Immediate Threat, Direct Result of Disaster, Reasonable Costs

Appeal Brief

Summary Paragraph

In June 2014, the Iowa River threatened to flood the University of Iowa’s (Applicant) campus.  At that time the Mayflower Residence Hall (MRH) and Iowa Memorial Union (IMU) were under construction to repair damage resulting from 2008 flooding (FEMA-1763-DR-IA).  The Applicant directed contractors to stop work and it secured both facilities.  Work resumed several weeks later.  The contractors worked overtime to open the facilities for the fall semester.  FEMA prepared Project Worksheet (PW) 199 to capture the work stoppage and overtime expenses as emergency protective measures.  FEMA later determined the work was ineligible, because the disaster did not directly cause it.  The Applicant appealed, arguing that the disaster did cause it, or alternatively, that FEMA add the expense to the PWs from FEMA-1763-DR-IA.  FEMA denied the appeal, determining that overtime was not an emergency protective measure, not a direct result of either disaster, and the costs were not reasonable and necessary.  The Applicant appeals and claims that the work is an emergency protective measure or that the work be added to PWs from FEMA-1763-DR-IA.  FEMA finds that the overtime work for the Facilities are not emergency protective measures, as the overtime did not reduce or eliminate threats to life and property, it was not a direct result of the 2008 flooding and the costs for overtime were not reasonable and necessary.  Finally, the Applicant did not provide adequate documentation to demonstrate that the work stoppage and securing of equipment at IMU was a direct result of either disaster, reasonable and necessary, or the legal responsibility of the Applicant.  Thus, the costs are ineligible for public assistance funding.

Authorities and Second Appeals

• Stafford Act §§ 403 and 406.

• 44 C.F.R. §§ 206.201(b), 206.223(a)(1) and 206.225(a). 

• PA Guide, at 29, 40, and 71 (June 2007).

• OMB Circular A-87

Headnotes

• Pursuant to the Stafford Act § 403, and 44 C.F.R. §§ 206.201(b) and 206.225(a), emergency work that reduces or eliminates immediate threats to life or to protect improved property is eligible for funding. 

  • The Applicant carried out overtime work to open the facilities on schedule.It was not to reduce or eliminate an immediate threat to lives or property. Thus, it is not an emergency protective measure.

• The Stafford Act §

  § 206.223(a)(1) require work must be required as a direct result of the disaster.

  • The prior disaster damaged the facilities, but the overtime work is not a direct result of that disaster, it is instead due to the Applicant’s need to open the facilities before the fall semester. Likewise, the Applicant did not provide adequate documentation showing the stoppage and securing equipment was a direct result of the disaster.

• The Stafford Act §

  • The overtime costs are not reasonable and necessary to restore the Facilities. In addition, the Applicant did not provide adequate documentation showing costs for the stoppage and securing equipment was reasonable and necessary.

• When a facility is under construction at the time of the disaster, pursuant to § OMB Circular A-87, the costs eligible for PA funding are only those that are delineated in the contract as the Applicant’s responsibility

The contract does not specify that the Applicant is responsible for the costs associated with the work stoppage or moving and securing equipment. 

Appeal Letter

Appeal Analysis

Background

In June 2014, the Iowa River threatened to flood the campus of the University of Iowa (Applicant).  Pursuant to its Flood Emergency Response Plan (FERP), the Applicant secured its campus, including the Mayflower Residence Hall (MRH) and Iowa Memorial Union (IMU).  At the time of the disaster, the Applicant’s contractors were performing repair and mitigation work on MRH and IMU funded by FEMA following flooding in 2008 (FEMA-1763-DR-IA).  In anticipation of severe flooding, the Applicant directed all contractors to stop work on both MRH and IMU (Facilities) and secure their equipment.  The Applicant then constructed barrier flood walls around the Facilities.  The work stoppage lasted up to 24 days on parts of the Facilities, but the disaster did not cause any damage to the Facilities. When construction resumed, per the Applicant’s instruction, the contractors initiated an accelerated work schedule in order to open the Facilities for the fall semester.  FEMA prepared Project Worksheet (PW) 199 to capture a portion of the Applicant’s increased contractor expenses for the overtime work, as well as for contractors’ securing and moving their equipment, and for construction of the flood barriers.  The Applicant filed a claim under its National Flood Insurance Program (NFIP) policy, but did not file a claim with its two other insurance policies, as it claimed (1) the expenses would not exceed the deductible of $5 million, and (2) it could not file a claim under its Builder’s Risk Insurance policy due to a provision entitled “Suspension by the Owner for Convenience,” which the Applicant stated prohibited it from claiming work suspended for its convenience.    

