UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGIONS
77 WEST JACKSON BOULEVARD
CHICAGO, IL 60604-3590
9Q5R98101
REPLY TO THE ATTENTION OF
SEP 3 0 \M
C-14J •
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Mr. Ted Rhienhart, Director
Dept. of Public Works
200 E. Washington St.
Room 2460
Indianapolis, IN 46204
Re: Audit Report No. P2CWN9-05-0070-1400047
Grant No. C180747-01, 03, 04, 05 and 06
C180865-02, 03, 04 and 05
Docket No. 05-92-AD13
Dear Mr. Rhienhart:
Pursuant to your request under 40 C.F.R. Part 30, Subpart L for
review of the Regional Dispute Decision Official's final
determination of August 19, 1992, I am enclosing the following:
1. Report and Recommendation of the Planning and
Management Division and the Office of Regional Counsel,
and,
2. Decision and Order of the Regional Administrator.
Pursuant to the Decision and Order of the Regional Administrator,
and as more fully set forth in the Report and Recommendation of
the Planning and Management Division and the Office of Regional
Counsel, the determination of the Disputes Decision Official,
dated July 6, 1992, is sustained in part and overruled in part.
The total federal share of costs disallowed as a result of this
Subpart L review is $3,649,014. The Comptroller has reviewed the
City's request for interest waiver and determined that of the
2,214 days since the Final Determination Letter was issued to the
Recycled/Recyclable • Printed with Vegetable Oil Based Inks on 50% Recycled Paper (20% Postconsumer)
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City, 1,608 days were the result of agency failure to act without
fault of the City. Interest is therefore due on only 606 of the
days. The amount of interest due on $3,649,014 for 606 days at
6% is $363,503. A total refund to the United States in the
amount of $4,012,517 is thus due and owing, to be paid as set
forth in the Decision and Order.
If full payment of the $4,012,517 is made within 30 days of
receipt of the Decision and Order, no additional interest will be
assessed. If full payment is not made within 30 days of receipt
of the Decision and Order, additional interest will accrue on the
federal share at the United States Treasury tax and loan rate in
accordance with 4 C.F.R. § 102.13(c).
Sincerely yours,
Robert L. Thompson
Associate Regional Counsel
Enclosures
cc: J. Kent Holland, Esq.
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bcc: B. Campbell (MF-10J)
H. Levin (MF-10J)
S. Lee
M. Starus
T. DeGrandchamp
ORC Library
Region 5 Library
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 5
IN RE:
CITY OF INDIANAPOLIS, IN
Grant Numbers:
C180747-01, 03, 04, 05, 06
C180865-02, 03, 04, 05
Audit Report No. P2CWN9-05-
0070-1400047
REQUEST FOR REVIEW OF
DISPUTES DECISION OFFICIAL'S
DECISION
REPORT AND RECOMMENDATION
OF THE RESOURCES MANAGEMENT
DIVISION AND THE OFFICE OF
REGIONAL COUNSEL PURSUANT TO
40 C.F.R. PART 30, SUBPART L
DOCKET NO. 05-92-AD13
DIGEST NOTES
1. GRL-160-125-000, ASSISTANCE DISPUTES, BURDEN OF PROOF
The Grantee has the burden of proving that the DDO's decision was
erroneous. Absent such proof, the DDO's decision must be upheld.
2. GRL-120-155-000, ASSISTANCE ADMINISTRATION, GOVERNMENT'S
RIGHT TO AUDIT
All costs claimed are subject to final audit.
3. GRL-040-300-000, ALIENABILITY OF COSTS, DOCUMENTATION
Additional documentation not available to the Disputes Decision
Official (DDO) at the time of his decision justifies
reinstatement of previously disallowed A/E fees.
4. GRL-040-850-000, ALLOWABILITY OF COSTS, SCHEDULED COMPLETION
DATE
A/E fees and project inspection costs incurred after the
construction contract completion date must indicate that the
extension is reasonable and necessary and meet the specific
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showing that the costs were not due to grantee mismanagement or
contractor failure to perform.
5. GRL-040-850-000, ALLOWABILITY OF COSTS, SCHEDULED COMPLETION
DATE
Where the Grantee entered into a settlement with a contractor, in
consideration for the release of the Grantee's claims against the
contractor, at least in part, for the Grantee's use to offset
increased costs because of the contractor's lack of timely
performance, the Grantee cannot argue that related costs were not
incurred as a result of grantee mismanagement or contractor
failure to perform.
6. GRL-040-000-000, ALLOWABILITY OF COSTS, START-UP SERVICES
Start-up costs incurred greater than 12 months after the
completion of construction are allowable only if the Grantee can
substantiate a reasonable basis for the extension of the start-up
period.
7. GRL-040-000-000, ALLOWABILITY OF COSTS, START-UP SERVICES
Where the Grantee has demonstrated that the start-up was
extremely complex and novel, and involved the integration of many
different facilities, and did not involve mismanagement or undue
delay, the start-up costs beyond a one-year period will be
allowed.
8. GRL-040-315-000, ALLOWABILITY OF COSTS, EQUIPMENT
The cost of vehicles was allowable where grantee purchased the
vehicles for purposes relative to construction, not operation, of
the wastewater treatment plants, and where there was concurrent
U.S. EPA written agreement that such purchase was appropriate as
part of plant construction.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 5
IN RE:
CITY OF INDIANAPOLIS, IN
Grant Numbers:
C180747-01, 03, 04, 05, 06
C180865-02, 03, 04, 05
Audit Report No. P2CWN9-05-
0070-1400047
REQUEST FOR REVIEW OF
DISPUTES DECISION OFFICIAL'S
DECISION
REPORT AND RECOMMENDATION
OF THE RESOURCES MANAGEMENT
DIVISION AND THE OFFICE OF
REGIONAL COUNSEL PURSUANT TO
40 C.F.R. PART 30, SUBPART L
DOCKET NO. 05-92-AD13
DECISION AND ORDER
I have reviewed the attached Report and Recommendation of the
Planning and Management Division and the Office of Regional
Counsel, and concur in and adopt its conclusions and
determinations:
1. The Final Determination of the Disputes Decision Official,
dated July 6, 1992, disallowed: $20,982 of costs claimed for
basic 75 percent grant funding in grant C18086503 but accepted
$20,982 of $138,058 of previously unclaimed costs on that grant
as an offset; $6,256,758 of costs claimed for basic funding in
seven other grants (all costs claimed in grant C18086502 were
accepted); and $842,642 of costs claimed for 10 percent
supplemental Federal funding for the portions of grant project
C18086505 that met innovative technology criteria. This decision
is sustained in part and overruled in part. To date Indianapolis
has not paid the federal share of any of the concurred or
disputed disallowed costs.
2. This Subpart L review has determined that the net
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unallowable cost is $4,753,982 of basic, and $835,272 of
innovative, grant costs. The corresponding Federal shares are
$3,565,487 and $83,527, making a total of $3,649,014 due and
owing. Because the City has not paid any of the disputed costs,
pursuant to 40 C.F.R. § 30.1230, interest has accrued at a rate
of six percent on the federal share from July 6, 1992, the date
of the Final Determination Letter until the date of the Regional
Administrator's Decision and Order. The City, though, has
petitioned for waiver of interest. The Comptroller has reviewed
the City's request for interest waiver and determined that of the
2,214 days since the Final Determination Letter was issued to the
City, 1,608 days were the result of agency failure to act without
fault of the City. Interest is therefore due on only 606 of the
days. The amount of interest due on $3,649,014 for 606 days at
6% is $363,503. A total refund to the United States in the
amount of $4,012,517 is thus due and owing.
If full payment of the $4,012,517 is not made within 30 days of
receipt of this Decision and Order, additional interest will be
assessed on the federal share at the United States Treasury tax
and loan rate in accordance with 4 C.F.R. § 102.13(c).
