § 206.226(f) (The 50 Percent Rule), (June 1, 1995); and further clarified in FEMA Recovery Policy 9524.4, Repair vs. Replacement of a Facility under 44 CFR § 206.226(f) (The 50 Percent Rule) – Policy Clarification and Cost Estimating and Review Requirements, (September 14, 2015)).  

Headnotes

• A facility is considered repairable when disaster damages do not exceed 50 percent of the cost to restore the facility to its pre-disaster condition.  This is referred to as the “50 Percent Rule.”  The comparison of repair costs with replacement costs results in a fraction that expresses repair as a percentage of replacement.  The numerator of the fraction is the cost of repairing disaster damage only and includes costs associated with codes and standards upgrades that apply to the repair of the damaged elements only.  The denominator of the fraction is the cost of replacing the facility on the basis of its predisaster design and in accordance with applicable codes and standards.
  • FEMA properly included elevation costs in the denominator of the fraction and excluded them from the numerator of the fraction.  The recalculation of replacement costs does not satisfy the 50 Percent Rule; therefore, the Facility is not eligible for replacement.

Conclusion

FEMA finds that the Facility is eligible for repair and not replacement under the 50 Percent Rule.  In addition, the Applicant has not demonstrated that additional funding is eligible.  Therefore, the appeal is denied.

 

Appeal Letter

Appeal Analysis

Background

During the incident period from October 26 through November 8, 2012, Atlantic Highlands Harbor’s (Applicant) Restroom/Office building (Facility) was damaged by floodwater from Hurricane Sandy storm surge and collisions from floating boats and docks.  FEMA initially approved the Scope of Work (SOW) to repair the Facility, but later determined the Facility eligible for replacement under the 50 Percent Rule[1] and obligated Project Worksheet (PW) 4229 for $82,544.86.[2]  FEMA obligated four additional versions of the project including an Improved Project to add a second floor with two offices and storage, block walls instead of wood frame, and flood doors.  In January 2020, FEMA adjusted costs to account for building elevation and state historic preservation requirements and increased the total eligible amount to $712,687.83, but was not able to validate the Applicant’s bid proposal as reasonable as it included improvements deemed unnecessary for restoration or code compliance.[3]

 

First Appeal

In its March 11, 2020 first appeal of the cost adjustment, the Applicant requested additional funding for construction costs, along with Cost Estimating Format (CEF) adjustments.  The Applicant asserted that, due to market conditions, the project would cost far more to build than the amount FEMA awarded.  The Applicant requested FEMA update the CEF to reflect actual market conditions and restore 15 missing lines of costs that FEMA previously agreed to, including steel framing, steel decking and concrete fill for the second-floor platform.  The Applicant also requested FEMA confirm that the CEF was based on the original two-story design of the building and not a one-story design that was put to bid, but which did not satisfy all the Applicant’s requirements.  The Applicant included a tabulated cost of $1,240,000.00 in its appeal.  The New Jersey Governor’s Division of State Police, Public Assistance Unit (Grantee) supported the appeal by letter dated March 13, 2020.

On April 29, 2020, FEMA issued a Request for Information asking the Applicant to provide a copy of the Floodplain Management ordinance that governs substantially damaged structures, and the Substantial Damage Determination for the Facility.  The Applicant’s response included ordinances,[4] a State of New Jersey-Department of Environmental Protection Permit, the Substantial Damage Determination and FEMA Form 90-91 demonstrating that FEMA found that the repair cost was greater than 50 percent of the replacement cost (and the Facility thus eligible for replacement).

In a letter dated August 5, 2020, the FEMA Region II Regional Administrator denied the first appeal.  FEMA found that while it had previously adjusted eligible replacement costs to include omitted compliance and elevation costs, it had not re-evaluated replacement eligibility.  FEMA re-estimated repair and replacement costs and found that repair costs were only 24.76 percent of the replacement cost; therefore, the Facility was no longer eligible for replacement.  Instead, FEMA found that the Facility was eligible for repair and elevation only.  Consequently, FEMA deobligated $191,439.22, thus reducing the eligible project amount to $521,248.61.

