[Federal Register Volume 78, Number 192 (Thursday, October 3, 2013)]
[Proposed Rules]
[Pages 61227-61249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23258]



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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 206

[Docket ID FEMA-2013-0042]
RIN 1660-AA73


Public Assistance Cost Estimating Format for Large Projects

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this rule the Federal Emergency Management Agency (FEMA) 
proposes the implementation of the Cost Estimating Format (CEF) as the 
standard estimating procedure for large permanent work projects 
authorized under the Public Assistance program. Under the Public 
Assistance Program, FEMA awards grants to State and local governments, 
Indian tribes, and certain private nonprofit organizations to assist 
them in responding to and recovering from Presidentially-declared 
emergencies and other disasters. The CEF provides a uniform method of 
estimating costs for large projects. In this rule, FEMA also proposes 
to establish reimbursement thresholds to govern situations in which the 
actual cost of a work project is higher or lower than the CEF estimate.

DATES: Submit comments on or before December 2, 2013.

ADDRESSES: You may submit comments, identified by Docket ID FEMA-2013-
0042, by one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of 
Chief Counsel, Federal Emergency Management Agency, 8NE, 500 C Street 
SW., Washington, DC 20472-3100.

FOR FURTHER INFORMATION CONTACT: William Roche, Director, Public 
Assistance Division, Federal Emergency Management Agency, 500 C Street 
SW., Washington, DC 20472-3100, (phone) 202-212-2340; (facsimile) 202-
646-3363; or (email) william.roche@fema.dhs.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Public Participation
II. Background
    A. Public Assistance Program
    B. Traditional Method for Estimating Eligible Cost
    C. Development of the Cost Estimating Format Version 1.0: Grant 
Acceleration Program
    D. Cost Estimating Format Version 2.0
    1. General
    2. Part A--Estimated Base Cost
    3. Part B Factor--General Requirements and General Conditions
    4. Part C Factor--Construction Cost Contingencies/Uncertainties 
(Design and Construction)
    5. Part D Factor--General Contractor's Overhead and Profit
    6. Part E Factor--Cost Escalation Allowance
    7. Part F Factor--Plan Review and Construction Permit Costs
    8. Part G Factor--Applicant's Reserve for Construction
    9. Part H Factor--Applicant's Project Management and Design 
Costs
    10. Summary and Application of the Parts B Through H Factors
III. The Disaster Mitigation Act of 2000
IV. The Expert Panel on Cost Estimating
    A. Establishment of the Panel
    B. Meetings of the Panel
    C. Panel Recommendation Report
    1. Official Endorsement of the CEF
    2. Recommendation of Plus or Minus 10 Percent as the Reasonable 
Floor and Ceiling Thresholds for Project Cost
    3. Close Attention Must Be Made to the Degree of Documentation 
Detail Required for Developing CEF Estimates
    4. Important Points That Must Be Considered When Using the CEF
    5. CEF Training Offered at Disaster Field Offices Should Be Made 
a Resident Course Offering of FEMA's Emergency Management Institute
    6. The Lower-Bound Percentile of Factor C.1 (Preliminary 
Engineering Analysis Stage) Should Be Revised To More Accurately 
Reflect the Risk in Bidding Simple Projects
    7. Cost Data Should Be Obtained for Use in Analyzing Results for 
Each Large Project Estimated by the CEF
    8. The Engineering and Design Services Curves (A and B) Should 
Be Updated as Soon as Practicable When Received From the American 
Society of Civil Engineers (ASCE) Committee of Professional Practice
    9. Incorporate Lessons Learned Into the CEF
V. Proposed Rule
    A. General
    B. CEF Version 2.1
    C. Floor and Ceiling Thresholds
    1. Establishment of Set 10 Percent Floor and Ceiling Thresholds
    2. Ceiling Threshold
    3. Floor Threshold
    4. Improved Projects
    5. Alternate Projects
    D. Appeals
    E. Consideration of Phased Funding
    F. Effective Date
VI. Regulatory Analyses
    A. Executive Order 12866, Regulatory Planning and Review; 
Executive Order 13563, Improving Regulation and Regulatory Review
    B. The Paperwork Reduction Act
    C. The Unfunded Mandates Reform Act
    D. OMB Circular No. A-119, Federal Participation in the 
Development and Use of Voluntary Consensus Standards and in 
Conformity Assessment Activities
    1. Construction Specifications Institute
    2. Reed Construction Data
    E. Executive Order 13132, Federalism
    F. Executive Order 13175, Consultation and Coordination With 
Indian Tribal Governments
    G. Regulatory Flexibility Act
    H. National Environmental Policy Act
    I. Executive Order 12630, Governmental Actions and Interference 
With Constitutionally Protected Property Rights
    J. Executive Order 12988, Civil Justice Reform

Table of Acronyms

A&E Architectural and Engineering
AASHTO American Association of State and Highway Transportation 
Officials
AGCA Associated General Contractors of America, Inc.
AIA American Institute of Architects
APWA American Public Works Association
ASPE American Society of Professional Estimators
BCI Building Cost Index
CCI Construction Cost Index
CEF Cost Estimating Format
CFR Code of Federal Regulations
CSI Construction Specifications Institute
DMA 2000 Disaster Mitigation Act of 2000 (Pub. L. 106-390)
E.O. Executive Order
EA Environmental Assessment
EIS Environmental Impact Statement
EMI Emergency Management Institute
FEMA Federal Emergency Management Agency
FONSI Finding of No Significant Impact
FR Federal Register
FY Fiscal Year
GAP Grant Acceleration Program
HMP Hazard Mitigation Planning
HVAC Heating, Ventilation, and Air-Conditioning
NACE National Association of County Engineers
NEMIS National Emergency Management Information System
NEPA National Environmental Policy Act (42 U.S.C. 4321 et seq.)
NETC National Emergency Training Center
NSPE National Society of Professional Engineers
NTTA National Technology Transfer and Advancement Act of 1995 (Pub. 
L. 104-113)
OMB Office of Management and Budget
PAC Public Assistance Coordinator
PNP Private Non-Profit
PRA Paperwork Reduction Act (44 U.S.C. 3501 et seq.)
RFA Regulatory Flexibility Act (5. U.S.C. 601-612)
TAC Technical Assistance Contractor
UMRA Unfunded Mandates Reform Act (2 U.S.C. 1531-1538)

I. Public Participation

    We encourage you to participate in this rulemaking by submitting

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comments and related materials. We will consider all comments and 
material received during the comment period.
    If you submit a comment, identify the agency name and the docket ID 
for this rulemaking, indicate the specific section of this document to 
which each comment applies, and give the reason for each comment. You 
may submit your comments and material by electronic means, mail, or 
delivery to the address under the ADDRESSES section. Please submit your 
comments and material by only one means.
    Regardless of the method used for submitting comments or material, 
all submissions will be posted, without change, to the Federal e-
Rulemaking Portal at http://www.regulations.gov, and will include any 
personal information you provide. Therefore, submitting this 
information makes it public. You may wish to read the Privacy Act 
notice that is available via a link on the homepage of 
www.regulations.gov.
    Viewing comments and documents: For access to the docket to read 
background documents or comments received, go to the Federal e-
Rulemaking Portal at http://www.regulations.gov. Background documents 
and submitted comments may also be inspected at FEMA, Office of Chief 
Counsel, 8NE, 500 C Street SW., Washington, DC 20472-3100.
    Public Meeting: We do not plan to hold a public meeting, but you 
may submit a request for one at the address under the ADDRESSES section 
explaining why one would be beneficial. If FEMA determines that a 
public meeting would aid this rulemaking, it will hold one at a time 
and place announced by a notice in the Federal Register.