Accordingly, Indianapolis shall reimburse the U.S. EPA in the
amount of $4,012,517 as specified herein. A check, made payable
to the U.S. Environmental Protection Agency in the amount of
$4,012,517 should be mailed to the following address:
U.S. Environmental Protection Agency
Region 5
P.O. Box 70753
Chicago, Illinois 60673
This Decision and Order will constitute final Agency action
unless, pursuant to 40 C.F.R. § 30.1225, Indianapolis files a
petition for discretionary review with the Assistant
Administrator for Water (WH-556), U.S. Environmental Protection
Agency, 401 M Street, S.W., Washington, D. C. 20460, within 30
days of the date of this Decision. The discretionary review
petition should be sent by registered mail, return receipt
requested, and must include:
a. A copy of the Regional Administrator's decision; and,
b. A concise statement of the reasons why Indianapolis
believes the Decision to be erroneous.
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A copy of any petition for discretionary review also should
be sent to:
Chief
Financial Management Branch
Planning and Management Division
U.S. Environmental Protection Agency
Region 5
77 West Jackson Boulevard
Chicago, Illinois 60604
Dated: -^—
David A. Ullrich
Acting Regional Administrator
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
REGION 5
IN RE:
CITY OF INDIANAPOLIS, IN
Grant Numbers:
C180747-01, 03, 04, 05, 06
C180865-02, 03, 04, 05
Audit Report No. P2CWN9-05-
0070-1400047
REQUEST FOR REVIEW OF
DISPUTES DECISION OFFICIAL'S
DECISION
REPORT AND RECOMMENDATION
OF THE RESOURCES MANAGEMENT
DIVISION AND THE OFFICE OF
REGIONAL COUNSEL PURSUANT TO
40 C.F.R. PART 30, SUBPART L
DOCKET NO. 05-92-AD13
REPORT AND RECOMMENDATION
I.
INTRODUCTION
This request for review arises from the decision by a Regional
Disputes Decision Official ("DDO"), Region 5, U.S. Environmental
Protection Agency ("U.S. EPA"), regarding costs claimed under the
subject grants that were questioned as ineligible or unsupported
in the subject Audit Report. The DDO's Decision ("DDOD"), dated
July 6, 1992, disallowed: $20,982 of costs claimed for basic 75
percent grant funding in grant C18086503 but accepted $20,982 of
$138,058 of previously unclaimed costs on that grant as an
offset; $6,256,758 of costs claimed for basic funding in seven
other grants (all costs claimed in grant C18086502 were
accepted); and $842,642 of costs claimed for 10 percent
supplemental Federal funding for the portions of grant project
C18086505 that met innovative technology criteria.
The grants were awarded to Indianapolis, Indiana (the "Grantee"
or "Indianapolis" or "City") pursuant to Title II of the Clean
Water Act, as amended ("Act"), 33 U.S.C. §§ 1251 et seq.. for the
planning, design and construction of two advanced wastewater
treatment plants. Each grant provided for 75 percent Federal
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participation of allowable costs. The portions of Grant No.
C18086505 which met the innovative technology criteria of
40 C.F.R. § 35.908 qualified for additional Federal participation
of 10 percent.
The U.S. EPA awarded the grants from May 30, 1975, to July 19,
1978. In signing the Grant Agreements, Indianapolis explicitly-
agreed to abide by the grant regulations found at 40 C.F.R. Parts
30 and 35 and to expend the funds awarded solely for the purpose
of the projects as approved. A brief summary of each of the
grants may be found in the attached addendum.
Upon completion of the projects, as described in the summary of
the grants set forth in the addendum, the Office of Inspector
General for the Northern Division, U.S. EPA, through the firm of
Foxx & Company, audited the City's records to determine if those
records supported the City's claims of $188,901,325 and
$33,372,532 as necessary, reasonable and allocable for 75 percent
basic and 10 percent supplemental funding, respectively. The
Audit Report questioned $6,750,382 of costs claimed for basic 75
percent funding and $919,555 of the costs in grant C18086505
claimed for the 10 percent supplemental funding.
On August 20, 1992, U.S. EPA sent Indianapolis a letter
acknowledging receipt of the City's August 7, 1992, letter
requesting a review of the DDOD. The letter advised Indianapolis
of its right to be represented by .counsel, to submit documentary
evidence and arguments and to receive a written decision from the
Regional Administrator. In a letter dated September 25, 1992,
Indianapolis requested an informal Subpart L conference,
submitted additional documents supplementing its responses and
documentation of December 3, 1991, January 24, 1992, February 21,
1992, and April 13, 1992, (pre DDOD), and elaborated on its prior
arguments in support of its position. Additional
information/documents referenced in the September 25, 1992
package were submitted October 29, 1992. The informal conference
was held on January 26, 1993. At the conference the City agreed
to provide additional documentation, which was done by
submissions dated February 11, 1993, and March 9, 1993.
Based on all submissions by the City both prior and after audit,
and review of U.S. EPA Region 5 individual grant project files, a
Regional Administrator (RA) Decision and Order (D&O) was issued
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December 6, 1995. Shortly thereafter, Region 5 found that the
Report and Recommendation upon which the D&O was premised, had
overlooked the April 21, 1979, Initial Pricing Audit Report and
the subsequent correspondence between the Region 5 Water Division
and the City concerning construction management services and the
purchase of vehicles to provide those services. In addition, the
Report contained some mathematical inaccuracies, an inconsistent
conclusion and, most significantly, an inaccurate
characterization of statements made by the City in various
submissions.
Relative to the latter item, the initial Report and
Recommendation stated "...the City has concurred with the DDO's
decision to disallow $5,002,088." In fact, though, the City had
not concurred with the unallowability of the costs. The City had
not concurred that any costs questioned and determined
unallowable due to the contract completion date issue (in excess
of $4,370,000) were, in fact, unallowable. Rather, the City had
merely concurred that, given the U.S. EPA accepted or approved
contract completion dates, it had received enough information to
concur with the number. In each instance where the City
"concurred" with an unallowable amount resulting from the U.S.
EPA accepted or approved contract completion date, the City
either explicitly or implicitly noted the concurrence was with
the dollar amount and not the unallowability.
Although Region 5 personnel had agreed on December 14, 1995, that
the appropriate action to remedy the situation would be to
rescind and reissue the D&O, the holidays and second Federal
employee furlough of the fiscal year delayed that action until
after the City had petitioned the AA. In any event, this Report
and Recommendation is the result. It is based on further review
of U.S. EPA files, significant portions of information provided
prior to the rescission and information provided at and
subsequent to the meeting between the City and Region 5
representatives on November 7, 1996.
The November 1996 meeting had several purposes. One objective of
the meeting was to reach agreement on the derivation of the
actual dollar amount, whether disputed or not, for each service
addressed in the 38 Notes of the Audit Report where the DDOD
concluded all or part was unallowable. As noted, the City had
submitted much supplemental, additional and/or alternative
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documentation after the auditors completed field work on February
8, 1991, and although agreement on allowability of certain items
might be impossible, it was deemed imperative to reach agreement
on the exact dollar value at issue, irrespective of allowability.
The numbers in the following sections reflect achievement of that
objective.
Another objective of the meeting was to address the City's
request that three change orders involving time extensions be re-
reviewed, particularly in context of construction management
service questioned costs in Grant C180747-05. The result of the
Region 5 reassessment is addressed in this decision.
A third objective of the meeting was to discuss the City's
request that the RA address the issue of grant increases on
Grants C18086502 and 03 that were covered by the subject Audit
Report as well as on closed out grants C18074702 and 08, or
alternatively, concurrent with issuing a revised D&O, process the
requested increases. As explained by Region 5 representatives
during the meeting, the matter of grant increases is not and
cannot be subject to the regulatory RA review process. Neither
the DDO nor any other U.S. EPA official has authority to
unilaterally determine grant increases. Consistent with Section
216 of the Act, funds authorized and allotted to a State under
Title II of the Act can be obligated only upon State priority
funding certification. The determination of such priority can
only be made by the State. An affirmative priority certification
from the State agency is an imperative requirement to the
obligation and payment of Clean Water Act Title II grant funds,
whether it be an initial grant award or the award of a grant
increase. There is no statutory, regulatory, policy or guidance
criteria requiring a State to issue a priority funding
certification to increase a previously awarded grant as a result
of changes occurring after the initial award, even when such
changes are beyond the reasonable control of the grantee.
