FEMA Eligible Costs

were not formal plans for its renovation and use, they will likely determine the facility ineligible. Also, if the facility was being utilized for purposes other than its intended use, FEMA will only provide repairs to support that function. An example of this would be an old county garage being used to store maintenance equipment: FEMA would repair/replace only the cost of the same square footage being used for storage purposes.

Eligible Costs
Once eligible work is established, the next hurdle is to verify that the costs incurred are eligible for reimbursement.

Not all costs incurred by an eligible applicant are eligible for Public Assistance funding. Eligible costs are costs that:

• Are reasonable and necessary to accomplish the eligible work.
• Comply with federal, state, and local requirements for procurement.
• Do not include (or are reduced by) insurance proceeds, salvage values, and other credits.

The eligible cost criteria apply to all direct costs, including salaries, wages, fringe benefits, materials, equipment, and contracts awarded for eligible work.

Prior to FEMA's arrival, applicants are often forced to make decisions on the spot. Unfortunately, some of these decisions allow for subsequent second-guessing on issues such as procurement, reasonable costs, and actual performance. As discussed in earlier issues of Disaster Recovery Today, any pre-disaster

preparation, such as pre-selecting qualified contractors, will help reduce future problems.

When determining eligible costs, the defining factor will be whether the costs are deemed “reasonable.” An applicant will need to prove to FEMA that the cost incurred was appropriate for the work completed. Many factors such as availability of resources, local cost factors, difficulty of the project, and the timing of completion can make costs appear exorbitantly high. Oftentimes, if an applicant can demonstrate that they have paid similar costs for comparable work, FEMA will be satisfied.

Unfortunately, the term “reasonable.” is very subjective, often making it difficult to later prove to FEMA that the costs incurred were not excessive, considering the situation at the time the decisions were made. FEMA typically uses estimating programs or compares an applicant's costs to what they have experienced in the past, not always accounting for the extraordinary demands created by a catastrophic event.

Since FEMA often refers to Office of Management and Budget (OMB) A87 on various topics, it is important to point out that OMB A87 aptly defines “reasonable.” as it pertains to federal grants as follows: (taken from the Office of Management and Budget website - 2007)

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 at the time the decision was made to incur the cost. The question of reasonableness is particularly important when governmental units or components are predominantly federally funded. In determining reasonableness of a given cost, consideration shall be given to:

a. Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the governmental unit or the performance of the federal award.

b. The restraints or requirements imposed by such factors as sound business practices; arms-length bargaining; federal, state and other laws and regulations; and terms and conditions of the federal award.

c. Market prices for comparable goods or services.

d. Whether the individuals concerned acted with prudence in the circumstances, considering their responsibilities to the governmental unit, its employees, the public at large, and the federal government.

e. Significant deviations from the established practices of the governmental unit which may unjustifiably increase the federal award's cost.

When a disaster occurs, applicants are faced with the task of doing