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Appendix A
GH's Comments on the Draft Report
Response of Grace Hill Settlement House
To Draft Report
of
Office of Inspector General
U.S. Environmental Protection Agency
on
Examination of Costs Claimed Under American Recovery and Reinvestment Act
Cooperative Agreement 2A-97706701 Awarded to Grace Hill Settlement House, St. Louis,
Missouri, Dated April 17, 2013.
Project No. OA-FY12-0258
REDACTED VERSION FOR PUBLIC RELEASE
The full version of this appendix contained sensitive information. This is a
redacted version of that appendix, which means the sensitive information
has been removed. The redactions are clearly identified in the appendix.

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Executive Summary of
Response of Grace Hill Settlement House to Draft Report of
Examination of Costs Under Cooperative Agreement 2A-97706701
In this response to the Draft Report of Examination of Costs under Cooperative
Agreement 2A-97706701 (CA), Grace Hill Settlement House (Grace Hill) shows that:
1.	Grace Hill exceeded the emissions objective of the CA as defined in the original approved
Work Plan for the Project.
2.	The Contract prices Grace Hill paid were fair and reasonable, based on competition and cost
and price analysis consistent with 40 CFR §30.43 or §30.45
3.	Grace Hill substantially met the contract administration requirements of 40 CFR §30.47 using
its Program Manager's Contract Manager spreadsheet to manage vendor invoices and payments
and through its Close Out documentation.
4.	As acknowledged, the $3,072 of questioned costs were not material, and the limited costs
questioned were allocable and reasonable in amount, and not expressly disallowed.
5.	The Personnel Costs and Fringe Benefits Grace Hill incurred for the Project are shown, in
larger part, to "represent actual activities performed for the CA."
6.	Excepting one ($35,098) and possibly a second ($9,878) cash draw arising from inadvertent
accounting errors, which Grace Hill had corrected so there was no net overdraw, Grace Hill's
draws credited the cash match payments actually in issue in a manner that was as timely as
administratively feasible.
As a result, except with respect to a limited amount of Personnel Costs and Fringe Benefits
which were a benefit that was provided to the Project, but for which documentation is not readily
available, no recovery is necessary or appropriate.
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Grace Hill, which had adopted compliant policies and procedures in 2009 and was in the
process of strengthening its management and implementation of those policies and procedures at
the outset of the Project now has:
•	Further enhanced its policies and procedures and their implementation, addressing all of
the questions in the Draft Report.
•	Implemented a compliant electronic timekeeping and activity reporting system.
•	Strengthened its management, including a new Chief Financial Officer and a Contract
Administration Manager.
•	Strengthened its Board oversight, including having an Acting Chair and a new Chair of
the Finance/Audit Committee, and five more new directors, with significant management,
accounting, finance, corporate governance, and government contracting experience.
Grace Hill's Financial management systems now are fully compliant with federal requirements.
See OIG Response 1 in appendix 13.
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TABLE OF CONTENTS
Page
I.	Introduction	1
Background	1
National Clean Diesel Campaign	1
Challenging Project	2
Diesel Reduction Act Grant Management Workshop	2
Grace Hill's Response	3
Enhanced Board and Management Oversight	3
Strengthened Internal Management	5
Response to Draft Report	6
II.	Detailed Response to Chapter 4: Grace Hill's Financial Management Substantially Met
Federal Standards	7
Contract Prices for Direct Fire Heaters on School Buses Were Fair and Reasonable	7
Procurements Met Cost and Price Analysis Requirements	10
Bryant T Tug Boat Engine Replacements	10
Main Engine	10
Auxiliary Engine	11
Crane Engine Replacement	12
Ken T Tugboat Engine Replacements	13
Food Delivery Truck Contracts	16
Drills Replacement Contract	17
Contract Administration Substantially Met Federal Requirements	18
Grace Hill Awarded Contract to Responsive Bidder	18
Invoice Payments Consistent with Contracts And Allowable	20
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1.	Bryant T Tugboat Auxiliary Engine	21
2.	Ken T Tugboat Auxiliary Engines	22
3.	Delivery Truck Mercedes Engine Replacement	22
4.	Fire Department Invoice Identification	23
5.	Airport Invoices	23
"Mixed Terms" Caused No Disputes or Billing Errors	24
Enhanced Controls for Eligible and Fully Supported Costs	25
Unallowable Costs	26
Readily Available Documentation Supports, In Part, Personnel Cost
Cash Draws Generally Complied with Requirements	27
Cash Draws Generally Complied With Federal Requirements And
Have Been Improved	30
Indirect Costs Were Approved	31
III.	Detailed Response to Chapter 5: Substantial Compliance with Job Reporting	36
IV.	Detailed Response to Chapter 6: Met Objective	37
Adequate Verifiable Details	37
Unavailability for Inspection and Confirmation of Work Completion	39
Other Confirmations of Work Completion	40
For	Work	41
2.	Work	41
3.	Work	43
4.	Work	44
Work	
V.	Detailed Response to Chapter 7: Other Matter - Billing on Other CA Was Corrected	45
VI.	Conclusion	47
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I. Introduction
Grace Hill Settlement House (Grace Hill) welcomes the opportunity to respond to the
Draft Attestation Report, "Examination of Costs Claimed Under American Recovery and
Reinvestment Act Cooperative Agreement 2A-97706701 awarded to Grace Hill Settlement
House, St. Louis, Missouri", provided to it on April 17, 2013
Background
Grace Hill Settlement House is a leading St. Louis philanthropic organization serving the
disadvantaged in St. Louis. For over a century it has worked in challenging neighborhoods,
providing critically needed services and an infrastructure for other agencies to deliver such
services. Grace Hill is one of the largest providers of Head Start services in St. Louis, with an
excellent record of improving the capabilities of the children it serves. It is nationally recognized
for its Women's Career Center which teaches the disadvantaged how to start their own
businesses. It is also nationally recognized for its "MORE Time Dollar Exchange" which
provides a mechanism by which the disadvantaged can earn credits for services provided to
others, and use those credits to "buy" services from others who are disadvantaged. Grace Hill
also has the leading role in linking St. Louis Public Schools in north St. Louis to family services
in the area, helped get a credit union facility established in the area, and is working with others to
"rehab" houses in the area. But for Grace Hill many families in the poorer communities in St.
Louis would lack opportunities to advance economically and socially.
National Clean Diesel Campaign
Although Grace Hill had just begun the process of strengthening its management
personnel and upgrading its policies and procedures to continue its core community service work
in 2009, the American Recovery and Reinvestment Act presented an opportunity to reduce diesel
emissions and contribute to job preservation in its severely disadvantaged neighborhood. As
contemplated in RFA Number EPA-ARRA-OAR-OTAQ-09-06 (at page 4), Grace Hill became
one of the "diverse and unusual partners" that the National Clean Diesel Campaign urgently
drew into the program "to address new engines and innovative programs to address the millions
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of diesel engines already in use." (Page 4) The Campaign sought projects that could "be
commenced expeditiously." (Page 2) To that end, Grace Hill's then staff pursued and accepted
the challenges presented by Cooperative Agreement 2A-97706701. As documented in this
response, through the diligent efforts of its very limited staff and with the continuing
consultation and close support of the EPA Region 7 Project Officer, Grace Hill substantially
accomplished the objectives of the Cooperative Agreement, procuring the emissions
Technologies (new vehicles, new engines and emissions reduction devices) that it provided or
had retrofitted for fair and reasonable prices.
Challenging Project
The Project was challenging. The original Schedule, later extended to 21 months, was a
15 month schedule. As set out more fully in the Final Report, the original approved Project
Workplan contemplated 739 equipment retrofits on 574 vehicles and a tugboat operated by nine
Beneficiary public agencies and owners. Changes in available vehicles and verified technologies
and their applications permitted the expansion of the scope of the finally approved Project
Workplan to 16 Beneficiaries, 734 vehicles, tugboats, drill rigs, and other equipment (including
one new truck) and 756 retrofits. Retrofit work was performed by five Partner vendors selected
in two rounds of competition and evaluation that the changes made necessary, so that the work
was performed under more than 16 distinct contract actions and technology subawards. (See
pages 32-35)
Diesel Reduction Act (DERA)
Grant Management Workshop
It is, however, fair to conclude that it was not until March 30-31, 2011, the dates on
which the Project's six month extended schedule concluded, that Grace Hill's staff fully
appreciated the EPA's expectations as to detailed and comprehensive documentation of the
Project. Those were the dates on which Grace Hill's Program Manager attended the "Diesel
Emissions Reduction Act (DERA) Grant Management Workshop" given by EPA Region 7 in
Kansas City, Kansas. That workshop focused Grace Hill's staff on the documentation needed for
the completion and Close Out of the agreement. This response demonstrates that, while that
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required a very significant effort, the staff, with increasing support from newer and more
involved Grace Hill management, substantially accomplished it.
Grace Hill's Response
That difficult Close Out effort, along with Grace Hill's A-133 Audits for 2009, 2010 and
2011 (which presented issues Grace Hill also sought to address on an issue-by-issue basis while
it was strengthening both its Board oversight and its management team), led Grace Hill in 2012
to request that Wipfli LLP, nationally recognized CPAs and Consultants to non-profit
organizations, undertake a comprehensive financial procedures assessment to assure the success
of Grace Hill's efforts to strengthen its policies and procedures. Wipfli reported its assessment
in the Financial Procedures Assessment Results and Recommendations December 2012 enclosed
with this report. (Exhibit 1) In making its assessment, Wipfli considered, among other matters,
the preliminary findings of the Office of the Inspector General that had been provided to Grace
Hill. In the course of that assessment, Grace Hill completed a significant revision of its
Accounting and Financial Policies and Procedures Manual that became effective March 18, 2013
in all relevant respects. (Exhibit 2) (Limited matters related to Grace Hill's internal, not-for-
profit operations remain to be incorporated.) In short, the Manual specifically addresses all of
the questions raised in the Draft Report, as references to it throughout this response demonstrate.