Grant funds obligated under one grant for a given scope of work
can be paid only from the account where the grant funds are
obligated for the scope of work defined in the Grant Agreement.
Correspondingly, overpayments of a grant must be repaid,
deposited in the U.S. EPA financial management account from which
they were initially paid and thence de-obligated, reverting to
the U.S. EPA account for the State to which the funds were
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originally allotted. The funds are then available for re-
obligation on a different grant. A grant decrease Amendment must
be processed to effectuate the" de-obligation and a grant increase
Amendment, subject to the foregoing scenario, must be processed
prior to payment of increased funds.
Another constraining factor in a conceptual single action to
offset unallowable costs in some grants with previously unclaimed
and possible allowable costs from other grants is the difference
in the scope of planning (Step 1), design (Step 2) and building
(Step 3). Clearly the scopes are different and simply not
interchangeable. In addition, all of the Step 3 grants -- those
covered by the subject Audit as well as those previously closed
out -- in the "747" and "865" sequences are a treatment works
segment, as defined at 40 C.F.R. § 35.905. Construction and
operation of all the segmented "747" grants was necessary if the
City was to comply with the fundamental prerequisite of all CWA
grants; namely to meet the enforceable requirements of the Clean
Water Act as defined in the discharge permit for that plant. The
same was true for the "865" grants. Factually, the scope of work
in the "747" segmented grants regarding one plant and a separate
distinct discharge permit is not interchangeable with work in the
"865" grants, regarding a second plant with a separate permit.
Therefore, as a result of the Agency's financial management
system and the Agency's management and administration practices
and procedures regarding the construction grant program, the
concept of offsetting questioned costs in one grant with
unclaimed allowable excess costs from another involves procedures
and processes more complex than a simple mathematical listing of
plusses and minuses, with a single net action. Nevertheless, it
would be possible to implement a series of actions to effectuate
funding of previously unclaimed costs on grants C18086502 and
C18086503, subject to the State issuing a priority certification.
Further, although reopening closed out grants is typically
completely opposite to Agency objectives, there is nothing
prohibiting reopening under appropriate circumstances. Therefore,
again subject to priority certification by the State, the Region
is willing to reopen grants to accommodate funding of costs the
City did not claim when it requested final payment on those
closed grants. Whatever occurs, this Report and Recommendation
will not further address the matter of grant increases, i.e. it
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will be limited to the issues addressed in the DDOD where costs
continue to be contested.
Based on either written or verbal comments or the lack of any
comments by the City since the draft Audit Report, EXHIBIT I
summarizes unallowable services and costs which U.S. EPA
understands the City is not contesting further, namely $1,428,584
for 75 percent basic funding and $567,916 for 10 percent
innovative funding. As noted, the amounts for Notes la and Ib of
Grant C18074701 are adjusted from those in the DDOD and results
in the reinstatement of $1,487. Therefore, $1,428,584 and
$567,916 of costs that the DDO determined unallowable are
sustained as unallowable for the reasons cited in the Audit
Report and DDOD.
EXHIBIT I
DDOD UNALLOWABLE COSTS, EXCEPT AS NOTED, WHICH ARE NOT BEING
CONTESTED FURTHER
Grant No.
C180747 01
C180747 03
C180747 04
C180747 05
C180747 06
C180865 03
C180865 04
C180865 05
Audit
Note
la
Ib
2
2a
la
3b
la
2a
3
la
3a
la
1
la
Amounts Brief Description
$ 14,376* Adjusted
2,221*Adjusted
85, 560
$ 102.148
1. 070. 076
2, 664
1, 010
3.674
5,598
229,821
1,925
237.344
757
583
1.340
2. 109**
1.435
9,399
Force Account
Fringe Benefits
Other A/E Fees
Total
Total
A/E Basic
Other A/E
Total
A/E Basic
Other A/E
Inspection
Total
A/E Basic
Inspection
Total
A/E Basic
Adm . Exp .
A/E Basic
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3a
1,059
Inspection
Total Unallowable For
Basic Grant Funding
10.458
$1.428.584
C180865 05
1
2a
3a
35,936
339,649
192,331
Total
Adm. Exp.
A/E Basic
A/E Other
Total Unallowable for
10 percent Innovative
Grant Funding
567.916
* U.S. EPA agreement with $ value results in reinstatement
of $1,202 on Note la and $285 on Note Ib = $1,487 Total.
** DDOD offset with part of $138,058 previously unclaimed
cost.
As set forth in EXHIBIT III, below, $3,821,151 and $267,356 of
costs for basic and innovative grant funding remain in contention
and are the focus of the balance of this Report and
Recommendation.
II. ISSUES
A. Whether adequate documentation has been provided
by the grantee to support the allowability of the
$1,134 Administrative Expense and $26,875 Special
Services costs claimed in the Step 2 Grant No.
C18074703 (Notes 1 and 2b to Schedule A-2 of the
Audit Report).
B. Whether $407,339 of start-up costs (Note 2b to
Schedule A-5 of the Audit Report regarding Grant
No. C18074706) incurred after the 12 month period
cited in Program Requirements Memorandum (PRM) 77-
2 are allowable.
C. Whether the $41,652 (Note 4 to Schedule A-4 of the
Audit Report) claimed under Grant No. C18074705
for the direct purchase of mobile vehicles by the
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grantee for use during construction by the
employees of the joint venture firm that provided
construction management services for the extensive
construction at widely separated job sites over a
lengthy construction period is allowable.
D. Whether documentation provided by the grantee
concerning construction contract change orders
that extended the contract time of* completion
where the approved time was less than the full
period in the change order, justifies longer
periods of approval by showing that the time
extensions were attributable to either contractor
performance or grantee management actions, or the
lack of contractor performance or grantee
management actions. This issue involves
$3,344,151 and $267,356 for basic and innovative
grant funding, respectively, for services rendered
after the actual U.S. EPA approved/accepted
contract completion date. EXHIBIT II sets forth
an itemization of services and costs by grant. As
reflected in the Notes to EXHIBIT II, based on
additional documentation from the grantee,
$1,026,518 and $7,370 for basic and innovative
grant funding, respectively, are reinstated based
on U.S. EPA review of the additional documentation
provided by the City. EXHIBIT III is a summary of
all costs discussed in the foregoing narrative and
EXHIBITS I and II. As reflected, $3,821,151 and
$267,356 of costs for basic and innovative grant
funding remain in contention and are the focus of
the balance of this Report and Recommendation.
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EXHIBIT II
DDOD UNALLOWABLE COSTS FOR SERVICES RENDERED AFTER U.S. EPA
ACCEPTED/APPROVED CONTRACT COMPLETION DATE AND NOT DEMONSTRATED
AS UNRELATED TO, OR RESULTANT FROM, UNSATISFACTORY CONTRACTOR
PERFORMANCE OR INAPPROPRIATE GRANTEE MANAGEMENT ACTIONS.
AUDIT
GRANT NO.