II. Background

A. Public Assistance Program

    Under the Public Assistance program, authorized by the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act \1\ (Stafford 
Act) and implemented through regulations in title 44 of the Code of 
Federal Regulations (CFR), the Federal Emergency Management Agency 
(FEMA) awards grants to State and local governments, Indian tribes, and 
certain private nonprofit organizations to assist them in responding to 
and recovering from Presidentially-declared emergencies and major 
disasters. Specifically, the program provides assistance for debris 
removal, emergency protective measures, and permanent restoration of 
infrastructure. FEMA refers to debris removal and emergency protective 
measures as ``emergency work.'' \2\ FEMA also categorizes these types 
of work as Category A (debris removal) and Category B (emergency 
protective measures). Permanent restoration of infrastructure, which 
FEMA refers to as ``permanent work,'' \3\ includes several categories, 
including Roads and Bridges (Category C), Water Control Facilities 
(Category D), Buildings and Equipment (Category E), Utilities (Category 
F), and Parks, Recreational Facilities, and Other Items (Category G). 
The Cost Estimating Format (CEF) proposed by this rulemaking applies to 
permanent work only (Categories C-G).
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    \1\ Disaster Relief Act of 1974, Public Law 93-288, 88 Stat. 143 
(May 22, 1974), as amended, 42 U.S.C. 5121 et seq.
    \2\ See 44 CFR 206.201(b).
    \3\ See 44 CFR 206.201(j).
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    FEMA may only provide assistance under the Public Assistance 
program after the President issues an emergency or major disaster 
declaration. See 44 CFR 206.1. Under the Public Assistance program, the 
``grantee'' of a FEMA grant of financial assistance is generally the 
government of the State for which an emergency or major disaster has 
been declared, but may also be an Indian Tribal government. See 44 CFR 
206.201(e). Additionally, a State agency, local government, eligible 
private nonprofit organization, or Indian tribe may submit an 
application to the grantee for assistance as a ``subgrantee'' under the 
State's grant. See 44 CFR 206.201(a); 206.222. Public assistance is 
provided at a cost share, set by the President in the declaration. 
Usually, the Federal share is 75 percent of the total eligible cost, 
and the subgrantee share is 25 percent of the total eligible cost. See 
42 U.S.C. 5172; 44 CFR. 206.47.
    To apply for a Public Assistance grant, the applicant submits a 
Request for Public Assistance (FEMA Form 009-0-49 \4\) to FEMA through 
the grantee. Upon FEMA's approval of the grant application, the grantee 
notifies the applicant, and the applicant becomes a subgrantee. See 44 
CFR 206.202.
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    \4\ The Office of Management and Budget has approved the Request 
for Public Assistance form (FEMA Form 009-0-49) under information 
collection number 1660-0017 through July 31, 2016.
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    The basis for the amount of a Public Assistance grant is provided 
in a Project Worksheet (FEMA Form 009-0-91 \5\). The Project Worksheet 
documents the details of the project, which is a logical grouping of 
eligible work required as a result of a declared major disaster or 
emergency. A project may include eligible work at several sites, and 
may include more than one Project Worksheet. A Project Worksheet is the 
primary form used to document the location, damage description and 
dimensions, scope of work, and cost estimate for each project. The 
scope of work may change as the work on the project progresses. If FEMA 
approves a revised scope of work, a new version of the Project 
Worksheet is generated. Some projects may have several versions of a 
Project Worksheet. An applicant may appeal FEMA determinations made in 
each version of the Project Worksheet pursuant to 44 CFR 206.206.
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    \5\ The Office of Management and Budget has approved the Project 
Worksheet form (FEMA Form 009-0-91) under information collection 
number 1660-0017 through July 31, 2016.
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    FEMA divides applications for Public Assistance into two groups--
large projects and small projects--based on the dollar amount of the 
project. See 44 CFR 206.203(c). The threshold for large and small 
projects is adjusted annually to reflect changes in the Consumer Price 
Index for All Urban Consumers published by the United States Department 
of Labor. The threshold for large projects in Fiscal Year 2013 is 
$67,500 (77 FR 61423, Oct. 9, 2012). This proposed rule only affects 
large projects.
    Project Worksheets for large projects are developed by a FEMA 
Project Specialist, working with the applicant/subgrantee, and are 
submitted to a FEMA Public Assistance Coordinator (PAC) Crew Leader for 
review and processing. Large projects are funded on documented actual 
costs; however, work typically is not complete at the time of project 
approval. Therefore, FEMA obligates large project grants based on 
estimated costs. The obligation process is the process by which funds 
are made available to the grantee. The funds reside in a Federal 
account until drawn down by the grantee and paid to the subgrantee as 
the project progresses and actual costs are incurred. If FEMA approves 
a revised scope of work, a revised Project Worksheet is issued with a 
revised estimate, and funds are obligated or deobligated based on the 
revised estimate.

B. Traditional Method for Estimating Eligible Cost

    This section describes the traditional method FEMA has used to 
estimate a project's eligible costs. For a more detailed explanation of 
this method, please refer to FEMA's Public Assistance Guide, available 
online at http://www.fema.gov/public-assistance-policy-and-guidance/public-assistance-guide. If work on a project is complete at the time 
of the applicant's request for

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Public Assistance funding, the grant amount is based on the actual 
cost. However, if work on a project is not complete at the time of the 
applicant's request for Public Assistance funding, FEMA must use a cost 
estimate to determine the base cost of the project. The base cost is 
the amount obligated for the project prior to project completion. The 
base cost is also known as construction costs, and includes the cost of 
labor, materials, and equipment. The base cost (construction costs) 
plus nonconstruction costs equal the total eligible cost. 
Traditionally, FEMA does not reimburse nonconstruction costs until the 
project is complete.
    Typically, FEMA uses the unit cost method to determine the 
estimated base cost. Unit costs are line items representing the 
itemized breakdown of construction costs for completing the project. 
For example, a typical project will have line items for labor costs, 
such as an equipment operator, a foreman, a dispatcher, and a laborer, 
each representing a unit cost. There will also be line items for 
material costs, such as concrete, paint, or stone. Finally, there will 
be line items for equipment, such as a flatbed truck, a tractor, or a 
bulldozer. FEMA may use several cost data sources to determine unit 
costs. These sources include State or local data from previously 
completed projects, commercial estimating sources, and FEMA cost codes.
    Once the base cost is estimated, and the Project Worksheet is 
approved, FEMA obligates the amount of the base cost to the grantee for 
disbursement to the subgrantee. This may occur before the subgrantee 
has begun work on the project, or after the subgrantee has already 
started work on the project. (If the entire scope of work has already 
been completed, the amount would be for actual eligible costs and an 
estimate of eligible costs would not be necessary.)
    As work progresses on a project, the subgrantee may request 
additional funding for cost overruns, either if the scope of work 
changes, or if the scope of work costs more than originally estimated. 
There are several reasons why a subgrantee may need additional funding, 
but usually it is because additional damage is discovered that was not 
visible at the time the estimate was determined, or there have been 
variations in unit prices, or there have been delays in timely starts 
or completion of the scope of work. The subgrantee must evaluate each 
cost overrun and, when justified, submit a request for additional 
funding through the grantee to the FEMA Regional Administrator for a 
final determination. The process for FEMA's approval of additional 
funding is the same as for the initial approval of funds--FEMA will 
perform a site inspection and formulate a scope of work. This will 
generate an additional version of the original Project Worksheet that 
was initially formulated and approved for the project. All requests for 
additional funding must contain sufficient documentation to support the 
eligibility of all claimed work and costs. See 44 CFR 206.204(e). If 
the Regional Administrator determines that eligible costs exceed the 
initial approval, the Regional Administrator will obligate additional 
funds as necessary. See 44 CFR 206.205(b)(2).
    Once the project is complete, the project enters the reconciliation 
phase. It is during this phase that FEMA calculates the amount of 
eligible nonconstruction costs and adds them to the base cost. Eligible 
nonconstruction costs include project design and management costs, 
contractor overhead and profit, fees, cost escalation due to inflation, 
and other factors affecting the overall cost of the project, such as 
safety and security, including guard services, first aid, barricades, 
and traffic control personnel. FEMA obligates the amount of eligible 
nonconstruction costs at the end of the reconciliation phase of the 
project. The final eligible cost of the project is based upon the 
reasonable, actual construction and nonconstruction costs incurred by 
the subgrantee in completing the eligible scope of work.
    This process can be problematic in several ways. The main problem 
is that the total eligible cost of the project is not known until the 
project reconciliation phase, after work has been completed. There is 
no clear budget during the beginning stages of the project. The 
subgrantee can request additional funding as the project progresses, 
but the subgrantee's expectation of funding at the beginning could be 
much higher than approved costs at the end. Often, a subgrantee appeals 
the estimated amounts before even embarking on construction, which 
greatly slows the process of reconstruction.
    Another significant problem with this method is that the subgrantee 
incurs nonconstruction costs during the life of the project but is not 
able to recover those expenditures until the work is complete. The 
subgrantee cannot be certain that all of its nonconstruction costs will 
be reimbursed until FEMA makes an eligibility determination after 
project completion, and nonconstruction costs could be large. Even if 
the estimated base cost at the beginning of the project is accurate, it 
could end up being only half of the total project cost once the 
nonconstruction costs are added to it after project completion (during 
the project reconciliation phase). In such cases, only half of the 
total project cost would be funded at the beginning, resulting in 
hardship for the subgrantee because the subgrantee must cover the other 
half of the costs from its own pocket until project closeout.
    Another problem is that the process is time-consuming because 
funding for base costs often occurs in stages due to cost overruns. If 
the subgrantee encounters a cost overrun, which is common in large 
projects, work on the project is often halted until the approval 
process for additional funding is complete. This approval in stages 
also leads to more opportunities for disagreement over cost estimates 
and methods of repair. Also, there is no cost-saving incentive for the 
subgrantee because the subgrantee does not have a clear idea of its 
budget at the beginning, and knows that it can continue to request 
additional funding throughout the life of the project.
    Finally, the process necessitates FEMA's presence throughout the 
life of the project to oversee and administer cost overruns, resulting 
in large administrative costs for the agency.