The Wipfli report concludes (at page 1):
"Based on our observation of procedures, review of forms, and discussion with
the Vice President/Chief Financial Officer, it appears that policies and procedures
are now in place to resolve those findings."
On May 28 and May 31, 2013, Grace Hill's Board was briefed on the draft findings in its outside
auditor's OMB Circular A-133 Single Audit Report for the Year Ended December 31, 2012. No
"material weakness" was identified.
Enhanced Board and Management Oversight
Among the improvements in the Financial Policies and Procedures Manual are the
following provisions that assure compliance with award requirements:
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•	The provisions on Preparation and Review of Proposals (at page 26) to assure capability
and readiness to perform awards.
•	The provisions on post-award review to assure Compliance with Laws, Regulations, and
Provisions of Awards (at pages 26-27).
•	The provisions on Document Administration and Close Out of Federal Awards (at pages
27-28).
Perhaps, most importantly, these provisions begin with a proposal review by the Chief Financial
Officer and require approval of a proposal by the President and the Board of Directors (or its
designee).
Frank Thurman, Jr., became Acting Chair of the Board of Directors of Grace Hill in May,
2012.	Utilizing his management experience as a Corporate Vice President responsible for the
Commercial Truck Division of Enterprise Holdings, the largest car and truck rental company in
the world, he led the implementation of procedures and practices that have greatly increased
Board oversight over Grace Hill operations. As now reflected in the Financial Policies and
Procedures Manual, all new contracts with the federal government or in new areas of endeavor
for Grace Hill require Program, Finance/Audit, and Executive Committee approval. Mr.
Thurman and the Chair of the Finance/Audit Committee now meet monthly with the Grace Hill
Chief Executive Officer and the Chief Financial Officer for a detailed assessment of what has
been accomplished over the past month and what needs to be accomplished in the next month to
assure sound financial and program management of Grace Hill.
New directors with a wealth of experience in financial management and oversight, U.S.
government contracting, and corporate governance also are contributing to the governance
transformation of Grace Hill:
Paul Rode joined the Board and became Chair of the Finance/Audit Committee in March
2013.	Mr. Rode is Vice President-Controller of Ralcorp, a $4 billion private brand cereal and
processed food business recently acquired by ConAgra. He started his career at the Coopers &
Lybrand accounting firm and served as manager of internal audit at the Harris Corporation and
as Vice President of Internal Audit at the Brown-Forman Corporation.
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Nancy Hamilton joined the Board in May, 2012. She is Deputy General Counsel at
Monsanto Company, and is its chief legal counsel for corporate governance and mergers and
acquisitions.
Carolyn Nichols joined the board in May 2012. She is a program manager for one of The
Boeing Company's F-18 fighter aircraft programs. She provides a wealth of experience in
assuring compliance with U.S. government contracting requirements.
John Sant, now retired, who was for 17 years Senior Vice President and General Counsel
for McDonnell Douglas Corporation, one of the largest Defense Department contractors before
its merger into The Boeing Company in 1997, joined the Board in May 2012. He is monitoring
government contracting and accounting compliance at Grace Hill.
R. Randall Wang, a partner in Bryan Cave LLP in St. Louis, Missouri, joined the Board
in May 2012 as well, bringing more than 25 years of experience in corporate finance and
governance to Grace Hill. He serves on the Finance - Audit Committee.
Tom Santel, formerly an executive at Anheuser-Busch Incorporated, who also has a
background in finance and accounting, joined the Board in May 2012.
Strengthened Internal Management
Over the period during which Grace Hill has worked through the challenges posed by the
Project, Grace Hill has significantly strengthened its internal management.
Roderick Jones, Ed.D., MP A, came to Grace Hill in July 2008, to lead the revitalization
of Grace Hill, as its President and Chief Executive Officer. As his resume (Exhibit 3)
demonstrates, Dr. Jones most recently served as President and Chief Executive Officer of the
Community Place of Greater Rochester, Inc.
Dr. Jones was joined next by Johanna R. Wharton, J.D., who now serves as Executive
Vice President. She came to Grace Hill in 2010 as Vice President of Systems Advancement and
Integration in March 2010 from Community Service at Provident, Inc., to support Dr. Jones in
managing Grace Hill's operations. (Exhibit 4)
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Benjamin C. Washington, CPA, joined Grace Hill in late 2011, completing the new
executive management team for Grace Hill. He filled the critical gap caused by the departure of
three chief financial officers in less than 5 years, including two who left during the period of the
Project and its Closeout. Ben has the broad range of experience across public accounting, global
corporations, and Not-For-Profits that was needed to help Dr. Jones and Johanna Wharton bring
professional, financial discipline to Grace Hill's operations. (Exhibit 5)
Most recently, Kelly L. Laura came on board in February 2013 as Contract
Administration Manager. She has the broad range of experience in providing compliance
support and performance monitoring that will enable Grace Hill management to continue to
assure that the policies and procedures it has instituted are regularly followed. (Exhibit 6)
In addition to overseeing programs and conducting training, management is developing a
set of Standard Operating Procedures, in effect desk books, to assure that key policies and
procedures, such as the Purchasing Policies and Procedures (at pages 51-61 of the Manual) are
fully and routinely implemented. The most recently added Contract Administration Manager, is
charged, among other things, with reviewing the documentation of key compliance requirements
and the maintenance of required records and files (as called for at pgs 26-28 of the Manual),
including the required procurement contract files (as called for at pages 56-58 of the Manual).
Response to Draft Report
This response is presented in the same order as the Draft Report. Following are Grace
Hill's responses to the draft findings in Chapters 4 through 7 of the Draft Report.
See OIG Response 2 in appendix B.
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II. Detailed Response to Chapter 4: Grace Hill's
Financial Management Substantially Met Federal Standards
Contract Prices for Direct Fire Heaters on School Buses Were Fair and Reasonable
The contract price for the five contracts for the installation of direct fire heaters (DFH's)
on 541 school buses was based, contrary to the assertion in the Draft Report, on a free and open
competition. The completed procurement processes resulted in the payment of no more than fair
and reasonable prices for the DFH's.
Grace Hill's procurement policies and procedures complied with federal standards as the
Draft Report acknowledges (at page 7). Following those procedures, and after undertaking a
substantial effort to promote bidder interest, including a widely publicized kick-off event
attended by the President of the Board of Aldermen of the City of St. Louis and many other
officials, potential Project partner vendors and Beneficiaries, the Grace Hill staff conducted a
free and open competition to obtain the bids or offers that were "most advantageous..., price,
quality and other factors considered", including the most advantageous technology and price, for
the two sizes of buses included, large and small. Contrary to the intimation of the Draft Report,
that competition produced multiple bids that confirmed that the tentatively determined, most
advantageous technology (the Webasto TSL17) was offered by the lowest bidder (Bidder A) at
the lowest price
Two developments ensued. First, the lead Beneficiary bus owner determined that a safer
and more efficacious installation of the Webasto TSL17 technology required installation of a
flame resistant box, a roll-over switch, and a timer to permit driver warm up of buses while
waiting for children. The winning bidder (A) priced that improved installation, including the
DFH's, to Grace Hill at	That plainly continued to beat the	price of the
competing Espar technology offered by a second bidder (Bidder B) that the Beneficiary had
determined it did not want and the^^^J price for the Webasto TSL17 (without the additional
features) from another, late bidder (Bidder C). Grace Hill's staff concluded that further
competition was not "practical" in the context of the schedule pressure that it understood that it
was under to place contracts for the Project, the limited nature of the specifically priced
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modifications, and the resulting lowest price. While Grace Hill acknowledges that its procedures
did not then specifically provide for such a judgment with appropriate management review, and
that the pricing of the limited additional features could have been better documented, as it now
would be, that was a proper determination under both 40 C.F.R. 30.45 and 30.47.
The second unanticipated development was that the low bidder (A) had won so much
work (including the retrofit of 386 large buses initially awarded to it for DFH installations) that
there were legitimate concerns, later confirmed to be genuine, as to whether it could perform the
work on schedule. At the same time, the other timely bidder (B), solely for small buses, that was
known to be an Espar technology dealer, won almost no business. Due to the same procedural
and pricing considerations discussed in the preceding paragraph, all of which could have been
better documented, as they would be today, Grace Hill's staff concluded that further competition
was not "practical" and should not be undertaken if, for the 61 small buses also then to be done,
the other bidder (B) would meet the lowest bid price, which the staff had concluded was a fair
and reasonable price. The other bidder (B) agreed to meet the lowest bid price. That was a
proper determination at least under 40 C.F.R. 30.45, based on sound analysis of the lowest bid
price.
On or about January 26, 2010, after announcing the award to the low bidder (A), but
before entering into the first contract with the bidder for DFH installations on February 22, 2010,
the Grace Hill staff did in fact prepare a more than adequate price analysis (Exhibit 7). That
analysis demonstrated that the Webasto TSL17 installation, as improved, was the most
advantageous solution, at the lowest price even as improved.
Later in the Project, funds became available from underruns on other efforts to install
DFH's on an additional 94 buses. Grace Hill staff sought and obtained approval through the
Project Officer to add these to the budget, at the^^^f price, bringing the total number of units
approved at that price to 541. Although Grace Hill may not have correctly understood the
communications it received from the Project Officer concerning how to deal with fleet changes
