Reasonable Costs

Background

In April 2007, severe storms and inland coastal flooding caused major damage to the Town of Rockport’s (Applicant) granite stone pier (pier).  The pier measured 400 feet long by 50 feet wide and protected a public parking area and boat anchorage.  On August 24, 2007, FEMA obligated $525,648 in Project Worksheet (PW) 465 to fund repairs to the pier which included removing, resetting, and/or replacing 2,000 cubic yards (CY) of stones (180 feet x 30 feet x 10 feet = 2,000 CY).  The Applicant accepted these dimensions at the time they were developed.    

In July 2010, the Applicant hired Vine Associates (consulting engineer) to prepare design repair plans.  The consulting engineer surveyed the pier and prepared design plans that identified six distinct zones to be repaired.  The consulting engineer’s plans stated that the total length of the six zones was 340 feet and the volume of stone and based material to be replaced was 2040 CY.  However, the consulting engineer determined that the actual depth of the six zones was between 4 and 5 feet, not 10 feet as estimated by FEMA in PW 465.  In November 2010, the Applicant hired Miller Golf to repair the pier as part of a larger project.  The project was completed in September 2011.

In 2012, the Grantee requested the close-out of PW 465.  During the close-out process, FEMA discovered that the Applicant repaired a significantly greater linear distance of pier (340 feet) than what was included in the original scope of work in PW 465 (180 feet).  FEMA determined that the excess length of work completed constituted an “improved project,” for which the Applicant had not sought or obtained approval from FEMA.  Accordingly, FEMA drafted a new version (Version 1) to PW 465.  Applying the dimensions approved in the original PW (180 feet by 30 feet) and the revised depth provided by the consulting engineer’s report (5 feet), FEMA recalculated the volume for the repairs to the pier to be 1,000 CY.  FEMA then recalculated the eligible cost by dividing the total cost to complete the project ($265,165.09) by the total volume of material (2037 CY) to obtain a unit price of $130.17 per CY.  The unit price was multiplied by the eligible volume (1,000 CY) to get $130,170.  FEMA, then, added $13,694.09—the costs associated with the services provided by the consulting engineer—for a total eligible cost of $143,864.09.   

First Appeal

The Applicant submitted its first appeal on December 12, 2012.  With the appeal, the Applicant asserted that FEMA’s determinations in Version 1 of PW 465 were erroneous and were based on a misunderstanding of the approved project scope and incurred costs.[1]  The Applicant argued that the work completed to repair the pier was not an improved project because the purpose of the project was to restore the pier to its pre-damage condition and maintain the pier’s function as a stable, protective revetment.  The Applicant stated that, after the repair work was completed, the pier looked the same, the footprint of the pier was not expanded, and there was no change in the height or mass of the pier.  Finally, the Applicant indicated that, if the scope of work for the project was limited to 180 feet, the calculation of eligible costs should be based on the actual cost to repair Zones 1, 2, and 3, where the most severe damage occurred.  The Applicant calculated the cost to repair Zones 1, 2, and 3 to be $256,832.59.   

In a letter, dated June 14, 2013, the Region I Acting Regional Administrator (RA) denied the appeal regarding FEMA’s assertion that the work completed to repair the pier constituted an improved project and updated the eligible project costs.  The Acting RA determined that the correct dimensions of the area of the pier that the April 2007 disaster damaged was 180 feet by 30 feet, or 5400 square feet (SF).  The Applicant repaired an additional 7520 SF of non-disaster damaged areas.  The Acting RA concluded that this additional 7520 SF constituted an improved project.

In addition, the Acting RA determined that 4.263 feet (the average depth of all of the damaged areas) was the most reasonable depth calculation.   Thus, the total eligible volume for the repair of the pier was 853 CY (180 feet x 30 feet x 4.263 feet =853 CY).  Using 853 CY as the eligible volume, the Acting RA determined that the most reasonable and accurate manner to calculate the eligible cost for “the FEMA eligible scope of work” was to divide $257,797.48 (the total construction costs incurred by the Applicant) by 2040 CY (total volume of the work completed by the Applicant).  This provided a unit price of $126.37 per CY.  The Acting RA, then, multiplied the total eligible volume (853 CY) by $126.37 to calculate the eligible construction costs ($107,793.61).  The Acting RA added $13,694.09 (the eligible engineering costs) for a total of $121,487.70 eligible costs. 

