Result of Declared Incident – Improved Project

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4085
Applicant	Sea Gate Association
Appeal Type	Second
PA ID#	047-U8P77-00
PW ID#	GMP 4600
Date Signed	2022-09-13T16:00:00

Summary Paragraph

From October 27 to November 8, 2012, Hurricane Sandy caused damage throughout the State of New York.  The storm surge flooded the sewer system (Facility) owned, operated, and maintained by the Sea Gate Association (Applicant), a Private Nonprofit organization that maintains a private community on Coney Island in New York City.  FEMA obligated Project Worksheet 4600 for $12,214,043.53 for the restoration of the sewer system, and on March 30, 2020, obligated an additional $3,262,997.79.  The Applicant submitted a second scope of work change request for additional repairs for $9,592,979.09.  FEMA issued a Determination Letter denying $6,710,341.72 stating that the requested components represented pre-existing damage or occurred during a post-disaster event.  The Applicant appealed, asserting that FEMA has underfunded the work that is required to repair the Facility.  The Applicant provided supporting documentation.  The FEMA Region II Regional Administrator denied the appeal, finding that the Applicant did not establish that the additional claimed components were damaged and/or that the damage was a direct result of the declared incident.  On January 18, 2022, the Applicant submitted a second appeal reiterating its previous arguments and asserting that to restore its sewer and road system to its predisaster condition, FEMA should obligate the denied $6,710,341.72.  The New York State Division of Homeland Security and Emergency Services (Recipient) recommends approval of the appeal.

Authorities and Second Appeals

• Stafford Act § 406(a)(1)(A).
• 44 C.F.R. §§ 206.223(a)(1), 206.203(d)(1).
• PA Guide, at 29, 33, 110-111.

Headnotes

• To be eligible for Public Assistance, work must be required as the result of the emergency or major disaster event.  Damage that results from a cause other than the designated event is not eligible.
  • The documentation provided by the Applicant does not demonstrate that there was additional disaster-related damage.
• FEMA may reimburse costs when an Applicant desires to make improvements, but still restores the predisaster function of a damaged facility.  An applicant must obtain prior approval from the recipient for an improved project.
  • If the Applicant wants to proceed with the additional proposed repairs, it needs to request an improved project designation from the Recipient.

Conclusion

The Applicant has neither demonstrated that the additional claimed components were required as a result of the declared incident, that the curb-to-curb street repair approach is more cost-effective, that it was underfunded for the lateral connections, nor that mobilization and demobilization should be paid as fixed-price costs.  Therefore, this appeal is denied.[1]

 

1 This decision does not limit the Applicant’s ability to submit a request for an improved project to the Recipient.

Appeal Letter

Appeal Analysis

Background

From October 27 to November 8, 2012, Hurricane Sandy caused damage throughout the State of New York.[1]  The Sea Gate Association (Applicant) is a Private Nonprofit organization that owns and maintains a gravity-based sewer system (Facility) in a private community in the Coney Island neighborhood in New York City’s borough of Brooklyn.  The Facility is considered a combined system as it conveys both sewer and stormwaters.  Hurricane Sandy’s storm surge and floodwaters caused damage to the sewer system.

On September 29, 2016, FEMA obligated Project Worksheet 4600 for $12,214,043.53 for the restoration of the damaged sewer systems components.  FEMA obligated an additional $3,262,997.79, on March 30, 2020, in response to a scope of work (SOW) change request.  On April 16, 2020, the Applicant submitted a second SOW change request for an additional $9,592,979.09 to address the replacement of additional system piping, catch basins, manholes, street repair, sewer laterals and lateral connections, and for project design and management costs.