or her approval authority, the Grace Hill staff reasonably understood that it did not have to re-
compete additions to the bus fleets for the same verified technology at about the same cost.
(Exhibits 8 and 9) In that context, with the winning bidder (A) lagging behind on the 386 buses
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already awarded to it, the staff awarded it only 34 of the additional buses, awarding 30 buses to
the other bidder (B) and 30 buses to the earlier rejected, late bidder (C) when it too agreed to
reduce its bid to match the lowest bidder. The staff concluded, consistent with its prior, adequate
price analysis, that that^^^f price was fair and reasonable. Contrary to the implication of the
Draft Report, price analysis does not require demonstration of the lowest possible price.
While not as thoroughly or regularly documented as it would be today, Grace Hill
believes and submits that^^J was and is a fair and reasonable price for the DFH installations.
Most significantly, it is indisputable that it was a free and open competition that
established the^^J base, installed price for the Webasto TSL17.
The low bidder (A) subsequently has provided, on a confidential basis, proprietary
pricing information available to it from its OEM dealer website. It shows that the price paid by
Grace Hill for the Webasto TSL17 alone was approximately	As shown in that separately
submitted information (Exhibit 10), that is a more than discount off the then
retail price; a more than discount off the Major Fleet price; and a more than discount
off even the National Fleet price. The information confidentially provided also shows that the
price represented a more than discount off the National Fleet price and labor for the
entire installation.
What all those discounts meant, looked at from the bottom up, was, as confirmed in an
email from the late bidder (C), which was added back for the last 30 buses:
"Each vehicle required | hours of labor to install and travel time averaged an
additional | minutes or total hours per unit equating to^^^f per hour."
"Parts mark up was approximately ^H." (Exhibit 11) (Emphasis added.)
The second bidder (B) recently explained its pricing more fully:
In regards to pricing during this project we . . . price this type of bid opportunities
at a much reduced rate than Any other daily retail work activities. Our door rates
for this type of project work is	per hour and a typical mark up for parts
per n<
pricing in shop for most dealerships is^J. This work due to the competitive
sealed bid nature and the size of the project was greatly reduced. Our labor rate
tnepr
¦
for this project was performed at^^| hours per bus not including travel time to
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the multiple install locations. This put our labor rate at around per hour and
with travel and miscellaneous items that were not covered under the bid such as
heater hose, zip ties, self tapping screws, etc dropped our rate to below	per
hour. The normal retail price of the heater kit alone for the school bus application
was over^^^^f each. Due to the large quantity purchased we were able to buy
and sell on each install at a mark up of roughly HB. Since this activity we have
not performed any retail work at such a highly discounted rate and do not plan to
in the future due to the administrative labor intensive nature of these type of
projects on the back end. We participated in this work at the time to keep our
techs productive and employed during a slow economy. Our company has been
busy since the latter part of 2010 and would not consider pulling resources out of
our shops to perform work at these low margins today. (Exhibit 12) (Last
emphasis added.)
That was fair and reasonable pricing.
See OIG Response 3 in appendix B.
Procurements Met Cost and Price Analysis Requirements
The Draft Report asserts that Grace Hill awarded four contracts without documented cost
or price analysis. Although the analyses by the Grace Hill staff would be more thoroughly and
regularly documented today, the staff in fact made such analyses in substance and understood
that their methodology had been approved. In one case, the methodology was suggested by the
Project Officer. The prices for which Grace Hill contracted were, in all events, fair and
reasonable.
Bryant T Tug Boat Engine Replacements
Main Engine
As the Draft Report notes, the first contract entailed replacement of a propulsion engine
and an auxiliary engine in a tugboat. What it does not reflect is that this was difficult, essentially
custom work on a very old, but useful boat, the Bryant T. As was later confirmed when bids
were obtained for much of the labor on the similar custom installations on the Ken T tugboat,
there was essential, boat-related work which competitors would not even bid. Given the custom
nature of the work, the pricing of the labor was, in essence, speculative. Moreover, the owner-
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operator of the Bryant T and the Ken T, which ran the only boatyard in the North St. Louis
Harbor area, could not afford to participate in the Project unless it could provide its cost share in
kind.
What the boatyard owner-operator was able to do was to provide labor at what was its
very competitive per hour rate (compared, by way of example, to the^J rate bid by
for work on the Ken T) and to obtain the engines directly from^^^^J, a St. Louis
area OEM and distributor that builds up marine engines (among others) for varying applications,
without going through a dealer and a dealer mark up of the engine price. To offset the
uncertainties and unknowns that these necessary arrangements introduced into the pricing
process, the owner agreed to provide priced labor amounting to^J of the^^^J engine price
and^J (not^J), of the fairly priced	labor. This was explained to the Project Officer
at the time. The Grace Hill staff reasonably understood, as it continued to provide her
documentation related to the owner's work, that it was accepted by her. (Exhibit 13)
The fairness of the labor price is demonstrated by the additional $9,377.50 documented
labor overrun which the owner absorbed. Even without consideration of that voluntarily
absorbed overrun, the owner's incurred cost sharing for the main engine replacement reduced the
amount funded by the EPA to less then the advantageous	price of the engine
alone. That is a fair and reasonable price.
subsequently has shared with Grace Hill, on a confidential basis, its price
build-up for the main engine replacement. (Exhibit 14) It shows only an gross, distributor
level markup for both its distributor and dealer level functions in this transaction. It also shows
that the markup funded by the EPA was, as a result of the owner's cost sharing, less than^|
that gross markup. That was a fair and reasonable price.
See OIG Response 4 in appendix B.
Auxiliary Engine
The considerations bearing on the pricing of the replacement of the auxiliary engine on
the Bryant T were substantially the same. Again, to offset the uncertainties and unknowns, the
owner-operator agreed to provide priced labor at the same	per hour rate, amounting to
of the^^^H engine price under the timely amended budget and contract and^H (not
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of the^^J fairly priced labor. This arrangement was explained to the Project Officer
along with the main engine transaction.
Again the owner-operator absorbed a documented overrun on labor costs of $305. Even
without consideration of the overrun, the owner's in kind cost sharing of the auxiliary engine
replacement reduced the^^^J amount funded by the EPA to less than the advantageous
price of the engine alone.
subsequently has shared with Grace Hill, on a confidential basis, its price
build up for the auxiliary engine replacement. (Exhibit 15) It shows that the amount funded by
the EPA approximates	cost. That is a fair and reasonable price.
See OIG Response 5 in appendix 13.
Crane Engine Replacement
The analysis of the crane engine replacement in the boatyard of the same owner, under
the second contract, is virtually the same as that for the Bryant T engine replacements. In
addition to the engine,	agreed both to build up the marine package on an expedited
basis and to provide labor required to "regulate" the relatively low speed operation of this
engine. Because it took on dealer level installation support services, it priced the engine not at
the distributor price level, but at a dealer price (not retail price) level,	(as compared
to the dealer price build up of^^^J for the engine alone that^^^^^f subsequently has
shared with Grace Hill, on a confidential basis). (Exhibit 16) (That that price was a dealer level
price is confirmed in the discussion at page 18, where the dealer vendor of the comparable John
Deere engines installed on the 3	drill rigs discloses its cost was^^^^^J per
engine.) The owner-operator agreed to provide in kind priced labor cost matches of^J or
for the engine, and of^J	plus an additional	(for an aggregate
not^J), for the^^^J crane labor. The owner-operator's in kind cost sharing of the crane
engine replacement reduced the amount funded by the EPA,	to less than the price of
the engine alone.
subsequently has shared with Grace Hill, on a confidential basis, its price
build up to^^^J for the crane engine replacement, including labor. (Exhibit 17) That shows
that the owner's cost sharing reduced the amount funded by the EPA to, in effect,
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distributor level pricing, offsetting the approximate	dealer pricing "adder" for provision
of dealer installation support services and risks. That too demonstrates a fair and reasonable
price, especially considering the further information	has provided to Grace Hill. It
has informed Grace Hill that the idle requirements for the crane engine were so low that they
required major changes to the computer electronics, requiringrepeated tuning
efforts over two months.
See OIG Response 6 in appendix 13.
Ken T Tugboat Engine Replacements
The Ken T tugboat engine replacements, also under the second contract, were a more
complex procurement. While in kind cost sharing by the owner-operator continued to be
fundamental to its participation, it could not bear^J labor cost sharing on this three main
engine/two auxiliary engine replacement effort. Nonetheless, as the bids obtained evidenced, use
of its experienced personnel for at least the removal and installation of the engines in the hull of
this old, but useful, boat was required even by its competitors.
The Project Officer advised the Grace Hill staff as to how to proceed:
"Especially with the amount of money we're talking about, you need to be sure
you (or they) get competitive bids, especially for the labor."
(January 3, 2011 email) (Exhibit 18) (Emphasis added.)
That guidance was the same guidance the Project Officer had given when it had become
necessary to get a second round of bids for the Fire Department installations:
"... you'd need to get a few competitive bids... You could do that, or the fire
department could do the legwork of getting bids..."
(June 24, 2010 email) (Exhibit 19) (Emphasis added.)
Following that guidance, the owner-operator did obtain and provide the following bids
for the then intended work:
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BIDS
Company
Propulsion Engines (3)
Labor
A
¦
Per engine






