P. Fairconnetue eee From: P. Fairconnetue Sent: ‘Thursday, December 15, 2016 12:12 PM To: ‘dsager@mema.ms.gov" Subject: FW: Second Appeal Determination FEMA-1604-DR-MS City of Bay Si. Louls ~ PW 954 Attachments: FEMA-1604-DR-MS City of Bay St. Louls - PW 954,paf, From: Salem, Adam (mailtoradam,salem@fema.dhs.qov] ‘Sent: Wednesday, December 07, 2016 10:15 AM Ismithson@mema.ms.aov Ce: Szczech, Gracia; P. Fairconnetue ‘Subject: Second Appeal Determination FEMA-1604-DR-MS City of Bay St. Louis — PW 954 Greetings: : tached please fnd the Second Appeal Determination FEMA-1604DR-MS City of Bay St. Louis ~ PW 954, ‘The original leter will be placed inthe mail addressed to you. Best Regard, ‘Adam Salem, Document Control Specialist DHS -FRMA - Recovery Directorate Public Assistance - Appeals and Audits Branch Desk: 202-212-5792 Cell: 2023449362 adam salem@@fema dhs. ‘This communication along with any attacluments, i covered by Federal an sae law governing elecronie communications and may contain confidential and Jezally privileged information, Ihe reader of his messages notte intended recpiat, you are hereby notified that any iseminaion, distribution, We, oF ‘copying ofthis message istrict prohibited. Ifyou have received thi in enor, please reply iminediatly to the sender an delete ths message. Thank youU.S. Department of Homelma Security 500 CSiree, SW Wishington, DC 20672 Nov 8 02016 Executive Director Mississippi Emergency Management Agency Post Office Box 5644 Peatl, Mississippi 39288-5644 Re: Second Appeal ~ City of Bay St. Louis, PA TD 045-03980-00, FEMA-1604-DR-MS, Project Workshest (PW) 954 ~ Reasonable Costs-Engineering and Design Services, Dear Mr, Smithson: ‘This is in response to a letter from your office dated December 15, 2014, which transmitted the referenced second appeal on behalf of the City of Bay St. Louis (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency's (FEMA) denial of $171,499.00 for engineering design services for the restoration of the utilities beneath Beach Boulevard. As explained in the enclosed analysis, Ihave determined that the Applicant hes not established that the requested engineering design service costs were reasonable, A cost reasonableness analysis, based on FEMA Cost Curve B, established the eligible amount for this project as $108,574.07, a reduction of $62,924.93. ‘Therefore, 1 am denying the appeal. By copy of this letter, Iam requesting the Regional ‘Administrator to fake appropriate action to implement this determination, Please inform the Applicant of my decision, ‘This determination is the final decision on this matter pursuant to 44 CER, §206.206, Appeals. Sincerely, 2a anise Christopher Logan Acting Director Public Assistance Division Enclosure ce: Gracia Szezech Regional Administrator FEMA Region [V wrvnfemagovSECOND APPEAL ANALYSIS FEMA-1604-DR-MS City of Bay St Louis, PA ID 045-03980-00 Project Worksheet 954 — Reasonable Costs-Engineering and Design Services Background On August 29, 2005, heavy ctosion from Hurricane Katrina’s storm surge destroyed Beach Boulevard from Ballentine Street to Bayview Coutt in the City of Bay St, Louis (Applicant) Beach Boulevard is a federal aid road, eligible for Federal Highway Administration (FHWA) funding, The Applicant owned and maintained storm sewer, potable water lines, and sewer and gas lines (utilities) buried immediately beneath Beach Boulevard, which were also destroyed. ‘The Applicant requested Compton Engineering develop an estimated scope of work, schedule of values and cost estimate for the repair wotk. On October 28, 2005, they sent a letter to the Applicant estimating a total project cost of $6,751,726.80, including $568,826.60 for enginecring, fase services. FEMA avrerded Project Worksheet (PW) 954 on November 17, 2005, in the amount of $6,689,898.00. The PW, which included $506,998.00 for engineering design and inspection services, was for work to return the utility system on a segment of Beach Boulevard to pre-storm design, capacity, and function, In June 2006, the Mississippi Department of Transportation (MDOT) notified the Applicant that ‘the utilities would no longer be allowed beneath the reconstructed boulevard and additional xights-of-way would be required, ‘The Applicant was unable fo secure the finding necessary for the additional rights-of-way and worked with FEMA, FHWA and MDOT to create an affordable alternative for the utilities placement.