Appeal Type:
2nd
Report Type:
PW
Appeal Categories:
OIG Audit Report
Procurement
Applicant Name:
Martinsville Community Unit School District #C-3
Disaster Number:
FEMA-1771
DSR:
978
Date Signed:
Tuesday, July 19, 2016
PA ID:
023-UF9IH-00
Summary/Brief:
Conclusion: The Applicant has not demonstrated that it met the criteria in 44 C.F.R. § 13.36(d)(4) to warrant noncompetitive procurement, that the closeout of PW 978 was improper, or that an additional $1,861,644.74 in project costs is eligible for reimbursement.
Summary Paragraph
From June 1 to July 3, 2008, the Applicant’s high school (Facility) sustained severe damage due to storms and flooding. FEMA determined that, based on FEMA Policy 9524.4, Eligibility of Facilities for Replacement under 44 CFR 206.226(d)(1)(The 50% Rule), the Facility was eligible for replacement. FEMA prepared Project Worksheet (PW) 978 to address the scope of work and associated costs for the replacement project. Following a DHS OIG audit, FEMA deobligated $2,667,274.74 from PW 978 for improperly procured A&E contract costs and unused funds. Final eligible costs were obligated following closeout in October 2013. In its first appeal, the Applicant challenged FEMA’s decision to deobligate funding because it asserted that “exigent/emergency” circumstances existed and FEMA, as the awarding agency, implicitly authorized noncompetitive proposals. The Applicant also argued that it relied on statements by FEMA staff advising it to not submit all invoices. Finally, the Applicant stated that it had not submitted all paperwork to FEMA because payment to its contractor was pending completion of work related to the project. The FEMA Region V Regional Administrator (RA) denied the first appeal finding that the Applicant did not provide documentation demonstrating that exigent circumstances made properly procuring the A&E contract “infeasible.” In addition, the RA determined that FEMA had not erroneously made $1,861,644.74 in project funding ineligible. In its second appeal, the Applicant asserts that FEMA wrongly deobligated funding based on the OIG audit. The Applicant adds that, at all times, it acted in good faith and was simply unaware that it had violated procurement laws by not properly bidding the contract. In addition, the Applicant states FEMA prematurely initiated closeout and did not include several eligible costs.
Authorities and Second Appeals
44 C.F.R. §§ 13.36, 206.202, 206.205 and 207.8(c)-(d).
Headnotes
Under 44 C.F.R. § 13.36(d)(4)(i), FEMA allows for noncompetitive procurement when the award contract is infeasible under small purchase procedures, sealed bids, or competitive proposals and the item is only available from a sole source, a public exigency or emergency does not allow for delay, the awarding agency allows for noncompetitive bids, or after solicitation from a number of sources, competition is determined inadequate.
The Applicant failed to demonstrate that competitive procurement was infeasible or that circumstances met any of the criteria for noncompetitive procurement.
According to 44 C.F.R. § 206.205(b), following the Grantee’s accounting of documented actual costs for each approved large project, FEMA will determine the eligible amount of reimbursement and approve eligible costs.
Pursuant to 44 C.F.R. § 207.8(d), when the project is completed, the Grantee will initiate closeout and reconciliation of final costs, at which time, FEMA obligates final costs for the project.
As the Applicant did not request a time extension from FEMA, closeout of PW 978 was proper and all final eligible costs were appropriately reconciled.
The Applicant did not demonstrate that additional costs incurred were eligible.
Letter:
James Joseph
Director
Illinois Emergency Management Agency
2200 S. Dirksen Parkway
Springfield, IL 62703
Re: Second Appeal – Martinsville CUSD #C-3, PA ID 023-UF9IH-00, FEMA-1771-DR-IL, Project Worksheet 978 – OIG Audit – Procurement
Dear Mr. Joseph:
This is in response to a letter from your office dated May 22, 2014, which transmitted the referenced second appeal on behalf of the Martinsville Community Unit School District #C-3 (Applicant). The Applicant is appealing the Department of Homeland Security’s (DHS) Federal Emergency Management Agency’s (FEMA) denial of $2,667,274.74 for Public Assistance (PA) funding deobligated as the result of a DHS Office of Inspector General (OIG) audit.