(Prop eng)
Gears



Flange



Mounts



TOTAL



9/9/2010

B

3 engines


John Deere
Gears


61355M75
Flange


(Prop eng)
Mounts
Plus


TOTAL
TOTAL


9/8/2010
1/11/2011

John Deere
Per eng


612AFM75



(Prop eng)
2/15/2011
*Hours limited.
C






Plus



TOTAL $



1/13/2011



*Cost plus.
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Cat
(Prop eng)
(Owner Operator)
Per engine
3 eng
Gears
Flange
Mounts
TOTAL
TBD
TBD
TBD
TBD
9/10/2010
TOTAL
1/18/2011
*Not available.
*Firm Fixed price.
The owner-operator undertook to provide all the labor for an amount that unquestionably
was lower than the other bids obtained and presented in the table. It committed to perform the
installations	on a firm fixed price basis. It could do so because its labor rates
(^|/hr) were materially less than those of its larger competitors (e.g., ^^^^^^^^|/hr;
and because it was willing to bear any overrun on this difficult job as a further
voluntary cost share. That that was fair and reasonable pricing for the labor as is confirmed by
the fully documented $19,083.75 of overrun labor the owner absorbed as additional voluntary
share (over and above the	agreed share on the engines and the^^^^^^^f
agreed share on the labor). In evaluating the labor pricing, it should be noted that the owner-
operator also agreed to an share of the labor for the two auxiliary engine installations on the
Ken T, under the same contract, which the Draft Report does not question.
Unfortunately, after selection of	as the lower complete price bidder for the
three propulsion engines, it was discovered that smaller engines would be required to match the
coolers on the boat.	undertook to provide those engines for what Grace Hill staff
believed, and what^^^^^f subsequently has confirmed to Grace Hill, was the comparable
pricing described in the next paragraph. In response to the owner-operator's request to confirm
its quote on "2/15/11", it provided its reduced quote of^^^J per engine,	total for
all three engines. (Exhibit 20)
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To demonstrate that that was fair and reasonable pricing,	subsequently has
shared with Grace Hill, on a confidential basis, its price build up for the three replacement
engines. (Exhibit 21) That build up is to a price at the distributor level. While that build up
supports the^^^^f price which	billed on April 25, 2011 (Exhibit 22), it also shows
that^^^^^f had materially reduced the price when it quoted the^^^^f price which it
accepted in payment of its invoice as validated in the Fleet List Verification submitted with this
response. That reduced price includes a calculated gross margin at the distributor level (not the
higher dealer level or much higher retail level) of approximately That is a fair and
reasonable price.
See OIG Response 7 in appendix 13.
Food Delivery Truck Contracts
The Draft Report criticizes the Grace Hill staff for the award of a contract for the re-
engining of three Mercedes-engined Freightliner trucks for which one bid was received, for
per MBE906 Powerchoice Engine installed, or^^^J in total. The task was, in fact,
put out for competition. As the staff learned, but did not then document, there was only one
bidder because it was the sole Mercedes truck engine franchisee in the St. Louis market. As the
bidder has now confirmed:
"We are it in the St. Louis market" (Exhibit 23)
The prices also were discounted as the bidder now has confirmed, because the owner of the
trucks, which paid	cost share of the re-engine costs, was a valued
Freightliner customer of the bidder:
"...we billed out the Mercedes engine out at^H over cost due to the competitive
nature of the project. Our normal labor rate at the time of the retrofits was
TCI billed| hours of labor (which is book time) at^^B per hour. We
also waived the shop supply charge. Thanks Doug...^^^|." (Exhibit 24).
These discounted prices were fair and reasonable for installed Mercedes truck engines from a
sole source in the St. Louis market.
See OIG Response 4 in appendix 13.
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Drills Replacement Contract
The Draft Report asserts that the Grace Hill staff awarded an engine replacement contract
for two drills and one crane without cost or price analysis, there having been only the one bid for
the work. In fact, as reflected in the Budget changes and Workplan II revisions approved by the
Project Officer on July 19, 2010, the work involved the installation of replacement engines on
three very large drill rigs. The price of each installation was^^^J, consisting of the |
engine price and a^^^J labor price, for a total price of^^^^|. The owner paid a|
cost share, so that the amount funded by EPA was
As the Draft Report notes, the Grace Hill staff stated they had used quotes for similar
retrofits for a comparative price analysis. The Draft Report, considering only the tugboat re-
engines described above, hypothesized that these might have involved a different type or class of
engine. It does not consider the crane re-engine project for the boatyard owner-operator also
described above (at pages 12-13).
The crane re-engine project was, in fact, directly comparable to the drill rig installations:
It used the same 6.8L John Deere engine, Series 68H485-225. The^^^^^f price for that
engine discussed above (at page 12) was^^^J. The^^^^^f price build up (provided
above) compares to the invoices for the drill rig engines included in the enclosed Fleet List
Verification, and shows that these John Deere engines are comparable. While the^^^^^f
price build up for that engine shows approximately	of unique parts, including SAE parts,
for its installation	minus ^J), the^^^J price provided by^^^^^f to its boatyard
owner customer amounted to its pricing as a distributor to a dealer. In that light, the^^^J
dealer level price for the engines for the drill rigs compares very favorably. The comparison
becomes even more favorable when the flat^^^J installation price for each drill rig re-engine
is compared to the^^^J price for the crane labor, even considering the more difficult field
effort required for the crane installation and the extra effort involved in regulating the low idle
speed of the crane engine.
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The supplier of the drill rig re-engines has confirmed to Grace Hill the competitiveness of
its pricing for this work, including its^^^^^J cost for the engines:
"During our Slide program replacing the old non-Tier compliant engines with
Tier 3 level John Deere engines we were able to only mark up the engines due
to the competitive nature of the program. Our cost alone on the engine was
We also have a posted rate of^J per hour for non-highway or off-
highway work and with the competitive nature of this bid we bid at a rate of
per hour. However we also underestimated the complete complexity of taking a
non-electronically controlled non-Tier compliant engine and replacing it with an
electronically controlled Tier 3 engine. When considering this and looking at our
labor content along with some fabrication of parts to mate it to the drive portion
of the drill rig it put our effective labor rate on average down to^| per hour. We
have not nor would not bid so aggressively on a project like this without
additional labor and parts mark up." (Exhibit 25)
The^^^J price for each installed drill rig engine was, as the Grace Hill staff analyzed it, a fair
and reasonable price.
See OIG Response 9 in appendix 13.
Contract Administration Substantially Met Federal Requirements
Grace Hill Awarded Contract to Responsive Bidder
The Draft Report is mistaken when it asserts that Grace Hill awarded the Airport support
vehicle contract to a non-responsive bidder. Grace Hill awarded the airport contract to the fully
responsive low bidder.:
1.	The bids received and compared were for the same quantities.
2.	The winning bidder did bid on all of the units called for in the RFP that were
available.
3.	As fully built up and supported, the bids provided for like DOC and CCV
installations using verified technologies.
The mistaken assessment apparently arose from varying attempts by Grace Hill and the
bidders to present bids and report information in the required EPA formats which did not
anticipate the case in which some vehicles would have more than one engine. At the outset,
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there were 95 candidate vehicles, 20 of which had two engines each, for a total of 115 engines.
The fact that each engine initially was separately listed in the "vehicle" column on the EPA Fleet
List forms led to the confusion.
Then, without informing Grace Hill but as discovered by the two bidders, the airport
removed one single engine vehicle from service, so it could not be included in the Project. As a
result, both bidders bid on the same 94 vehicles, 20 of which had two engines each, for a total of
94 vehicles and 114 engines. As a result, the two bids submitted were fully comparable.
The losing, higher bid was for^^^^J for those vehicles and engines. (Exhibit 26) As
can be seen by looking at "checked" line items on that bid, where the 2-engine vehicles are
listed, each engine was bid separately, so that the bid is built up from 114 priced installations. 38
of the 2-engine installations were priced at^^^^J per engine, with two installations (for a
different type of engine) priced at^^^^H per engine, for a total of I
The winning, lower bid for^^^^J listed the "Number of Vehicles" the same way, that
is, as 114 units, in its cover bid sheets (Exhibit 27), as the "checked" line items for the 40
engines on the enclosed bid show. In the unit pricing build up submitted with those cover sheets,
the 20 2-engine vehicles were, however, bid as 2-engine units as shown in the enclosed mark-up
of that bid. (Exhibit 28) That meant that the build up priced 94 (not 114) priced installations,
including 20 two engine installations, for a total of 114 installations. The price bid for each 2-
engine vehicle was^^^f for both engines or a total of^^^J. The winning bidder confirmed
this analysis and re-confirmed it when requested to do so. (Exhibit 29 and Exhibit 30)
The Fleet List Verification for the^^^^^^^f Fire Department fleet identified at page
37 and submitted with this response is internally consistent with this "pairs" analysis and, thus,
confirms it. Specifically, it shows that, starting with the 20 2-engined units originally identified
and bid as such, the only 1994 unit and three 1997 units were removed from service (and thus
not retrofitted), while two 1998 units were restored to service and retrofitted, resulting in the net
18 2-engined units in fact retrofitted and invoiced.
As would be expected from the material difference between the overall bids for the
Airport installations, the winning bidder's price build up shows lower unit prices in six of the
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eight bid groups into which it organized the units for bidding purposes. (Exhibit 31) In the other
two groups, one consisting of 12 units and one consisting of one unique unit (a 1992 GM 6.2L
engined vehicle), the winning bidder's prices were competitive: in the first group, its price was
versus a range of prices from^^^^J to^^^^J from the other bidder; and in the
second group, consisting of one vehicle, its price was^^J versus	As the Final
Project List Description Spreadsheet submitted with the enclosed Fleet List Verification shows,
the Airport ultimately withdrew that unique vehicle from service, so that vehicle was not
included among the installations performed.
Grace Hill awarded the Airport contract to the fully responsive low bidder.
The ensuing contract did contain a mutual mistake, stating the original 115 unit number
as compared to the 114 units bid and intended to be awarded. The contract also called for
"[installation of DOC and DOC/CCV's as appropriate and per bid package for 115 vehicles as
identified and reviewed...." The fully detailed bid package assured the correction to the 114
identified units would occur during contract administration as, in fact, it did. That detailed bid
package also enabled the correct and complete equitable adjustments that became necessary as
the Airport withdrew additional vehicles from service and when the CCV technology being
installed was withdrawn from verification in the course of performance, so that the CCV
installations were terminated. The Draft Report acknowledges that there were no contract
disputes or billing errors.
See OIG Response 10 in appendix B.
Invoice Payments Consistent with Contracts And Allowable
The Draft Report errs as fully detailed below. Its fundamental errors include the
following:
1. 40 C.F.R. 30.47 establishes the fundamental principles for determining allowable
costs 'Tflor each kind of recipient". (Emphasis added.) It provides that:
"Allowability of costs shall be determined in accordance with the cost
principles applicable to the entity incurring the cost."
In this instance, the "recipient", the entity whose expenditures are being audited, is Grace Hill
Settlement House. Grace Hill is a non-profit organization. §30.47 explicitly provides:
