Procurement & Contracting Requirements, Allowable Costs & Reasonable Costs

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Disaster	4337
Applicant	City of Key West
Appeal Type	Second
PA ID#	087-36550-00
PW ID#	GMP 10619
Date Signed	2020-12-01T17:00:00

Summary Paragraph

Hurricane Irma made landfall in the Florida Keys on September 10, 2017, causing damage throughout Florida.  In anticipation of the hurricane, the City of Key West (Applicant) declared a local emergency and used this authority to activate an existing sole source 5-year contract (procured in 2016) for emergency support services.  The Applicant’s local ordinances exempt procurement of contractual services from local competitive procurement requirements where the City Manager finds it is in the Applicant’s best interest and exceptional circumstances exist.  FEMA prepared Grants Manager Project (GMP) 10619 to document the Applicant’s requested costs for its contract with its disaster consultant.  However, FEMA determined that the Applicant did not comply with federal procurement standards and denied funding.  The Applicant appealed and argued its procurement complied with its local procurement standards and that 2 C.F.R. Part 200 did not apply.  The Applicant explained it entered into the contract because of its prior working relationship with the consultant’s principal and the consultant’s unique services and familiarity with the Applicant and the Florida Keys.  The Applicant noted FEMA permits noncompliant advance contracts in public exigencies and emergencies, which occurred here.  The Region IV Regional Administrator (RA) denied the appeal, stating that the Applicant did not satisfy federal procurement standards nor did it provide sufficient documentation to determine reasonable costs.  The Applicant’s second appeal reiterates prior arguments. 

 

Authorities and Second Appeals

•  Stafford Act § 403.
•  2 C.F.R. Pt. 200; §§ 200.317-200.328, 200.404; 44 C.F.R. §206.206.
•  PAPPG, at 30-32; FEMA Supplement Procurement Guidance for Recipients and Subrecipients Under 2 C.F.R. Pt. 200
• City of Pierre, FEMA-1984-DR-SD, at 11; Martinsville Community Unit Sch. Dist. #C-3, FEMA-1771-DR-IL, at 4; Chambers City, FEMA-1791-DR-TX, at 6; City of Nome, FEMA-4050-DR-AK, at 5; Pt. Arthur Ind. Sch., FEMA-1791-DR-TX, at3; Village of Waterford, FEMA-4020-DR-NY, at 1

Headnotes

• Per  2 C.F.R. §§ 200.318 and 200.219, non-federal entities must use their own documented procurement procedures and regulations provided the procurements conform to applicable federal law, including the standards in 2 C.F.R. Part 200, which require full and open competition except in exigent or emergency circumstances or where services are only available from a sole source. 
  • The Applicant failed to comply with federal and local procurement standards and failed to justify its noncompetitive advance procurement of sole source emergency support services.
• Per 2 C.F.R. § 200.320, FEMA has discretionary enforcement authority, including disallowance of all or part of the associated costs, to resolve noncompliant procurements.  To the extent FEMA allows funding, FEMA must address the reasonableness of the costs.  A cost is reasonable if its nature and extent does not exceed that incurred by a prudent person in the same situation.
  • FEMA properly exercised its enforcement discretion by disallowing funding where the Applicant did not provide the documentation needed to determine reasonable costs.

 

Conclusion

The Applicant did not comply with federal procurement procedures and did not provide justification for its noncompetitive procurement.  Additionally, the Applicant did not provide documentation to determine a reasonable cost for the work procured.  Therefore, the second appeal is denied.

Appeal Letter

Appeal Analysis

Background

Hurricane Irma made landfall in the Florida Keys on September 10, 2017 with strong winds, heavy rain, and storm surge that caused severe damage throughout Florida. In anticipation of the hurricane, the City of Key West (Applicant) declared a local emergency and used this authority to activate an existing sole source 5-year term contract (procured on April 21, 2016) for emergency management support services.[1]  FEMA prepared Project 10619 in the Grants Manager system to capture associated work and costs; however, in a memorandum dated February 26, 2019, FEMA determined that the Applicant failed to comply with federal procurement standards and denied funding.[2]

 