C. Development of the Cost Estimating Format (CEF) Version 1.0: the 
Grant Acceleration Program (GAP)

    After the Northridge California earthquake in 1994, FEMA began to 
develop a new cost estimating method, referred to as the Grant 
Acceleration Program, in an attempt to correct the problems just 
outlined with the traditional method of estimating costs. The 
Northridge earthquake occurred in a large metropolitan area, so much of 
the damage was to large, complex buildings. The damage was often not 
apparent during the initial inspection (which is common with earthquake 
damage), and there were many cases of serious underlying structural 
damage that required sophisticated engineering analysis. To provide 
adequate funding for subgrantees to cover the repair to this damage 
earlier in the grant process, FEMA established a voluntary program 
using the GAP method that allowed participants to receive a fair and 
reasonable fixed budget amount up-front, thereby accelerating the 
normal funding procedure (hence the name Grant Acceleration Program).
    Unlike the traditional method, which provided funding for the 
estimated base cost at the beginning of the project but did not 
reimburse nonconstruction costs until after the project was completed,

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the GAP method provided subgrantees with funding for the total 
estimated cost of the project (construction and nonconstruction costs) 
at the beginning. The estimated total cost under GAP included the 
estimated base cost plus the estimated nonconstruction costs. Under the 
traditional method, FEMA did not need to estimate nonconstruction 
costs, because these costs are reimbursed after they are incurred, and 
therefore the actual amount is known. Under the GAP method, FEMA 
obligated funding for these costs before they were incurred, so FEMA 
had to estimate them.
    To determine the amount of the nonconstruction costs under GAP, 
FEMA used a pre-established percentage markup. The amount of the markup 
is determined using RS Means Reed Construction Data. RS Means supplies 
construction cost information to the construction industry, and 
publishes a collection of annual construction cost data books which are 
widely used by the construction industry. This established percentage 
markup provided a systematic and uniform method of estimating 
nonconstruction costs consistent with industry practice.
    Under the GAP system, once FEMA determined the estimated total cost 
of the project, that amount was offered to the subgrantee as a fixed 
sum. If the subgrantee accepted the offer, the subgrantee could not 
request additional funding as the project progressed. The idea was that 
further funding would not be necessary, since the amount that was 
offered to the subgrantee was for the total cost of the project, not 
just the base cost as with the traditional method. The GAP method was 
designed to be much more accurate and consistent than the traditional 
method and allowed the subgrantee to draw down funds for 
nonconstruction costs as they were incurred. Under GAP, if there were 
any cost overruns, the subgrantee could not request reimbursement for 
the amount of the overrun, and there was no right to appeal. If there 
was a cost underrun, the subgrantee could use the unspent balance for 
approved mitigation activities pursuant to section 406 of the Stafford 
Act. See 42 U.S.C. 5172.
    The creation of GAP was the first step in addressing the problems 
with the traditional method of estimating and reimbursing project 
costs. There were some drawbacks to GAP, however. The main drawback was 
that the subgrantee could not request additional funding. This is 
problematic if there are large cost overruns. GAP was modified to 
address this and other problems, and eventually evolved into a new 
version of the cost estimating format in 1998, which is referred to as 
CEF 2.0.

D. Cost Estimating Format (CEF) Version 2.0

1. General
    CEF 2.0 provides a uniform method of estimating costs for large 
projects. It accounts for costs incurred across the entire spectrum of 
eligible work (from design to project completion). Under the CEF, FEMA 
obligates the entire amount of the Federal share of the estimate up-
front to the grantee, and payments are made by the grantee to the 
subgrantee in increments as items of work are completed or near 
completion (i.e., less than a week from completion). The subgrantee can 
request additional amounts for cost overruns pursuant to 44 CFR 
206.204.
    CEF 2.0 is made up of various parts, categorized as parts A through 
H, that are compiled by a FEMA estimator (who is either the Public 
Assistance Project Specialist or is supervised by the Public Assistance 
Project Specialist) in a CEF Spreadsheet. Note that an applicant may 
provide its own estimate of the project cost; if so, the Public 
Assistance Project Specialist uses the CEF to validate that estimate. 
The main part of the CEF is Part A, which is the base cost 
(construction costs) required to complete the approved scope of work. A 
FEMA cost estimator uses a Part A worksheet to determine the estimated 
base cost. After estimating the Part A base cost, the FEMA estimator 
applies a series of factors (referred to as Parts B through H) to the 
Part A base cost estimate. With the exception of Part F, these factors 
are percentage factors. For example, if a Part B percentage factor is 2 
percent, the estimator adds 2 percent of the Part A estimated base cost 
to the total estimate. Sometimes the CEF provides a recommended range 
of percents for each factor, such as 3 to 6 percent, and it is up to 
the discretion of the FEMA estimator which percentage to apply, 
depending on the specifics of the project. The FEMA estimator must 
detail why he or she chose a specific percentage in a special section 
of the CEF worksheet designed for this purpose. This flexibility in the 
CEF methodology allows it to more accurately estimate the many 
different types of large projects under the Public Assistance program.
    The Part B through H factors represent the nonconstruction costs 
(also referred to as construction-related costs), and are used only if 
the costs represented by the Parts B through H factors are not 
otherwise itemized in Part A. The costs represented by the factors are 
allowable project costs under 44 CFR part 13, Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments. The cost estimator adds the estimated nonconstruction 
costs to the Part A base construction cost using a CEF Worksheet to 
estimate the total cost of completing the project. This ``forward-
pricing'' methodology provides an estimate of the total eligible 
funding at the beginning of the project. The estimate, which FEMA uses 
to approve funds for the project, allows the subgrantee to more 
accurately manage the budget with a greater degree of confidence.
    Typically, a subgrantee uses a general contractor and a number of 
subcontractors to complete a large construction project in a 
competitively bid environment. The structure of the CEF mirrors the 
subgrantee/general contractor/subcontractor relationship for eligible 
work. Part A costs are representative of the construction efforts 
required to complete the eligible work; it represents the costs of the 
trade or subcontractor(s). Parts B, C, D, and E represent the general 
contractor or equivalent costs; they represent the costs of completing 
the construction work over and above the base construction costs 
itemized in Part A. Parts F, G, and H represent the subgrantee's non-
construction project costs, including preparation of design or contract 
documents, plan review and permit fees, and managing project design and 
construction. The CEF Parts are described in detail below.
2. Part A--Estimated Base Cost
    Preparing a precise base cost estimate in Part A is critical to the 
accuracy of the total project estimate developed with CEF 2.0. All 
construction work activities must be itemized and quantified in Part A. 
Construction work activities include labor, equipment, and materials, 
including small tools, incidentals, and hauling costs necessary to 
complete the work. (Part A also includes the subcontractor's overhead 
and profit, but not the general contractor's overhead and profit, which 
is included in the Part D factor.) Once the construction work 
activities are itemized, the estimator enters a unit cost for each 
item. There are various types of cost data that the estimator may use 
for the unit costs. The preferred cost data is a bid-tab (short for bid 
tabulation), which is a bidder's amount for each pay item in a 
contract. The next preferred cost data is local cost data (also 
referred to as average weighted unit price data). The estimator can 
usually obtain local cost data from local completed project