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"The allowability of costs incurred by non-profit organizations is determined in
accordance with the provisions of OMB Circular A-122, "best Principles for Non-
profit Organizations."
That means that, under Section 30.47, the provisions of the Federal Registration Regulation at 48
CFR part 31 explicitly are not applicable to the Grace Hill expenditures which are being audited.
The 48 CFR Part 31 principles, which apply only to costs incurred by recipient commercial
organizations, have no logical or legal relationship to prices that non-profit organizations like
Grace Hill may pay to them.
2.	As a matter of contract law, where a course of performance is accepted without
objection, the contract terms are modified so that they are consistent with that course of
performance. Uniform Commercial Code § 2 - 208 (1) and (3).
3.	As a matter of law and common sense, acceptance by a vendor of a payment less
than its contract provided, resulting in a billing to the Government of a lower amount than it was
obligated to pay, is not questionable.
See OIG Response 11 in appendix 13.
The invoice payments questioned by the Government are the following:
1. Bryant T Tugboat Auxiliary Engine
The Draft Report questions the payment of the^^^J price of the auxiliary engine
installed on the Bryant T Tugboat. While the original contract for the engine installation on the
Bryant T did provide for a^^^| Auxiliary (Generator Drive), that contract was timely
amended, on September 25, 2010, following EPA budget approval on July 19, 2010, to provide
for the upgraded	"[ajuxiliary engine/generator" priced described above (at page s 11-
12). (Exhibit 32) There is nothing that can be questioned about payments for that auxiliary
engine/generator in accordance with the budget and the contract terms.
See OIG Response 12 in appendix 13.
2. Ken T Tugboat Auxiliary Engines
The Draft Report questions the payment of the^^^^^J net price for the two auxiliary
engines installed on the Ken T tugboat, where the contract authorized and the EPA budget
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approved the payment for the two engines. That was a proper payment for the correct engines.
First, two of the intended Kubota 50kw Keel Cooled auxiliary engine/generators were found to
be available	in Pompano Beach, Florida, so that they could be
purchased	each, a total of^^^J, rather than the^^^J authorized and
contracted for. Then the boatyard owner-operator, which purchased the engines directly, billed
them to Grace Hill net of its	cost share, reducing the invoice amount to the
price that, without this explanation, the auditors apparently did not understand.
(Exhibit 33) There is nothing questionable about that reduced payment.
See OIG Response 13 in appendix 13.
3. Delivery Truck Mercedes Engine Replacement
The Draft Report questions the payment of the^^^J price for the re-engining of the
third of three Mercedes-engined Freightliner trucks discussed above (at page 16). The re-
engining of three trucks, two Mercedes-engined trucks and one Cummins-powered truck had
been planned and authorized. When the owner determined not to do the other Cummins-
powered truck, the third Freightliner was substituted, bid at the same price, completed, and
accepted. That acceptance modified the contract, and the invoice for the engine was properly
paid. Grace Hill understood and continues to believe that the substitution and payment was
authorized, so long as the work could be accomplished, as it was, within the budget authorized
Contractual amount. As the Project Officer advised with respect to such differences in a
September 5, 2011 email:
"That's fine - this is just the budget, so I'd expect actual expenses to be different.
Tell me about it in the final report!" (Exhibit 34)
Grace Hill did report it in the final report. There is nothing to question about this payment.
See OIG Response 14 in appendix 13.
4. Fire Department Invoice Identification
The Draft Report questions the payment of two invoices in the amounts of	and
for DOC installations on Fire Department trucks. As fully reported below, Grace Hill
has performed the complete Fleet List Verification that the Office of the Inspector General
requested. That Fleet List Verification is submitted with this response. In the Fleet List
Verification for the Fire Department Vehicles, which identifies each attached invoice and the
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vehicle involved by Asset # or Unit #, and by VIN, the two invoices questioned are the first and
last invoices listed and attached. There is no remaining question about this payment.
See OIG Response 15 in appendix 13.
5. Airport Invoices
The Draft Report questions $167,763.19 of the^^^^^^J paid for the installation of
DOC's and CCV's on 70 Airport support vehicles as explained above (at pages 18-20), 18 of
which have dual engines, including 23 with both DOC and CCV's installed. The payments were
appropriate and supportable.
The Fleet List Verification for the Airport installations (Exhibit 83) discussed at pages
37-39, lists and attaches the invoices for the work actually accomplished, listing the vehicles in
the order in which they were included in the original Final Fleet List Description Spreadsheet
and then further identifying each vehicle by Asset # or Unit #, and by VIN or Serial #. The Fleet
List Verification demonstrates that this work was done, as does the confirmation of completion
of the retrofit work by the Fleet Manager for the airport. (Exhibit 85).
Moreover, the accomplishment of the work and the payment of no more than proper
amounts for it was in fact diligently tracked by the Grace Hill Program Manager using his
Contract Manager spreadsheet. (Exhibit 35) Two developments did complicate that tracking
and, at least initially, made confirmation of the payments difficult. First, in mid-contract
performance, the verified technology status of the CCV's was withdrawn. That meant that,
while the installation of DOC's continued as contracted, further CCV installations had to be
discontinued. Second, due to the variability of the installations in the many unique vehicles, the
vendor undertook to give Grace Hill and the Government credit for installation parts not used
and, in the far lesser number of cases where more installation parts were used, to charge for those
parts. Exhibit 36 traces those credits and few charges. Starting with the fully documented bid
prices for the respective units discussed above (Exhibit 31), it shows CCV credits totaling
$40,503.68 and net installation parts credits of $6,911.63, confirming the net billing and proper
payment	Those crediting practices, which benefited the Government, were
accepted and modified the terms of the contract accordingly. The fact that the vendor billed and
Grace Hill paid $17,822.13 less than the originally contracted and authorized prices is not
grounds for disallowing $167,263.19 of that proper payment.
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See OIG Response 16 in appendix 13.
"Mixed Terms" Caused No Disputes or Billing Errors
Grace Hill acknowledges that it would have been better practice to delete the lump sum
language in the standard cover contracts, where it appeared. The significantly revised Grace Hill
Accounting and Financial Policies and Procedures Manual which became effective March 18,
2013 addresses the contract type issue at page 59. Except as approved in writing by Grace Hill's
Chief Financial Officer, all contracts are required to be fixed price type contracts, including both
prices per unit and a total price or not to exceed price.
In the contracts addressed in the Draft Report, the number of units and a not to exceed
price also were included in the Schedules defining the work. Each of those Schedules also
incorporated the Vendor's bid package which included the unit prices from which the not to
exceed price was built up. The parties correctly construed the contracts as unit price contracts.
No disputes or billing errors resulted.
See OIG Response 17 in appendix 13.
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Enhanced Controls for Eligible and Fully Supported Costs
Grace Hill, which has strengthened its management oversight, professional staff, and
overall control environment as described above (at pages 3-6), also significantly revised its
Accounting and Financial Policies and Procedures Manual to more fully provide for a two step
review to assure that only eligible and supported costs are submitted (at pages	). Review and
approval both by the appropriate Program Manager and the Controller or designated Finance
staff is required. Detailed criteria for segregation of unallowable costs and for determining
allowability of costs are provided (at pages 70-71). Program managers and program accountants
are being trained in using these criteria along with OMB Circular A-122. Obtaining required
documentation is emphasized in that training.
Grace Hill appreciates that the Draft Report recognizes that the $3,072 amount of the
questioned costs is not material. While Grace Hill cannot today produce more complete
documentation for a number of these costs, it believes that what it knows about these costs shows
that they were both reasonable and allocable.
1. 2. Camera and Accessories. As the Draft Report notes, support for the $200.76 and $11.98
costs for these items was provided. The former Project Director has informed Grace Hill that the
camera was used to document Project events like the Project Kick Off event. See Exhibit 37,
including a picture from the event.
3, 4. Postage/Shipping. The $61.80 and $36.85 postage shipping costs were Project costs, not
costs for the Americorps program. As the auditors must have observed, the one line check
description for the reimbursement of those costs to the Project Director did read "Misc. Supplies
For AmeriCorps". The Supporting Payment/Check Request Forms, which determined the actual
charging of the costs, correctly describes and codes those costs as Project (584) costs. (Exhibits
38 and 39)
6,7 (no 5 listed). Intern Bus Passes. Grace Hill believes that item 7 for $224.95, like item 6 for
$204.00 which also was recorded as "Local Travel", also was for bus passes for interns. These
bus passes were provided by Grace Hill to interns to enable them to get from their North City
residences to the jobs provided to them by Project Partner vendors. Contrary to the apparent
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understanding of the auditors, the Partners' contract responsibilities did not extend beyond the
jobs they provided on the job sites. The bus passes were a necessary Project expense.
9,10,11. Out of Town Travel/Conference Meeting. The former Program Manager has
informed Grace Hill that these expenses, for $240 in 2009, $786.63 in 2010, and $964.20 in
2011, were costs of his attendance at annual EPA conferences. Exhibit 40 shows that the $240
was for his per diem while attending the CARE Conference in October 2009. Exhibit 41 shows
that the $786.63 was for his "Lodging for EPA DERT-CONF" in November 2010. Exhibit 42
documents the $964.20 credit card expense for air travel for the 2011 conference, though it does
not alone further support it. See, however, page 2 of the Exhibit 18 email where the Program
Manager informs the Project Officer of his planned departure for the 2011 CARE Conference.
The Program Manager reports that he not only was an active participant at these conferences, but
also that he was, "a couple of times", a presenter at them.
See OIG Response 18 in appendix B.
Unallowable Costs
The Draft Report also asserts that four, supported expenditures for "Food items", totaling
$642.97, "are expressly disallowed under 2 CFR 230, Appendix B, Section 14." Grace Hill does
not believe that all food items are expressly disallowed under Section 14 as the Draft Report
apparently contends. Section 14 addresses "[cjosts of entertainment, including amusement,
diversion, and social activities and any costs directly associated with such costs (such as . . .
meals . . .)". It has not generally been understood to extend to appropriate and reasonable
refreshments that are incidental to, and that are incidental costs of, meetings, conferences, and
symposiums having the principal purpose, like the Project Kick Off event, of dissemination of
Project information. Compare, for example, FAR 31.205-14, on "Entertainment costs,", which
contains the same language as Section 14, with FAR 31.205-43 on such "Trade, business,
technical and professional activity costs."
See OIG Response 19 in appendix B.
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Readily Available Documentation Supports. In Part.
Personnel Cost Benefits by Award
Grace Hill acknowledges that the charges to this Project for the Personnel and Fringe
Benefit costs of its two full-time employees who worked, in varying proportions of their time, on
the Project were based on budgeted allocations that were based on the budgeted funding for their
efforts. Grace Hill now understands that such budget estimates do not alone constitute adequate
support for those charges.
The provisions covering labor charges in Grace Hill's revised Accounting and Financial
