Direct Administrative Costs

Appeal Brief

Appeal Letter

Appeal Analysis

Background

Heavy rainfall between May and August 2008 resulted in severe flooding that caused extensive damage in the City of Cedar Rapids (Applicant).  The Applicant performed emergency and permanent work in response to disaster related damages.  FEMA prepared the referenced three PWs to capture the costs of the eligible work performed by the Applicant for a total of $699,503.  The PWs included a combined total of $33,256 in Direct Administrative Costs (DAC).  During project closeout, the Iowa Homeland Security and Emergency Management Division (Grantee) reviewed the Applicant’s documentation of actual costs and recommended that FEMA only approve $27,246 as eligible DAC in the three PWs ($6,010 less than claimed) due to insufficient documentation to support consultant’s rates in excess of $155 per hour.

First Appeal

The Applicant submitted first appeals of the referenced three PWs to the Grantee July 20 – November 27, 2012.  With the three appeals, the Applicant requested reimbursement for a combined total $6,010 for DAC that were charged at an hourly contract rate above $155.  The Applicant asserted that the contractor’s project manager rate of $285 per hour was eligible because the Applicant followed a proper procurement process, in accordance with federal regulations, and the awarded the contract based on fair market value.  Further, the Applicant claimed that the project manager’s review and oversight of consultant staff required “special skills”, referencing OMB Circular A-87, Attachment B, paragraph 32.  The Grantee forwarded the Applicant’s first appeals to FEMA with letters supporting the Applicant’s requests on Septembers 10, 2012 – January 14, 2013.

Upon receipt of the Applicant’s first appeals, the FEMA Region VII Regional Administrator (RA) issued a request for information to assist in its analysis of the eligibility of the DAC claimed.  The requested information included:

• Professional designation or title of employee performing task;
• Specific description of each task performed and the associated cost (i.e., site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.) because the project phases were too broad and did not substantiate specific work activity;
• Justification for each task why specific staff or skills were required to accomplish the work;
• Documentation demonstrating non-FEMA related historical costs for similar tasks.

In response to the RA’s request, the Applicant submitted information and documentation related to its procurement process, non-FEMA related historical costs, and task descriptions, costs and employees performing them.

On November 21, 2012 – February 13, 2013, the RA denied the first appeals with letters explaining that the Applicant’s request for a combined total $6,010 in contract cost was not eligible for reimbursement as the Applicant had not justified the $285 per hour rate. 

Second Appeal

The Applicant submitted second appeals March 7 – April 9, 2013, which the Grantee transmitted to FEMA on June 7, 2013.  In the second appeals, the Applicant argues that the documentation provided describing the time required for the project manager to review and supervise its lower level employees is appropriate and therefore reasonable and eligible for reimbursement.  The Applicant maintains that its competitive procurement process for services demonstrates reasonable costs, and notes the costs claimed are similar to another consulting contractor’s rates employed by the Grantee.  In support of its claim, the Applicant provided a contract between the Grantee and James Lee Witt Associates.  However, the Applicant did not provide any information or documentation in support of the specific tasks performed under its contract beyond what it submitted with the first appeal and in response to the RA’s request for additional information.

Discussion

Disaster Assistance Policy (DAP) 9525.9, Section 324 Management Costs and Direct Administrative Costs, describes grant management and administrative costs that are eligible under the Public Assistance Program.  The policy defines direct administrative costs as “costs incurred by the grantee or subgrantee that can be identified separately and assigned to a specific project.[1] In accordance with OMB Circular No. A-87, as codified in Title 2 Code of Federal Regulations (CFR) Part 225, treatment of direct costs must be consistent across all federal awards and other activities of the grantee or subgrantee. Direct administrative costs include costs that can be tracked, charged, and accounted for directly to a specific project, such as staff time to complete field inspection and preparation of a PW.  Eligible DAC must be in compliance with 44 CFR §13.22, and, by extension, OMB Circular A-87, and the costs must be reasonable and properly documented in order to qualify for reimbursement.  Such costs cannot be assumed eligible if the costs are not tracked and documented in a manner that enables FEMA to determine if they are reasonable, necessary, and appropriate.

In order for FEMA staff to be able to evaluate DAC, grantees and subgrantees need to provide information about each activity in sufficient detail (i.e., specific description of administrative tasks performed such as site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.) to be able to properly assess the skill level of each person performing the activities, the suitability of that skill level to the activity in question, and the level of effort required to complete the activity.

DAP 9525.9 also defines indirect costs as “costs a grantee or subgrantee incurs for a common or joint purpose benefitting more than one cost objective that are not readily assignable to the cost objectives specifically benefitted.”  A grantee or subgrantee cannot direct charge costs to a PA project if such costs are considered indirect costs for any other Federal award or activity of the grantee or subgrantee or if similar costs incurred for the same purpose in like circumstances have been allocated to indirect costs. (See OMB Circular No. A-87, Attachment A.)  Indirect costs are considered to be eligible Section 324 management costs and are not eligible as DAC.