C18074704
TOTAL
C18074705
TOTAL
C18074706
TOTAL
C18086503
TOTAL
C18086504
C18086505
TOTAL
NOTE
Ib
2
3a
Ib
2b
2c
Ib
2c
3b
Ib
2
3
2
Ib
Ib
2
2
3b
DDOD
UNALLOWABLE
$ 211,135
114,188
15,611
$ 340,934
30,720
12,577
3,170,520
$3,213,817
137,898
46,224
1,683
$ 185,805
1,899
12,023
4,951
$ 18,873
69,298
332,938
43,276
147, 030
15,259
3,439
$ 541,942
REINSTATED
(NOTE I)
$ 43,139
465
0
$ 43,604
3,204
0
809,494
$ 812,698
52,019
11,140
1,683
$ 64,842
0
1,095
0
$ 1,095
2,616
64,118
0
18,847
15,259
3,439
$ 101,663
UNALLOWABLE
CONTESTED
$ 167,996
113,723
15,611
$ 297,330
27,516
12,577
2,361,026
$2,401,119
85,879
35,084
NOTE II 0
$ 120,963
1,899
10,928
4, 951
$ 17,778
NOTE III
66,682
268,820
43,276
128,183
NOTE IV 0
NOTE II 0
$ 440,279
TOTALS FOR BASIC
75 PERCENT GRANT
$4,370,669
$1,026,518
$3,344,151
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10
EXHIBIT II (Continued)
AUDIT DDOD REINSTATED UNALLOWABLE
GRANT NO. NOTE UNALLOWABLE (NOTE I) CONTESTED
C18086505
Innovative
Technology
2b
3b
$
208
66
,338
,388
$
7,370
0
$
200,
66,
968
388
TOTAL FOR INNOVATIVE
10 PERCENT GRANT $ 274,726 $ 7,370 $ 267,356
NOTE I - Portions of costs/services reinstated based on U.S. EPA
review and affirmative conclusion regarding previously unclaimed
costs or additional documentation which confirmed the service was
not related to, or resultant from, either unsatisfactory
contractor performance or inappropriate grantee management
actions.
NOTE II - Costs claimed and questioned on premise they were for
inspection services but actually were for one time material
testing that was necessary regardless of when done.
NOTE III - Entire $17,778 plus $2,109 unallowable per Note la on
this Grant -- SEE EXHIBIT I -- or total $19,887, was offset by
$138,058 of previously unclaimed allowable costs. The remaining
$118,171 ($138,058 - $19,887) on which the City has requested
grant funding through a grant increase is not subject to RA
review.
NOTE IV - Questioned on basis of information being insufficient
to identify if it was a one time service. Additional information
showed the service is not related to, or resultant from, either
unsatisfactory contractor performance or inappropriate grantee
management actions.
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Unallowable per DDOD
Reinstated EXHIBIT I
Subtotal
Reinstated EXHIBIT II
Subtotal
Not contested Further
EXHIBIT I
Subtotal
11
EXHIBIT III
Basic Funding Innovative Funding
$6,277,740 $842,642
- 1,487 0
6,276,253
-1,026,518
5,249,735
-1,428,584
$3,821,151
842,642
-7,370
835,272
-567,916
$ 267,356
Contested Issues A, B and C
C18074703 $ 1,134 A
C18074703 26,875 A
C18074706 407,339 B
C18074705 41,652 C
Subtotal
$477,000
Amounts Contested
Per EXHIBIT II
- 477,000
$3,344,151
$ 267,356
PREVIOUSLY UNCLAIMED COSTS - submitted with request they be used
to offset unallowable costs -- NOT subject to RA review.
Grant C180747-02
Grant C180747-08
Grant C180865-02
Grant C180865-03
$337,039
267,297
401,153
138,058*
*Will be used to offset $2,109 unallowable (EXHIBIT I) and
possibly up to $17,778 of disputed unallowable (EXHIBIT II)
costs, i.e. minimum unfunded could be as small as $118,171.
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III. DISCUSSION
A. Documentation to Support Claimed Costs
The DDOD disallowed some costs because the City had not provided
accounting records, such as time sheets and payroll journals, to
support the charges by its engineering firms. During the
informal conference, the City explained that some records had
been located. The City was also able to reconstruct some
records.
Additional documents not available at the time of the DDO's
decision can be the basis for allowing previously disallowed
costs. City of Auburn. New York. 02-91-AD11, (March 21, 1995),
City of Wellesville. Ohio. 05-95-AD01, September 26, 1995),
Metropolitan Water Reclamation District of Greater Chicago.
Chicago. Illinois. -5-91-AD10, October 18, 1993, Urbana &
Champaign Sanitary District. Illinois. 05-90-AD12, (February 19,
1991), Highland Sanitary District, Indiana. 05-90-AD03,
(September 24, 1990) . Based on the Subpart L review, in some
cases the documentation provided by the City satisfied the
requirements of 40 C.F.R. § 30.805, and allows the reinstatement
of $1,487 (EXHIBIT I) and $1,026,518 and $7,370 (EXHIBIT II).
The issue is also applicable to two other Audit Report Notes,
i.e.:
Grant No. C18074703 (Schedule A-2.-.of the Audit Report)
Note 1 - The DDO disallowed $1,134 of claimed administrative
expenses because these costs were unsupported by documentation as
required under 40 C.F.R. § 30.805(a). The City proposes to
offset these costs with previously unclaimed indirect costs.
However, the indirect cost amounts are not based on the terms of
the Indirect Cost Agreement the City negotiated with the U.S. EPA
Headquarters Cost Policy and Rate Negotiation Section. That
section has sole authority to negotiate such Agreements and the
terms thereof. Accordingly, the $1,134 original claim is
sustained as unallowable because no documentation has been
provided to support the claim. Further, notwithstanding the
probable accuracy of the City's contention that it incurred some
indirect costs but was unable to claim same at the rate contained
in the Indirect Cost Agreement i.e. a percentage of the Federal
share of AWT construction costs, because no AWT construction
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costs were incurred or being incurred at the time the subject
Step 2 grant design work was being done, the City's request to
offset the unallowable $1,134 with the previously unclaimed
indirect cost is denied. The City negotiated the terms and must
abide by same. The contention that the alternative method of
claiming based on a rate applied to the City's consultant labor
costs was a reasonable approach should have been presented to the
U.S. EPA representatives with whom the original negotiations
occurred. The RA is without authority to accept or reject the
alternative method. For the record, the Cost Policy and Rate
Negotiation Section personnel advise they have never seen or
heard of a municipality using a consultant's labor costs as a
basis of its indirect costs as proposed by the City.
Grant No. C180747Q3 (Schedule A-2 of the Audit Report)
Note 2b - The DDO disallowed $26,875 for technical assistance for
purposes of design rendered by the Purdue Research Foundation
because the City could not provide invoices and time sheets to
support the costs. Because the City has been able to document
from the Advanced Water Treatment (AWT) Project Technical
Director's (C.M. Robson) diaries that approximately 1,827.5 hours
related to the AWT projects during the project time period, the
allowability of the $26,875 is adequately supported and the DDO's
decision is reversed.
B. Start-Up Costs Beyond One Year
The DDO disallowed $407,339 claimed for A/E startup services that
exceeded a period of 12 months cited in Program Requirements
Memorandum (PRM) 77-2 for Grant No. C180747-06 (Schedule A-5),
Note 2b. PRM 77-2, dated November 29, 1976, states in part:
Grant eligible start-up services will average
90 man-days for most treatment plants. For
large or complex plants, however, grant eligible
start-up services may range up to 300 man-days.
Start-up services shall be completed within a period
of 12 months. To be eligible, the services must be
rendered by the design engineer or others identified
by the design engineer.
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The City has contended that the start-up at issue here was
extremely complex and involved. The September 25, 1992,
submittal sets forth the City's position and states at p. 24:
"The number and types of equipment that had to be operated and
calibrated was immense. The effluent quality required by the
discharge permit was unforgiving. The task of running the new
plants was intimidating to the operations staff. The Indiana
Department of Environmental Management, the EPA and the DPW were
in agreement that the startup of these two advanced wastewater
treatment plants was the key to realizing the benefit of $185
million of construction."
The issue to be decided is whether PRM 77-2 allows for start-up
costs to exceed a one year period when start-up is as complex and
involved as in the present situation. In City of Howell.
Michigan,. 05-87-AD07 (December 31, 1987), it is stated that:
(T)he PRM recommends that start-up costs that exceed
one year should not be eligible for grant
participation, absent reasonable justification for the
delay (which is not due to mismanagement of the
grantee, contractor negligence, or contractor failure
to perform). The PRM is simply a guideline, not a
steadfast rule, and it is possible in some instances
that U.S. EPA could consider factors that would allow
for plant start-up in excess of 12 months.
The City has demonstrated that the start-up in this case was
extremely complex and novel, and involved the integration of many
different facilities, including a Bio-Roughing facility, an
Oxygen Nitrification System, an Effluent Filter Building, an
Ozone Disinfection System, and a Main Control System. The City
has adequately demonstrated that the start-up in this case did
not involve mismanagement or undue delay. Rather, the start-up
exceeded one year because of the complexity of the process.