* On September 7, 2006, the Applicant entered into a contract with Compton Engineering for planning, design, and construction related services necessary to relocate the ulilities, ‘The ‘contract included a provision for the Applicant to compensate Compton Engineering a $$342,998,00 fee for planning and design services. It also contained this contractual provision “(njotbing in the agreement shall preclude the engineer and owner fiom clarifying, adding to, or reducing the scope of the agreement and, where a change in scope is involved, from adjusting the accompanying compensation for work which is essential to achieve the objective of the agreement.”’ On December 17, 2007, the Applicant reached a joint agreement with the Hancock County Board of Supervisors and MDOT that combined the FHWA eligible roadway work and the utilities "Letter from Vioo President, Compton Eng’ to Rep., City of Bay St. Louis (Oct. 28,2005) (ating in the schedule of values thet estimted engineoring desien services to be $321,510 80 ot 5.2 percent of the $6,187,900.00 construction subtotal, The project inspection was estimated to be $247,316.00 ot 4.00 escent of the construction subtotal) Project Worksheet 954, City of Bay St, Louis, FEMA-1604-DR-MS, Version 0, at 5 (Nov, 17, 2005). The PW does not inchude explanatory language regarding the varition between the Compton Engineering's estimate and the eligible amount > Letter ftom Governor's Authorized Rep., Miss. Emergency Mgmt. Ageney to Assistant Ada’, Recovery Ditectorate, FEMA, at 3 (Dec. 15, 2014). « Agreement for Professional Service Between City of Bay St. Louis and Compton Engineering, Ine. (Sep. 7, 2006) $l, a Article Vit Chonges, Amendinents, 2, 2 5 (Bmphasis deleted), ‘Second Appeal Analysis, FEMA-1604-DR-MS, PA ID 045-03980-00 Page tof City of Bay St, Lous, PW 954work into a single project. All work was then completed according to the terms of the new joint agreement, Atcloseout, the Applicant requested reimbursement for engineering fees totaling $518,870.50. FEMA, through the final inspection review, determined the actual engineering cost for the contract was $342,998.00, FEMA also found that the contract included ineligible BHWA vrorke but was unable to determine the related costs. So, PW 954, Version 2, the closeout version, was prepared. It awarded $171,499.00 for engineering fees, one half of the total actual engineering costs,” Version 2. reduced total project eligible funding to $1,981,452.17 from $6,689,898.00, reflecting the utilities project actual cost.® First Appeal ‘The Applicant appealed and argued that all requested engineering design costs should be eligible for reimbursement because the PW scope of work described a stand-alone utilities project that required preliminary engineering design considerations. The Applicant argued that FEMA was aware of the exact scope because the project was one of the first Kattina PWs formulated and closely scrutinized. The Applicant also argued that the eligible costs should be looked on favorably because the joint project with the FHWA led toa lacge reduction in overall project, expenses: ‘The Grantee supported the appeal, transmitting it to FEMA on July 15, 2013. ‘The Grantee alleged that FEMA misunderstood that the scope of work included FAWA roadwork design services and argued the confusion was due to the timing of the agreement to perform separately funded projects simultaneously while tracking costs separately. The Grantee also requested approval of construction costs and survey feos that FEMA found ineligible. On September 10, 2014, FEMA’s Region IV Regional Administrator (RA) denied the Applicant's request for an additional $171,499.00 for engineering design costs.!" The RA noted that the $171,499.00 awarded for engineering fees is considerably more than the suggested percentage normally allowed for engincering and design services of above-average complexity. § Memorandum of Agreement, Hancock Cry. Ba. of Supervisors, City of Bay St. Louis and the Mis. Dep't of. Transp. at? (Dee. 17, 2007) ” Final Inspection Report Anysis, Bay St, Lous, FEMA-1604-DR-MS (Feb, 26,2013) [hereinafter Final Inspection Report nalysit]. FEMA di not ielide en explanetin i the Fil Inspection Report regarding how the cligible engineering scope of work and related costs were determined other than stating the contrac included surface and roadway design. § Project Worksheet 954, City of Bay St. Louis, FEMA-1604-DR-MS, Version 2 (Mar, 25,2013). Letter fiom Mayor, Bay t. Louis to Govemor's Authorized Rep. Miss, Recovery Office, et (May 24, 2013). ™ Latter fom Govercor’s Authorized Rep, Miss. Emergency Mgmt. Agency to Region TV Reg'l. Adm’, FEMA Gal. 15,2013). Letter from Reg’l, Adm’, FEMA to Governor's Authorized Rep, Miss. Bmergoncy Mmt, Agency, t2 (Sept. 10, 2014), The RA partially granted the appeal, awarding an additonal $14,163.00 for constuction engineering hous, $14,128.56 in adtonel substantiated smal item overruns, $50,000.00 in adtional costs fr largo obstructions (eg ‘sea Wall, an abandoned