[[Page 61231]]

costs or a comparable bid-tab. If there hasn't been a bid on the 
contract, local cost data is the preferred cost data because it is the 
most accurate reflection of what a project will cost; it is data from 
actual projects that took place in the general vicinity of the project 
being estimated. Other types of cost data, described below, are less 
accurate because they reflect national averages.
    If the FEMA estimator cannot obtain appropriate local cost data, 
the next preferred cost data is the most current nationally-recognized 
construction data warehouse publications, such as RS Means, BNi 
Costbooks, Marshall & Swift, or Sweets Unit Cost Guide. For ease of 
reference, cost data publications are readily available to the FEMA 
estimator in the disaster field office.
    If the estimator is unable to use local cost data or a cost data 
publication from a nationally-recognized construction data warehouse, 
then FEMA cost codes or other commercial cost data estimating sources 
are a last source of reference for unit prices in preparing Part A base 
costs. These are the least preferred sources of cost data, however, 
because they are the least accurate. Local cost data best represent 
actual costs because the local economic factor is already incorporated. 
The construction data warehouses are the next preferred because they 
are updated quarterly. FEMA cost codes are generally averages or 
estimates for a large geographical area and are not updated as 
frequently as local cost data; therefore, they are the least preferred.
    In addition to the itemization of each item of work, Part A costs 
are split into permanent and non-permanent work, and completed and 
uncompleted work. In order to accurately apply CEF cost factors, a 
project is divided into different types of work, depending on how the 
restoration activities match the requirements of the Public Assistance 
program. The separation of completed and uncompleted work keeps the CEF 
estimate organized and easy to understand. After the FEMA estimator 
completes Part A, which includes the amount for the completed permanent 
and non-permanent work and the estimate for the uncompleted permanent 
and non-permanent work, the estimate for Part A is entered into the CEF 
spreadsheet. The FEMA cost estimator then applies the Parts B through H 
factors to this estimate, as described below.
3. Part B Factor--General Requirements and General Conditions
    Part B accounts for non-permanent job site work that is not readily 
itemized in Part A. Part B is split into B.1, General Requirements, and 
B.2, General Conditions. General requirements are those costs typically 
described in the general requirements of construction specifications. 
They include safety and security items, temporary services and 
utilities, quality control, and submittals, each described more fully 
below.
    Safety and security items include guard service, first aid, 
barricades, uniformed traffic persons, flagging, railings, toe-boards, 
rented fencing, safety equipment (such as harnesses and scaffolding), 
fire protection (such as fire extinguishers and temporary hydrants), 
and temporary signage that may be required by a regulatory authority to 
control pedestrian or vehicle detours within and around the 
construction zone. For safety and security items, CEF 2.0 recommends a 
4 percent factor for most construction sites, but the FEMA estimator 
may choose up to a 6 percent factor for complex projects such as 
airports, marinas, ports, projects in urban areas, and projects in 
large segmented sites with phased construction.
    Temporary services and utilities include construction trailer or 
office space, and related office equipment. The space may be for the 
construction job superintendent or for inspectors. It also includes 
temporary utilities such as construction water, electricity, 
telephones, construction craft sanitary facilities, and any weather 
protection that may be necessary for the temporary services and 
utilities. CEF 2.0 recommends a 1 percent factor for temporary services 
and utilities.
    Quality control is independent testing and inspection by an 
organization, other than the subgrantee or contractor, with expertise 
specific to the project scope of work. Examples include concrete 
strength testing, water quality testing, and non-destructive 
examination of welds (joints). CEF 2.0 recommends using a default of 
0.5 percent for most projects and increasing the value up to 1 percent 
as the overall project complexities increase.
    Submittals include the contractor's costs for preparation of shop 
drawings, materials certifications and instructions, providing samples 
and product data, and construction progress schedules. CEF 2.0 
recommends a 5 percent factor for submittals.
    General conditions, the B.2 factor, represent the general 
contractor's on-site project management costs. This factor covers field 
supervision and quality control costs. The quality control costs in B.2 
are different than the quality control costs in B.1. The B.1 quality 
control costs are costs incurred by an inspection service or 
subcontractor in meeting discipline-specific requirements to verify 
conformance to specification (e.g., field testing of concrete and soil 
backfill, laboratory testing of reinforcing steel, field testing of 
electrical components after installation). The quality control costs in 
B.2 are general contractor costs to design, manage, and report results 
of the total project quality control program. CEF 2.0 recommends a 4.25 
percent factor for B.2.
4. Part C Factor--Construction Cost Contingencies/Uncertainties (Design 
and Construction)
    Part C addresses construction cost contingencies and uncertainties. 
It accounts for the budgetary risk associated with project unknowns and 
complexities in determining the scope of work. It is included in the 
CEF estimate to create an appropriate level of probability for 
completing the project within that estimate. Part C is made up of C.1, 
Design Phase Scope Contingencies, C.2, Facility or Project 
Constructability, C.3, Access, Staging, and Storage Contingencies, and 
C.4, Economies of Scale.
    The C.1 factor, Design Phase Scope Contingencies, represents 
standard cost estimating contingencies based on the design and 
engineering process as a function of time. This contingency is based on 
the concept that there are typically more unknowns and items at the 
schematic design stage than at the final design stage. The unknowns 
gradually decrease as the scope of work is defined, details for 
completing the work are developed, and the project advances towards a 
set of construction drawings and specifications that can be used by a 
construction contractor. The project is evaluated to determine the 
design phase at the time the estimate is prepared.
    There are two levels of design development that the estimator 
considers for the C.1. factor: (1) The preliminary engineering analysis 
stage, and (2) the working drawing stage. At the preliminary 
engineering analysis stage, concepts have been developed but without a 
significant level of detailing. It is difficult to accurately quantify 
work at this stage, and contractors assume a relatively high level of 
risk in bidding on a project at this stage. CEF 2.0 recommends a factor 
of 15 to 20 percent (depending on the complexity of the project). At 
the working drawing stage, the design is more advanced, concepts have 
been determined, detailing is more complete, and work tasks and 
quantities have been readily defined. Contractors would assume a low to 
medium level of risk in bidding on a project at this stage.