Based on the City's documentation and arguments, the start-up
costs beyond the one-year period (ie. those costs incurred
between February 1983 and November 1983) provided for by PRM No.
77-2 are allowed. Therefore the DDO's determination that
$407,339 is unallowable is reversed.
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C. Acquisition Cost of Trucks and Cars
In questioning the $41,652 co*st incurred by the grantee for the
direct purchase of vehicles, the Audit Report cites both 40
C.F.R. § 35.940-2(g), "Ordinary operating expenses of local
government", and the U.S. EPA Construction Grant program Handbook
of Procedures, which provides Agency guidance on the matter, as •
the basis of unallowability. Although the Handbook clearly says
what is quoted in the Audit Report and the DDOD, that guidance
pertains to wastewater treatment plant "operation," which is an
ordinary operating expense of local government after wastewater
treatment plant "construction" is completed. In the present
situation, though, the grantee purchased the trucks and cars for
purposes relative to construction, not operation, of the
wastewater treatment plants. The vehicles were used by the joint
venture firm that provided construction management services. The
scope of those services simply do not constitute local government
ordinary operating services.
Furthermore, U.S. EPA had its Office of Audit do an Initial
Pricing Audit of the architectural/engineering proposed
subagreement the City had negotiated for the construction
management services. The scope of the subagreement included the
purchase of the vehicles by the A/E firm. The Pricing Audit
Report recommended deletion of the vehicles and other equipment
from not only the subagreement, but also the project. The Region
5 Water Division disagreed, and advised the Office of Audit
Northern Audit Division, in a May 9, 1978, letter to the City
transmitting the April 21, 1978, Initial Pricing Audit and
explicitly recommended the City consider direct purchase of the
vehicles in lieu of the A/E firm purchasing the vehicles if it
would be cost effective and a lesser cost. The City concluded
affirmatively, submitted specifications, bidding data, purchase
vouchers, etc., and in each instance there was a Water Division
written concurrent response. After more than 7 years of use,
construction was completed, and City employees used the vehicles
for 6-8 months before the City properly requested and received
disposal instructions from U.S. EPA and remitted the Federal
share of the proceeds of the sale of the vehicles to the U.S.
EPA.
In summary, the cost was questioned on the basis of a
misinterpretation of Agency guidance (unrelated to wastewater
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treatment plant operation). The DDOD was premised on the same
flaw and the City followed the U.S. EPA recommendation and then
requested and followed written responses for both the direct
purchase and disposition process. There has been no
demonstration or even suggestion that the Water Division actions
were outside the limits of managerial discretion or were in
violation of nondiscretionary standards in existence at the time
of administrative approvals. Therefore the $41,652 is reinstated
in whole.
D. Contract Completion Date
As set forth in EXHIBIT II and further detail below, the DDO
disallowed some costs incurred after the construction contract
completion date accepted by DDO review. The U.S. EPA construction
contract completion dates are October 18, 1981, for the ozone
disinfection contract, and October 16, 1981, for the effluent
filter building contract. The final DDOD agreed with the final
Audit Report that the City had not provided adequate
justification to support the following change order time
extensions:
Contract Change Order No. No. of Days
Ozone disinfection 157 18 of 120
Effluent filter building 69 81 of 179
Effluent filter building 70 376
(see p 4 of 9/25 submittal)
In its written arguments and documentation, the City stated that
U.S. EPA made several affirmative management decisions that
impacted the length of time required to complete construction of
the project. This argument suggests that the burden of proof for
the disallowed change orders was upon U.S. EPA, and that the DDO
is required to show why the approved change orders were not
justified. The City based this suggestion upon the argument that
U.S. EPA made an affirmative management decision when approving
the disallowed change orders and that, based on City of
Bloomington. Indiana. 05-88-AD03 (August 5, 1991), citing
Jeanrette. Louisiana. 06-87-AD03 (December 18, 1987), Audit
Resolution Board Decision 13/14, March 11, 1982, Holdenville.
Oklahoma. 06-86-AD02 (December 18, 1986), and Jerome. Idaho. 10-
85-ADOS (July 31, 1986), those approved change orders are
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entitled to a presumption of regularity and cannot be set aside
without proof that the approval of the change orders was not
justified.
Under the applicable regulations, the evaluation of the City's
request for reimbursement for post construction completion date
costs is based upon the fundamental principle that the City is -
responsible for the administration and successful completion of
the project for which U.S. EPA grant assistance is awarded. 40
C.F.R. § 30.600 (1975). In addition, the burden of proof is
always upon the City to justify claimed costs and demonstrate
that those costs are reasonable and necessary, and otherwise
eligible for federal funding. Environmental Quality Board. 02-
93-AD10 (March 29, 1995), County of Nassau. NY, 02-90-AD03 (April
20, 1995), Luce County Department of Public Works. Michigan. 05-
90-AD10 (December 26, 1990), City of Watkins. Minnesota. 05-89-
AD05 (September 6, 1989). The regulations state that "[a]n award
of a grant shall be deemed to constitute a public trust. It is
the responsibility of the City to comply with this Subchapter and
all terms and conditions of the grant agreement, efficiently and
effectively manage grant funds within the approved budget,
complete the undertaking in a diligent and professional manner,
and monitor and report performance. This responsibility may be
neither delegated nor transferred by the grantee." 40 C.F.R.
§ 30.210 (1975). See Morehead. Kentucky. 04-87-AD07 (May 19,
1988) .
The regulations also state that "(t)he grantee bears the primary
responsibility for the administration and success of the grant
project . . . Although the grantees are encouraged to seek the
advice and opinions of EPA . . . the giving of such advice shall
not shift the responsibility for final decision to EPA." 40
C.F.R. § 30.600 (1975). These regulations make clear that it is
not the role of U.S. EPA to monitor all the project costs of a
grant and determine what is ineligible for Federal participation;
that role is clearly taken on by the Grantee when the grant
agreement is signed. In addition, the regulations state that
"[a]ny settlement made prior to the final audit is subject to
adjustment based on the audit. Final settlement will not be
considered complete until all audit findings, appeals,
litigations, or claims have been resolved. Any debt owed by this
grantee to the United States, and not paid at the time of final
settlement shall be recovered from the grantee . . ." 40 C.F.R.
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§ 30.815 (1975). Therefore, all costs are subject to final
audit. The Water Conservation Subdistrict of the Miami
Conservancy District. Dayton*. Ohio. 05-92-AD10, June 10, 1993,
City of Dayton. Indiana. 05-84-AD04 (July 21, 1986), Village of
Holgate. Ohio, 05-86-AD09 (December 31, 1986), City of Lenora.
Kansas. 07-87-AD01 (March 31, 1988), Worcester County Sanitary
Commission. Maryland. 03-86-AD27 (September 28, 1989) .
It is a well-settled principle of grants law that post-scheduled
contract completion resident engineer inspection and associated
A/E fees are allowable provided two criteria are met. First, the
grantee needs to show that the costs were not incurred due to
grantee management actions or lack thereof or contractor failure
to perform satisfactorily, i.e. the costs were due to justified
extensions of the contract completion date. Second, the grantee
must then show that the costs were otherwise reasonable and
necessary. Urbana & Champaign Sanitary District. Illinois. 05-
90-AD12 (February 19, 1991), Merrillville Conservancy District.
Indiana. 05-90-AD02 (September 27, 1990), Highland Sanitary
District. Indiana. 05-90-AD03 (September 24, 1990), City of
Watkins. Minnesota. 05-89-AD05 (September 6, 1989), City of Sun
Prairie. Wisconsin. 05-89-AD01 (September 1, 1989), Genesee
County Drain Commission (II). Michigan. 05-87-AD15 (June 29,
1988) .
U.S. EPA guidance emphasizing this grants law principle is
reflected in the U.S. EPA Memorandum dated April 18, 1983, from
Lee A. DeHihns, Acting Associate General Counsel, to Ernest E.