On April 7, 2015, FEMA issued a determination memorandum finding the costs to install the flood barriers eligible for Public Assistance (PA) as an emergency protective measure.  However, FEMA found $102,769.47 in costs associated with the work stoppage, securing and moving equipment, and for the overtime work to be ineligible, stating that the work was not required as a result of the emergency or major disaster event, as required by Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.223(a)(1).

First Appeal

The Applicant appealed FEMA’s determination on June 2, 2015, arguing that the 2014 disaster caused the additional expenses for the emergency protective measures.  The Iowa Homeland Security and Emergency Management Department (Grantee) forwarded the appeal on July 31, 2015 but did not concur with the Applicant’s appeal, as it did not find the requested costs for the additional work to be emergency protective measures. 

FEMA sent a Request for Information (RFI), asking that the Applicant:  (1) specify the monetary amount in dispute; (2) identify the provisions of law, policy or regulation with which the Applicant believed FEMA’s determination was inconsistent; (3) provide construction contracts and supplements, change orders, and an itemized explanation of the contractor’s invoiced costs showing specific items of costs for MRH and IMU; and (4) submit copies of any insurance claims made under its insurance policies during the 2014 incident period, and if the Applicant could not provide, then to explain why a claim was not filed.  The Applicant responded on October 23, 2015 with all invoices, purchase orders, change orders and other documents involving expenses to demonstrate the amount in dispute, as well as copies of the relevant contracts and insurance policies.  It also offered an explanation regarding FEMA’s “inconsistency” in the numerous discussions between FEMA, the Grantee, and the Applicant, in considering whether the costs should be attributed to FEMA-1763-DR-IA or the disaster under FEMA-4187-DR-IA, specifically that it was a FEMA representative who advised it to appeal under FEMA-4187-DR-IA, rather than FEMA-1763-DR-IA.  

In a November 5, 2015 determination, the FEMA Region VII Regional Administrator (RA) denied the appealed costs for MRH.  The RA found that the disaster did not directly cause the change order to accelerate the work and the accelerated work was not an emergency protective measure, serving to protect lives or property from the flooding.[1]  The RA noted that even if FEMA viewed the expedited construction as permanent work resulting from FEMA-1763-DR-IA, the costs were not necessary and reasonable to restore MRH to its pre-disaster condition.  Also, the RA stated that FEMA’s Public Assistance Guide (PA Guide) required the Applicant to notify the Grantee of any change in the scope of work or need for additional funding, which the RA noted that the Applicant failed to do.  The RA likewise denied the appealed costs for IMU, stating that the Applicant failed to provide a clear statement of the reasons for the claimed costs and their nature, which made it impossible to determine if the work was reasonable and necessary, was the legal responsibility of the Applicant, and required as a direct result of the disaster. 

Additionally, the RA noted the Applicant carried a general insurance policy, and a builder’s risk policy, which outlined the insurers’ responsibilities to cover costs associated with repairing or protecting property from physical loss or damage.  The RA also explained that the Applicant recovered $2,000 under its NFIP policy.  Finally, the RA stated that the contract provisions governing the construction work established the Applicant was not responsible for the additional costs.[2]

