Financial Accounting and Reconciliation

Appeal Brief

Appeal Letter

Appeal Analysis

Background

Hurricane Maria impacted the Commonwealth of Puerto Rico, causing widespread damage and significant power outages, during the period of September 17 through November 15, 2017. The Puerto Rico Electric Power Authority (Applicant), which is responsible for electricity generation, requested Public Assistance (PA) funding for the cost to repair the damaged electrical grid. 

Among other projects, FEMA developed Grants Manager Project 49831 for contract power restoration work, which included $25,309,534.35 in demobilization costs for work performed from August 17, 2018, through May 26, 2019. The work included cleaning equipment and clearing materials and equipment from work sites.

The contractor billed the demobilization costs based on a daily blended rate for power restoration work, which included direct and indirect costs, and the Applicant provided the relevant invoices from its contractor. However, the Applicant’s contract states, “Mobilization/Demobilization and other reimbursable items shall be paid on a cost reimbursement basis.”[1] In a Determination Memorandum, dated December 16, 2022, FEMA denied the claimed cost and found the claimed demobilization costs exceeded what was authorized under the contract and did not represent the actual cost of the demobilization work.[2] FEMA stated that without documentation for the actual cost of the demobilization, it could not approve any of the claimed costs.

First Appeal

In a letter dated February 17, 2023, the Applicant appealed FEMA’s determination, disputing $21,754,642.43 in denied costs related to demobilization. The Applicant agreed that the contract specifies demobilization costs are reimbursed at the contractor’s cost and not based on a blended daily rate. The Applicant provided new invoices based on a cost reimbursement basis and a spreadsheet to tie each new invoice to the original invoice. The Government of Puerto Rico Central Office for Recovery, Reconstruction and Resiliency (Recipient) forwarded the appeal to FEMA in a letter dated April 17, 2023, supporting the Applicant’s appeal.

In a letter dated October 17, 2024, FEMA denied the appeal and found that while the demobilization cost invoices did include some work related to demobilization, the invoices only contained vague descriptions. FEMA stated that the activity summaries included activities not related to demobilization or travel costs such as cleaning, repairing, inspecting, registering, and detailing of vehicles, or clearing citations. FEMA found that some of the claimed costs were overhead costs that should not be billed separately. FEMA stated that because the Applicant did not provide a breakdown of the demobilization costs based on the number of hours spent by task, FEMA could determine the amount of demobilization work and related costs eligible.

Second Appeal

The Applicant appealed FEMA’s denial of demobilization costs, in a letter dated December 17, 2024, and requested an adjusted amount of $2,843,552.98.[3] The Applicant states it provided new documentation from the contractor to demonstrate the actual labor, per diem, and fringe benefit costs incurred for demobilization. The Applicant provided payroll records, and the original invoices, which contain activity summaries, sign in sheets and photographs.[4] The Applicant also included a summary spreadsheet documenting the new amount claimed.[5]

The Applicant states it is FEMA’s policy to reimburse contract costs based on the terms of the contract and agrees that under the contract, demobilization costs are reimbursed at the cost for the demobilization work the contractor can document. The Applicant states the additional documentation it has provided meets FEMA’s documentation requirements and exceeds what FEMA has previously accepted for mutual aid cost reimbursement. The Applicant argues that the documentation demonstrating the demobilization costs the contractor paid to its employees satisfies FEMA’s standard that documentation must demonstrate the “who, what, when, where, why, and how much” for each item claimed. 

Discussion

To be eligible, costs must be directly tied to the performance of eligible work, adequately documented, and necessary and reasonable to accomplish the work properly and efficiently.[6] Documentation should provide the “who, what, when, where, why, and how much” for each item claimed.[7] It is the applicant’s responsibility to provide documentation to substantiate its claim as eligible and to clearly explain how those records support its appeal.[8] If the applicant does not provide sufficient documentation to support its claim as eligible, FEMA cannot provide PA funding for the work.[9]

Here, the Applicant’s second appeal seeks a total of $2,843,552.98 in PA funding for demobilization costs, a significant reduction from the amounts requested initially or on first appeal.[10] FEMA may provide funding for demobilization costs that are directly tied to the performance of eligible work and adequately documented.[11] FEMA previously found that the claimed demobilization work performed included activities not related to demobilization or travel costs, such as cleaning vehicles. While FEMA does not have a specific definition for which activities constitute “demobilization work,” FEMA can reasonably characterize the claimed work, including cleaning equipment and removing materials from job sites, as necessary demobilization activities that are directly tied to the performance of eligible work. Therefore, the demobilization work claimed is eligible, but any reimbursement is limited to the demobilization costs that the Applicant has supported with its documentation.

The Applicant provided a summary spreadsheet to demonstrate the specific costs claimed on second appeal, along with the original invoices that include activity summaries. The activity summary attached to each invoice includes a daily work log that lists the date, the number of employees who worked, the location, and a description of the work performed by the employees on that day. FEMA has reviewed the activity summaries, compared each summary to the spreadsheet provided, and found multiple discrepancies. Thus, while the Applicant has supported some demobilization costs, these discrepancies mean that it has not provided adequate documentation for the entire amount claimed.

These discrepancies include multiple invoices for which the Applicant did not provide activity summaries for each day worked.[12] In some instances, the number of employees claimed per day does not match the activity summaries.[13] Further, FEMA found instances where the Applicant claimed per diem for employees that did not work that day.[14] Taking into account and adjusting for discrepancies that amounted to $229,902.12, FEMA was able to validate $2,613,650.86 of the $2,843,552.98 in claimed costs on second appeal. Therefore, the appeal is partially granted in the amount of $2,613,650.86 for contract demobilization costs.

Conclusion

The Applicant, through the documentation provided on second appeal, tied $2,613,650.86 in claimed demobilization costs to the completion of eligible work. However, the Applicant did not demonstrate that its remaining costs, totaling $229,920.12, are eligible for PA funding. Therefore, the appeal is partially granted.