Policies and Procedures Manual are fully compliant with all federal requirements, including
those summarized in the Draft Report. See pages 92 through 94 of the Manual covering
Personnel Activity Reports accounting for the actual activity of each employee by award,
Preparation of Time Sheets for all hours worked, Processing of Time Sheets, and Review of
Payroll. The Manual expressly provides at page 92 that "[bjudget estimates will not be used as
support for charges to award."
In order to assure that the policies and procedures contained in the Manual are
consistently followed and cannot be overwhelmed by the volume of paper reports necessary for
tracking by award and ensuing payroll allocation computations, Grace Hill has fully
implemented an Electronic Time and Attendance Procedures for all employees. These
procedures fully incorporate the timekeeping and performance activity reporting by award that
the Manual requires. The Electronic Time and Attendance Procedures provided to employees to
enable their inputs are enclosed. (Exhibit 43)
Before the revised Manual was completed and the new Electronic system and procedures
were implemented, Grace Hill did implement interim manual improvements in July 2011, to
comply with the federal requirements. While that interim procedure did require a separate time
sheet for each contract as the Draft Report noted, it also required a complete Personnel Activity
report for all hours worked that justified the time assignments to specific contracts made from
the aggregation of the separate time sheets that did track actual time by award. (Exhibit 44)
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Notwithstanding the limitations of the direct records of the actual activity of its two full-
time employees on the Project, Grace Hill believes that the available records adequately support
at least the charges for the time of its Deputy Program Manager on the Project. From the
commencement of the Project in July 2009 through the end of December 2010, she worked only
on the predecessor EPA Cooperative Agreement DE-97704301 ("DERT") and on the Project,
allocating 40% of her time to the DERT program and 60% of her time to the Project. From
January 1, 2011 through April 8, 2011, she worked only on the Project, so that there is no
allocation issue. Her signed timesheets evidencing her time worked for the entire period have
been made available for audit. The history of the DERT program and this Project have been
fully documented. DERT was an approximate $450,000 program that involved the installation
of one technology (CCV's) by one vendor on vehicles owned by one Beneficiary. No material
difficulties were encountered and no significant changes were made in the course of performing
the program. In contrast, the Project became an all-consuming effort to manage the continuously
evolving Fleet Lists of its multiple public and private beneficiaries, for whom emissions
reduction work exceeding $2,000,000 in value was being performed by multiple vendors, in
more than 16 combinations of beneficiaries and vendors, with multiple changes in verified
emissions technologies that required changes in the work being performed. All of this is
documented in the Fleet List Verifications described below (at pages 37-39) and submitted with
their response. That documentation demonstrates that, for the period when the Project and the
DERT program overlapped, the Project cost represented at least the 60% of the Deputy Program
Director's effort that was allocated to the Project. (Grace Hill already has agreed in its July 23,
2012 Settlement Agreement with the EPA to forego and repay the entire 40% allocation to the
DERT program, so that the allowance of only the 60% effort on this Project presents no further
issues for the DERT program.)
In contrast to the Deputy Program Manager, the Program Manager worked on a number
of programs funded by a number of grantors, allocating only 20% of his time to the Project from
its commencement through its conclusion. While this Project overwhelmed him and that 20%
allocation as well, Grace Hill will not at this time undertake the effort that would be needed to
adequately support the charges for his time.
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Based on the actual records of her time worked and actual records of the work performed
on this Project, Grace Hill submits that the EPA should allow at least $48,235.79 of the $79,458
of questioned costs. That is the amount of the Personnel and Fringe Benefits charges for its
Deputy Program Manager shown above to "represent actual activities performed for the CA."
Labor Reporting Periods
Personnel Costs
Fringe Benefit
7/26/2009 - 12/26/2009
$9,758.40
$1,497.90
12/27/2009 - 6/26/2010
11,294.40
1,733.68
6/27/2010- 12/25/2010
11,294.40
1,733.68
12/26/2010-4/8/2011
9,411.91
1,511.42
Total
$ 41.759 11
$ 6.476 68
See Exhibit 45 for Labor Distribution Reports for the Project (58401). Personnel costs are gross
pay less GTL - Group Term.
See OIG Response 20 in appendix 13.
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Cash Draws Generally Complied With
Federal Requirements And Have Been Improved
Grace Hill appreciates the conclusion of the Draft Report that its cumulative cash draw
did not exceed its cumulative expenditures, so that the Report does not question the amount of
Grace Hill's total cash draw.
Having reviewed the supporting detail provided by the Office of the Inspector General as
requested, Grace Hill concludes that the basis for the Report's assertion that it drew amounts in
excess of immediate cash needs was based on three draws, one in which Grace Hill
inadvertently drew $35,098 in respect of an accounting error and two in which it did not
promptly credit Beneficiary matches of $9,877.50 and $3,625.00.
The $35,098 charging error and draw arose from a DERT Vendor correction of its billing
error from August 2009, which occurred as Grace Hill was launching the Project and segregating
its Project accounts from those for the DERT program. The charge was corrected in the next
monthly project draw. The $35,098 amount included in Draw 2 on 11/10/2009 (Exhibit 46) was
reversed on the January 20, 2010 Invoice Summary, resulting in a negative balance and no
billing at that time. (Exhibit 47) The resulting credit from Draw 2 was carried forward in the
reduced contractual amount and, thus, credited against the April 2010 Invoice in the next
monthly Draw, reducing the amount of that Draw to $3,633.31. (Exhibit 48) (Draw 3 and Draw
4 both occurred on the same date in April 2010.) This is not a systemic issue.
In the case of the other two incidents, relating to cost sharing match payments it received
from a Beneficiary, Grace Hill received the $9,877.50 amount on June 9, 2010 (not May 20) and
the $3,625.00 amount on September 16, 2010. The $3,625.00 amount was credited against the
October 2010 Invoice supporting Draw 12 resulting in the net billing of $9,297.83. (Exhibits 49,
50, 51 and 52) Grace Hill believes, but does not have the intermediate detail calculations to
show, that the $9,877.50, as re-recorded on July 31, 2010 (Exhibit 53) to remove it from sales,
was deducted from the next monthly invoice by its exclusion from the Cum Actual Contractual
amount in the same manner that the $3,625 amount was removed from the Contractual amount
balance in Exhibit 50, reducing it from $399,013.14 to $395,388.14 as then shown on Exhibit 51.
That is the October 2010 Invoice supporting the October 2010 draw, showing the $9,297.83 net
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amount for Draw 12 (cover sheet attached). (Exhibit 52) In all events, the $9,877.50 match was
credited, as the Draft Report recognizes, in Grace Hill's final reconciliation and payment report
letter on September 30, 2011, which includes a recap and re-credit of all matches credited against
that and prior payment requests. (Exhibit 54)
For this Project, Grace Hill's accounting system led it to adopt what amounted to a dual
draw approach, that is, making specific draws for the extraordinarily large "contractual"
expenses (for emissions reduction work) to which it was not accustomed and "regular" monthly
draws for other expenses that were required to be reconciled with the specific draws and
reflected other items such as match payments that were processed through its accounting system
separately. Grace Hill dealt with the cash match payment reconciliations, which it similarly was
not accustomed to, in a manner that was as timely as "administratively feasible" using the
adequate accounting system it then had.
Grace Hill now has specifically addressed matches in its revised Accounting and
Financial Policies and Procedures Manual (at pages 33 and 46). "The CFO will ensure that all
match revenue is credited to the proper grant on a timely basis so it will be taken into
consideration before requests for reimbursement are made." Equally importantly, under the new
Post-Award Procedures established in the Manual (at pages 26-27), a grant manager will timely
document and communicate such requirements to, among others, the Finance Department.
As to the final draw reviewed for the Draft Report, Draw 10, Grace Hill is re-submitting
its draw package which, while made available to the auditors, may not have been reviewed.
(Exhibit 55) Grace Hill believes the package contains adequate details to support its calculation
of the $12,176.57 draw.
See OIG Response 21 in appendix 13.
Indirect Costs Were Approved
Grace Hill reasonably believed that it was entitled to include the indirect costs that it
reported, so that it is entitled to retain at least the $91,037 amount of those costs reported in its
Final Report.
Grace Hill sought and obtained the approval of its Project Officer both to charge its
increased, 19.5% indirect rate and to charge that new rate on the additional, second round awards
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for emission reduction efforts that it was able to make because of underruns and other cost
reductions on originally planned work. In her November 5, 2010 email, the Project Officer
responded:
1.	I'd say you can charge the new indirect rate from whatever date it's
effective with HHS. Please provide us that documentation for our files.
2.	I'd say yes, you can charge indirect on the new contracts you issue - I'd
just ask that you be reasonable and not split the work into a thousand
contracts.
(Exhibit 56)
Grace Hill understood that that approval was subject only to the limit of the $2,000,000 awarded
for the Cooperative Agreement, not to the $63,383 budget amount that did not reflect all the
approved changes. By way of example only, when it pointed out that there were cost differences
on items that would be detailed on the Final Report, the Project Officer responded in a
September 5, 2011 email:
That's fine - this is just the budget, so I'd expect actual expenses to be different.
Tell me all about it in the final report!
(Exhibit 57)
Based on that understanding and those approvals, Grace Hill calculated its indirect costs,
in accordance with the terms of its Nonprofit Rate Agreement dated May 14, 2009. (Exhibit 58)
It properly based that calculation on the 16 distinct contract actions and technology awards that it
made to distinct beneficiaries or groups of like beneficiaries. The Nonprofit Rate Agreement
provides that the "Base" for the indirect cost calculation shall be "Total Direct Costs excluding ...
that portion of each sub award in excess of $25,000 .... " (Emphasis added.) Nothing contained in
that definition or in the Guide for Indirect Cost Rate Determination suggests or requires the Draft
Report's bare contracts-issued standard, as distinguished from the substantive subawards
standard established by the Agreement, is to govern the count of the awards to be included in the
Base.
As reflected below and in the attached exhibits, there were at least sixteen subawards.
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Contract 1, the January 11, 2010^^^^^^^| contract (Exhibit 59), provided, after the
termination of the Fire Department vehicles, for two substantive subawards:
Subaward 1. The
and
installation of DOC's and DOC/CCV's;
Subaward 2. The|
Contract 2, the October 27, 20101
substantive subawards:
installation of APU's.
contract (Exhibit 60), provided for three
Subaward 3. The Fire Department installation of DOC's and DOC/CCV's;
Subaward 4. The
Subaward 5. The
installation of APU's; and
installation of replacement engines.
Contract 3, the March 1, 2011	contract (Exhibit 61), provided for two additional
substantive subawards (not counting a secondAPU award):
Subaward 6. The
Subaward 7. The
installation of APU's; and
installation of APU's.
Contract 4, the August 15, 2010	contract (Exhibit 62), provided for two
additional substantive subawards (not counting a secondsubaward for DOC's
and the terminatedaward):
Subaward 8. The|
and
and other school bus companies installation of DFH's;
Subaward 9. The St. Louis City truck installation of DOC's.
Contract 5, the October 11, 2010^^^^^^^^^ contract (Exhibit 63), provided for an
additional substantive subaward (not counting the terminated award) for:
