FEMA Plans To Update Cost-Estimation Guidance
The Department of Homeland Security (DHS) Federal Emergency Management Agency (FEMA), in response to a recent recommendation from the Government Accountability Office (GAO), is updating its Public Assistance cost-estimation guidance as it deliberates appropriate federal funding levels for projects to help Puerto Rico recover from two major hurricanes that caused billions of dollars in damage to the island in 2017.
In its hurricane recovery plan, which was developed prior to the destructive earthquakes that hit the island in recent months, Puerto Rico estimated that $132 billion in funding from 2018 to 2028 will be needed to repair and reconstruct the infrastructure damaged by the hurricanes. Working with government officials from Puerto Rico, FEMA provided Public Assistance grant funding for a range of eligible response and recovery activities. As of September 2019, FEMA had obligated about $6 billion in Public Assistance program funding for 1,558 projects across the island, and Puerto Rico had expended about $3.9 billion of that funding to reimburse subrecipients for completed work.
While much of these funds went to emergency repair work, about $39 million went to permanent work projects, which require more-detailed procedures that aim to reduce costs to the federal government, increase flexibility in the administration of the Public Assistance program, expedite the provision of assistance under the program, and provide financial incentives to recipients of the program for timely and cost-effective project completion. FEMA maintains different policy guides for different types of projects (e.g., emergency repair, permanent work). “Permanent work projects take time to identify, develop and ultimately complete as they represent the longer-term repair and restoration of public infrastructure,” GAO said.
FEMA, Puerto Rico Collaboration
GAO found that FEMA and Puerto Rico have sought to reach mutual agreement on fixed cost estimates for permanent work projects, which have included developing exceptions to FEMA’s cost-estimation guidance. However, the process to appoint members to discuss these estimates was challenging and created delays. In addition, other delays stemmed from the large number of sites requiring damage assessments, project development and mutually agreed-upon fixed cost estimates. As of October 2019, FEMA and Puerto Rico were still working to establish specific time frames for the completion of fixed cost estimates, according to GAO.
Because Puerto Rico is responsible for any costs that exceed fixed cost estimates for permanent work projects, FEMA has adapted its guidance for estimated costs to ensure that these estimates accurately reflect the total scope of Public Assistance projects. FEMA has approved the following two exceptions to its usual cost-estimation format: (1) a cost factor to account for local labor, equipment and material costs in Puerto Rico; and (2) a future price factor and price curve to account for anticipated rises in construction costs over time due to the massive influx of disaster recovery funds, coupled with limited material and labor resources in Puerto Rico.
GAO Cost-Estimating Guide
GAO explained that FEMA’s cost-estimating guidance for Public Assistance generally meets nine of the 12 steps from GAO’s Cost Estimating and Assessment Guide. The GAO guide outlines best practices for cost estimating and presents 12 steps that, when incorporated into an agency’s cost-estimating guidance, should result in reliable and valid cost estimates that management can use to make informed decisions.
GAO said that FEMA guidance “substantially” or “fully met” these steps: (1) define the estimate’s purpose; (2) define the estimating plan; (3) define the program’s characteristics; (4) determine the estimating structure; (5) identify ground rules and assumptions; (6) develop the point estimate and compare to an independent cost estimate; (7) document the estimate; (8) present the estimate to management; and (9) update the estimate. However, the guidance only “partially” or “minimally met” the following cost-estimating steps in the GAO guide: (1) obtain the data; (2) conduct a sensitivity analysis; and (3) conduct a risk and uncertainty analysis.
In addition, GAO noted that given the large number of individuals and entities involved in Puerto Rico’s complex recovery, ensuring that all recovery partners have easy access to the most current applicable policy and guidance could help clarify which FEMA guidance and policies are in effect.
Recommendations and Response
GAO recommended that FEMA: (1) revise its cost-estimating guidance for Public Assistance projects to fully align with all 12 steps in the GAO Cost Estimating and Assessment Guide; and (2) develop a repository for all current applicable Public Assistance policies and guidance for Puerto Rico and make it available to all recovery partners, including subrecipients.
In response, DHS officials said that FEMA’s Public Assistance Office plans to create by Sept. 30 a job aid addendum to the existing FEMA Cost Estimating Format for Large Projects Instructional Guide. This addendum will include a quality insurance checklist to ensure cost estimates reflect best practices from the GAO cost estimating guide “to validate that risk analyses are incorporated into the cost estimations.”
DHS officials also said that FEMA now maintains a comprehensive repository of Public Assistance policy and guidance documents on FEMA’s “Policy, Guidance and Fact Sheets” website, adding that it contains a section on disaster-specific guidance including those related to work in Puerto Rico. They added that this site will maintain all Public Assistance policies and guidance that specifically pertain to Puerto Rico, but also will continue to include some archived former versions of Public Assistance guidance that were superseded by newer policy and guidance.
GAO said it would monitor the information on FEMA’s public and internal websites to assess whether FEMA is meeting the intent of GAO’s recommendation.
For More Information
The GAO report, “Puerto Rico Disaster Recovery: FEMA Actions Needed to Strengthen Project Cost Estimation and Awareness of Program Guidance,” (GAO-20-221) is available at https://www.gao.gov/assets/710/704282.pdf.