On May 4, 2021, FEMA issued a Determination Letter partially approving the SOW change request, increasing the total project funding to $18,359,678.69.  FEMA denied $6,710,341.72 of the requested $9,592,979.09.  The denied items included: replacement of undamaged piping, upsizing damaged piping diameters, replacement of additional catch basins, replacement of additional lateral piping, replacement of additional lateral connections, replacement of additional manholes, and replacement of additional road asphalt.[2]  Additionally, “soft costs” that directly correlate to construction costs were reduced in proportion to eligible costs.  FEMA found that these items were ineligible for Public Assistance (PA) funding because they represented pre-existing damage to the Facility, or damage that occurred during a post-disaster event, and were not a direct result of the declared event. 

First Appeal

On July 2, 2021, the Applicant appealed FEMA’s denial of $6,710,341.72, asserting that FEMA failed to acknowledge the required scope for the repairs.  The Applicant provided supporting documentation including a geotechnical engineering analysis, bid documentation, and a repair cost estimate.  The Applicant identified factors that it stated justified its repair methodology and costs for the replacement of catch basins and manholes; replacement of additional lateral connections; street repair; and allowance for mobilization and demobilization, traffic control, and preconstruction video and audio.  

The Applicant asserted that FEMA overlooked that replacing the pipes that run through a manhole, as previously approved in the project, would potentially damage the manhole, and would require repair or replacement.  The Applicant stated that its proposed replacement using pre-cast concrete manhole units would be the least costly option.  Furthermore, the Applicant explained that the catch basins require the same repair or replacement approach as identified for the manhole structures.   

Regarding the lateral sewer line replacements, the Applicant stated that FEMA recognized that aligning the new sewer mains with the rest of the system requires replacing the lateral piping connecting to private homes and businesses.  The Applicant asserted that FEMA has underestimated those costs, but acknowledged that the actual number of lateral connections that will be needed will not be known until the work is conducted. 

For the street repair, the Applicant stated that FEMA’s proposed method, to restore only the surface directly above the trenches, would create unstable patches that would deteriorate in an accelerated timeframe compared to street sections that have been resurfaced.  The Applicant proposed removing and replacing the streets’ surface from curb-to-curb.  Additionally, the Applicant stated that, with the necessary lateral piping replacements, most streets would be torn apart for their entire widths. 

Lastly, the Applicant stated that FEMA has improperly used each of the denied items to proportionately reduce reimbursement for the contractor’s allowances.  The Applicant stated that these items are fixed-price costs because they do not fluctuate with changes in the overall contract price and are reasonable.  On August 27, 2021, the New York State Division of Homeland Security and Emergency Services (Recipient) forwarded the Applicant’s appeal with its support. 

The FEMA Region II Regional Administrator (RA) denied the appeal, finding that the Applicant had not demonstrated that the additional claimed components were damaged and/or that the damages were a direct result of the declared event, nor had it supported its assertions that the SOW included lateral sewer line replacements and asphalt surface restoration.  FEMA further explained that the actual number of lateral connections that will be needed will not be known until the work is conducted.  Also, FEMA asserted that the Applicant’s proposal to replace the asphalt from curb-to-curb, instead of using the method already approved, is premature because, without a clear identification of eligible catch basin, manholes and line/lateral piping, it cannot be determined if this methodology would be the most cost-effective.  FEMA also noted that the Applicant has implemented the approved method in the past, which contradicts its argument that this approach would create unstable patches and deteriorate quickly.  Lastly, FEMA acknowledged that preconstruction video/audio and traffic control would be a set cost for the overall project.  However, FEMA stated that, upon submittal of detailed descriptions of these activities and associated costs, FEMA would further review the actual cost eligibility.  Regarding mobilization and demobilization, FEMA found that it can only fund costs associated with eligible work.  Therefore, FEMA asserted these costs were prorated based on the five percent contract limitation of the construction costs.

 

Second Appeal

On January 18, 2022, the Applicant submitted a second appeal asserting that, to restore the sewer and road system to its predisaster condition, FEMA should obligate the denied $6,710,341.72.  The Applicant states that the discrepancies between FEMA’s approved funding and its claim result primarily from FEMA’s failure to appreciate the engineering and design considerations necessary for the restoration work.  The Applicant acknowledges that part of the denied cost is based on bid estimates because most cost items in the contract have unit prices and exact quantities that cannot be known until completion, but it nonetheless presents arguments to justify the costs for those items.  