First Appeal

The Applicant appealed on May 1, 2019 and stated: (1) its procurement complied with local procurement procedures and that federal procurement requirements (Title 2 of the Code of Federal Regulations (2 C.F.R.) Part 200) did not apply because the procurement was not solicited in response to a disaster; (2) it entered into the contract because of its prior working relationship and the consultant’s unique services and familiarity with the Applicant and the Florida Keys; (3) FEMA permits noncompliant advance contracts in public exigencies and emergencies; and (4) it complied with federal procurement requirements when it activated the contract because public exigencies would not permit a delay resulting from competitive solicitation.  The Applicant also argued that FEMA’s denial of funding for reimbursement of $185,193.00 in reasonable costs paid pursuant to the contract was too severe.  On June 28, 2019, the Florida Division of Emergency Management (Grantee) transmitted the Applicant's first appeal to FEMA with its concurrence.  

FEMA issued a Request for Information (RFI) on August 6, 2019 requesting documentation demonstrating that the Applicant procured its contract in accordance with the procurement standards established by 2 C.F.R. §§ 200.317–200.326.  FEMA also requested documentation indicating that the consultant was the lowest responsive responsible bidder, and bid tabulations, analyses or other documents demonstrating the bid evaluation and selection.  The Applicant responded on August 22, 2019, stating that the consultant was procured on May 2, 2016 under the its local procurement authority and the contract activation was allowable as it was done under emergency circumstances.[3] 

The Region IV Regional Administrator denied the first appeal on March 16, 2020, finding that the Applicant did not demonstrate compliance with its local procurement standards or that any of the four recognized circumstances for noncompetitive procurement existed at the time of its procurement per federal procurement standards under 2 C.F.R. Part 200.  Additionally, FEMA found that disallowance of funding was an appropriate enforcement action, as the Applicant did not provide documentation to determine reasonable costs for the consultant’s work.

 

Second Appeal

The Applicant’s second appeal, dated May 11, 2020, reiterates the arguments made in its first appeal and requests $185,193.00.[4]  The Applicant also asserts the RFI did not request information to verify cost reasonableness and attaches its chronology of activities from August 26 through September 30, 2017, the same consultant’s invoices from other nearby local entities, and a fee comparison of information from multiple consulting firms to show the consultant’s rates are the lowest among the listed rates.  The Grantee transmitted the second appeal and its concurrence to FEMA.

 

Discussion

Procurement & Contracting Requirements

Pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act, FEMA may reimburse a local government for emergency work costs incurred during a declared event under the PA Program.[5]  FEMA provides PA funding for reasonable contract costs based on the terms of the contract if the applicant meets Federal procurement and contracting standards set forth in the 2 C.F.R. Part 200.[6]  When choosing a contractor, local governments must follow their own procurement procedures, provided the procurement conforms to federal law and standards and is conducted in a full and open competition to ensure objective contractor performance and to eliminate unfair competitive advantage, organizational conflicts of interest, and arbitrary procurement processes.[7]  In addition, an applicant must document its procurement process through “records sufficient to detail the significant history of procurement” and make available all procurement documents for FEMA or the pass though entity upon request.[8]

FEMA permits pre-positioned or advance contracts procured before an incident occurs for the potential performance of work post-disaster as a basis for an award of funds but the contract must meet Federal procurement and contracting standards regarding the scope of work, term of work, reasonable price, and any changes made.[9]  FEMA allows noncompetitive procurement when the service is only available from a sole source, a public exigency or emergency does not allow for delay resulting from a competitive solicitation, the awarding entity expressly allows for noncompetitive bids in response to a written response from the nonfederal entity, or, after solicitation from a number of sources, competition is determined inadequate.[10]  The use of a sole-source, noncompetitive procurement requires the Applicant to conduct and verify a price- or cost-reasonableness analysis of the project.[11]  It also requires an applicant to justify the procurement with documentation in the contract file and limit the use of the procurement to the period of actual exigent or emergency circumstances.[12] 