Bradley, III, Assistant Inspector General for Audits ("DeHihns
Memorandum") and the October 1, 1990, memorandum from James A.
Hanlon, Director of the Municipal Construction Division and
Kenneth A. Konz, Assistant Inspector General for Audit in the
Office of Inspector General to Municipal Construction Program
Managers in Regions I - X and Divisional Inspector Generals
("Hanlon Memorandum"). The October 1990 memorandum, which
essentially elaborates on the principles in the April 1983
memorandum, clearly delineates what must be shown to justify
construction contract time extensions. Under a subheading of
"Contemporaneous and After-the-Fact Change Order Approvals," the
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memorandum states:
Great weight should be assigned to contemporaneous change
orders approved by a delegated state, the COE or an EPA
project officer (any of which is hereafter referred to as
project officer approval), where the file reveals the
project officer conceptually adhered to the Change Order
Guide by taking a "hard look" at the need for a contract
time extension and whether costs claimed were reasonable and
necessary .... For contemporaneous change orders and for
change orders approved after the fact where the file does
not reveal that a project officer took a "hard look" at the
contract time extension, an explanation of the justification
for the length of time extension and necessity and
reasonableness of cost will be obtained. The level of
detail in that explanation should be commensurate with the
scope and complexity of the change order. Acceptable
supporting documentation includes such records as contractor
logs, resident inspectors diaries, A/E billing records,
photographs and progress schedule records or other baseline
documents. In the absence of this information, Regions must
ask a grantee to submit a narrative statement or affidavit
describing its review, including the documentation it
considered, or they must ask for a short narrative statement
from the project officer who approved the change order
describing his review, including the documentation he
considered. The information/documentation used in the review
of the change orders should be referenced in the project
file and available for review. Regions will determine
whether the documentation, the narrative statement or
affidavit is adequate .... Where such documentation,
narrative statements, or affidavits cannot be obtained, the
Region must make an independent determination about the
necessity of the time extension and the associated A/E fees.
This memorandum has also been cited in grant decisions, such as
Urbana & Champaign Sanitary District. Illinois. 05-90-AD12
(February 19, 1991), Macomb County. Michigan. 05-89-AD10 (June 5,
1991), City of Owosso. Michigan. 05-90- AD06 (June 21, 1991),
City of Carbondale. Illinois. 05-90-AD08 (July 18, 1991) .
The City sets forth several lines of argument regarding the
allowability of costs incurred after the DDO accepted
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construction contract completion date. The City argues that U.S.
EPA is bound by its affirmative management decisions, as well as
further arguing that additional time was justified on change
orders, that the auditors' reliance upon the DeHihns Memorandum
was misplaced, and that the auditors applied the incorrect cut-
off date to allowable costs.
At the November 7, 1996, meeting, the City requested that the
three change orders ("COs") listed in the first paragraph of the
Discussion on the subject Contract Completion Date, be reviewed
again and consideration be given to approving all or at least
more of the unapproved 18, 81 and 376 days. Location of COs 157
and 69 along with applicable supporting information and
correspondence was relatively simple because of the Region 5
Water Division filing system i.e. in addition to documents for
the Region's official files for each grant project, the Division
maintains a separate folder on all requests for review of U.S.
Army Corps of Engineers ("COE") or delegated State agency
decisions with duplicate copies. The City had formally disputed
the COE initial decisions on those two COs.
A review of the CO 157 Dispute File disclosed:
1. The City submitted the CO to the COE on 8/26/82.
2. COE issued a preliminary decision after receiving more
information on 2/24/84.
3. COE modified decision 4/22/85.
4. Final COE decision was dated 7/2/86.
5. City requested Region 5 review of COE decision 8/20/86.
6. Notwithstanding that the City's request was beyond the
30 day period stated in COE letter and U.S. EPA regulations for
such review requests, the Water Division conducted a detailed
analysis and on 3/26/87 provided feedback and opportunity for the
City to provide supporting documentation.
7. A formal DDOD was issued, which included some delay
costs deemed beyond contractor or grantee reasonable management
control, increased allowable costs and confirmed the approval of
102 days of the 120 day time extension. The certified mail
letter of 6/9/87 sending the DDOD to the City included the
provision that it constituted final Agency action unless the
grantee requested RA review within 30 days.
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Review of the CO 69 Dispute File disclosed:
1. COE decision rendered 9/1/87.
2. City filed Notice of Disagreement 9/30/87.
3. City's formal request for Region 5 review dated
12/11/87.
4. Region found some of the same inconsistencies or
inappropriate applications/interpretations as were cited in the
CO 157 analysis, so on 3/11/88 the Region remanded to COE with
instructions to consider CO 157 principles.
5. On 3/11/88 the City was advised of the remand and
Region's suspension of its review.
6. COE issued a revised decision 7/12/88 -- an additional
$259,488 of cost approved but only the same 98 day time
extension.
7. Regional DDO wrote to City 7/25/88 giving the City 30
days to reactivate its request for Region 5 review or drop it.
8. City withdrew request by letter dated 8/5/88.
9. Region 5 confirmed request "moot" by letter of 8/12/88.
The City has had a formal final Agency action on CO 157 since
June 1987 and on CO 69 since August 1988. There have also been
several other instances where the City disputed COE or delegated
State Agency decisions through the formal disputes process to
establish beyond any reasonable doubt that the City is intimately
familiar with, and thoroughly understands, the review process. A
further review and possible change of conclusions on any part of
the three COs at this time absent an indication of fraud or a
showing that the prior decisions were arbitrary and/or capricious
would be akin to establishing a completely new
disagreement/dispute process and potentially undermine hundreds
of similar prior decisions that have supposedly been determined.
Therefore, the City should not be given an opportunity in this
review process regarding audit matters to again challenge these
determinations.
In addition, and as noted in the subject audit report, the City
entered into a settlement agreement with the contractor on the
ozone disinfection contract to settle several disputes on this
and other projects (the settlement related to Grant Nos. C180747-
04, 05 and C180865-03, 05). The settlement provided payment to
the City of $1,700,000 as consideration for the release of the
City's claims against the contractor. Included in the settlement
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were liquidated damages assessed against the contractor in the
amount of $750,000. In fact, the City specifically stated in a
December 19, 1989, memo to the Indiana Department of
Environmental Management ("IDEM"), which discusses the $1,700,000
settlement, that "monies recovered based on the assessment of
liquidated damages have no affect on the determination of
allowable costs (i.e. are not considered to be grant related
income). These monies are for the City's use to offset increased
costs because of the contractor's lack of timely performance."
It is thus untenable, as regards the subject projects, for the
City to argue that related costs were not incurred as a result of
grantee mismanagement or contractor failure to perform.
As stated in the 1990 Hanlon Memorandum (p.6):
In accordance with established EPA policy, any additional
costs (e.g., building, engineering, legal, or
administration) incurred because of a contractor's lack of
timely performance are assumed to be offset by the
liquidated damages, and therefore are unallowable, even in
the event that the grantee elects not to exercise its right
to recover liquidated damages, or the liquidated damages are
insufficient to cover the grantee's additional costs.
Payment of liquidated damages provided for in construction
contracts generally has no bearing on the allowability of
post-scheduled contract completion A/E fees. However, it
evidences the contractor's responsibility for any additional
costs (i.e., those which would not otherwise have been
incurred), including A/E support costs, which result from
its untimely performance.
In this case the City obtained liquidated damages based on the
contractor's failure to perform. The responsibility to determine
the appropriate damage amount remained with the City. All of the
information the City provided failed to show that the costs were
not incurred as a result of grantee mismanagement or contractor
failure to perform. As a result, it is recommended that the
administrative costs and other A/E fees incurred after the
construction completion date accepted by DDO review costs be
disallowed.
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Following is a discussion of each claim by the City as it relates
to the contract completion date. Other issues are discussed as
necessary in order to reach resolution of each claim.
Grant No. C18Q74704 (Schedule A-3 of the Audit Report)
Note Ib - The DDO disallowed $211,135 of A/E basic fees claimed
for services performed after the U.S. EPA approved construction
contract completion dates. However, the City provided sufficient
documentation to support $43,139 of allowable one time activities
which may be used as an offset against the $211,135. Therefore,
the revised disallowed cost is $167,996 and the disallowance of
$43,139 is reversed.