 

Second Appeal

By letter dated September 30, 2020, the Applicant’s second appeal requests reconsideration of the Improved Project designation and $159,887.90 of the deobligated amount.  The Applicant’s Architect of Record calculates that if the approximately 300 square feet of second floor office added as an improvement was omitted from the project, costs for the new Facility would be reduced by $31,551.32.  The Grantee forwarded the second appeal on October 2, 2020 and asserts that FEMA should consider costs for elevation in its calculations for repair costs, reiterating that the Facility should be eligible for replacement.

 

Discussion

Section 406 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and implementing regulations authorize FEMA to provide federal assistance to a local government for the repair, restoration, or replacement of a facility damaged by a declared disaster and in conformity with current applicable codes, specifications, and standards.[5]  Under Title 44 Code of Federal Regulations § 206.226(f), a facility is considered repairable when disaster damages do not exceed 50 percent of the cost to restore the facility to its pre-disaster condition.  This is referred to as the “50 Percent Rule.”[6]  FEMA policy states “(t)he comparison of repair costs with replacement costs results in a fraction that expresses repair as a percentage of replacement.  The numerator of the fraction is the cost of repairing disaster damage only and includes costs associated with codes and standards upgrades that apply to the repair of the damaged elements only . . . The denominator of the fraction is the cost of replacing the facility on the basis of its predisaster design and in accordance with applicable codes and standards.”[7]

FEMA initially approved the SOW to repair the Facility, but later performed a repair versus replacement analysis and, finding that costs to repair the structure were 54 percent of the costs to replace, approved the Facility for replacement.  FEMA later approved subsequent versions of the PW but did not re-evaluate the eligibility of Facility replacement using updated costs.  In its first appeal decision, FEMA re-calculated repair and replacement to include elevation and Americans with Disabilities Act compliance costs in the replacement costs (i.e., the denominator) and found that repair costs were only 24.76 percent of replacement costs, therefore only repair and elevation of the Facility, at an estimated cost of $521,248.61, were eligible.  The Grantee argues FEMA should consider costs for elevation in its calculations for repair costs (i.e., the numerator).

Here, and in accordance with FEMA policy, FEMA properly included elevation costs in the denominator of the fraction and excluded them from the numerator of the fraction.  The recalculation does not satisfy the 50 Percent Rule; therefore, the Facility is not eligible for replacement and the eligible costs are limited to the estimated repair costs of $521,248.61.  As such, the requested $159,887.90, originally associated with the scope of work to replace the facility, is not eligible.

 

Conclusion

The Facility is eligible for repair and not replacement under the 50 Percent Rule.  In addition, the Applicant has not demonstrated that additional funding is eligible.  Therefore, the appeal is denied.

 

[1] Title 44 Code of Federal Regulations (44 C.F.R.) §206.223(a)(1) (2011).  (Generally, FEMA finds a facility eligible for replacement when repair costs exceed 50 percent of replacement costs.)

[2] $317,712.00 plus $2,116.86 in Direct Administrative Costs minus a $237,284.00 mandatory National Flood Insurance Program deduction.

[3] Letter from Acting Public Assistance Branch Chief, New Jersey Sandy Branch, FEMA Region II, to Governor’s Authorized Rep., Div. of State Police, Recovery Bureau, and to Borough Adm’r, Atlantic Highlands Harbor (Jan. 14, 2020).

[4] Borough of Atlantic Highlands County of Monmouth, Ordinance 04-2013 (Mar. 27, 2013) and Ordinance 07-2013 (Apr. 24, 2013). 

[5] The Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act, as amended, § 406, 42 U.S.C. § 5172 (2012); 44 C.F.R. § 206.226(d) (2011).

[6] Response and Recovery Policy (RRP) 9524.4, Repair vs. Replacement of a Facility under 44 CFR § 206.226(f)

(The 50 Percent Rule), (June 1, 1995); and further clarified in FEMA Recovery Policy 9524.4, Repair vs. Replacement of a Facility under 44 CFR § 206.226(f) (The 50 Percent Rule) – Policy Clarification and Cost Estimating and Review Requirements, (September 14, 2015) [altogether hereinafter referred to as “50 Percent Rule” Policies].  

[7] Id. at 2.