The Applicant’s contract with Adjusters International includes tasks that are defined as indirect costs, project management, or consulting activities.  For example, the scope of work includes the following items:

• Provide general grant management advice
• Assist in the development of a disaster recovery team
• Assist in the development of a comprehensive recovery strategy
• Provide advice to disaster recovery team
• Prepare program management plan
• Prepare weekly report

It also includes insurance adjusting services that are not eligible for FEMA funding as DAC or indirect grant management costs. 

FEMA’s records indicate that the Applicant submitted funding requests for DAC related activities performed by Adjusters International for 458 PWs totaling approximately $2,399,295.  Given the Applicant’s contract for services with Adjusters International included project management, indirect cost activities, consulting and insurance adjusting services, and the number of PWs that Adjusters International charged against, it is incumbent upon the Applicant to provide sufficiently detailed and descriptive documentation to demonstrate that the tasks performed were, in fact, eligible DAC directly attributable to a specific PW.

In this case, however, the documentation provided by the Applicant lacked sufficient detail to discern the specific tasks or work performed by Adjusters International.  Without such information, FEMA is unable to determine eligibility and reasonableness of cost.  The consultant’s spreadsheet details the specific tasks that were performed:

“Tasks performed by Senior Consultant/Project Manager in accordance with FEMA DAP 9525.9 as direct costs to the project worksheet include: supervise consultants; provide advice; consultation; funding strategies to City; report status; eligibility consultation; client recovery strategy and work plan development; ensure quality deliverables; document review and comment; PW formulation; continually monitoring progress; milestones; deliverables…”

The provided spreadsheet contains descriptions for the types of tasks that are generally not related to grant administration for a specific PW.  The tasks listed appear to include consulting services and tasks more appropriately claimed in indirect costs.

FEMA requested additional information, during the first appeal review process, to ascertain eligibility for the Applicant claimed DAC including:

“Specific description of each task performed and the associated cost (i.e. site identification, kick-off meeting, immediate needs, preliminary cost estimate, data collection & dissemination, travel expenses, etc.)  Project phases are too broad and are not acceptable to substantiate specific work activity engaged in.”

The Applicant’s response included a table describing its consultant’s task and task description, which lacked sufficient detail to discern specific tasks or work performed.  As an example, the table provided lists tasks performed by Adjusters International and uses the terms “Project Formulation” to describe an “Administrative Task”.  In FEMA’s guidance, “project formulation” describes a project “Phase” (which may include activities that are considered either “Direct” or “Indirect” costs).  Despite FEMA’s caution that project phases are not acceptable, the Applicant provided this documentation.  Other terms used in the Applicant’s documentation such as “Project Administration”, “PW Assembly”, and “Site Insurance Anticipation” are vague and do not describe a specific administrative task.  Of the tasks submitted by the Applicant, only “Damage Description Development” is an acceptable task as described in FEMA guidance.

The Applicant lists “Project Administration” under “Task” and provides the following as a task description: “Ensuring quality deliverables, assuring conformance with program specific requirements, report status, document review and comment, and follow up on inquiries related to specific project worksheets.”  In its second appeal the Applicant asserts that these terms are not broad, but are “a clear, common sense description of project administration and supervision.”    While the Applicant asserts the description of the “Project Administration” task is clear, the description does not provide sufficient detail to determine if the activities were eligible DAC.  Overall, project administration and management of personnel preparing PWs is not a direct administrative activity. 

Reasonableness of $285 per hour contract rate

The reasonableness of the contract rate of $285 per hour is a central issue in the appeal.  However, as discussed previously, FEMA is unable to determine whether the $285 per hour rate is reasonable due to the lack of sufficiently detailed descriptions of the tasks performed.  

Noting such, there is no indication from the information considered and provided by the Applicant that the administrative grant management tasks for these projects were complex.  The PWs documented the scopes of work and project costs provided by the Applicant.  A project manager’s review and supervision of a subordinate’s work in the administration of a PW, in and of itself, is not complex. The Applicant’s determination that the time required for the project manager to provide review and supervision is “appropriate” does not justify the hourly rate claimed or the reasonableness of work performed.  From a grant management standpoint, these PWs were not complex and did not require the skills or experience of a Senior Consultant compensated at $285 per hour to review the PWs. 

In an attempt to demonstrate the reasonableness of the charged rate, the Applicant submitted a contract between the Grantee and another contractor noting that the rates paid were similar to its contractor rates.  While the rates may be similar, there is no evidence to indicate that the work performed or the level of expertise required to perform the work by the other contractor is comparable to the scope of work contracted by the Applicant.  Thus, the other contract does not establish a basis to conclude the rate at issue in this case was reasonable.   

Conclusion

The documentation submitted by the Applicant does not demonstrate that the costs incurred for contracted labor at $285 per hour were reasonable for grant administration work.  Furthermore, the documentation provided by the Applicant was not sufficiently detailed and descriptive to enable FEMA to determine that the previously funded contracted DAC tasks/activities are eligible or reasonable.  Based on these findings, all such costs claimed are ineligible and the Regional Administrator must de-obligate all contracted DAC previously determined eligible in the PWs.