EDITOR ’ S NOTE We are pleased to welcome a new author to the Disaster Recovery Today editorial board. In our 12th edition, Robert Wright examines how the FEMA Public Assistance Program affects the decision to repair, replace or relocate a damaged facility. Mr. Wright has extensive experience working for clients following federally declared disasters. This experience provides the basis for his knowledge of this important subject. Readers are encouraged to use the enclosed postage-paid reply card to comment on this issue, request previous editions or be included in our mailing list for future issues of Disaster Recovery Today, which will be sent to you free of charge. Sheila E. Salvatore Editor In a previous edition of Disaster Recovery Today, “Determining Eligibility,”we discussed a disaster recovery rebuilding plan and how understanding funding options —within FEMA’s Public Assistance Program— are vital to a successful disaster recovery. Once the applicant, the state and FEMA have determined that a facility is eligible for Public Assistance, an evaluation is required to determine what actions must be taken to bring the facility back to its pre-disaster condition. In this issue, we will concentrate on the various options for accomplishing this. Disasters result from a wide range of hazards. In this article, we will use flood damage to explore the correct path for ensuring that all funding options are explored and the proper stream is selected. Rebuilding Under FEMA’s Public Assistance Program: Repair? Replace? Relocate? By Robert J. Wright Disaster Preparedness and Recovery Consulting
2 D I SAS T E R R ECOVE RY TODAY.COM To estimate the repair cost, an assessment of all components damaged by the flood must be made — using FEMA’s criterion of “putting it back the way it was” (pre-disaster) or “returning the facility to its original form, function and design.” This assessment should result in a comprehensive scope of work detailing damages and related repairs. If possible, the scope of work should be broken into standard Construction Specifications Institute divisions, since FEMA also uses this method: Division 1: General Requirements Division 2: Site Work Division 3: Concrete Division 4: Masonry Division 5: Metals Division 6: Woods and Plastics Division 7: Thermal and Moisture Protection Division 8: Doors andWindows Division 9: Finishes Division 10: Specialties Division 11: Equipment Division 12: Furnishings Division 13: Special Construction Division 14: Conveying Systems Division 15: Mechanical Division 16: Electrical Once a comprehensive scope of work has been developed, the next step is to estimate project costs. FEMA has Before decisions are made, the damaged facility must be stabilized. Along with your insurance carrier, FEMA requires that you make all reasonable attempts to minimize further damages (pumping water, dehumidifying, etc.). These actions are categorized as emergency protective measures. In doing so, while there are obvious damages caused by floodwaters, you must also be aware of potential aftereffects — such as toxic contamination (air, soil, water), mold growth, scouring or weakening of foundations (buildings, bridges, roadways and more) and interruption of vital services (electrical, water, sewer). Even before the floodwaters have receded, you should contemplate these aftereffects and try to minimize their effects. How are Repair Costs Determined?1 Once facilities are stabilized, the next step is to assess the damages and determine what repairs are needed to return them to pre-disaster function and capacity. The Code of Federal Regulations, Title 44, §206.226(f ) states: “A facility is considered repairable when disaster damages do not exceed 50 percent of the cost of replacing a facility to its pre-disaster condition, and it is feasible to repair the facility so that it can perform the function for which it was being used as well as it did immediately prior to the disaster.” “Along with your insurance carrier, FEMA requires that you make all reasonable attempts to mimimize further damages … .”