Second Appeal

In its second appeal, dated August 26, 2013, the Applicant contends that the work completed to repair its pier is not an improved project and that all costs should be considered as eligible for reimbursement.  Conversely, the Applicant asserts that if only a portion of the project area is to be considered reimbursable, then the Acting RA’s cost-per-cubic yard methodology inaccurately reflects the cost of the repairs in the areas repaired by the new revetment stone.  The Applicant asserts that FEMA should not base its determination that the work completed to repair the pier constituted an “improved project” on the design plan, but, instead, should consider what the extent of the actual work performed address each of the damaged zones depicted in the design plans. 

The Applicant provides five preferred to alternatives for determining the proportion of total project costs that are eligible for reimbursement.  During a February 26, 2014, conference call with FEMA and the Grantee, the Applicant provided a written presentation and further explained the five alternatives presented in its second appeal.  The alternatives for calculation of eligible costs include:

• Alternative One: All of the 2,411 tons of revetment stone that was installed in Zones 1, 2, 3, 4, and 5 is eligible for reimbursement.

• Alternative Two: Only the 2,235 tons of revetment stone that was used to repair Zones 1, 2, and 3 is eligible for reimbursement.

• Alternative Three: Only 2,200 tons of stone estimated by using Vine’s calculated depth of lost stone at 5.5 feet in Zones 1, 2, and 3 is eligible for reimbursement.

• Alternative Four: Only 2,000 tons of new revetment stone estimated to be lost by PW 465 is eligible for reimbursement.

• Alternative Five: Only 1,706 tons of stone as calculated using the ARA’s 853 CY of damaged revetment at 2 tons per CY is eligible for reimbursement.2]

Discussion

Work Eligibility

Pursuant to Section 406 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), FEMA Public Assistance funding may be available to a state or local government for the repair, restoration, and replacement of damaged or destroyed facilities under a major disaster.[3]  Authorized work is typically designed to restore the facility to its pre-disaster design, function, and capacity.[4]  Further, the need for the repair work must be the direct result of a major event or disaster, meaning work performed to repair damage caused by other circumstances is ineligible for Public Assistance funding.[5]

The disaster event occurred in April 2007.  FEMA staff conducted a site visit on July 23, 2007 during which the damaged area of the pier was physically taped and photographed.[6]  In the original version of PW 465, the scope of work documents the work to be completed as “remove, reset, and or replace 180’ x 30’ x 10’= 2,000 CY.”[7]  It should be noted that FEMA staff were able to obtain the actual length (180 feet) and width (30 feet) of the damaged portion of the pier.  The measurement for depth (10 feet) was estimated.  FEMA staff assessed the dimensions for the damaged area of pier, but did not divide the area into “zones.”

The Applicant’s consulting engineer did not conduct a site visit and report its findings until July 2010, more than three years after the disaster event.  The consulting engineer’s report identified six zones to be repaired.  In a subsequent report, in October 2010, the consulting engineer stated that the total length of the pier that needed repair was 340 feet and identified 2040 CY as the volume of stone and base material to be replaced in the six zones.  The Applicant contends that the total area of damaged pier identified by its consulting engineer is the result of the April 2007 disaster and that the 180 feet identified in the original version of PW 465 is incorrect.  However, subsequent undeclared, smaller storms and one additional declared storm (FEMA-1895-DR, declared in March 2010) occurred between July 2007, when the FEMA site visit was conducted, and July 2010 when the consulting engineer conducted a site visit.  The Applicant’s contractors began repair work on the damaged areas of the pier in February 2011 and completed it in September 2011, more than four years after the disaster event.

The Applicant’s assertion that the measurements for length and width provided in the original version of PW 465 were erroneous cannot be substantiated.  A level of deference must be given to the original PW because FEMA staff conducted a site visit much closer to the date of the disaster event than the Applicant’s consulting engineer, and the original PW contains information supporting the scope of work.  Moreover, the only measurement that was estimated in the original PW was the depth, for which the actual measurement, between 4 and 5 feet, was provided by the Applicant’s consulting engineer’s report. 

