Procurement – Reasonable Costs

Conclusion: The contract security services performed at St. Mary’s Academy were improperly procured pursuant to 2 C.F.R. Part 215; however, the actual costs were reasonable under OMB Circular A-122.

Summary Paragraph

In August 2005, Hurricane Katrina caused extensive damage to St. Mary’s Academy.  FEMA determined that the facility was eligible for replacement.  The Applicant relocated the school to a temporary location and contacted security service firms via phone and email requesting bid proposals.  Based on the proposals, the Applicant selected three security firms for services from August 2007 to July 2010.  FEMA prepared several versions of PW 17387, obligating actual costs.  The Office of the Inspector General (OIG) subsequently performed OIG Audit DD-11-15, which found that the Applicant improperly procured security services by not allowing open competition.  The OIG recommended that FEMA deobligate all funding.  FEMA concurred with the OIG’s finding, but awarded reasonable costs, which FEMA determined to be the lowest rates among the proposals, deobligating $75,862.86.  In its first appeal, the Applicant argued that it properly procured security services and that the actual costs were reasonable.  FEMA denied the first appeal, finding that the Applicant did not properly procure the services, further deobligating $40,089.77 based on new information submitted in response to the Request for Information.  The Applicant reiterates its first appeal position on second appeal.

Authorities and Second Appeals

• 2 C.F.R. § 215.0(b)(3) (2005).
• 2 C.F.R. § 215.1.
• 2 C.F.R. § 215.43.
• 2 C.F.R. § 215.44.
• 2 C.F.R. § 215.45.
• 2 C.F.R. § 215.46.
• OMB Circular A-122.
• Second Appeal Analysis, Bluebonnet Electric Cooperative, Inc., FEMA-4029-DR-TX.

Headnotes

• Per 2 C.F.R. § 215.1, Part 215 establishes uniform administrative requirements for grants awarded to Private Non-Profits.  § 215.0(b)(3) states that, where state and local governments provide subawards to a PNP, Part 215 applies. 
  • The Applicant is a PNP.
• 2 C.F.R. § 215.43 requires that all procurement transactions be conducted in a manner to provide open and free competition, awards be made to the bidder whose bid is responsive to the solicitation, and solicitations clearly set forth all requirements to the bidder.
  • The Applicant did not provide documentation showing that it solicited bids from multiple companies.
  • The Applicant, nonetheless, selected bidders who were responsive.
• Section 215.44 outlines procurement procedures.
  • The Applicant did not demonstrate that it had written procurement procedures.
  • The Applicant considered and selected small, minority-owned, and/or women-owned businesses, where practicable.
  • The Applicant utilized fixed-price contracts with a set number of guards at flat rates and selected responsible contractors who possessed the potential to perform successfully.
  • The Applicant did provide FEMA with procurement documents upon request.
• Section 215.46 requires retention of procurement records containing the basis for contract selection, justification for lack of competition, and basis for award cost or price.
  • The Applicant did not provide records.
• Section 215.62 allows FEMA to use legally available remedies when an applicant fails to comply.  OMB Circular A-122 states that a cost is reasonable if it does not exceed that which a prudent person in the same situation would incur.
  • The Applicant provided supporting documentation establishing that the selected rates were reasonable.