As explained in the enclosed analysis, I have determined that the Applicant has not demonstrated that it met the criteria in 44 C.F.R. § 13.36(d)(4) to warrant noncompetitive procurement for its Architecture and Engineering contract. In addition, I have found that FEMA Region V correctly deobligated $1,861,644.74 in unused funds, as the Applicant failed to document that the funding was used for eligible costs. Therefore, I am denying the appeal. Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 C.F.R. § 206.206, Appeals.
Sincerely,
/s/
Christopher Logan
Acting Director
Public Assistance Division
Enclosure
cc: Andrew Velasquez III
Regional Administrator
FEMA Region V
Analysis:
Background
From June 1 to July 3, 2008, the Martinsville Community Unit School District’s (CUSD) (Applicant) high school (Facility) sustained severe damage due to storms and flooding. FEMA determined that, based on FEMA Disaster Assistance Policy (DAP) 9524.450, Repair vs. Replacement of a Facility under 44 CFR §206.226(f) (The 50% Rule),[1] the facility was eligible for replacement.[2] This determination was based on estimates developed using RS Means and the Applicant’s architect’s repair estimate. The replacement estimate included costs to demolish the three story portion of the building, increase the size of the building, complete site work, construct the new building, fix equipment, and fund contingencies, professional fees, permits, surety costs, and general contractor overhead and profit. FEMA prepared Project Worksheet (PW) 978 to provide funding for the replacement project.
In January 2013, the Department of Homeland Security’s Office of Inspector General (OIG) issued Audit Report DD-13-04, FEMA Improperly Applied the 50 Percent Rule in Its Decision to Pay for the Replacement of the Martinsville High School, Martinsville, Illinois.[3] In the report, the OIG found that, among other things, the Applicant improperly awarded an $805,630.00 noncompetitive contract and FEMA should deobligate $2.2 million in unused funds.
FEMA concurred with those findings and deobligated $805,630.00 and $1,861,644.74, respectively. Regarding the procurement issue, FEMA concurred with the OIG that the Applicant did not comply with Federal standards when it amended a previously awarded architecture and engineering (A&E) contract rather than openly competing it. As for the unused funds, FEMA also agreed with the OIG, but based its deobligation on the final cost reconciliation at closeout, which occurred after the issuance of the OIG Audit Report.
First Appeal
In its first appeal, dated September 6, 2013, the Applicant challenged FEMA’s decision to deobligate funding based on the OIG Audit Report. The Applicant argued that FEMA should not require it to repay $604,223.00 (Federal share of $805,630.00) because it was not required to follow procurement requirements in 44 C.F.R. § 13.36 as “exigent/emergency” circumstances existed and FEMA, as the awarding agency, authorized noncompetitive proposals. In addition, the Applicant argued FEMA should not deobligate funding because under Illinois law, it was not required to solicit bids for A&E services; bidding would not have yielded a difference in design or costs; and fundamental fairness. The Applicant also contested FEMA’s decision to deobligate $1,861,644.74 in unused funds. The Applicant asserted that it did not submit all invoices because a FEMA employee told it that he would submit paperwork for all costs, including administrative costs. In addition, the Applicant stated that it had not submitted all paperwork to FEMA because payment to its contractor was pending completion of some work related to the project at the time of closeout.
On March 13, 2014, the FEMA Region V Regional Administrator (RA) denied the first appeal and determined that the Applicant did not provide adequate documentation demonstrating exigent circumstances made properly bidding the A&E contract “infeasible.” In addition, the RA found that FEMA correctly determined $1,861,644.74 in project funding ineligible as unused funds. As such, the RA concluded FEMA’s decision to deobligate funding was appropriate.