[[Page 61232]]

CEF 2.0 recommends a factor of 2 to 10 percent at the working drawing 
stage (depending on the level of completeness of the working drawings).
    The C.2 factor, Facility or Project Constructability, addresses 
project complexity. The complexity of construction activities varies 
among the different types of projects. For new projects, the 
constructability factor is not applied; it is assumed that the design 
process takes the complexity of the project into account. The 
constructability factor is applied for repair and retrofit projects. 
These projects must be accomplished within the physical and operations 
constraints of existing facilities, tend to consist of tasks that are 
more intensely detailed and sequenced, and require closer supervision 
throughout the process.
    The constructability factor represents site conditions or 
construction process complexities such as steep site embankments, 
unstable soil conditions, difficult subsurface construction conditions 
requiring such activities as de-watering and rock excavation, extreme 
weather conditions affecting productivity (such as winter shutdowns), 
urban sites, special building code requirements, availability of 
adequate energy, skilled craft labor, and building materials, the 
subgrantee's special requirements and restrictions, and environmental 
considerations. The subgrantee's requirements and restrictions should 
be reasonable; they should apply to the specific services related to 
the eligible scope of construction. For example, there may be a 
requirement for interstate highway construction to occur during night 
hours because of peak traffic flow impacts.
    If possible, project complexity issues should be addressed in Part 
A of the CEF. However, if certain project conditions cannot be 
identified or quantified, CEF 2.0 recommends suitable factors depending 
on the type of work. CEF 2.0 recommends a percentage range of 1 to 2 
percent for roads (rural-urban), 1 to 5 percent for bridges and 
culverts (simple-complex), 1 to 5 percent for water control facilities, 
1 to 2 percent for simple open buildings, 1 to 5 percent for schools, 
libraries, and offices, 1 to 7 percent for hospitals, museums, and 
historic buildings, 1 to 5 percent for public utilities, and 1 to 5 
percent for park and recreation facilities. The FEMA estimator should 
assign a C.2 factor of 0 to 1 percent for simple construction projects, 
and should assign a factor at the upper end of the applicable range for 
projects with a combination of features that increase complexity. For 
example, two bridges may require the same materials and equipment, but 
if unstable soil conditions exist at one of the bridges, the work at 
that bridge will require more detailed sequencing and greater 
supervision.
    The C.3 factor, Access, Storage, and Staging Contingencies, 
addresses project site conditions that impose additional costs on the 
work activities listed in Part A. As with the C.2 factor, these items 
should be addressed in Part A. But if these contingencies are not 
accounted for in Part A because the need for them is unclear, then the 
C.3 factor should be applied. The C.3 factor includes site access, 
storage, and staging.
    Site access addresses access to the project site. There may be 
difficult or long access routes for trucks delivering materials, a 
temporary access roadway or driveway constructed to provide access for 
equipment, site loading conditions requiring heavy equipment (such as 
barges, cranes, or forklifts), off-site parking for workers, and 
obstructions created by utilities or exposed systems.
    Storage addresses the storage of construction materials and 
equipment on site to support proper staging and construction 
activities. There may be offsite storage of materials due to space 
constraints, temporary easements, and lot, sidewalk, or roadway space 
rental costs.
    Staging addresses the timing and execution of the work, which could 
be complicated by occupation of facilities, lack of space, and access 
inside the facility. This factor should be used for sites that have 
work access limitations because services must continue to run in spite 
of construction (such as hospitals). CEF 2.0 recommends a factor of 1 
to 4 percent for each of the C.3 factors, according to the impact each 
of the C.3 factors has on project cost.
    The C.4 factor, Economies of Scale, addresses the increases or 
decreases in cost resulting from task or project size. For example, the 
mobilization cost for a worker is proportionally higher for one day's 
work than for 30 days' work. Economies of scale are particularly 
applicable to new construction projects, but are also applicable to 
other types of work where there is a reduction in cost due to project 
size. CEF 2.0 recommends a factor of 0 percent for projects under 
$500,000, -0.5 percent for projects under $2 million, -1 percent for 
projects under $10 million, and -2 percent for projects over $10 
million.
5. Part D Factor--General Contractor's Overhead and Profit
    Part D includes three parts: D.1, General Contractor's Overhead; 
D.2, General Contractor's Insurance, Payment, and Performance Bonds; 
and D.3, General Contractor's Profit. The general contractor's overhead 
includes main office expenses, including labor and salary costs for 
personnel, including the principals, estimators, project managers, and 
general office staff, plus all other operational expenses associated 
with working out of the main office. CEF 2.0 recommends a factor of 7.7 
percent for overhead. For the D.2 factors, CEF 2.0 recommends a factor 
of 1.5 percent for the general contractor's payment and performance 
bonds, 0.3 percent for builder's risk insurance, and 1.5 percent for 
public liability insurance. The total value of the D.2 factor is fixed 
at 3.3 percent. For the D.3 factor (the general contractor's profit), 
CEF 2.0 recommends a range of 3 to 10 percent, depending on the size of 
the project and the type of work. For example, for projects over $10 
million, the recommended factor is 3 percent for repair, retrofit, or 
new construction. For projects under $500,000, the recommend factor is 
10 percent for repair, retrofit, or new construction.
    Part D should not be applied to projects completed using the 
subgrantee's labor, equipment, and materials (i.e., ``force account'' 
work), nor does Part D reflect the subcontractor's overhead and profit; 
the subcontractor's overhead and profit should be included in the line 
items in Part A.
6. Part E Factor--Cost Escalation Allowance
    Part E accounts for cost escalation over the duration of the 
project and is based upon an inflation adjustment from the time the 
estimate is prepared until the mid-point of construction for the 
eligible scope of work. This factor is only used for escalating the 
cost of uncompleted work. The estimator applies the Part E factor by 
establishing a design and construction timeline to the mid-point of 
construction. The timeline will vary according to whether the eligible 
work is already started or is delayed. The escalated cost of 
construction is equal to the sum of Parts A through D times the number 
of months to the midpoint of uncompleted construction times the 
escalation factor.
    The escalation factor is based on a 2-year average of either the 
Building Cost Index (BCI) or the Construction Cost Index (CCI). These 
indices are published in the Engineering News-Record, a monthly trade 
publication. Engineering News-Record collects and publishes monthly 
price data on 75 different building materials from 20 major cities in 
the United States, plus Montreal and Toronto. It uses this data to 
create the

[[Page 61233]]

