Disaster Discourse: The Hagerty Blog

Why Cost Estimating Will Be Even More Critical For Disaster Recovery

Why Cost Estimating Will Be Even More Critical For Disaster Recovery: The Disaster Recovery Reform Act of 2015 and the Simplified Procedures Threshold


In today’s divisive political climate, it’s important to acknowledge bipartisanship, especially when manifested in bold action to improve disaster recovery operations.  Disasters do not care if you are a blue or red state.

Of particular note for local and state jurisdictions affected by natural or manmade disasters, the Reform Act triggers a major shift in how FEMA will fund recovery projects.  This shift could mean a more flexible, efficient process.

The 2015 Reform Act increases the value of the “Simplified Procedures” – or “small projects” threshold – to $1 million for projects funded through FEMA’s Public Assistance (PA) program. This increase will allow communities recovering from a disaster to utilize streamlined processes for formulating, drawing down, and closing out grants.

Disaster-affected communities stand to benefit from this shift through simplified grants management requirements for the vast majority PA program disaster recovery grants.  But it also means communities must be cautious: this shift makes it even more important to have quality cost estimating for disaster recovery grants.

What is the Simplified Procedures Threshold?

Under Section 304 of the Reform Act, for any disaster recovery project estimated to cost less than $1 million, PA funding will be capped at the cost estimate agreed between the affected community and FEMA.  This threshold demarcates how FEMA defines small and large projects, which are funded differently.  For large projects, FEMA funds recovery projects based the actual costs incurred.  But for small projects, FEMA will cap funding at the cost estimate regardless of the actual incurred amount and immediately makes the award based on the estimate. FEMA will only consider increased funding to capture actual cost in the case of a “net small project overrun.” This is a scenario where taking into account all project underruns and overruns, the applicant spent more than the combined estimate for all small projects. In other words, it can be difficult to have a “net small project overrun”, and, therefore, receive additional FEMA funding.

The current small projects threshold is $121,800 – about eight times lower than the new $1 million limit.  As a result, it’s more critical than ever that in disaster recovery, local governments mobilize engineers and architects who can develop construction project estimates to reflect the true cost of doing business in their communities.


How to Make the Most out of the 2015 Reform Act’s Simplified Procedures

More than 98 percent of disaster projects nationwide to repair and protect public infrastructure cost less than $1 million. And the vast majority of FEMA Public Assistance (PA) funding is captured in these projects.  Therefore, in the aftermath of a hurricane, tornado, forest fire, or other disaster, odds are that affected jurisdictions will receive capped FEMA funding to restore firehouses, schools, roads, bridges, and other public places.

The benefit of capped project funding is that communities can avoid the administrative headache of having to prove all actual costs to perform FEMA-eligible work – a long and arduous process which can drain available resources.  This simplified procedure in the Reform Act means that communities can rebuild faster.  However, if the agreed upon total of capped small project funding does not properly account for the post-disaster construction climate or unique local conditions, communities risk not having enough federal funding to fully repair damaged infrastructure.  If costs escalate, it’s challenging, though not impossible, to convince FEMA to increase the grant, but doing so means that the applicant will need to file an appeal for a net small project overrun.

Having been involved in nearly every major disaster since 9/11, we have observed many recovery projects which exceed their original cost estimate.  Cost escalation is common in construction work, especially when performed in communities recovering from a disaster. Constraints on the labor market due to the fact that many construction companies will be working near or even above normal capacity drive up costs, as do special considerations for the availability of material and equipment when there is excessively high demand.

For these reasons, a higher small project funding threshold, which triggers capped FEMA funding, means towns, cities, counties, and states must insist on adequate construction cost estimation.  If communities recovering from a disaster can secure this expertise, either through contracts with specialized estimating firms or in-house cost estimators, we’re confident that this FEMA reform will result in more efficient disaster recovery at all levels of government. And like other costs of administering a disaster recovery, the costs of preparing cost estimates for capped grants is eligible for reimbursement as a Direct Administrative Cost or DAC.

Editor’s Note: This is our third post on the Disaster Assistance Reform Act of 2015. Click here for our original post applauding the House of Representatives’ unanimous passage of the FEMA Disaster Assistance Reform Act.  Click here to see our commentary on the proposed streamlining of Direct Administrative Costs.