Second Appeal
The Applicant’s April 14, 2014 second appeal letter again asserts that FEMA wrongly deobligated funding based on the two OIG Audit Report findings. Specifically, regarding the procurement violation, the Applicant argues that neither FEMA nor the Illinois Emergency Management Agency (Grantee) notified it that using a particular architecture firm, without properly procuring the contract, was in violation of any FEMA rule or regulation. The Applicant asserts that using a contractor with intimate knowledge of the facility was necessary because a portion of the old facility was salvaged and the new facility was constructed using the salvaged portion. Further, the Applicant contends use of the contractor was necessitated by time constraints (e.g., FEMA requires projects to be completed within 18 months of the disaster, but did not provide final project approval until a year after the disaster). Finally, the Applicant asserts that, at all times during the project, it acted in good faith and was simply unaware that it violated procurement laws by not properly bidding the contract for A&E services.
Regarding the second issue, the Applicant argues that it was not given sufficient time to reconcile all costs associated with the project in PW 978. The Applicant asserts that it was not notified by the Grantee or FEMA before October 2013 that closeout would be initiated on October 31, 2013. Moreover, the Applicant indicates it did not provide all of the documentation associated with this project because all of the work items had not been completed and final payment to the general contractor was not made at the time of closeout. In addition, the Applicant states that it discovered many discrepancies and inconsistencies in FEMA’s paperwork that were not easily identifiable before FEMA closed out PW 978 in February 2014, nor when the first appeal decision was issued in March 2014. Therefore, the Applicant argues it could not properly address these issues until the second appeal.
In a letter dated May 22, 2014 supporting the appeal, the Grantee states that, while the Applicant identified errors with how administrative costs were approved, it did not identify specific amounts in dispute. The Grantee also notes that the Applicant requested additional costs but did not provide sufficient documentation and that it would work with the Applicant to submit that information under a separate request.[4]
Discussion
Noncompetitive A&E Contract
Pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) § 406(a), FEMA may reimburse a local government for costs incurred for the repair, restoration, reconstruction, or replacement of a public facility damaged or destroyed by a declared event.[5] Title 44 of the Code of Federal Regulations (44 C.F.R.) § 13.36(b) allows local governments to follow their own procurement procedures which reflect applicable state and local laws and regulations, provided the procurement conforms to Federal standards.[6] Pursuant to 44 C.F.R. § 13.36(c), FEMA requires that all procurement transactions are conducted in a manner providing full and open competition[7] and discourages noncompetitive and “piggybacked” contracts.[8] FEMA defines a “piggyback” contract as one that expands on a previously awarded contract.[9]
Consistent with 44 C.F.R. § 13.36(d)(4)(i), FEMA allows for noncompetitive procurement only when the award of a contract is infeasible under small purchase procedures, sealed bids, or competitive proposals and the item is only available from a sole source, a public exigency or emergency does not allow for delay, the awarding agency allows for noncompetitive bids, or after solicitation from a number of sources, competition is determined inadequate.[10] For all noncompetitive awards, FEMA requires the Grantee to conduct and verify a cost-analysis of the project.[11]
The Applicant asserts that, at no time prior to the OIG audit, was it informed that there were issues with the contract, nor was it allowed time to address any issues. However, this argument is without merit because applicants are informed about procurement requirements during Kickoff Meetings with FEMA and through language provided in the FEMA-State Agreement and the PW. In addition, the Applicant, not FEMA, has the burden of demonstrating that it complied with the requirements in 44 C.F.R. § 13.36. Here, the OIG found that the Applicant did not conduct full and open competition, but amended a previously awarded contract with an A&E firm it worked with on past projects. Regarding non-competitive contracts, the first prong of 44 C.F.R. § 13.36(d)(4)(i) states full and open competition must be infeasible. FEMA examines the circumstances surrounding the noncompetitive award to determine feasibility. The Applicant argues that, due to FEMA’s 18-month requirement for all permanent work to be completed, it did not have time to competitively bid the project. The Applicant states, “[i]t is impossible to ensure both compliance with all state and federal laws and completion under FEMA’s timeframe for completion of permanent projects… [like] a project as large and complex as ours.” The Applicant admits it knew it could request time extensions, but failed to do so, it said, out of mistrust for FEMA. The Applicant’s argument is not compelling because it knowingly failed to extend the timeframe for completion of the project, yet is using that very decision to rationalize its failure to comply with procurement requirements. While the Applicant should have had time to properly procure the A&E contract without an extension, requesting an extension would have assured that it could properly procure its contract.