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Sub award 10. Installation of DFH's on subsequently identified)
school bus company buses.
and other
Contract 6, the February 22, 2010	contract (Exhibit 64), provided for an additional
substantive subaward (not counting the de iiiiiiiini	single APU
award) for:
Subaward 11. Installation of DFH's on |
buses.
Contract 7, the November 8, 20101
additional substantive subawards for:
and other school bus company
contract (Exhibit 65), provided for two
Subaward 12. Installation of DFH's on subsequently identified)
school bus company buses; and
and other
Subaward 13. The|
drills and one crane.
Contract 8, the October 11, 20101
substantive subaward for:
installation of engine replacements for two
contract (Exhibit 66), provided for an additional
Subaward 14. Installation of DFH's on subsequently identified)
school bus company buses.
and other
Contract 9, the January 12, 2010	contract (Exhibit 67), provided for an
additional substantive subaward (not counting the Amendment #2 upgrade of the installed
auxiliary engine/generator) for:
Subaward 15. Installation of a new propulsion engine and a new auxiliary engine in the
Bryant T.
Contract 10, the March 1, 2011	contract (Exhibit 68), provided for an additional
substantive subaward (not counting the award for the re-engining of the free-standing yard crane)
for:
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Sub award 16. Installation in the later identified Ken T. of new propulsion engines and
new auxiliary engines.
The sixteen substantive subawards identified above do not include the purchase of the
new truck for^^^^^^^J invoiced February 10, 2011, and do not include the purchase for
from^^^^^J of the^^^^J invoiced March 19, 2010 shown in the Fleet
List Verifications. (Exhibits 81 and 76). Those sixteen substantive subawards also do not
include the de minimis	APU award also included in the Fleet List Verifications
award for "like technology", the duplicate	award
award for crane (as
(Exhibit 76), the duplicate
even of dissimilar technology, and the duplicate
distinguished from tugboat) work, all expressly excluded in the foregoing 16 subaward listing.
Adding those six exclusions would bring the total of the substantive subawards to twenty-two.
The count of sixteen subawards, permitting the inclusion of up to $25,000 for each in the Indirect
Cost Base, is a reasonable application of the Nonprofit Rate Agreement. It should be accepted
both as a matter of sound construction and substantive analysis. It more than met the guidance
provided by the Project Officer to "be reasonable." The fact that Grace Hill may have
understated the number of substantive subawards and its indirect costs in Interim reports did not
deprive it of the right to correct the count and correctly calculate its indirect costs for its Final
Report.
See OIG Response 22 in appendix 13.
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III. Detailed Response to Chapter 5: Substantial Compliance with Recovery Act
Job Reporting Requirements
Grace Hill believes that its Final Report shows substantial compliance with the Recovery
Act job reporting requirements. The Final Report sets out the number of positions that were
funded at Grace Hill and the manner in which their "participation" was estimated. It also sets out
estimates of the number of jobs preserved or created at the Project Partner vendors, providing the
vendor letters and emails supporting those estimates. (Exhibits 69, 70, 71, 72, and 73) The
estimates are expressed in "full time equivalents" (FTE), as the Draft Report states was required.
The Draft Report apparently questions the manner of preparation of these estimates,
asserting that use of a specific formula was required. That assertion is contrary to the guidance
that was provided to Grace Hill at the Grantee Workshop on March 30-31, 2011, when
retrospectively, on the last days of the six month extended Schedule Project, it received guidance
on how to document all aspects of the Project. Grace Hill did follow that guidance in
documenting the Close Out of the Project as reflected in this response, including, in particular,
preparing check lists for all Vendor Close Outs based on that guidance and then gathering all the
information needed to effect those close outs.
As for the job estimates specifically, Grace Hill followed the guidance it was given:
Question 2. What suggestions does EPA have for recipients to help them identify
and measure the direct jobs created and jobs retained?
Answer 2. Recipients should not use a model or formula (including the MECA
formula) to estimate the number of jobs. Recipients should directly estimate the
number of jobs.
Prime recipients should make sure that the major direct employment effects of the
recovery funds they receive are captured in their overall estimate of jobs created
and retained. Job creation information should be collected from both sub-
recipients and vendors. (Exhibit 74) (Emphasis added.)
As related above, Grace Hill prepared and documented its Final Report in accordance with those
instructions, including, contrary to the Draft Report's "formula" requirement, not using a model
or formula to estimate the numbers of jobs.
See OIG Response 23 in appendix 13.
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IV. Detailed Response to Chapter 6: Grace Hill Met the Objective of the Cooperative
Agreement
The documentary evidence submitted with this response demonstrates that there is no
reasonable basis for doubt as to whether Grace Hill substantially met the objective of the
Cooperative Agreement.
The Draft Report acknowledged that the correct technology had been installed on items
available for inspection. It did not, however, express an opinion as to whether Grace Hill met the
objective due to the following:
•	"Lack of adequate verifiable details in Grace Hill's final progress report."
•	"Not all vehicles were available for inspection during our site visits."
•	"Grace Hill did not consistently document work completion verification."
Adequate Verifiable Details
The Project Fleet List Description Spreadsheets provided with Grace Hill's Final Report
were prepared in accordance with the instructions for those Spreadsheets. The spreadsheets
provided the information requested. As permitted by those instructions and contemplated by the
form of the Spreadsheet, like units on which like work was done were reported together as a
Spreadsheet line item (with the number of like units on the line being identified).
While there was and is no requirement that Grace Hill provide a further "verifiable" Fleet
List to demonstrate that it met the objective of the Cooperative Agreement and paid the vendors
only upon their submission of invoices representing completion of the required work, Grace Hill
has prepared Fleet List Verifications for each of the Project Fleet Description Spreadsheets
submitted with its Final Report. The following Fleet List Verifications are enclosed, together
with revised Spreadsheets as updated to reflect the validated information provided in the Fleet
List Verifications:
1.	St. Louis City Fire Department (Trucks) (Exhibit 75)
(Drill Rigs) and |
(Exhibit 76)
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4.
7.
3.
9.
6.
5.
8
(Delivery Trucks) (Exhibit 77)
Tug Boats and Crane (Exhibit 79)
(Buses)
and^H^^| (Buses),
Streets Department (Trucks), and^^^J (Truck) (Exhibit 81)
(Buses) (Exhibit 82)
(Support Vehicles) (Exhibit 83)
(Buses) (Exhibit 80)
(Trucks) (Exhibit78)
and St. Louis
A set of Fleet List Verifications, supported by a set of matched invoices, is being submitted by
U.S. mail.
Overview. In summary, the Fleet List Verifications are based, spreadsheet line by spreadsheet
line and unit by unit, on the vendor invoices for each of the units on which emissions work was
performed. Supported by those vendor invoice representations of work completion, spreadsheet
line by spreadsheet line, the Fleet List Verifications confirm the numbers of units on which the
work was performed, as well as the Technologies installed, and the invoiced costs properly paid
by Grace Hill on the basis of those representations.
Fleet List Verification Details. Each Fleet List Verification began with the original Fleet List
Description Spreadsheet for a vendor Project.
Each line of the original Spreadsheet was expanded to separately list each unit included
on that line.
Each unit then was verifiably identified to the Invoices on which it was billed, by its
usually external Beneficiary Asset # or Unit #, and by its VIN (or other serial or identification
number).
The unit verifications were extended to include Technology and Installation Costs.
Each line of a Fleet List Verification is supported by a vendor Invoice. In most cases,
these are unit-by-unit Invoices, so the Invoices are arranged in the same order as the Fleet List
Verification. Where multiple units were billed on a single invoice, the units on the invoice are
numbered to show the Fleet List Spreadsheet line to which they correspond.
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As reflected in the Fleet List Verifications, there were a limited number of invoice
variances or omissions (e.g., missing Beneficiary Asset #'s). All of these have been corrected or
completed, as noted, based on Beneficiary and Vendor records. In the case of separate invoices,
any such supplemental information (e.g., a VIN check) is provided immediately behind the
respective invoices. Where multiple units were billed on a single invoice, the supplemental
information is provided behind the invoice set and "keyed", page by page, to the Asset or Unit
#'s covered.
Conclusion. What the Fleet List Verifications demonstrate in detail is that Grace Hill's Program
Manager, who in real time diligently used a Contract Manager spreadsheet tool to compare the
EPA Approved Budget to Vendor Invoices as they were received, properly approved payments
based on invoice representations for the correct technologies on the correct numbers of units.
Those payments were in the correct amounts as more fully discussed above (at pages 23-24).
Project Fleet List Description Spreadsheets. A revised Project Fleet Description Spreadsheet is
provided with each Fleet List Verification. The revised Spreadsheets make the limited
corrections noted in the Verification annotations. Where Spreadsheet lines cover multiple units,
they also extend the technology and installation costs to add the prices paid for the multiple
units.
See OIG Response 24 in appendix 13.
Unavailability for Inspection and Confirmation of Work Completion
Contrary to the implications of the Draft Report, there is neither a requirement that all
retrofitted units be available for inspection during site visits nor a requirement that a recipient of
a grant such as Grace Hill itself verify work completion.
As the Draft Report reflects, the school buses on which retrofit work was performed
operate from a number of yards, being shifted from time to time among the yards depending on
their route assignments, and run those routes on school schedules, so that the buses could not all
be made available for inspection at one time or during regular working hours. Similarly, Airport
support vehicles that are on Airport service could not be inspected due to safety concerns and
work schedules, so that, again, all the support vehicles could not be made available for inspection
as desired These observations show that it would be unreasonable to require that all retrofitted
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units be made available for inspection. Nonetheless, the Draft Report does report that the correct
technologies were, consistent with the vendor representations, found to have been installed on
the available buses and support vehicles not deployed for service.
Grace Hill acknowledges that there was a misunderstanding about the arrangements to
see the first selected tugboat at a site near where it was in service. The tugboat owner did make
its second boat, which was in the boatyard, available for inspection. Grace Hill does not
understand the basis for the Draft Report's finding that the^^^J auxiliary engine installed on
that boat did not match the contract. As discussed above (at pages 11-12), both the budget had
been revised and the contract amended to provide for that upgraded engine.
With respect to inspections by Grace Hill's staff, it was limited, as were the auditors, in
what could be done when conducting vendor site visits. The staff could, as the Draft Report
confirms it did, verify that work on the vehicle that it saw at work sites met the requirements.
Even if it had been required to do so, which it was not, it could not practicably have performed
"a random selection of vehicles" from the large bus and public service fleets, either before they
were diverted from their schedules for retrofit or after they were retrofitted and returned to
service: Grace Hill could not control the retrofit schedules. The contractor Invoice Payment
Package used to confirm more than half of the work was designed by the Grace Hill staff
midway through the Project to assure the regular documentation of vendor payments, so that it