Second Appeal

In its January 5, 2016 letter, the Applicant appeals the first appeal determination, arguing that the costs claimed are emergency protective measures, as “the work stoppage and removal of workers from the site protected the workers from injury due to the flood and securing and removal of equipment was to protect that property.”[3]  The Applicant also asserts that the RA’s interpretation that it is not responsible for the costs incurred under the terms of the construction contract is incorrect.  The Applicant claims that the RA took the provisions cited in her decision out of context and those conditions did not apply in this instance.[4] Additionally, with regard to classifying the work as permanent repairs under FEMA-1763-DR-IA, the Applicant disagrees with the RA’s finding that it did not notify the Grantee, claiming it notified the Grantee that the scope of work changed and that additional funding was necessary to complete the projects.[5]  Moreover, the Applicant argued that this notification prompted a conversation with FEMA and the Grantee, in which the FEMA representative decided to capture the costs on PW 199, under FEMA-4187-DR-IA.[6]  The Grantee forwarded the second appeal to FEMA on March 4, 2016, and while it again did not find the costs submitted by the Applicant to be eligible emergency protective measures under FEMA-4187-DR-IA, it recommends FEMA fund the work under the PWs from FEMA-1763-DR-IA.[7]

Discussion

Overtime Work: Emergency Protective Measures-FEMA4187-DR-IA

The Robert T. Stafford Disaster Relief and Emergency Act (Stafford Act) § 403 authorizes FEMA to provide federal assistance in order to eliminate threats to life and property resulting from a major disaster, specifically work that “reduce[s] immediate threats to life, property, and public health and safety.”[8]  In addition, 44 C.F.R. § 206.201(b) defines this type of emergency work as work which must be done immediately to save lives and protect improved property and public health and safety, or to avert or lessen the threat of a major disaster.[9]  FEMA classifies emergency work into two categories, one of which is emergency protective measures.[10]  Finally, to be eligible, pursuant to 44 C.F.R. § 206.225(a)(3), emergency protective measures must “(i) [e]liminate or lessen immediate threats to li[f]e, public health or safety; or (ii) [e]liminate or lessen immediate threats of significant additional damage to improved public or private property through measures which are cost effective.”[11] 

The overtime work performed by the Applicant’s contractors on MRH and IMU is not in support of emergency protective measures.  Neither the purpose nor the effect of the overtime work served to protect lives or improved property from the potential flooding.  The need for overtime was due to the Applicant’s desire to open the Facilities in time for the fall semester.  The Applicant expresses this viewpoint in its appeals, stating that “it was the many day delay mid-project which was caused by the 2014 flood that necessitated the need to seek accelerated work to get the project finished according to the University’s need.”[12]  However, there is a difference between the Applicant’s need to open the buildings in time for the fall semester, and work that is an eligible emergency protective measure in order to receive PA funding.[13]  The disaster did not damage the Facilities[14] and the overtime requested by the Applicant in no way eliminated or reduced an immediate threat to life or safety or lessened damage to the Facilities.  As such, the overtime work is ineligible for PA funding under the 2014 disaster. 

Overtime Work: Direct Result of the Disaster / Reasonable and Necessary

The Stafford Act § 406 authorizes FEMA to provide federal assistance to an eligible applicant for the repair, restoration, or replacement of a facility damaged or destroyed by a declared disaster.[15]  Additionally, for the work to be eligible it must be required as a result of the disaster.[16]  The PA Guide further clarifies that this work must be a direct result of the disaster.[17]  Here, the Applicant and Grantee assert that the overtime costs for MRH and IMU should be considered as part of the Category E permanent work under FEMA-1763-DR-IA.[18]  However, as mentioned above, the overtime expenses were paid to the contractors in order to open the Facilities in time for the start of the fall semester.  This work is not a direct result of FEMA-1763-DR-IA.  Neither the Applicant nor the Grantee address this issue and, in fact, the Applicant explicitly states in its second appeal that “the 2008 flood did not cause [the costs] to be incurred.”[19]  While FEMA-1763-DR-IA caused the initial damage to the buildings and necessitated the repair work, the overtime was not a direct result of it, but rather a separate need of the Applicant.  As such, the work is not a direct result of the 2008 disaster.