utility box, and large concrete bridge-like structure) and $1,303.50 for additional survey costs. The RA denied $124,015.21 for seet lighting conduit and stieetsteping included in tho FWA/MDOT project Bid at, Second Appeal Analysis, FEMA-16U-DICMS, PA TD 045-03980-00 Page 2 of 3 City of Bay St, Louis, PW 954PW 954, Version 3, incorporated the first appeal determination and obligated an additional $78,291.56, for a total project cost of $2,059,743.73,3 Second Appeat On November 12, 2014, the Applicant submitted a second appeal letter requesting an additional $171,499.00 for engineering fees. The Applicant argues that the requested fee is eligible because the engineering design contract was completed before the joint project was created. It argued that the scope of work included additional design services that were due to design changes and time spent coordinating numerous agencies and unforeseen circumstances. ‘The Applicant also argued that the fee should be eligible because the joint project saved money, as evidenced by over $600,000.00 in unused fands. The Applicant's appeal submission included a memorandum from Compton Engineering justifying the fees as solely forthe utilities project and stating they wore reasonable, necessary and consistent with the required level of effort.! The memorandum also pointed out that underlying construction project east estimate was legitimatoly established but ended up being much lower due to a highly competitive bid market." On December 15, 2014, the Grantee submitted the second appeal to FEMA, apreeing with the Applicant and asserting that the engineering agreement was followed and no roadway work was billed to the Applicant. The Grantee noted it is unfair to penalize the Applicant for creating a Joint project that resulted in overall cost savings,' Discussion The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) Section 406 authorizes FEMA to “make contributions to a State or local government for the repait, restoration, reconstruction or replacement of a publie facility damaged or destroyed by & major disaster and for associated expenses incurred by the goverument.”"? Implementing such authority, Title 44 ofthe Code of Federal Regulations (C.F.R.) § 206.223(c) states facilities belonging to a public entity may be eligible for funding."* FEMA may reimburse “costs of basic engineering and design services noumally performed by an architectural-engineering firm on complex construction projects.” Its the Applicant’s position that the Compton Engineering conttact consisted entirely of the scope of work necessary for the restoration of the utilities project and that costs assooiated with ‘that scope should be reimbursed by FEMA.” The Applicant argues that, in light of reducing Project Warkahoot 954, City of Bay St Louis, FEMA-1604-DR-MS, Version 3, a 8 (Ost. 28, 2014) '4 Letter ftom Attorney representing the Applicant fo Exeo, Dir, Mis, Emergency Mgmt. Agency, a Atachment 1 (Nov. 12,2014) [hereinafter Applicant's Second Appeal} ‘S Memorandum from Bag’, Compton Fng'g, to Mayor, City of Bay St, Louis, st2 (May 22, 2012), * Letterfrom Govemor's Authorized Rep, Miss, Rmesgency Mgmt, Ageney to Assistant Adm, Recovery Ditectorate, FEMA (Dec, 19, 2014), hereinafter Grantee Second Appeal Later) "The Robert T. Stafford Digester Relif and Bmergency Assistance Act of 1988, Pub, L. No. 93-288, § 406(9)(IXA), 42 U.S.C, § 5172 (2005), lbereinater Stafford Ae 44 CER § 706223(¢) (2005). Ms Public Asslotance Guide, FEMA 322, at 75 (1999) [hereinafter PA Guide) 2 Applicant's Second Appeal, a3 ‘Second Appeal Analycis, FEMA-160%DIeMS, PA ID 045-03980.00 Pages of § City of Bay St. Louis, PW 954project costs, the engineering costs are clearly not excessive or a duplication of offort?! ‘Therefore, the Applicant concludes thatthe entire requested fee amount is eligible for reimbursement, ‘The Grantee supported the Applicant’s position and added that the contract was strictly followed.* In the first appeal determination, the RA found that the fee was excessive because the engineoring design contract was negotiated as a percentage of the Applicant's total construction Cost estimate of $6,751,727.00 and not adjusted after the lower actual costs became known. ‘The contract included a provision allowing either perty to adjust compensation when changes ‘were made to the scope of work, While the initial contract reflected reasonable costs associated ‘with the first eligible scope of work, it should have been amended ance a less complex project Wes identified. Without sufficient documentation delineating the costs associated with the amount of work completed for the original scope of work and the cost to complete design work for the second scope of work, cost reasonableness based on the original scope of work cannot be determined Cost Reasonableness Jn accordance with OMB Circular A-87, FEMA evelustes reasonable costs using the standard “[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 atthe time the decision wns made to inour the cost. Had the Applicant's engineering services been detailed and supported by invoices, actual costs could have been determined at final inspection and reconciliation. 