The Applicant reiterates its argument about the necessity of replacing manholes that it states will unavoidably be damaged during the performance of the approved SOW, but provides an adjusted figure for the number of manholes requiring replacement.[3]  The Applicant also provides additional information about replacement of catch basins, lateral connections, and associated lateral piping that it believes FEMA has underfunded, including plans and aerial photos identifying what the Applicant believes to be a more accurate count of the number of connections that will be needed.  The Applicant asserts it may be able to replace the lateral piping for the amount currently obligated if FEMA approves the request for curb-to-curb asphalt repairs, but states that FEMA’s estimate for connections still leaves the Applicant underfunded by $284,287.88.  Therefore, the Applicant states that FEMA should increase the funding for connections, and it should reserve final decision on lateral piping until project closeout.

For the street repair, the Applicant states that it must remove and replace the surface of each street from curb-to-curb as the project was designed and awarded in its contract.  The Applicant claims that this method is more cost-effective than the patch-job method FEMA proposed and that its request is not premature, as it is necessary now based on the work FEMA has already approved.  The Applicant states that even if FEMA rejected the curb-to-curb proposal, FEMA’s estimate is still not sufficient to cover the road repairs using the patching method, as currently approved.  In response to FEMA’s argument that the approved method of repair has been used by the Applicant in the past, the Applicant provides photographs from 2014 that it asserts show deterioration shortly after one previous patch-job was performed.  The Applicant also provides photographs from 2018 to show the post-construction condition of asphalt during another patch-job implemented for emergency repairs, which it states immediately devolved into sinkholes.

Last, the Applicant states that mobilization, demobilization, traffic control, and preconstruction video and audio are fixed-price costs in its contract and should be reimbursed, regardless of whether FEMA pays for the other items in dispute.[4]  The Applicant also disagrees that FEMA prorated costs based on the five percent contract cap limitation for mobilization and demobilization, because FEMA approved less than five percent of eligible costs for that purpose. 

In a transmittal letter dated March 15, 2022, the Recipient supports the Applicant’s appeal and adds that if the Applicant proceeds with the project as currently approved against the recommendation of its engineer and incurs significant extra costs as a result, FEMA might then deny the cost overrun at closeout for having been avoidable.

 

Discussion

FEMA provides PA funding to eligible applicants for the repair, restoration or replacement of facilities damaged or destroyed by disasters.[5]  To be eligible for PA funding, work must be required as a result of the disaster.[6]  Work to address damage that results from a cause other than the designated event, such as a predisaster damaging event, post-disaster damaging event, or inadequacies that existed prior to the disaster, is not eligible.[7]  Work to address damage caused during the performance of eligible work may be eligible.[8]  To be eligible, costs must be directly tied to the performance of eligible work, as well as reasonable and necessary to accomplish the work.[9]  FEMA may reimburse costs when an applicant desires to make improvements, but still restores the predisaster function of a damaged facility.[10]  Projects that incorporate such improvements are called improved projects.[11]  An applicant must obtain approval from the recipient for an improved project prior to the start of construction.[12] 

Here, the Applicant states that, to replace the damaged pipes, manholes and catch basins must be rebuilt or replaced even if undamaged, and that replacing them is more cost-effective than reusing them.  However, FEMA finds that the Applicant has not demonstrated that these items should be replaced even if undamaged or that replacing them is more cost-effective.  Replacing these items and associated piping characterized as undamaged would be considered an improvement and not necessary to restore the system to predisaster condition. 

For the lateral connections and associated lateral piping, the Applicant concedes that it may be able to replace the lateral piping for the amount currently obligated if the other disputed items are funded, but states it is underfunded for the lateral connections.  FEMA requires accurate information to know exactly which sections of piping (damaged or undamaged) were attached to each service customer.  With the information the Applicant provided, including plans and aerial photos, the Applicant has not established precisely the actual number of lateral connections that will be needed.  