BCI and CCI each month (see http://enr.construction.com/economics/default.asp). When applying CEF 2.0, the estimator uses either the BCI 
or the CCI to calculate the escalation factor, depending on the nature 
of the project.
7. Part F Factor--Plan Review and Construction Permit Costs
    Part F addresses fees charged by State and local agencies for plan 
reviews and construction permits. It includes all fees that are paid to 
obtain approvals required before construction can commence. Part F is 
split into two factors: F.1, Plan Review Fees; and F.2, Construction 
Permit Fees. The actual fees are included in the CEF estimate, unlike 
other CEF factors where the estimator applies a percentage factor. Part 
F is not applicable in situations where State and local agencies waive 
fees during disaster recovery situations.
8. Part G Factor--Applicant's Reserve for Construction
    Part G is the applicant/subgrantee's reserve for potential change 
orders related to eligible work and any other incident costs that may 
be incurred after the construction contract is awarded. It does not 
reflect discretionary change orders for upgrades or for any ineligible 
work. The applicant/subgrantee's reserve is based on project size. CEF 
2.0 recommends a factor of 7 percent for projects less than $200,000, 6 
percent for projects ranging from $200,001 to $800,000, 5 percent for 
projects ranging from $800,001 to $1,400,000, 4 percent for projects 
ranging from $1,400,001 to $2 million, and 3 percent for projects 
greater than $2 million.
9. Part H Factor--Applicant's Project Management and Design Costs
    Part H represents the applicant/subgrantee's costs for overall 
project development and management throughout the design and 
construction phases. This factor includes the applicant/subgrantee's 
costs for managing the design process, basic design and inspection 
services normally performed by an architecture and engineering firm, 
and managing the construction phase (either third party or in-house). 
Incidental development costs are also absorbed into these categories. 
Part H costs are distinct from those management and administrative 
costs incurred by the applicant/subgrantee to manage the Public 
Assistance grant and reimbursed by FEMA pursuant to section 325 of the 
Stafford Act and 44 CFR part 207.
    Part H.1 includes the Applicant's Project Management--Design Phase. 
The applicant/subgrantee's costs to manage the project during the 
design phase include managing the Architectural and Engineering (A&E) 
contracts for final design, managing the permitting and special review 
process, and interfacing with other agencies. (A&E contracts are 
contracts for the provision of design services.) A value of 1 percent 
has been established for this factor. The H.1 factor is not applicable 
in those situations where design is not required.
    Part H.2 includes A&E design contract costs. This factor covers the 
cost of basic design and inspection services, normally performed by an 
A&E firm, as well as a number of additional services not necessarily 
required with every construction project. The basic services consist of 
preliminary engineering analysis, preliminary design, final design, and 
construction inspection. Engineering curves are used to estimate the 
cost of basic engineering services as a percentage of the estimated 
construction cost. One of two curves, Curve A and Curve B, may be used 
to determine the appropriate percentage. Curve A applies to projects 
with above-average complexity and non-standard design. Curve B applies 
to projects of average complexity. The curves show a correlation 
between engineering costs and total construction costs. The curves are 
included in the Public Assistance Guide, FEMA 322, June 2007, Chapter 
2, pages 58 and 60, at http://www.fema.gov/government/grant/pa/policy.shtm and in the docket for this rulemaking. To use the curves, 
the FEMA estimator starts with the estimate of construction costs. The 
FEMA estimator finds the construction cost on the horizontal axis and 
then finds the associated percentage of engineering and design services 
from the vertical axis. This percentage can be multiplied by the 
estimated construction cost to determine an appropriate engineering and 
design cost estimate. This estimate becomes the H.2 factor. The H.2 
factor is not applicable in those situations where design, construction 
inspection, or other basic services are not required.
    Part H.3 includes the Project Management--Construction Phase. 
Project management costs during the construction phase include quality 
assurance and management of additional testing during construction, 
advertising and awarding of the construction contract, decisions on 
construction problems and requests for information, management of 
change orders for on-site construction conditions and design errors, 
and omissions and unforeseen problems, such as differing site 
conditions and hidden damage. The H.3 factor is applied depending on 
the amount of total construction costs. For construction costs under 
$500,000, FEMA applies a 6 percent factor. For construction costs of 
$500,000 to $1,000,000, FEMA applies a 5 percent factor. For 
construction costs of $1,000,000 to $5,000,000, FEMA applies a 4 
percent factor. For construction costs of more than $5,000,000, FEMA 
applies a 3 percent factor.
10. Summary and Application of the Parts B Through H Factors
    The expenses reflected in the Parts B through H factors can 
reasonably be expected to occur because they are costs directly related 
to the project and are almost always encountered during the course of 
construction. When FEMA developed these factors for CEF 2.0, it 
determined the Parts B through H percentage factors using guidance 
available from the Construction Specifications Institute (CSI) and Reed 
Construction Data, as well as data from closed-out grants for large 
projects nationwide. CSI is an organization that maintains and advances 
the standardization of construction language as it pertains to building 
specifications. CSI provides structured guidelines for specification in 
writing in a Project Resource Manual. CSI authored MasterFormat, which 
is an indexing system for organizing construction data, particularly 
construction specifications. The MasterFormat consists of 50 divisions, 
reflecting the growing complexity of the construction industry, such as 
masonry, electrical, finishes, and mechanical.
    It is critically important that the FEMA cost estimator determine 
all elements that make up the construction costs itemized in Part A, so 
that costs are not duplicated in the construction-related costs in 
Parts B through H. Duplication of costs would result in an inflated 
project cost. If all work is completed and actual costs are known and 
itemized in Part A, the cost estimator need not apply Parts B through 
G. Conversely, if all work is not completed, the cost estimator may 
apply one or more of the factors in Parts B through H to the 
uncompleted items of work, where appropriate.
    When applying the Parts B through H factors, the FEMA cost 
estimator must choose which cost data to use. Table 1 below depicts the 
hierarchy of preferred pricing with completed work favored first, and 
RS Means Cost Data favored least. As explained above, the hierarchy of 
preferred pricing is based on the accuracy of the data, with the most 
accurate being favored first, and the least accurate being favored 
last. In

[[Page 61234]]

Table 1, the ``Completed Work'' column applies to any work that has 
been completed on a project. If work has been completed, the only 
factor that is applied is Factor H. Factor H is applied to completed 
work because it represents the applicant/subgrantee's costs for overall 
project development and management throughout the design and 
construction phases. It is applied as a percentage of the completed 
work. If work is not completed, the FEMA estimator uses bid-tab data, 
local-cost data, or RS Means Cost Data to estimate the cost of the 
uncompleted work. If the FEMA estimator uses bid-tab data, only Factors 
F, G, and H apply. Factors B through E do not apply because bid-tab 
data includes the items that make up those factors. For example, Factor 
C, which reflects construction cost contingencies, would not be 
applicable if bid-tab data is used because the cost is already known 
and, therefore, there is no contingency. Part G, however, would be 
applicable if bid-tab data is used because change orders and differing 
site conditions may still be a possibility. If local cost data is used, 
only Factors E through H apply, and if RS Means Cost Data is used, all 
factors apply.

                                                               Table 1--Hierarchy of Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    CEF Part                                         Types of costs used in part A and typical application of factors
--------------------------------------------------------------------------------------------------------------------------------------------------------
A...............................................                         Completed Work     Bid tab                    Local Cost Data        RS Means Cost Data
B...............................................                        *                         *                         *                         Y
C...............................................                        *                         *                         *                         Y
D...............................................                        *                         *                         *                         Y
E...............................................                        *                         *                         Y                         Y
F...............................................                        *                         Y                         Y                         Y
G...............................................                        *                         Y                         Y                         Y
H...............................................                        Y                         Y                         Y                         Y
--------------------------------------------------------------------------------------------------------------------------------------------------------
Y = Part or Factor Normally Applied.
* = Part or Factor Normally Not Applied.

    In all cases, the cost estimator is responsible for determining the 
unit costs in Part A, before it applies one or more of the Parts B 
through H factors so that there is no cost duplication of work 
activities previously considered in Part A.
    CEF 2.0 is explained more thoroughly in FEMA's Cost Estimating 
Format for Large Projects Instructional Guide, Version 2 (November 
1998), available in the docket for this rulemaking at 
www.regulations.gov.

III. The Disaster Mitigation Act of 2000

    Section 205(d) of the Disaster Mitigation Act of 2000 (DMA 2000), 
Public Law 106-390, 114 Stat. 552 (October 30, 2000), 42 U.S.C. 5172, 
which amends section 406(e) of the Stafford Act, directs the President, 
acting through the Administrator of FEMA,\6\ to establish an expert 
panel, to include ``representatives from the construction industry and 
State and local government [to] develop recommendations concerning 
procedures for estimating the cost of repairing, restoring, 
reconstructing, or replacing a facility consistent with industry 
practices.'' DMA 2000 further requires the President to promulgate 
regulations that establish cost estimation procedures, taking into 
account the recommendations of the expert panel, for use in determining 
the eligible cost of repairing, restoring, reconstructing, or replacing 
a public or private nonprofit facility under section 406 of the 
Stafford Act. The statute limits use of these procedures to large 
projects.
---------------------------------------------------------------------------

    \6\ The President has delegated the authorities of the Stafford 
Act to the Secretary of the Department of Homeland Security. 
Executive Order 13286 (February 28, 2003). The Secretary has in turn 
delegated those authorities to the Administrator of FEMA. DHS 
Delegation 9001.1 (December 10, 2010).
---------------------------------------------------------------------------

    DMA 2000 also requires modification of the eligible cost when the 
actual cost of the project is greater than a predetermined ceiling 
percentage or when the actual cost is less than the estimated cost by a 
predetermined floor percentage. The statute requires the expert panel 
to develop recommendations concerning floor and ceiling percentages, 
and requires the President to promulgate regulations establishing 
ceiling and floor percentages, taking into account the recommendations 
of the panel. The statute requires application of the floor and ceiling 
percentages. If the actual project cost is greater than the ceiling 
percentage of the estimated cost, the President may reimburse a portion 
of the actual cost that exceeds the estimated cost. If the actual 
project cost is less than the estimate but more than or equal to the 
floor percentage of the estimated cost, the applicant may use the 
excess for mitigation activities. If the actual project cost is less 
than the floor percentage of the estimated cost, the applicant must 
return the difference.
    This rulemaking implements section 205(d) of DMA 2000 by proposing 
the CEF as the cost estimating methodology for determining the eligible 
cost for large projects under the Public Assistance program, and by 
proposing floor and ceiling thresholds of +/- 10 percent, as 
recommended by the expert panel. Sections IV and V of this preamble 
discuss the implementation of DMA 2000 in detail.