2* However, becanse the information was not presonted in such fashion, FEMA has the discretion ‘to disallow all or part of the cost of the activity or action not in compliance 26 The PA Guide describes the following ways reasonable costs may be established: 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.” When FEMA cannot dotermine cost reasonableness using these mechanisms, FEMA follows the estimated figure provided in Cost Curve B for costs associated with engineering and design services.* In this instance, Cost Curve B, for projects of average complexity, is an appropriate cost estimating tool.” Using Curve B, the estimated amount is $108,574.07, 5.75 percent of the 2a, ® Grantee Second Appoal Letter, ® FEMA First Appeal Analysis, City of Bay St Lowis, REMA-1604-DR-MS, at (Sept. 10, 2014). 2 OrniCE OF MGMT, & BUDGET, EXEC. OPPC2 OF THE PRESIDENT, OME CIRCULAR A-87, COST PRINCIPLES FOR. ‘STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS at (CJ). BPA Guide, w 16. 2644 ORR. § 1343(8)2) (2005), "PA Guide, a 34, ERMA Second Appel Analysis, Omochunne-Harinell Water District, FEMA-1628-DR-CA, at 5 (July 14,2015), © PA Guide, at 7-78 (providing examples of projects of average complexity (Cost Curve B), such as water dishibution lines, roads and sirees, storm sewers and drains compared to those of above average complexity (Cost ‘Curve A), which inciudes power plants, water, wastewater, and industrial waste treatment plans, sitports with extensive terminal facilities, ete.) eH ‘Second Appeal Analysis, FEMA-1604-DR-MS, PA ID D45-03580-00 Page 4 ofS City of Bay St, Louis, PW 954actual construction cost for the eligible utilities project. This reduces the previously eligible amount by $62,924.93, Stafford Act § 705(c) Applicability Section 705(c) of the Stafford Act prohibits FEMA ftom recovering payments made to a state or local government if: the payment was authorized in an approved agreement specifying the costs, the costs were reasonable, and the purpose af the grant was aecomplished.;" All three criteria muust be met for the prohibition to apply.* With regard to the second criteria, FEMA relies on the OMB Circular A-87, as outlined above, to determine the reasonableness of costs.2> On second appeal, FEMA found the engineering fees that the Applicant incutred to be unreasonable because the Compton Engineering contract should have been amended when the less complex Project was identified. The Applicant's failure to do so required FEMA to determine the reasonable cost of the work conducted for the eligible project. Exercising its discretionary authority, FEMA determined that only $108,574.07 of engineering fees are reasonable and imbursable. Consequently, FEMA is not probibited from recovering the additional $62,924.93 in costs identified as unreasonable because the second criteria of Section 705(c) has not been met, Conclusion ‘This appeal is denied. ‘The eligible engineering design service amount for this project is $108,574.07, as determined using FEMA Cost Curve B. The Regional Administrator will adjust Project Worksheet 954 accordingly and reduce the engineering fees by $62,924.93, de. The $1,888,244.73 construction amount was derived by deducting the $171,499.00 previously obligated for engineering foes from the $2,059,743.73 total project obligation. $2,059,743.73 - $171,499.00 = $1,888.244.73, # Slee FEMA Recovaty Policy FP-205-081-2, Stafford Act Section 705, Disaster Grant Closeout Procedures, at 4-7 (Mar. 31, 2016) (Interpreting 705(c) requirements as fllows: (1) payment occurs when the recipient draws down fonds obligated through Smart. ink, regardless of whethor the recipient has disbursed funds tothe subresipient, (2) ‘he purpose ofthe grant was accomplished when the scope of work is completed and the Applicant has demonstrated compliance wit post award terms, and (3) costs are reasonable if in their rntace and amount, they do not exoeed that which would be incurced by # prudent person under similar circumstances). rad at © Id. at 7 (citing the OFFICE OF Mowrr, & BUDGET, EXC, OFFICE OF THE PRESIDENT, OMB CiRcuLan A-87, Cost PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS). a cond Appeal Analysis, FEMA-1604-DR-MS, PA ID 045-03980-00 Page Sof 5 ty of Bay St, Louis, PW 954