In its May 22, 2014 letter, the Grantee restates the Applicant’s first appeal argument that it was not required to bid the A&E contract under either the “exigency/emergency” or authorizing agency exception. As evidence of an exigent or emergency situation, the Grantee states that the Applicant’s school board unanimously approved hiring the A&E firm “due to this emergency.” The Grantee goes on to say that immediately awarding the A&E contract was necessary to provide preliminary designs and project estimates to FEMA. Finally, the Grantee argues that competitively procuring the contract would not have yielded a substantive difference in costs for the services, and only further delayed the emergency situation.
Neither Federal regulations nor FEMA policy define “exigency” or “emergency.”[12] However, through OIG opinions, factor-specific criteria has been developed to determine whether exigent or emergency circumstances exist, including, but not limited to, whether lives or property were at stake, the work is for critical activities, the work is permanent in nature, and the duration of the noncompetitive contract. While the OIG has found exigent circumstances existed to justify non-competitive awards to repair or replace some educational facilities in the past,[13] the facts of those cases are different than the facts in this appeal. In addition, even when the OIG has allowed noncompetitive awards due to exigent circumstances, the exigent period was not indefinite.[14] Here, the Applicant had several months from the declaration date to properly procure an A&E contract. In addition, the Applicant did not hire the A&E firm to provide immediate consultation regarding a course of action, alone, but also to design and manage the construction of a new high school over a period of years.[15] Further, during the construction period, FEMA provided reimbursement for temporary educational facilities; thus alleviating the necessity for immediate construction of the permanent facility. Considering all the factors (i.e., use of temporary facilities, duration of the noncompetitive award, and the permanent nature of the work), there was no exigent or emergency circumstance that prevented the Applicant from properly procuring the A&E contract.
In the alternative, the Applicant argues that FEMA’s failure to assure compliance regarding procurement of the A&E services and approval of funding implies it approved of non-competitive procurement and acceptance of costs. The Applicant asserts that, by approving reimbursement for A&E services in an earlier version of PW 978, FEMA implicitly authorized the noncompetitive contract. The Applicant’s argument that FEMA, as the awarding agency, authorized the noncompetitive contract by implication is not supported by the facts. First, authorization is generally explicit and in writing.[16] The Applicant has not provided any documentation to support its assertion that suggests FEMA explicitly authorized the noncompetitive A&E contract. Second, even if FEMA accepted either of the Applicant’s justifications for not properly procuring its A&E contract, no cost analysis of the project has been submitted to FEMA, as required by the regulations.[17] Absent such, FEMA could not have authorized the use of a noncompetitive contract.