T IDALBAS INGROUP.COM 3 developed the Cost Estimating Format (CEF) to help with articulating repairs needed and estimating the total project cost. Its use should only be on large projects (above $1 million for fiscal year 2022) for which the permanent restorative work (categories C, D, E, F, and G) is less than 90 percent complete. The CEF estimate, when properly prepared , helps develop a more thorough and accurate estimate — including soft costs, ensuring that applicants as well as FEMA have an accurate budget to work with. Do the Repairs Exceed 50 Percent of Replacement (“The 50 Percent Rule”)? Once the estimated cost to repair the facility is established, it is time to consider whether it may be eligible for replacement. To do this, you must develop a cost to completely replace the facility to the same form, function, and design as it existed prior to the triggering event. This replacement cost estimate is then compared to the repair cost estimate as follows2: 1. In accordance with 44 CFR §206.226(f ), a facility is eligible for replacement when the repair cost exceeds 50 percent of the replacement cost. The comparison of repair costs with replacement costs results in a fraction that expresses repair as a percentage of replacement. 2. The numerator of the fraction is the cost of repairing disaster-related damage only and includes costs associated with codes and standards upgrades that apply to the repair of the damaged elements only. The numerator does not include costs associated with: a. Upgrades of non-damaged elements even if required by codes and standards. b. Demolition beyond that which is essential to repair the damaged elements. c. Site work —any exterior work at the site. Examples include: • Excavation • Backfill • Erosion control • Utility installation • Paving d. Soft costs — those not considered as direct construction costs, including: • Architectural costs • Engineering costs • Project Management costs • Financing • Legal fees • Other pre-/post-constructionexpenses
4 D I SAS T E R R ECOVE RY TODAY.COM e. Contents. f. Hazard mitigation measures. g. Emergency Work. 3. The denominator of the fraction is the cost of replacing the facility based on its pre-disaster design (size and capacity) and function in accordance with applicable codes and standards. These codes may relate to structural elements such as seismic resistance, mechanical or electrical systems, or the size of a structure. For example, a code may require a greater amount of space per student in a school, or wider lanes on a bridge. The use of a code related to size is limited in that the replacement facility must have the same capacity as the original facility (even though the physical size of the structure may be greater) (see 44 CFR §206.201[h]). a. When circumstances require a greater capacity for the replacement facility (e.g., a school designed for 400 students now serves a population of 600 students), the costs to increase the capacity are not eligible and are not included in the denominator. In this example, the eligible replacement facility would be one with a capacity of 400 students at a size required by the current space-per-student code. b. The denominator does not include demolition, site work, soft costs, contents, hazard mitigation measures, or emergency work. If the Applicant develops the estimates with assistance from a licensed Professional Engineer, licensed Architect, or Professional Cost Estimator, then the Applicant should submit a written request for replacement to FEMA within one year of the Federal Declaration date. This request should include both repair and replacement cost estimates with supporting documentation on how the Applicant derived at both estimates. 4. The table on page 7 illustrates eligiblecosts determinations. Bear in mind that any new facility (i.e., “replacement”) also requires a thorough Special Consideration review to ensure floodplain management requirements outlined Executive Order 11988 are met, plus meets National Environmental Protection Agency determinations, such as Environmental Impact Statement and/or Environmental Assessment/Finding of No Significant Impact (EA/FONSI).
T IDALBAS INGROUP.COM 5 Substantial Damage Under FEMA’s National Flood Insurance Program (NFIP) For structures that are in a Special Flood Hazard Area (SFHA), another consideration will be whether the damages constitute substantial damage: Substantial damage means damage of any origin sustained by a structure whereby the cost of restoring the structure to its before-damaged condition would equal or exceed 50 percent of the market value of the structure before the damage occurred.3 A floodplain manager’s Substantial Damage determination is part of the NFIP eligibility process and is separate and distinct from the PA eligibility process for determining whether a facility is eligible for replacement or relocation. If a structure meets this definition, then it must be flood-proofed to or above the Base Flood Elevation (BFE) and meet other applicable NFIP requirements. The importance of such a determination goes back to the previous discussions regarding repair versus replacement: “In short, if a facility does not meet the 50 Percent Rule, in cases of substantial damage, replacement might still be the most cost-effective option.”