In addition, the PA Guide states that costs that can be directly tied to the performance of eligible work are generally eligible, but must be “reasonable and necessary to accomplish the work.”[20] FEMA will determine the eligibility of any overtime expenses for MRH and IMU, specifically whether the hours claimed are reasonable and necessary to restore a facility to its predisaster design.  Here, these costs exceed what is reasonable and necessary to restore the Facilities to their predisaster conditions.  The need to expedite the work was based on the Applicant’s academic calendar, and had no effect on restoring the predisaster condition of the Facilities.  Accordingly, these costs are not reasonable and necessary and are ineligible for PA funding.

Work Stoppage and Securing Equipment: Direct Result of the Disaster / Reasonable and Necessary

Additionally, of the costs appealed, the Applicant asserts $39,625.00 are associated with the work stoppage and moving and securing equipment at IMU in preparation for the 2014 disaster.[21]  The Applicant submitted a change order on first appeal for this amount to “reimburse the Contractor for costs incurred as a direct result of work stoppage.”[22]  The invoice associated with the change order includes more detail about moving material, cleaning up, and removing equipment in order to make room for the flood barriers.[23]  The invoice also crosses out the above costs and rewrites the total for the work as $8,016.00.[24]  Finally, in response to the denial of funding associated with this change order, the Applicant, in its second appeal, stated that “FEMA knew why the work stoppage was ordered…[and the costs associated with] work stoppage and removal of workers from the site.”[25]  However, the Applicant did not provide any supporting documentation either on first appeal or second appeal to demonstrate what the breakdown of these costs were or what the hours worked by the contractors were to perform such work.  Without adequate documentation, FEMA is unable to determine if the costs claimed are for work required as a direct result of either disaster or if the costs claimed were reasonable and necessary.  As such, the work stoppage and moving and securing equipment are ineligible for PA funding.

Facility Under Construction: Legal Responsibility

Pursuant to Stafford Act § 406, generally work performed at a facility under construction at the time of a disaster is the legal responsibility of the contractor until the applicant accepts the work as complete.[26]  Only those costs that are delineated as the Applicant’s responsibility under the contract are eligible for PA funding.[27]  Per the Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, the contract is the mechanism for adequately documenting costs.[28]  Accordingly, FEMA determines whether costs are eligible by reviewing the terms of the contract and aligning invoices with the terms of the contract.[29]  Here, as IMU was under construction at the time of the disaster, the presumption is that the contractor was responsible for the work stoppage and securing and moving equipment.  Here, the contract actually specifies that the Applicant would not be responsible for the costs where work is stopped with cause.[30]  For example, Supplementary Conditions 6.1.7 precludes the contractor from claiming compensation when delayed owing to any cause beyond Applicant’s control, such as by acts of God.[31]  While the Applicant is correct that the section, taken as a whole, refers to “Construction By Owner or By Separate Contractors,”[32]  the relevant language states, “the Contractor shall not claim from the Owner money damages or extra compensation under this Contract when …the delay is caused by…acts of God…where any such cause is beyond the Owner’s reasonable control.”[33]  Although the section refers to other construction, the language includes delays for a variety of reasons, including acts of God.  Likewise, Section 6.2.7 requires the contractor move its equipment, free of charge, when reasonable and necessary for the work done by the Applicant.[34]  Similar to above, this section refers to work done by the Applicant or other contractors.  Again, however, the need to move the equipment was, in fact, necessitated due to the Applicant placing the flood barriers around the Facilities.  Finally, the Applicant claimed on first appeal that it suspended the work for its “convenience” under Section 14.3.  However, this section applies only where the Applicant suspends work without cause.[35]  Moreover, the section states that no adjustment in cost will be made if an equitable adjustment can instead be made.[36]  Thus the costs for the work stoppage and for moving and securing the equipment are not eligible for FEMA reimbursement because the contract does not place responsibility for the work on the Applicant.[37] 

Conclusion

The Applicant did not demonstrate that the work stoppage, and moving and securing its equipment are eligible work.  Additionally, the overtime work is ineligible because it is not an emergency protective measure, is not the direct result of the 2008 flooding, and is not reasonable and necessary to restore the Facilities to their predisaster design.  As such, the appeal is denied.