The Applicant’s Code of Ordinances exempts procurement of contractual services from local competitive procurement requirements where the City Manager finds it is in the Applicant’s best interest and exceptional circumstances exist.[13]  Documentation provided by the Applicant shows that the 2016 procurement of emergency management services was not in response to a disaster or due to emergency or exigent circumstances.  Rather, the Applicant selected the consultant because of its unique services, familiarity with the geographical and logistical circumstances of the Florida Keys, and it was “the most experienced emergency management consultant organization available to Monroe County.”[14]  The Applicant did not explain why sole sourcing was needed or in the best interests of the Applicant when the contract was procured, nor demonstrate it received approval from the City Commission pursuant to local ordinances prior to awarding the contract.  In fact, the Applicant’s resolution, which approved and ratified the contract, is dated nearly a year after the Applicant’s procurement.  Further, the Applicant failed to show solicitation of competitive bids at the time it activated the advance contract would have caused a delay or instability within recovery operations pertaining to this disaster.  

The Applicant did not comply with its own procurement requirements or federal procurement requirements nor did it demonstrate noncompetitive procurement was allowed due to its consultant being the sole source for emergency support circumstances or selected due to exigent or emergency circumstances.  

 

Reasonable Costs

FEMA’s enforcement remedies in noncompliant procurement transactions are discretionary and include disallowing all or part of the cost of the activity or action not in compliance.[15]  To the extent FEMA allows funding notwithstanding procurement violations, FEMA may base funding on the reasonableness of the costs.[16]  A cost is reasonable if, in its nature and 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 cost.[17]  Factors to be considered include: whether the cost is generally recognized as ordinary and necessary; the requirements imposed by Federal, State and other laws and regulations and conditions of the Federal award; the market price for comparable service; whether the procurement was prudent under the circumstances given their responsibility to governmental units and the general public; and significant deviations from established governmental practices which may unjustifiably increase the Federal award’s costs.[18]  The burden to substantiate an appeal with documented justification falls exclusively on the Applicant and hinges on the Applicant’s ability to produce not only its own records but to clearly explain how those records are relevant to the appeal.[19]

While the Applicant provided documentation which identified utilized personnel by name and level of responsibility with a fee and total hours amount attributed to each, the Applicant did not provide descriptions of the type, category or complexity of work performed, supporting timesheets for all hours charged, or documentation that efficient methods and cost controls were utilized.  In addition, the cost invoices provided by the Applicant for work performed by the same consultant for other local entities do not show that the rates were the market price for comparable service, e.g., were other consultants operating locally doing similar disaster related work, were the rates derived from the same incident time period as the disaster.  Without such supporting information and documentation, FEMA is unable to verify the Applicant’s cost analysis or determine the reasonableness of the claimed costs.  Additionally, the Applicant’s use of the sole source contract without limitations on the amount of time, personnel and materials to be charged for the scope of work performed during the incident period of this disaster would not be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.  The Applicant’s offer to use a blended rate does not cure these deficiencies or otherwise meet the Applicant’s burden to substantiate its appeal with documented justification.  Consequently, FEMA properly exercised its enforcement authority to deny all costs.

 

Conclusion

The Applicant did not comply with federal procurement procedures and did not provide justification for its noncompetitive procurement.  Additionally, the Applicant did not provide documentation to determine a reasonable cost for the work procured.  Therefore, this appeal is denied.

 

 

 

[1] Consulting Agreement between City of Key West and Early Alert Inc., at 1 (Apr. 21, 2016). Per the contract, the minimum yearly fee for “Level One” emergency management support services is $15,000.00 with an option for “Level Two” incident management support team (ISMT) services when needed. When Level Two services are activated, the fees are based on time and expenses, with actual hours worked multiplied by the corresponding billing rates per an attached schedule, and no stated cap.

[2] Letter from Infrastructure Branch Dir., FEMA, to Dir., Fl. Div. Emergency Mgmt. (Feb. 22, 2019).

[3] Letter from City Mgr., City of Key West to Recovery Div. Dir., FEMA Region IV (Aug. 22, 2019).

[4] Letter from City Manager, City of Key West to Dir., FL. Div. Emergency Mgmt. (May 11, 2020).