Note 2 - The DDO disallowed $114,188 of A/E fees incurred after
the U.S. EPA approved construction contract completion dates.
Based upon a review of the City's September 25, 1992 submission,
the City has satisfactorily documented one-time allowable costs
(for as-built drawings) of $465 which should be reinstated and
used to offset the disallowed $114,188. Therefore, the DDO's
disallowance of $113,723 is sustained and the disallowance of
$465 is reversed.
Note 3a - The DDO disallowed $15,611 of project inspection costs
claimed for services performed after the U.S. EPA approved
construction contract completion dates. The City has also
provided minutes of a March 30, 1976, meeting held at the Indiana
Board of Health (now Indiana Department of Environmental
Management (IDEM)). The City believes that these minutes
document that the off-site disposal of sludge, which resulted in
site access delay claims by follow-on contractors, was the result
of U.S. EPA imposed requirements (actually was accepted by the
City in lieu of the alternative, namely, preparation of an
environmental impact statement) to allow off-site disposal
despite documentation from the City that off-site disposal would
result in significant delay. However, no documentation could be
located that shows the subject project inspection costs were not
additional or related to allowable post construction activities,
such as one-time allowable activities, including punch list
items, record drawings, etc. Therefore, the DDO's disallowance
of the $15,611 of project inspection costs is sustained.
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Grant No. C18074705 (Schedule A-4 of the Audit Report)
Note Ib - The DDO disallowed $30,720 of A/E basic fees for
services performed after the U.S. EPA approved construction
contract completion dates. These costs relate to costs claimed
after the U.S. EPA-approved contract completion date of October
29, 1981, for ONS. The City has now provided U.S. EPA with
documentation to support $3,204 of unclaimed one-time allowable
costs, i.e. as-built drawings, O&M manual, etc. Therefore, the
revised disallowed cost is $27,516.
Note 2b - The DDO disallowed $12,577 of other A/E fees for
services performed after the U.S. EPA approved construction
contract completion dates. The City stated in its February 11,
1993, submittal that it agrees with U.S. EPA as to the disallowed
amount if the U.S. EPA completion dates are held to be accurate.
Because the contract completion dates are being upheld, and
because a review of the documentation verifies that the City has
not provided any additional documentation that supports the
allowability of the $12,577 of other A/E fees claimed, the DDO's
disallowance is sustained.
Note 2c - The DDO disallowed $3,170,520 of construction
management services performed by Geupel, DeMars and Turner (GOT)
for services performed after the U.S. EPA approved construction
contract completion dates. The City maintains that costs
incurred after the DDO accepted construction contract completion
date should be allowed. Although the City disagrees with the
contract completion date, it has provided the Region with an
alternative methodology (Attachment G to the September 25, 1992,
submittal) for allocation of costs. The City believes that its
proposed methodology, which allocates the engineering costs on a
month by month basis rather than on the total construction cost
of the project, the method utilized, more accurately distributes
the questioned costs by specific time periods and each project's
construction costs. In addition, the City provided a similar
methodology at the January 26, 1993, informal conference, which
it has provided again for reference (See Attachment C of the
February 11, 1993 submittal). The proposed methodology provided
during the January 26, 1993, informal conference is reasonable,
and is a more refined method than the current allocation which
looks to total construction cost, and will be accepted. This
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method reduces the total disallowed costs to $2,361,026.
Therefore, the DDO's disallowance of $2,361,026 is sustained and
the disallowance of $809,494*is reversed.
Grant No. C180747Q6 (Schedule A-5 of the Audit Report)
Note Ib - The DDO disallowed $137,898 of A/E basic fees for
services performed after the U.S. EPA approved construction
contract completion dates. These costs represent RQAW costs
claimed after the U.S. EPA-completion date of March 10, 1981, for
Electrical Distribution, November 14, 1981, for BioRoughing and
November 1, 1982, for Main Control.
The City argues that, even if the U.S. EPA-completion date is
utilized, the correct date is October 19, 1981, rather than March
3, 1981. The City states that there were two Electrical
Distribution Projects. For the Electrical Distribution Project
associated with the Oxygen Nitrification, the U.S. EPA-completion
date is October 18, 1981. This portion of Electrical
Distribution was constructed by the joint venture of Huber, Hunt
& Nichols/Tibbetts/Grunau. The Electrical Distribution Project
constructed by Ernest Jarvis was completed by March 10, 1981,
(U.S. EPA project completion date). According to the City, RQAW
did not distinguish between the two projects (i.e. Electrical
Distribution in general and Electrical Distribution for Primary).
Since a field engineer could not readily distinguish between
Electrical Distribution as constructed by the Joint Venture and
Electrical Distribution as constructed by Jarvis, both portions
of Electrical Distribution were in this grant. Thus, based on
time sheets and computer printouts summarizing costs per task
from Reid, Quebe, Allison, Wilcox and Associates (RQAWA), the
City stated that the total current unallowable amount should be
$107,966.
Based on documentation supplied by the City the DDO's
disallowance of $85,879 is sustained and the disallowance of
$52,019 is reversed.
Note 2c - The DDO disallowed $46,224 of other A/E fees for
services performed after the U.S. EPA approved construction
contract completion dates. These costs represent RQAW costs
claimed after the U.S. EPA-approved completion date. The City
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has now provided A/E summaries and invoices that support an
additional $11,140 of unclaimed allowable one-time tasks.
Therefore, the DDO's disallowance of $35,084 is sustained and the
disallowance of $11,140 is reversed.
Note 3b - The disallowed $1,683 is reinstated per NOTE II to
EXHIBIT II.
Grant No. C180865Q3 (Schedule A-7 of the Audit Report)
Notes Ib, 2 and 3 -- The DDO disallowed $18,873 of A/E and
inspection costs. Additional information documented that $1,095
of "Other A/E fees" (Note 2) was a one-time service. Therefore,
$17,778 of the DDO's disallowance is sustained and $1,095
reversed. (Also see NOTE III to EXHIBIT II.)
Grant No. C180865Q4 (Schedule A-8 of the Audit Report)
Note 2 - The DDO disallowed $69,298 of engineering costs for
services performed after the U.S. EPA approved construction
contract completion dates. The City states that the unallowable
amount should be $66,682 and referenced its September 25, 1992,
submittal, Attachment L, and its October 29, 1992, submittal,
page 53. A review the City's September 25, 1992 submittal,
Attachment L, indicates that the documentation supports an
additional $2,616 in one-time allowable tasks. Therefore, the
DDO's disallowance of $66,682 is sustained and the disallowance
of $2,626 is reversed.
Grant No. C18086505 (Schedule A-9 of the Audit Report)
Note Ib - The DDO disallowed a total of $376,214 of A/E basic
fees. The $376,214 represents $332,938 of A/E basic fees for
services performed after the U.S. EPA approved construction
contract completion dates and $43,276 of fees incurred under the
Snell Environmental Group, Inc., (SEG) engineering agreement.
The City is disputing the U.S. EPA-completion date for Electrical
Distribution, and believes that the completion date that should
have been used is June 1, 1981. RQAW did not differentiate its
costs between the two projects.
The City states that it has documented one-time allowable costs
and has reduced the disallowed amount to $268,820 for RQAW. The
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City references its September 25, 1992, submittal, Attachment M,
and its October 29, 1992, submittal, page 60. The City further
states that $28,331 of the reduction represents costs not claimed
but allowable. The City also states that $5,721 of certain
costs, documented in its February 3, 1992 submittal, Volume 2,
are also allowable. The City further references its April 13,
1992, submittal (Volume 2) which supports certain drafting costs.
A review of the submittals reveals that $64,118 of RQAW costs can
be supported. Therefore, the amount to be disallowed is
$312,096.