There is no evidence demonstrating that the Applicant disputed the measurements for length and width of the damaged area when the original PW was obligated.  Moreover, the Applicant did provide documentation substantiating FEMA’s overestimation of the depth of the damaged area.  As such, the Applicant has failed to provide sufficient documentation that demonstrates that FEMA erred in its initial assessment of damage.  Accordingly, the Acting RA was correct in his determination that the 180 feet x 30 feet are the length and width dimensions of the damage to the pier due to the disaster event, as well as applying the depth figures provided by the Applicant.

Improved Project

Pursuant to Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.203(d)(1), Improved Projects, an Applicant may make improvements to a disaster-damaged facility in conjunction with restoring the pre-disaster function of that facility.  Federal funding for such improved projects is limited to the federal share of the approved estimate of eligible costs.[8]  While Public Assistance funding may be used for improved projects,[9] FEMA must approve projects that result in significant change to the scope of work prior to starting the repair work to ensure compliance with FEMA regulations and policy.[10]  Additionally, the Grantee’s approval for an improved project must also be obtained prior to the start of the project. 

The Applicant has consistently stated that the repair work completed on the pier is not an improved project, and in its second appeal, asserts that the purpose of the project was to restore the pier to its pre-damage condition.[11]  However, the Applicant based the repairs to the pier on its 2010 consulting engineer’s report, not the 2007 PW 465.  Although the total volume of the two sets of dimensions of repair work is almost the same, 2000 CY compared to 2040 CY, the length of the repair was significantly increased in the consulting engineer’s report.  Based upon such, the Applicant repaired an additional 160 feet of pier than prescribed by PW 465.  In addition, when adjusted to reflect the actual depth of the damaged area of pier, between 4 and 5 feet, the total volume of the damaged area of the pier is reduced to 853 CY.  These calculations demonstrate that repair work completed on the pier was beyond the scope of work in PW 465.  Accordingly, the repair work completed constitutes an improved project.

Eligible Cost

Generally, costs that can be directly tied to the performance of eligible work are eligible for Public Assistance funding.[12]  Eligible costs must be reasonable and necessary to accomplish the work.[13]  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.[14]  FEMA determines the reasonableness of costs and may consider the use of historical documentation for similar work, average costs for similar work in the area, published unit costs from national cost estimating databases, and FEMA cost codes in establishing such.[15]

In the first appeal response, the Acting RA calculated the eligible costs of the repair work completed on the Applicant’s pier using the methodology explained above.  In its second appeal, the Applicant asserts that the Acting RA relied on assumptions as to the cost per cubic yard for the project that were inaccurate when he calculated the eligible costs of the project.  The Applicant states that the Acting RA’s calculation of eligible costs relies on the assumption that the Applicant carried out the Vine Plan, as designed for the areas and depths estimated in the plan; however, the Applicant focused repair work on the zones where the depth of damage was the greatest. 

The Applicant provides five alternatives for calculating the project’s eligible construction costs.  The Applicant uses tons as the unit of measurement for each alternative presented.  However, in the contract bid invitation, dated October 20, 2010, the Applicant uses square feet, not tons, as the unit of measurement.  For FEMA to consider using any of the Applicant’s alternatives, it would need to convert cubic yards to tons.  This is problematic because the density of the material would have to be known.[16]  As such, using tons, as opposed to square feet, is not a reasonable way to calculate eligible costs for this project. 

Moreover, FEMA cannot consider some of the Applicant’s alternatives for additional reasons.  Alternative One proposes funding all repair work completed by the Applicant and uses the figures provided by the contractor’s report.  FEMA previously determined that this is not feasible because the total amount of work completed by the Applicant constitutes an improved project for which the Applicant did not have prior approval from FEMA or the Grantee.  In addition, Alternatives Two and Three rely on the “zones” concept, introduced by the Applicant’s consulting engineer, not FEMA.  As such, FEMA cannot definitively determine that the area of damage specified in the 2007 version of PW 465 is the same area of damage encompassed in Zones 1, 2, and 3.