IV. The Expert Panel on Cost Estimating

A. Establishment of the Panel

    Pursuant to section 205(d) of DMA 2000, FEMA established the Expert 
Panel (Panel) on Cost Estimating for the Public Assistance Program on 
April 1, 2000. FEMA invited professional organizations to nominate 
candidates for membership on the Panel. There were nine panel members 
including experts in design, construction, and cost estimating of 
roads, water control facilities, buildings, utility systems, and 
recreational facilities, who represented various geographical regions 
of the country. FEMA (the Designated Federal Official) and the National 
Emergency Management Association co-chaired the Panel. The other Panel 
members represented the American Association of State and Highway 
Transportation Officials (AASHTO), the Associated General Contractors 
of America, Inc. (AGCA), the American Institute of Architects (AIA), 
the American Public Works Association (APWA), the American Society of 
Professional Estimators (ASPE), the National Association of County 
Engineers (NACE), and the National Society of Professional Engineers 
(NSPE).
    The Panel's charter established the Panel to evaluate the Public 
Assistance program's methodology for estimating the cost of repairing, 
restoring,

[[Page 61235]]

reconstructing, or replacing a public facility or private nonprofit 
facility based on the design of the facility as the facility existed 
immediately before the disaster and in conformity with codes, 
specifications, and standards (including floodplain management and 
hazard mitigation criteria required by the President or under the 
Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.)) applicable at 
the time at which the disaster occurred. The Charter required the Panel 
to review the CEF materials and determine if the CEF methodology is 
appropriate for the Public Assistance program. It also required the 
Panel to determine what level of technical expertise is required to 
uniformly apply the recommended estimating methodology to maximize its 
accuracy and national applicability.

B. Meetings of the Panel

    The Panel met twice in 2001 and each meeting was open to the 
general public. The meeting minutes are available for viewing in the 
public docket for this rulemaking. On May 25, 2001, FEMA published a 
notice in the Federal Register at 66 FR 28910 announcing the first 
meeting of the Panel. The first meeting of the Panel was conducted from 
June 26-27, 2001. At the meeting, FEMA provided the Panel with an 
overview of the Stafford Act and section 205(d) of DMA 2000, a briefing 
on the Public Assistance program and the GAP, and a briefing on the 
CEF. After FEMA's CEF presentation, Panel members expressed their 
general consensus that the CEF is a sound tool and discussion focused 
on how to make the CEF better. The Panel indicated that the applicant/
subgrantee needs to be involved in developing the cost estimate and all 
parties involved must have a clear understanding of the scope of work, 
and that the scope of work must remain consistent throughout the life 
of the project. The Panel noted that the Public Assistance Project 
Officer is responsible for developing the Project Worksheet in a multi-
disciplinary environment, but the lead FEMA estimator is responsible 
for developing the actual construction cost estimate and should 
participate in the on-site review of the project conducted by the 
Public Assistance Project Officer. The Panel noted that subgrantees 
have been pleased with the quality of the CEF estimates, and that using 
an integrated, seamless process where everyone works together as a team 
has worked well. Using subgrantee-provided cost data wherever possible 
is especially helpful in obtaining an accurate estimate. The Panel 
members agreed that the factors used in the CEF are acceptable, and 
acknowledged that some project savings and overruns would still be 
realized in the real world as a result of open market conditions.
    The Panel indicated that the CEF should mirror, as closely as 
possible, standard industry methods, such as those used by ASPE, and 
that ASPE Committee members would be asked to help with this effort. It 
discussed how the CEF is an incremental-complexity instrument (i.e., 
there is less risk as more information becomes known and as the process 
moves forward).
    Next, the Panel directed that two comparative analyses be performed 
between the CEF version 2.0 and ASPE's Standard Estimating Practice 
(5th edition, 1998). The first comparative analysis would be performed 
by each of FEMA's Technical Assistance Contractors (TACs), and the 
second comparative analysis would be performed by ASPE's Standards, 
Certification, and Education Boards. The results of the comparative 
analyses would be used by the Panel at its second meeting to augment 
and/or revise the CEF. The Panel directed that the independent 
comparative analyses determine whether or not the CEF is parallel to 
ASPE's level 3 (design, development/budget appropriation) estimating 
approach, and if the CEF was not parallel to an ASPE level 3 estimate, 
to say so and identify the ASPE level that parallels the CEF.
    ASPE cost estimates are categorized by levels. At the time of the 
Panel's recommendation, the Levels used were taken from Standard 
Estimating Practice, 5th ed., which includes Level 1 to Level 6. (The 
current edition has revised levels, going from Level 1 to Level 5, 
which will be discussed later in this preamble.) Level 1 is the lowest 
level of project definition (the early planning stages of the project) 
and Level 6 is the highest level of project definition (when the 
project design is finalized). A Level 1 cost estimate will be less 
accurate than a Level 6 cost estimate, because of the lack of 
information available to the estimator at Level 1.
    According to the Standard Estimating Practice, 5th ed., a Level 1 
estimate is the Order of Magnitude level; at this level, the estimate 
contingency may range from 20 to 50 percent. Estimators prepare this 
level of estimate from an outline of the proposed project. Level 2 is 
the Schematic/Conceptual Design level; the estimate contingency may 
range from 20 to 30 percent. Level 3 is the Design Development level; 
the estimate contingency at this level may range from 15 to 25 percent. 
Estimators prepare this level of estimate from no less than 25 percent 
complete preliminary design drawings and draft specifications. 
Estimates produced at ASPE Level 3 are used to verify budget 
conformance as the scope and design is finalized and final materials 
are selected. Information required for this level includes drawings 
showing plans, elevations, typical details, engineering design 
criteria, equipment layouts and detailed outline specifications. ASPE 
Level 4 is the Project Control Level. Estimators prepare this level of 
estimate from no less than 75 percent complete design drawings and 
specifications. ASPE Level 5 is the Construction Document level; the 
estimate contingency at this phase may range from 5 to 10 percent. 
Estimators prepare this level of estimate from no less than 90 percent 
complete design drawings and specifications. This level is used to 
verify pricing as details are completed and design is modified and 
completed. This estimate can be used to evaluate the subcontract 
pricing during the bid phase. Information required for this level 
includes detailed drawings showing plans, elevations, sections, 
details, schedules, specifications, and bidding criteria. ASPE Level 6 
is the bid-phase estimate. The purpose of this level is to show 
probable costs in the preparation and submittal of bids. At this phase, 
design drawings and specifications are complete. Estimate contingencies 
should be at zero percent at ASPE Level 6.
    The Panel directed that the comparative analyses between the CEF 
and the ASPE methods consist of validating whether or not a CEF 
estimate (at an ASPE Level 3) would provide a level of confidence 
commensurate with an ASPE Level 5 (construction documents/contract 
drawings/definitive) estimate, such that the CEF estimate (at an ASPE 
level 3) would be within the  10 percent floor and ceiling 
thresholds.
    Regarding the floor and ceiling thresholds, FEMA reported that its 
general experience with CEF to date showed that for project costs of $2 
to $4 million, the project range had been (plus or minus) 10 percent; 
for project costs less than $2 million, there had been cost overruns of 
more than 20 percent, and for project costs greater than $4 million, 
there had been cost underruns of more than 20 percent. The Panel agreed 
that the following depiction expressed the intent of section 205(d) of 
DMA 2000:

[[Page 61236]]

