Disaster recovery: Navigating FEMA’s cumbersome financial assistance rules

The 2016 Atlantic hurricane season officially began on June 1, and will end on November 30. Hilary S. Cairnie, a partner with Pepper Hamilton LLP, offers his views on the Federal Emergency Management Agency’s (FEMA) policies for reimbursement of disaster recovery costs.  Hilary Cairnie’s views are below.

The 2016 season for hurricanes, forest fires, floods and tornadoes is in full swing, and that means many state and local governments will have to seek financial assistance from the Federal Emergency Management Agency (FEMA) for reimbursement of disaster recovery costs. If you are not familiar with the Stafford Act and FEMA’s rules and regulations, you will quickly come to appreciate the many challenges encountered before receiving FEMA-approved financial assistance. Not all disaster-related costs are recoverable, and understanding what is and is not allowable is an important first step toward effectively managing disaster recovery efforts.

One cost category that is easily and often overlooked deals with the administrative costs incurred by a government entity to manage and administer its recovery efforts.

Recovery efforts involve contractors, subcontractors, consultants, federal agency personnel, site inspections, permitting processes, funding applications, contracts, accounting records, invoices and statements, internal meetings, lawyers, accountants, first responders, overtime requirements, and so on. And, the affected entity must contend with all of those moving parts while trying to reopen closed roads, clean up and remove debris, provide traffic control, coordinate individual relief services, undertake safety precautions, and conduct rescue/recovery operations. Even for a minor disaster, the administrative cost burden can be significant, especially where there is no such thing as surplus or unprogrammed funds.

In a recent case, the Civilian Board of Contract Appeals ruled in favor of St. Tammany Parish, La., and against FEMA. The court decided that accounting and legal fees incurred in support of recovery efforts were “sufficiently associated” with those efforts attributed to Hurricane Katrina such that FEMA was obligated to reimburse the Parish for those costs.

Importantly, some of those administrative costs were incurred in connection with defending against litigation initiated by aggrieved subcontractors whose claims had not been paid by the parish because FEMA had disallowed those claims.

To maximize recovery of administrative costs, state and local government agencies need to:

(1)    Specifically tailor each professional services agreement to address the specific disaster event,

(2)    Anticipate the need for professional services, and plan in advance to compete the requirement and get a market price,

(3)    Specify clearly your requirements for invoicing to include adequate detail and supporting documentation,

(4)    Establish internal accounting controls and cost codes to track cost categories,

(5)    Require all personnel to maintain daily time sheets and record all time devoted to disaster recovery activities, and

(6)    Assign specific responsibilities to each staff member. No one person can master all of the requirements mandated by FEMA’s rules and regulations, and

(7)    Plan ahead for dealing with FEMA; agencies should communicate often and be sure to confirm talking points in writing.

Hilary Cairnie is a partner in the Government Contracts Practice Group of Pepper Hamilton LLP, in the firm’s Washington D.C. office. His practice is diverse and encompasses virtually all manner of government contracting matters. He is a frequent speaker on topics and new developments of interest to the government contracting community. He has regularly appeared before local, regional and national chapters of trade associations and bar associations. Cairnie can be reached at cairnieh@pepperlaw.com or 202-220-1207.

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