Regarding the street repair, the Applicant states that it must remove and replace the surface of each street from curb to curb, asserting that this method is more cost-effective than the method FEMA proposed.  However, without more specific identification of the additional claimed components, such as eligible catch basins, manholes, and lateral connections, FEMA cannot determine if this is the most cost-effective method.  To determine that this method is the most cost-effective, FEMA must consider numerous factors including excavation costs, temporary protection of traffic requirements, unforeseen conditions encountered during excavation, and more cost-effective alternatives.  Therefore, based on the available information, FEMA cannot reasonably determine if the curb-to-curb approach is more cost-effective. 

The additional claimed work for the replacement of manholes and catch basins, lateral connections and piping, and curb-to-curb asphalt replacement may constitute improvements to the project.  If the Applicant wants to proceed with the additional repairs, but still restore the predisaster function of the damaged facility, it needs to request an improved project designation from the Recipient.  The Applicant must obtain approval for the improved project prior to the start of construction.  If eligible repair or replacement costs exceed the original estimate and costs can be separately documented (i.e., if approved costs can be tracked separately from improvement costs), the applicant may seek additional funding for the improved project.[13]

Lastly, the Applicant states that mobilization, demobilization, traffic control, and preconstruction video/audio are fixed-price items, regardless of whether FEMA funds the other items in dispute.  While the preconstruction video/audio and traffic control do have a set cost and were competitively procured, FEMA cannot validate the costs as reasonable because they were procured and reported as part of a total cost that included numerous items outside of the approved SOW.  As a result, FEMA could only determine that the costs were reasonable for the contracted SOW.  Therefore, FEMA estimated these costs based on a percent allowance of total eligible construction costs.  Upon submittal of detailed descriptions of these activities and associated costs, FEMA may further review the actual cost eligibility during the closeout of the project.  Regarding the mobilization and demobilization, because FEMA only funds costs associated with eligible work, FEMA prorated these costs based on overall eligibility.  Although the Applicant is correct that the RA did not prorate these costs solely based on the five percent contract limitation, the adjustment made was reasonable based on overall eligibility.  

 

Conclusion

The Applicant has not demonstrated that the additional claimed components were required as a result of the declared incident, that the curb-to-curb street repair approach is more cost-effective, that it was underfunded for the lateral connections, nor that mobilization and demobilization should be paid as fixed-price costs.  Therefore, this appeal is denied.[14] 

 

[1] On October 30, 2012, the President declared a disaster under FEMA-4085-DR-NY. 

[2] The street repair accounts for $3,869,067.22 of the denied cost, which represents most of the amount at issue.

[3] The Applicant provided plans that it asserts shows 162 manholes that must be replaced, instead of the 180 identified on first appeal.

[4] The Applicant explains that the $1,038,711.90 total cost consists of $984,369.76 for mobilization and demobilization, $45,126.07 for traffic and pedestrian controls, and $9,216.07 for preconstruction video and audio.

[5] Robert T. Stafford Disaster Relief and Emergency Assistance Act § 406(a)(1)(A), Title 42, United States Code § 5172 (2012).

[6] Title 44 Code of Federal Regulations (44 C.F.R.) § 206.223(a)(1) (2012).

[7] Public Assistance Guide, FEMA 322, at 29 (June 2007) [hereinafter PA Guide].

[8] Id. at 29; see also id., at 31 (“Damage caused by an applicant’s actions, if unavoidable, may not necessarily be negligence.”)

[9] Id. at 40.

[10] 44 C.F.R. § 206.203(d)(1); PA Guide, at 110.

[11] PA Guide, at 110.

[12] Id. at 111.

[13] Id. at 110.

[14] This decision does not limit the Applicant’s ability to submit a request for an improved project to the Recipient.