Unused Funds
In accordance with 44 C.F.R. § 206.204(c)(1), Applicants must complete all permanent repair work within 18 months of the disaster declaration date unless FEMA approves a request for a time extension.[18] FEMA obligates funds based on the approved PW, and the Grantee approves subgrants based on the PWs approved for each Applicant.[19] The Grantee is required to provide a quarterly accounting of management cost funds to the RA.[20] Following the Grantee’s accounting of documented actual costs for each approved large project, FEMA determines the eligible amount of reimbursement and approve eligible costs.[21] When the project is completed, the Grantee initiates closeout and reconciliation of final costs, at which time, FEMA obligates final costs for the project.[22] If the Grantee fails to liquidate obligated funds within 90 days of the end of the funding period, FEMA may deobligate funds.[23]
At the time of the audit, the OIG found FEMA had obligated $2.2 million in funds that the Applicant had not used. Following closeout, FEMA deobligated $1,861,644.74 in unused funds based on the OIG finding. The Applicant argues the OIG audit and FEMA’s subsequent deobligation of unused funds was premature because it had not made final payment to the general contractor at the time of the audit. In addition, the Applicant argues FEMA made numerous mistakes during the final reconciliation of PW 978, but did not provide adequate time for the Applicant to address the mistakes. While the Applicant argues that closeout was premature, it had 18 months from the disaster’s declaration date, June 24, 2008, to complete the project unless it requested time extensions, which it was entitled to do.[24] In its second appeal, the Applicant acknowledges that it did not request a time extension from FEMA, as required.[25] As such, even if the Applicant requested and the Grantee granted a time extension, the project should have been completed no later than June 24, 2012.[26]
Importantly, the OIG did not issue Audit Report DD-13-04 until January 2013, and FEMA issued its response on April 18, 2013, in which it stated, “FEMA will make every effort to de-obligate unused amounts in advance of final reconciliation and closeout, based on the grantee quarterly reporting.”[27] According to the Third Quarter Fiscal Year (FY) 2013 Quarterly Progress Report submitted by the Grantee, the project was 100 percent complete as of April 2013.[28] Based on this, FEMA believed the project was fully completed in April 2013. In addition, in its second appeal, the Applicant states that final payment was made to the general contractor in September 2013, again implying that the project was complete prior to closeout. On September 30, 2013, FEMA Region V sent a letter to the Grantee requesting that it initiate closeout of PW 978 because the period of performance for the project ended on June 24, 2012.[29] The Grantee initiated closeout in October 2013. Upon review of the timeline for this project in its totality, it is evident that closeout was not premature.
Considering that the Applicant did not request a time extension from FEMA once the period of performance ended, FEMA was justified in initiating closeout any time after June 24, 2012. In addition, the Applicant was on notice that the OIG questioned unused funds and FEMA concurred with deobligating those funds more than five months before closeout was initiated. As provided in regulations, closeout is used to reconcile final costs, resolve negative audit findings and liquidate any unused funds.[30] If the Applicant had documentation to support costs associated with the unused funds, it had ample time to submit it to the Grantee.[31] On second appeal, the Applicant has not demonstrated that an improper closeout was conducted nor has it substantiated any additional eligible costs.[32]
Conclusion
The Applicant has not demonstrated that there were exigent or emergency circumstances requiring the use of a non-competitive A&E contract. In addition, the Applicant failed to demonstrate that FEMA authorized its noncompetitive contract. Therefore, FEMA did not err in deobligating $805,630.00 in funding associated with A&E services. Further, the Applicant failed to demonstrate that closeout of PW 978 was improper nor that an additional $1,861,644.74 in project costs is eligible for reimbursement. As such, the appeal is denied.
[1] See generally Disaster Assistance Policy DAP9524.4, Repair vs. Replacement of a Facility under 44 CFR §206.226(f) (The 50% Rule) (Sep. 24, 1998).
[2] FEMA found that the cost to repair the Facility would be $8,125,515.00 while the cost to replace it would be $12,866,467.00.
[3] See generally U.S. Dep’t of Homeland Sec. Office of Inspector Gen. (OIG), DD-13-04, FEMA Improperly Applied the 50 Percent Rule in Its Decision to Pay for the Replacement of the Martinsville High School, Martinsville, Illinois (2013).
[4] Following up on this matter, FEMA specifically inquired with the Grantee as to whether additional information had been provided. As of issuance of this appeal decision, FEMA had not received any supplemental documentation regarding the issues raised by the Applicant.
[5] The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, Pub. L. No. 93-288, § 406(a), 42 U.S.C. § 5172 (2007).
[6] 44 C.F.R. § 13.36(b) (2007).
[7] Id. at § 13.36(c).
[8] Public Assistance Guide, FEMA 322, at 52 (June 2007) [hereinafter PA Guide].
[9] Id. at 52.
[10] See 44 C.F.R. 13.36(d)(4)(i)(A)-(D).
[11] Id. at § 13.36(d)(4)(ii).