was not used for earlier payments. It also was not used, for example, in some cases where timely
Beneficiary confirmations of vendor large fleet work were not practicable.
See OIG Response 25 in appendix 13.
Other Confirmations of Work Completion
In addition to the comprehensive vendor representations of work completion confirmed
by the Fleet List Verifications, the Contractor Invoice Submission forms that were obtained, and
the Grace Hill staff observations of correct technology installations, the Grace Hill staff did
assemble the following more than adequate documentation of work completion:
For^^^^^^^|_Work:
St. Louis Fire Department. On March 2, 2011 the Fleet Maintenance Manager for
the Fire Department confirmed that the retrofits had been completed on all but one of its
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vehicles, for which it was holding all the components for installation on the vehicle (following
completion of a crash investigation). (Exhibit 84)
|. On May 10, 2011, the Fleet Manager for|
confirmed completion of the retrofit work on its 88 vehicles, including the 18 2-engine vehicles.
(Exhibit 85)
On May 16, 2011,	confirmed the re-engining of its three
Mercedes-engined delivery trucks (Exhibit 86), as also had been evidenced earlier by its payment
of the^^^^^^H cost share shown in the enclosed Fleet List Verification.
2.
Work.
St. Louis Street Department. On May 10, 2011, the Commissioner of Equipment
Services for the St. Louis Street Department confirmed the DOC installations on its 15 trucks
had been "accepted by inspectors in our shop." (Exhibit 87)
|. By its May 16, 2011 letter |
retrofits on five additional delivery trucks. (Exhibit 86)
By its October 5, 2011 letter,
of its new delivery truck, earlier confirmed by its payment of the
in the enclosed Fleet List Verification. (Exhibit 88)
also confirmed the
confirmed acceptance
cost share shown
Buses. On May 7, 2011	provided its Webasto
Heater Resolution worksheet for those buses. (Exhibit 89) Rather than a limited random sample
(which was not required by any regulation or award provision and which the Draft Report
suggests retrospectively would have been better practice), that worksheet, initialed bus-by-bus by
both^^^^^^^^f and^^^^^^f (at least one in all cases), confirms not only installations,
but also a series of checks and adjustments desired by	and negotiated by the Grace
Hill staff, for the vast preponderance of the buses. It also contains
commitment to correct any bus that was not available for re-inspection, but that might later have
an issue.
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EPA Region 7 earlier asked Grace Hill some questions about those worksheets. In a
letter dated May 9, 2013, Grace Hill provided the following response:
Fleet List Verification addresses your Invoice
"The |	
and Asset # reconciliation questions.'
"In addition to those reconciliation questions, you asked about a number of notes
appearing on the Webasto Worksheet. The Webasto Worksheet was a
document that it developed, afterraised some questions
about its installations, to reasonably assure	and Grace Hill that its
installations had been properly made or were adjusted or completed as
appropriate. It did not purport to be a 100% review.	May 7,
2011 cover note stated:
Attached is the checklist for the DFH. We were not able to check all
of the buses due to the coordination necessary with the maintenance
crew, some buses being out at Body Shops for repair damage, or out
on route. We told fleet managers that	was available
if there were any problems and arrangements would be made to
correct those issues.
which had raised the questions, reportedly was satisfied with the
follow-up efforts."
'As to Asset #s 742 and S048, which apparently were "Not Workin
Running" at the outset, both later were fully "Checked Off' by
or "Not
and
"As the Asset #s SO 15 and S049, which apparentl^wre "Not Installed" at the
outset, both later were fully "Checked Off by	and^^^^^^^^f."
"As to Asset #439, where the question was "Cannot find - Sold?", see the bottom
of page 6 of the Worksheet where it is written in and fully checked out and
"Checked Off
"As to Asset #529,	has confirmed that the correct VIN is, as it was
first written, 1HVBBABPS1H414228. That confirmation has been added to the
Fleet List confirmation notes."
"As to Asset #S018, where the question was a "Not Installed" note, the issue arose
because	started a second line item for the same bus, Unit
#202080, Asset #S018, with the same VIN, and, in marking it out and recording it
"Not Installed", ran that note up over the first line item. We have previously
tested this issue for the Office of the Inspector General. On September 12, 2012,
accompanied by a	maintenance employee,
confirmed the identification of the bus and the fact that a Webasto DFH
was installed on the bus.	took the seven attached pictures showing the
Unit # and the VIN, and showing the DFH installation, to document his
inspection."
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Buses. On May 7, 2011	provided its checklist
covering the same issues for the^^^^J buses, again covering the vast preponderance
of these buses rather than a small sample, and again committing to correct any issues that
might arise on few remaining buses that were not available for re-inspection. (Exhibit
90)
Work.
|. By its letter dated May 11, 2011 (Exhibit
91),	confirmed the re-engining of its three identified drill rigs, as was earlier
confirmed by its payment of its^^^^^^^^f cost share shown on the enclosed Fleet
List Verification.
Buses. On April 22, 2011 and May 26, 2011, |
provided its Webasto inspection worksheets for the Hill Street and Spring Street bus
locations, initialed both for^^^^^^J and for^^^^^^f. These cover 49 of the 57
DFH installations for^^^^^^J, leaving only "the final inspection on them for next
week." (Exhibits 92 and 93)
|. On "1-26-11" and "4-21-11'
I s representative signed Contractor Invoice Submissions accepting the retrofit
work on its buses. (Exhibit 94 and Exhibit 95)	Regional Maintenance
Manager sent an April 21, 2011 email (Exhibit 96) that is noted in Exhibit 95 as an
"Attached Email". It confirms that:
'All units are installed and completed.'
Work.
Buses.
4.
provided its Webasto inspection
checklist for the^^^^^^^^H buses showing the "Authorized Initials" for all items
by both^^^^^^^^J and^^^^^^J. (Note that, though the installation date of
one DFH, on Unit #1723 A, had not been recorded, its installation was confirmed by the
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initialing.) (Exhibit 97) This list was incorporated in a Contractor Invoice Submission
noting "each bus signed off by fleet manager". (Exhibit 98)
5. For
Work. By its July 28, 2011 letter,
again confirmed the engine retrofits for the Bryan T and Ken T tugboats,
both propulsion and auxiliary engines, and then for its 3900 Manitowoc Crane. (Exhibit
99) These installations also are confirmed by the detailed invoices supporting the Fleet
List Verification and by its multiple cost shares, in cash and in kind, detailed in the Fleet
List Verification.
With the now complete verification of Grace Hill's Project Fleet List Description
Spreadsheets, fully supported by the vendor representations contained in the matched
invoices and supported by the representations of the responsible Beneficiary officials,
there is no reasonable basis for doubt as to whether Grace Hill met the objective of the
Cooperative Agreement.
Critically, what the foregoing evidence establishes is that Grace Hill more than
met the objective of the Project as was documented in the original approved Project
Workplan. As fully developed in the narrative in Grace Hill's Final report, Grace Hill's
staff, with the support of the Project Officer, used the changes in the original fleet lists
and verified technologies to evolve the finally approved Workplan. As reported in the
Final Report, that plan added an additional tugboat, the boatyard crane, the three drill
rigs, 201 more school buses, and 18 additional long haul trucks PPU's. All of these
additions are confirmed by the foregoing submissions. As presented in the Final Report,
the additions resulted in a material net increase in emissions saved.
See OIG Response 26 in appendix 13.
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V. Detailed Response to Chapter 7: Other Matter - Billing on Other CA Was Corrected
The Draft Report states that a $35,098 expense was drawn twice under the prior DERT
Cooperative Agreement DE-97704301. The duplicate charge which arose inadvertently from a
vendor invoice correction from August 2009 was itself corrected through subsequent draws.
Draw 2 in September 2009 was for $35,098 for a specific "Contractual" obligation. (Exhibit
100). Draw 4 for $39,515.37, submitted in November 2009, was the "monthly" draw for
October 2009. It included the same "Contractual" item, along with indirect costs and other small
costs. (Exhibit 101) Draw 5, in March 2010, which was only for a specific "Contractual"
obligation in the amount of $18,564, did not, accordingly, test for or correct the duplicate draw.
(Exhibit 102) Draw 6, submitted in October 2010, was the next "monthly" draw. Because it
correctly reported the total "Contractual" items Grace Hill had paid to date ($351,520, being
$297,508 from Draw 1, $35,098 from Draw 2, and $18,564 from Draw 5) and credited the full
$429,675.06 amount of the DERT "Prior Revenue" from Draws 1 through 5, it corrected for
Draw 4 when it billed only $11,867.76 Exhibit 103). The $429,675.06 that it credited was
$302,308 from Draw 1, $35,098 from Draw 2, $34,189 from Draw 3, $39,515.37 from Draw 4,
and $18,564 from Draw 5. (Exhibit 104). Though the $35,098 credit computation does not
explicitly appear on the face of Exhibit 103, that the $11,867.76 was a correct net billing after
deducting all prior draws is confirmed by subtracting the $429,675.06 amount of the prior claims
from the "Contractual" expenditures, "Total Including Contract", of $441,542.82 shown on
Exhibit 103:
"Total Including Contract"	$441,542.82
"Prior Claims"	- 429.675.06
11.867 76
That Draw 6 had corrected the duplicate charge is confirmed by the Summary supporting
Draw 7. (Exhibit 105)Draw 7 was for $3,718.74. That was the "Actual" increase in "Total"
expenditures between Draw 6 and Draw 7, from $441,542.82 to $445,261.56. Revenue to date
of $441,542.82 (being $429,675.06, including the $35,098 duplicate charge as shown above, plus
Draw 6 for $11,867.76) was credited:
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"Total"
"Revenue to Date"
$445,261.56
- 441.542.82
$ 3.718.74
The $35,098 draw was timely corrected.
See OIG Response 27 in appendix 13.
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VI. Conclusion
In this response to the Draft Report Grace Hill has shown that:
1.	Grace Hill exceeded the emissions objective of the CA as defined in the original approved
Work Plan for the Project.
2.	The Contract prices Grace Hill paid were fair and reasonable, based on competition and cost
and price analysis consistent with 40 CFR §30.43 or §30.45
3.	Grace Hill substantially met the contract administration requirements of 40 CFR §30.47 using
its Program Manager's Contract Manager spreadsheet to manage vendor invoices and payments
and through its Close Out documentation.
4.	The $3,072 of questioned costs were not material, and the limited costs questioned were
allocable and reasonable in amount, and not expressly disallowed.
5.	In larger part, the Personnel Costs and Fringe Benefits Grace Hill incurred for the Project
represented "actual activities performed for the CA."
6.	Excepting one ($35,098) and possibly a second ($9,878) cash draw arising from inadvertent
accounting errors, which Grace Hill had corrected so there was no net overdraw, Grace Hill's
draws credited the cash match payments actually in issue in a manner that was as timely as
administratively feasible.
As a result, except with respect to a limited amount of Personnel Costs and Fringe Benefits
which were a benefit that was provided to the Project, but for which documentation is not readily
available, no recovery is necessary or appropriate.
Grace Hill, which had adopted compliant policies and procedures in 2009 and was in the
process of strengthening its management and implementation of those policies and procedures at
the outset of the Project has:
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•	Further enhanced its policies and procedures and their implementation, addressing all of
the questions in the Draft Report.
•	Implemented a compliant electronic timekeeping and activity reporting system.
•	Strengthened its management, including a new Chief Financial Officer and a Contract
Administration Manager.
•	Strengthened its Board oversight, including having an Acting Chair and a new Chair of
the Finance/Audit Committee, and five more new directors, with significant management,
accounting, finance, corporate governance, and government contracting experience.
Grace Hill's Financial management systems now are fully compliant with federal requirement.
See OIG Response 28 in appendix 13.
13-R-0367
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