Working with FEMA so you can get paid, and keep it
Monday, June 12, 2017 9:00 am
Risk Management Legal Counsel
Following the ice storm of 2000, Scott County was sued for more than $1 million by a private contractor that alleged that the county owed the money by virtue of a contract for debris clean-up. FEMA refused to pay the contractor the amount owed according to the terms of the contract. After three years of litigation (and about $75,000 in attorneys’ fees), Scott County settled for about $200,000, paid from the County General Fund. This article is written to warn all Arkansas county judges — so history does not repeat itself.
Emergency Status: When your county suffers a disaster and emergency response is needed, without question the first priority is taking care of life and property. FEMA recognizes this situation but ... the matter quickly turns to a non-emergency clean-up operation. That’s where FEMA gets real sticky about its rules. WARNING: Follow the FEMA rules, or FEMA will allow you to suffer the consequences of your own choice not to follow the FEMA rules.
After the Initial Emergency: After the first response, the financial reality of a disaster looms large. Planning and preparing for financial cost recovery aspects of a disaster will pay dividends. Listen to the advice and warnings by FEMA and state Office of Emergency Services officials. Do not take off on your own. Do not be a pioneer. Find out about and follow FEMA rules.
Private General Contractors: There are two basic ways to proceed with clean-up: 1) the county can contract with a third party to serve as the contractor for the clean-up operation or 2) the county can serve as its own self-contractor and subcontract with various persons or entities to do the work. Do not sign a contract with a private general contractor to oversee the county’s clean-up work for the county without knowing the FEMA rules. For example, FEMA rules require competitive bidding if the county chooses to contract with a third party for the non-emergency portion of the clean-up work. Sole-source contracts are prohibited. If you fail to follow FEMA’s rules, FEMA will refuse to pay the money and your county could end up in the same situation Scott County found itself in after the 2000 ice storm. Generally, it seems to work better when the county serves as its own general contractor for non-emergency clean-up operations, and then contracts with sub-contractors for tasks as needed. There are certainly many qualified disaster clean-up contractors and sub-contractors. Just make sure you know and follow the rules. Include in any contract with any contractor an agreement that the contract will agree to accept as full and final payment the amount FEMA chooses for reimbursement. That way, the county will not end up stuck with a deficiency.
Document, Document, Document: After a major disaster strikes, you will be dealing with FEMA for a long time. FEMA staff that you will be working with will change. FEMA rules will change. Items that have been approved at one level will be denied at another level. The only protection you have is to document everything that is humanly possible to document. Else, you may not be able to prove that a later FEMA audit is shorting the county from money needed to pay for the clean-up costs incurred by the county. The county needs to be able to prove how many cubic yards were in each load the county wants FEMA to pay for. This means an accounting system must be established on the front end — so you can prove it on the back end.
Pictures: Yes, a picture is worth a thousand words. Establish an inspection site at each disposal location where each load of debris can be recorded. Use a video camera to film each load coming through. The same is true for emergency repair work. Take pictures of the roadways being cleared as an emergency. Put disposable cameras in vehicles that might be called out to do emergency repairs and train people to use them. While you’re at it, put a whole emergency financial kit in a baggy in the glove compartments of your vehicles. It can include a disposable camera and a couple of forms where staff can list the location of the emergency work, what staff are on location between what hours, and whether any equipment was used. A picture and this kind of on-the-spot documentation will be worth its weight in gold five years later when an auditor asks you what happened at a specific site.
Account Codes: Set up an emergency accounting code structure. Even a rudimentary coding system with a code for each department or division for charging time and costs for an emergency is a good idea. As the emergency response unfolds, you can and should add tracking codes for specific locations or other designations of costs needed for each FEMA Project Worksheet (PW), the form they will use for tracking costs and providing approvals.
PW Level: Track all costs at the Project Worksheet (PW) level. FEMA prefers to have extremely specific PWs. You can often get by with one PW covering all police work on the first day of an emergency and separate ones covering all fire, emergency medical, public works, and other immediate costs. But after that very immediate response, FEMA is going to want to see detailed charges — usually down to very specific geographical detail. You need to set up tracking codes at the PW or lower levels to ensure reimbursement. This applies to force account expenses, contractor costs, and any other miscellaneous expenses. You should set up your accounting structure to accommodate this level of tracking.
Damages Only; No Improvements: The general guideline is that FEMA will pay to replace only what was damaged — not for an improvement. What is an improvement? Even if it is a cheaper alternative to redesign or take a different route, FEMA will reject reimbursement if it was an “improvement.”
Audit/Compulsory Refunds to FEMA: Even if FEMA pays the county, FEMA can later force a refund if the payments are deemed to be too much or to not qualify (like an “improvement”). So documentation may be required to keep money that has already been paid by FEMA.
County Employee Compensation: FEMA will pay only additional, disaster-related costs. One of the most difficult issues relates to employee compensation. The result is that it is, counter-intuitively, often cheaper to hire contractors than assign work to county staff. You should understand how FEMA will treat “force account” or county staff labor vs. contractors. FEMA will rarely question paying a bill from outside contractors (i.e., persons not already on the county payroll) as long as the amount seems reasonable. However, FEMA takes a much different view of reimbursements for emergency work done by your own county staff. For example, if you reassign staff to do clean-up work during their regular hours, FEMA will not reimburse you since they will not see any additional cost. If you then have to pay staff overtime to catch up on their normal work, FEMA will not pay that either because it is not disaster related. If you hire a contractor to do the work, you avoid the issue. (“Force account” costs also include equipment and supplies, but these are normally relatively straightforward. But do not try to charge equipment for 24 hours because it was at the disaster site for 24 hours when you have an operator for only eight hours.)
No Reimbursement for Volunteers: You can be reimbursed only for expenses that are your legal responsibility. What about all of those small non-profit organizations that helped out during the response that do not have the expertise to complete all of the forms and keep all of the documentation? Most often they would not be eligible for FEMA reimbursement. One way to try to handle this is to set up contracts with your non-profits before any disaster strikes that make it your government’s responsibility to provide the service (e.g., care and shelter) through the non-profit. You pay the non-profit for their services and it should make the costs eligible for reimbursement.
Active vs. Inactive: Facilities must be active at the time of the emergency. Yes, this means that an older building no longer in use will not be repaired or replaced with FEMA money. But it also means that a new facility under construction is not eligible for FEMA funding.
Be reasonable in your expectations. Remember, even if you receive the funds up front, you can lose them years later in audits. The auditors feel no responsibility to honor or be consistent with approvals made throughout the process.
FEMA Staff: The FEMA staff you will be working with right after a disaster will probably be temporary or contract staff who may not be completely familiar with FEMA rules. And the rules may be changing. So if you get a response you do not like, do not just accept it. Appeal it up the chain until you exhaust your possibilities. Of course, you need to use good judgment about how often to do this and how much money is involved so you do not dilute the response to your really serious, larger disputes.
Audit: When your disaster is in the news, people (including members of Congress) care about helping you. Do whatever you can and use whatever pressure you can bring to bear to have your costs audited as soon as possible. If you have completed your immediate emergency response cost documentation, you can ask for an audit of those costs — even if the more permanent repair work is still under way. If you learn from those audits, you may be able to be more successful securing reimbursement for the permanent work. If you are being audited seven years later, policymakers and the public will not come to your aid if FEMA rules they are taking back money for questioned or undocumented costs — you will be old news.