Note 2 - The DDO disallowed $162,289 ($147,030 RQAW inspection
costs + $15,259 Snell costs) of other architectural engineering
fees for services performed after the U.S. EPA approved
construction contract completion dates. Based on information
supplied by the City, $18,847 in RQAW costs and $15,259 in Snell
costs (see NOTE IV to EXHIBIT II) may be reinstated while
$128,183 remains disallowed. The total reinstated under this
note is thus $34,106.
Note 3b - The disallowed $3,439 is reinstated per NOTE II OF
EXHIBIT II.
Grant No. C18086505 (Schedule A-9.1 of the Audit Report)
Innovative Funding
Note 2b - The DDO disallowed $208,338 of the $277,353 questioned
A/E basic fees incurred under the oxygen nitrification contract
because these costs were unsupported by adequate documentation.
The City, in its September 25, 1992, submittal (Volume III of VI)
justified $7,370 in additional unclaimed costs that should be
allowed. Based on this supplemental documentation, the DDO's
disallowance of $200,968 is sustained and the disallowance of
$7,370 is reversed.
IV. CONCLUSION
EXHIBIT IV summarizes the conclusions and recommendations of this
Report on a grant-by-grant basis. It sets forth the amount of:
unallowable costs from the DDOD; costs not being contested
further; costs reinstated; and recommended unallowable costs
based on the RA review along with the corresponding Federal 75
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and 10 percent shares after offsetting the $19,887 unallowable
costs claimed in Grant No. C18086503. The net unallowable cost
is $4,753,982 of basic, and ^35,272 of innovative, grant costs.
The corresponding Federal shares are $3,565,487 and $83,527,
making a total of $3,649,014 due and owing.
In addition, there is accrued interest due. The City has
requested relief including total forgiveness of all interest
charges. The Comptroller has reviewed the request and determined
that interest, pursuant to 40 C.F.R. 13.11(e) (1) (ii), should be
due only on 606 days out of the total of 2,214 days since the
July 6, 1992, Final Determination Letter was issued to the City.
The Comptroller was thus willing to waive interest for a total of
1608 days based on the Agency's inaction without fault of the
City. Interest will again accrue on any remaining unpaid
principal balance from the effective date of this decision if
full repayment is not made within 30 days of effective date of
this decision. The amount of interest owed by the City on the
final disallowed amount of $3,649,014 for 606 days at 6% is
$363,503. A total refund in the amount of $4,012,517 is due and
owing.
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EXHIBIT IV
REPORT RECOMMENDATION
Grant No.
C18074701
C18074703
C18074704
C18074705
C18074706
Subtotal
C18086502
C18086503
C18086504
C18086505
Subtotal
Total for
Basic
Grant
C18086505
Innovative
DDOD
Unallowable
103,635
1,098,085
344,608
3,492,813
594,484
5,633,625
0
20, 982*
70,733
552,400
644, 115
6,277,740
842, 642
Not
Contested
Further
102,148
1,070,076
3,674
237,344
1,340
1,414,582
0
2,109
1,435
10,458
14, 002
1,428,584
567,916
Reinstate
1,487
26,875
43,604
854,350
472,181
1,398,497
0
1,095
2,616
101,663
105,374
1,503,871
Net
Adjusted
Unallowable
7,370
Unallowable
102,148
1,071,210
301,004
2,638,463
122,303
4,235,128
0
19,887**
68,117
450,737
538,741
4,773,869
-19,887**
4,753,982
835,272
Total
Federal
Share
Federal
Share
76,611
803,408
225,753
1, 978, 847
91,727
3,176,346
0
14,915**
51, 088
338,053
404,056
3,580,402
-14, 915**
3,565,487
83,527
3,649,014
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*Unallowable costs offset with $138,058 of previously unclaimed costs.
**Unallowable costs offset in this review by $138,058. Leaves a balance of
$118,171 unfunded. (Not subject to RA review.)
Respectfully submitted,
Date ;
C. Ginsberg
Regional Counsel
U.S. Environmental Protection Agency,
Region 5
Date
Robert L. Springai
Assistant Regional Administrator
Resources Management Division
U.S. Environmental Protection Agency,
Region 5
Date:
Robert L. Thompson
Associate Regional Counsel
U.S. Environmental Protection Agency,
Region 5
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ADDENDUM
Grant No. C180747-01 was awarded on May 30, 1975, and was
completed on August 31, 1984. The grant provided funds for a
feasibility study, a pilot plant study, cost-effective analysis,
an environmental assessment, a facilities plan addendum, and a
municipal pretreatment program. The U.S. EPA payments under the
grant were $2,466,041.
Grant No. CIS0747-03 was awarded on May 28, 1976, and was
completed on December 31, 1983. The grant provided funds for the
preparation of plans and specifications for modifications and
additions to the Belmont Wastewater Treatment Plant. The U.S.
EPA payments under the grant were $2,688,859.
Grant No. C180747-04 was awarded on June 30, 1977. The grant
provided funds for Phase II of the construction of additions and
modifications to provide tertiary treatment facilities at the
Belmont Wastewater Treatment Plant. The U.S. EPA payments under
the grant were $16,363,439. Construction under this grant was
inspected and accepted by the U.S. Army Corps of Engineers on May
14, 1987.
Grant No. C180747-05 was awarded on July 25, 1977. The grant
provided funds for Phase III of the construction of tertiary
treatment facilities at the Belmont Wastewater Treatment Plant
and construction program management for the construction of
biological roughing, oxygen nitrification, disinfection, main
control, electrical distribution systems, and effluent filter
buildings and air nitrification systems at the Southport
Wastewater Treatment Plant. The U.S. EPA payments under the
grant were $33,361,779. The construction under this grant was
inspected and accepted by the U.S. Army Corps of Engineers on
March 26, 1987.
Grant No. C180747 was awarded on September 27, 1977. The grant
provided funds for Phase IV of the construction of additions and
modifications to the Belmont wastewater Treatment Plant including
electrical distribution, the biological roughing system, the main
control systems, and the training of personnel in the operation
of the modified treatment plants. The U.S. EPA payments under
the grant were $17,969,726. The construction under this grant
was inspected and accepted by the U.S. Army Corps of Engineers on
July 19, 1987.
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Grant No. C180865-02 was awarded on May 28, 1976, and was
completed on December 31, 1983. The grant provided funds for the
preparation of plans and specifications for modifications and
additions to the Southport Wastewater Treatment Plant. The U.S.
EPA payments under the grant were $2,428,496.
Grant No. C180865-03 was awarded on June 30, 1977. The grant
provided funds for Phase II of the construction of additions and
modifications to provide tertiary treatment facilities at the
Southport Wastewater Treatment Plant. The U.S. EPA payments
under the grant were $15,913,337. The construction under this
grant was inspected and accepted by the U.S. Army Corps of
Engineers on August 20, 1986.
Grant No. C180865-04 was awarded on August 15, 1977. The grant
provided funds for Phase III of the construction of additions and
modifications to provide tertiary treatment facilities at the
Southport Wastewater Treatment Plant. The U.S. EPA payments
under the grant were $8,061,298. The construction under this
grant was inspected and accepted by the U.S. Army Corps of
Engineers on December 5, 1985.
Grant No. C180865-05 was awarded on July 19, 1978. The grant
provided funds for Phase IV of the construction of additions and
modifications to the Southport Wastewater Treatment Plant
including the biological roughing system, the nitrification
system, the electrical distribution.^system, and the main control
system. The U.S. EPA payments under the grant were $45,779,012.
The construction under this grant was inspected and accepted by
the U.S. Army Corps of Engineers on August 13, 1987.
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CERTIFICATE OF SERVICE
I hereby certify that I caused the foregoing Determination
of the Regional Administrator to be sent by Certified Mail,
Return Receipt requested, to:
Ted Rhienhart, Director
Dept. of Public Works
200 E. Washington St.
Room 2460
Indianapolis, IN 46204
J. Kent Holland, Esq.
Wickwire Gavin, P.C.
International Gateway
Suite 700
8100 Boone Boulevard
Vienna, VA 22182
Date:
Donald f. Ayres
Paralegal Specialist
United States Environmental
Protection Agency
77 West Jackson
Chicago, Illinois 60604
(312) 353-6719
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