[5] Robert T. Stafford Disaster Relief and Emergency Assistance (Stafford) Act § 403(a)(3)(F), Title 42, United States Code (42 U.S.C.) § 5170(b) (2012).

[6] Title 2, Code of Federal Regulations, (2 C.F.R.) Part 200 (2017); Public Assistance Program and Policy Guide, FP 104-009-2 at 30, (April 2018).

[7] 2 C.F.R. §§ 200.318(a), (c); 200.319(a).  See, FEMA Second Appeal Analysis Community Action Program, Inc., FEMA-1551-DR-FL, at 5 (Feb. 27, 2018) (the Applicant’s hiring of RMC as a construction manager and  contractor because of the shortage of available contractors in the area created an organizational conflict of interest compounding its noncompliance with federal procurement regulations).

[8] See, e.g., 2 C.F.R. §§ 200.317-200.328; FEMA Second Appeal Analysis, Village of Waterford, FEMA-4020-DR-NY, at 4 (Sep. 4, 2014) (burden is on applicants to substantiate appeals) [hereinafter Village of Waterford].

[9] FEMA Supplement Procurement Guidance for Recipients and Subrecipients under 2 C.F.R. Part 200 (Uniform Rules), at 77-78 (June 21, 2016) (supplement to FEMA Field Manual, Public Assistance Grantee and Subgrantee Procurement Requirements under 44 C.F.R. Pt. 13 and 2 C.F.R. Pt. 215 (Dec. 2014)); see also 2 C.F.R. §§ 200.318(a) (all procurements must conform to applicable Federal requirements), 200.319(a)(4) (noncompetitive contracts to consultants on retainer contracts considered restrictive of competition).

[10] 2 C.F.R. § 200.320(f).

[11] 2 C.F.R. § 200.323(a).

[12] FEMA Second Appeal Analysis, City of Pierre, FEMA-1984-DR-SD, at 11 (May 27, 2015).  See also, FEMA Second Appeal Analysis, Martinsville Community Unit School Dist. #C-3, FEMA-1771-DR-IL, at 4 (July 19, 2016) (even where exigent circumstances allow for noncompetitive contracts, applicants must still transition to competitive procurement following the exigency). FEMA considers an emergency to be an unexpected and unusually dangerous situation that calls for immediate or urgent need for assistance or relief to alleviate a threat to life, public health or safety, or improved property. FEMA considers an exigency as something necessary in a particular situation that demands or requires immediate aid or action to avoid, prevent or alleviate serious harm or injury, financial or otherwise.

[13] City of Key West, Florida, Code of Ordinances, Subpart A-General Ordinances, Chapter 2-Administration Article VII-Financial Matters, Division 3-Personal Property Purchases and Procurement, Subdivision I-In General  and Subdivision II-Competitive Bidding, Sec. 2-797- Exemptions (Code 1986, §1.266(b)). Sec. 2-797 provides in pertinant part as sole source procurement requirements that a good faith review of available sources reveals only one source is available; a public record, including the basis, of the procurement is maintained; there exists a clear and present threat to public health, welfare, safety or property; and the procurement is ratified by the city commission. See also City of Key West Resolution No. 17-098 (Apr. 5, 2017) (This resolution ratified the April 21, 2016 noncompetitive advance sole source procurement of the contractor’s emergency support services.).

[14] Letter from Div. Chief of Emergency Mgt., Key West Fire Dept. to City Manager, City of Key West (Feb. 28, 2017).

[15] 2 C.F.R. § 200.338.

[16] 2 C.F.R. § 200.403; FEMA Second Appeal Analysis, Chambers Cty, FEMA-1791-DR-TX, at 6 (May 26, 2017); FEMA Second Appeal Analysis, City of Nome, FEMA-4050-DR-AK, at 5 (Sept. 27, 2016).

[17] 2 C.F.R. § 200.404(a).

[18] 2 C.F.R. § 200.323(a).

[19] 44 C.F.R. § 206.206(a); FEMA Second Appeal Analysis, Pt. Arthur Ind. Sch., FEMA-1791-DR-TX, at 3 (June 21, 2018) (citing Village of Waterford, at 4).