6 D I SAS T E R R ECOVE RY TODAY.COM “…the BFE will be used to calculate the replacement cost. However, if replacement is thereby indicated, the Advisory Base Flood Elevation will be used to design the replacement facility and to determine eligible costs. If the calculation indicates repair, and the cost to repair disasterrelated damages to the structure plus the cost to elevate or floodproof the structure equal or exceed the cost of a new structure, we will cap total eligible project cost at the replacement cost.” 4 In short, if a facility does not meet the 50 Percent Rule, in cases of substantial damage, replacement might still be the most cost-effective option. Also, in those instances when a facility cannot be adequately flood-proofed or elevated, replacement becomes the only option. It is important to understand that substantial damage determinations are not made by you, the state or FEMA. They are made by the local floodplain management official; thus, it is important to coordinate with him/her as quickly in your recovery as possible. Who determines which structures are“substantially damaged”? Local building official or floodplain manager make “substantial damage” determinations based on the data that is collected.5 To assist in the determination of substantial damage, it may be necessary to prepare a comprehensive damage estimate as described above. How About Relocation? If your facility is eligible for replacement, the next step is determining if it can be replaced at the same location. FEMA funds the permanent relocation6 of a facility when: • An applicable federal, state or local standard, such as a floodplain management regulation, requires that a damaged facility be relocated away from a hazardous area; • The original facility is and will be subject to repetitive heavy damage; • The approval is not barred by other provisions of policy; and • The overall project, including all costs, is cost-effective. If relocation is required, eligible work includes land acquisition and the construction of ancillary facilities such as roads and utilities7, in addition to work normally eligible as part of a facility reconstruction. For relocation to be costeffective, the eligible costs associated with relocating the damaged facility must not exceed the cost of replacing the facility at its original location. Further guidance for relocations can be found in FEMA’s Public Assistance Program and Policy Guide, Version 4, June 1, 2020, VI, Relocation, page 160. When relocation is required by the Regional Administrator, no future funding for repair or replacement of a facility at the original site will be approved, except those facilities which facilitate an open space use outlined in 44CFR part 9.8
T IDALBAS INGROUP.COM 7 “Once a comprehensive scope of work has been developed, the next step is to estimate project costs.” 1. The repair cost does not exceed 50 percent of the replacement cost and no upgrades are triggered 2. The repair cost does not exceed 50 percent of the replacement cost. However, upgrades to undamaged elements are triggered by codes and standards. The total of the two items is greater than 50 percent but less than 100 percent of the estimated replacement cost 3. The repair cost does not exceed 50 percent of the replacement cost. However, upgrades to undamaged elements are triggered by codes and standards. The total of the two items is greater than 100 percent of the estimated replacement cost 4. The repair cost exceeds 50 percent of the estimated replacement cost Repair of eligible damage only. Repair of eligible damage plus mandatory upgrade cost. Repair of eligible damage plus mandatory upgrade cost, but total eligible costs capped at the estimated replacement cost. In this case, the applicant may elect to replace the facility, but total eligible costs are capped at the estimated replacement cost. The facility’s actual replacement cost is eligible. In accordance with 44 CFR §206.226(f ) (2), the applicant may elect to repair the facility in conformity with applicable codes and standards. In this case, eligible costs are limited to the estimated costs of repair or replacement, whichever is lower. CONDITIONS ELIGIBLE COSTS
DRT10 4011-R1 CORPORATE OFFICE 126 Business Park Drive, Bldg 2 Utica, New York 13502 800.382.2468 Outside U.S. (315) 797.3035 [email protected] Copyright © 2022 Rising Phoenix Holdings Corporation. All Rights Reserved. Tidal Basin and the Tidal Basin logo are registered trademarks of Rising Phoenix Holdings Corporation. Follow Disaster Recovery Today on Facebook & Twitter: Facebook.com/TidalBasinGroup Twitter.com/DRToday DISASTER RECOVERY TODAY is published as a public service by Tidal Basin. It is provided for general information and is not intended to replace professional insurance, legal or financial advice for specific cases. WEB ADDRESSES TidalBasinGroup.com DisasterRecoveryToday.com PUBLISHER Daniel A. Craig, MBA EDITOR Sheila E. Salvatore Is there a topic you would like to see covered in an upcoming edition of Disaster Recovery Today? You can make topic suggestions, contact the editor, request free subscriptions and browse our back issues all from our website — DisasterRecoveryToday.com. We look forward to hearing from you. Summary There are numerous things to consider before restoring a facility. In some cases, you may qualify for a new facility or perhaps even a new facility relocated to a safer location. Regardless of whether you are going to repair, replace or relocate — you must present a detailed scope of work (and estimate if possible) for returning the facility to pre-disaster condition, as this is the first step in each scenario. It is equally important to engage your local code officials — including the floodplain administrator — early in the process to ensure that all required work is contemplated. The FEMA Public Assistance Program provides applicants with numerous options and opportunities, especially for those who understand the program well enough to adequately advocate for and defend their position(s). Robert J. Wright THE AUTHOR ____________________ 1 Public Assistance Program and Policy Guide (PAPPG), Version 4, June 1, 2020. Page 157, Section V, Repair vs. Replacement. 2 Public Assistance Program and Policy Guide (PAPPG), Version 4, June 1, 2020. Page 157, Section V, A – Calculation. 3 www.fema.gov/fact-sheet/substantial-damage-determinations, release date: Oct 6, 2021. 4 FEMA Policy 104-008-2: Guidance on the Use of Available Flood Hazard Information. 5 Fact Sheet: NFIP “Substantial Damage” – What Does It Mean? October 6, 2017. 6 Public Assistance Program and Policy Guide (PAPPG), Version 4, June 1, 2020. Page 160, Section VI – Relocation. 7 www.fema.gov. 8 CFR 44 206.226(g)(3). “Regardless of whether you are going to repair, replace or relocate — you must present a detailed scope of work … for returning the facility to pre-disaster condition … .”www.tidalbasingroup.com