[12] But see Second Appeal Analysis, City of Pierre, FEMA-1984-DR-SD, at 11 (May 27, 2015) (applying the dictionary definition of “exigency,” meaning “something that is necessary to a particular situation that requires or demands immediate aid or action,” and “emergency,” meaning “an unexpected and usually dangerous situation that calls for immediate action”).
[13] See DHS Office of Inspector General, Report No. DD-13-11, FEMA Should Recover $46.2 Million of Improper Contracting Costs from Federal Funds Awarded to the Administrators of the Tulane Educational Fund, New Orleans, Louisiana (Aug. 15, 2013) [hereinafter DD-13-11] (finding exigent circumstance warranting a noncompetitive contract because the City needed to reopen Tulane’s medical school without delay); see also DHS Office of Inspector General Report No. 14-95-D, FEMA Should Recover $8.0 Million of $26.6 Million in Public Assistance Grant Funds Awarded to St. Stanislaus College Preparatory in Mississippi – Hurricane Katrina, at 5 (May 22, 2014) (determining, in part, that contract work was for activities critical to reopening a school and costs associated would not be questioned by OIG).
[14] See DD-13-11 (stating the exigent period ended in June 2006 because 93 percent of the students returned for the spring semester and the medical school reopened in July 2006).
[15] See DHS Office of Inspector General, Report No. 14-63-D, FEMA Should Recover $1.7 Million of Public Assistance Grant Funds Awarded to the City of Waveland, Mississippi – Hurricane Katrina, at 5-6 (Apr. 15, 2014) (stating that there were no exigent circumstances that required the City to award a noncompetitive contract to an A&E firm because the work was permanent in nature and began 21 months after the disaster).
[16] See, e.g., 2 C.F.R. § 200.320(f)(3), (explaining that the Federal awarding agency or Grantee must expressly authorize noncompetitive proposals in response to a written request from the non-Federal entity).
[17] See 44 C.F.R. § 13.36(d)(4)(ii).
[18] See 44 C.F.R. § 206.204(c)(2) and (d).
[19] 44 C.F.R. § 206.202(e).
[20] See 44 C.F.R. § 206.204(f); see also 44 C.F.R. § 207.8(c).
[21] 44 C.F.R. § 206.205(b).
[22] See 44 C.F.R. § 207.8(d) (requiring the Grantee to conduct final inspections for the project, reconcile the Applicant’s expenditures, resolve negative audit findings, and obtain final reports from the Applicant, as part of the closeout process).
[23] See 44 C.F.R. § 13.23(b).
[24] See 44 C.F.R. § 206.204(c)-(d).
[25] See 44 C.F.R. § 206.204(d).
[26] Pursuant to 44 C.F.R. § 206.204(c)(2)(ii), the Grantee may extend the project performance deadline an additional 30 months if extenuating circumstances or unusual project requirements are present.
[27] Memorandum from Deputy Regional Administrator, FEMA Region V, to Assistant Inspector General, DHS OIG Office of Emergency Management Oversight, at 6 (Apr. 18, 2013) [hereinafter Region V Deputy Regional Administrator Memorandum].
[28] See Quarterly Progress Report - 3rd Quarter FY 2013, Illinois Emergency Management Agency, at 2 (Apr. 18, 2013).
[29] As stated above, June 24, 2012 is the latest date on which the project could have been completed and eligible for PA reimbursement because the Applicant did not request a time extension from FEMA.
[30] 44 C.F.R. § 207.8(d).
[31] In fact, as a result of closeout, FEMA deobligated less than what was recommended by the OIG because the Applicant substantiated a portion of the unused funds.
[32] While the Applicant submitted documentation that it asserts substantiated $1,861,644.74, the attachments do not provide the level of information necessary to a make a PA eligibility determination pursuant to 44 C.F.R. § 206.226 and OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB CIRCULAR A-87, COST PRINCIPLES FOR STATE, LOCAL, AND INDIAN TRIBAL GOVERNMENTS (2004) (codified at 2 C.F.R. § 225).