[GRAPHIC] [TIFF OMITTED] TP03OC13.029

    The meeting minutes state that the Panel reached consensus and 
recognized that plus and minus 10 percent are reasonable floor and 
ceiling thresholds for project cost, ``as derived from construction 
industry standards.'' The meeting minutes indicate that it was 
understood that some projects in the $50,000 to $100,000 range could 
fall outside the threshold, but there was general agreement that the 10 
percent threshold is appropriate and that using the same number across 
the board would make the program easier to administer.
    On August 28, 2001, FEMA published a notice in the Federal Register 
at 66 FR 45313 announcing the second meeting of the Panel. The second 
meeting of the Panel was conducted from September 26-27, 2001. The 
Panel compared and contrasted the CEF with estimating methods used by 
ASPE. A representative from the ASPE gave a presentation comparing the 
CEF to ASPE's Level 3 estimate. The ASPE representative noted that the 
preliminary finding was that the CEF conforms to recommended estimating 
practices. However, the ASPE Board of Directors, Technical Board, and 
Standing Committees had not yet formalized the Society's findings. (The 
findings were eventually formalized in January 2002.) Further, the ASPE 
representative noted two areas of caution when using the CEF: the need 
for appropriate expertise of the personnel performing the estimates, 
and the quality of the construction document data that directly affects 
the level of detail included in the estimate. Most estimators, he said, 
would prefer to use historical and/or local cost data rather than 
factored national cost data from commercial estimating manuals, and 
would prefer to use the estimating expertise from the vicinity of the 
disaster, when possible. This allows factors to be developed on the 
project site. Regarding the ASPE Level 3 estimate, the ASPE 
representative stated that that level is not designed to require 
sufficient construction documentation to attain the ideal  
10% range of eventual firm bids.
    Next, FEMA presented the results of its comparative analysis of the 
CEF to ASPE's Level 3 estimating approach. ASPE's Level 3 estimate is a 
``Design Development/Budget Appropriation'' level prepared from not 
less than 25 percent complete preliminary design drawings and draft 
specifications. The purpose of this estimate is to establish probable 
costs within the range of available information. To perform the primary 
comparison of CEF to an ASPE Level 3, the documentation and design 
development criteria for both estimating methods were detailed. In its 
presentation, FEMA noted that the requirements for both estimating 
methodologies are very similar. Site plans, dimensions, arrangements, 
and schematics are required for both. ASPE also requires detailed 
preliminary plumbing, mechanical and electrical drawings. This level of 
detail is not specifically defined as a requirement for CEF. FEMA noted 
that while the requirements for both methodologies are generally quite 
similar, they are not directly comparable. The CEF focuses on costs to 
return disaster-damaged eligible facilities to their pre-disaster 
condition. In this regard, the CEF

[[Page 61237]]

parallels the performance objective of ASPE Level 3. Under post-
disaster conditions, a CEF estimate will compare favorably with other 
cost estimating methodologies (e.g., Building Construction Handbook, 
United States Department of Energy Cost Estimating Guide, and the 
Association for the Advancement of Cost Engineering's Cost Estimate 
Classification System) and produce an estimate of approximately the 
same magnitude and confidence level.
    FEMA concluded that the results of its comparison of the CEF to 
ASPE Estimating procedures (Levels 1 through 6) show that the CEF 
process parallels the ASPE Level 3 process in level of contingency 
(design phase scope contingency) and the type and level of design 
documentation required. ASPE's method does not specifically incorporate 
factors in the estimate, as is done in CEF, but it does allow a 
percentage to be used for general conditions in Levels 1 and 2, and 
standard estimating industry practice often involves adding a 
percentage of base costs to a number of items to put together a total 
estimate (e.g., construction cost contingencies, reserve for change 
orders, overhead, and profit).
    FEMA indicated that to ensure a high level of confidence in the CEF 
estimate, a clear definition of the scope of work is required, along 
with active participation by the subgrantee, and that to meet the ASPE 
Level 5 criteria using the Panel's plus or minus 10 percent thresholds, 
the Panel could consider refining the qualification criteria to include 
all large permanent work projects on the basis of all work being done 
for an individual subgrantee, rather than on a project-by-project 
basis. The FEMA presenter concluded that the CEF falls well within the 
range of other industry-accepted cost estimating systems.
    Each panelist voted on the behalf of their respective organizations 
and unanimously endorsed the CEF 2.0 and selected the CEF as the 
recommended cost estimating methodology for the Public Assistance 
program.
    The minutes of both meetings are posted on FEMA's Web site at 
http://www.fema.gov/government/grant/pa/meeting.shtm and in the docket 
for this rulemaking at www.regulations.gov.

C. Panel Recommendation Report

    The Panel issued a Recommendation Report in October 2002. The 
Report is available on FEMA's Web site at http://www.fema.gov/government/grant/pa/exppanel.shtm and in the docket for this rulemaking 
at www.regulations.gov. The Panel made nine recommendations in its 
report. They are:
1. Official Endorsement of the CEF
    The Panel officially endorsed the CEF 2.0 as the cost estimating 
methodology and instrument of the Public Assistance program, predicated 
on the following observations: The CEF mandates the use of CSI 
Masterformat and estimates are prepared with the CSI number system; the 
format of the CEF is designed to serve the unique requirements of the 
Public Assistance program; the organized approach of the CEF promotes 
consistency in documentation; the CEF has the capability to import and 
incorporate cost data from other estimating programs; and the design of 
the CEF is flexible and, therefore, superior to other inflexible 
estimating systems.
2. Recommendation of Plus or Minus 10 Percent as the Reasonable Floor 
and Ceiling Thresholds for Project Cost
    The Recommendation report indicates that the 10 percent thresholds 
``best represent accepted engineering and construction industry 
standards for estimating project costs.''
3. Close Attention Must Be Made to the Degree of Documentation Detail 
Required for Developing CEF Estimates
    The Panel recommended that the highest level of detail that can be 
made available from design and/or construction information should be 
used to build the CEF estimate. When available, the use of lump sum 
competitive bids is discouraged in favor of itemized unit price bids. 
If used, lump sum bids require 100 percent full-detailed and complete 
drawings and the work activities should be itemized. In either case, 
estimate accuracy depends upon the completeness of the bid documents. 
The Panel noted that the realistic starting point for developing a cost 
estimate for a disaster-damaged facility is at an ASPE Level 3, which 
is prepared from not less than 25 percent complete preliminary design 
drawings and draft specifications. The purpose of this estimate is to 
establish probable costs within the range of available information. The 
Panel specified that in order to attain the plus or minus 10 percent 
threshold accuracy proposed for a CEF estimate, the Public Assistance 
process should progress to a level of detail corresponding to an ASPE 
Level 5, which is prepared from not less than 90 percent complete 
design drawings and specifications. This level shows the probable 
project cost.
4. Important Points That Must Be Considered When Using the CEF
    The Panel noted that early identification of personnel with 
discipline-specific, technical expertise is required to accurately 
develop a complete scope of work before CEF estimates are generated, 
and those estimates should include experienced cost estimators. The 
individual assigned to develop the estimate must have discipline-
specific, technical expertise in the formulation of large projects. 
Federal, State and local partners must collaborate in good faith when 
identifying and documenting the eligible scope of work to repair or 
replace a disaster-damaged facility to improve the likelihood of 
realizing accurate cost estimates within the floor and ceiling 
thresholds. The Panel noted that it is best to take time preparing a 
CEF estimate at the outset to improve the chance that it will not have 
to be revisited in the future (i.e., if it is done incorrectly, such as 
not applying one of the factors). Working with the subgrantee early on 
in the disaster response and recovery process is essential to 
discussion and agreement on the scope of eligible work and could be 
helpful in reducing the need for change orders. Hidden damage and 
differing site conditions would be an exception. The Panel recommended 
that whenever possible, base costs captured in Part A of the CEF should 
be derived from local cost-estimating resources and cost data. The 
Panel also recommended that work activities not itemized in the CEF 
estimate should be eliminated from the Project Worksheet (e.g., the 
deduction for depreciation, insurance recovery, and salvage value, 
etc.) before the CEF estimated cost and the eligible cost of the actual 
work are compared. The estimator should calculate the plus or minus 10 
percent threshold between the CEF estimated cost and the eligible cost 
of the actual work.
5. CEF Training Offered at Disaster Field Offices Should Be Made a 
Resident Course Offering of FEMA's Emergency Management Institute
    The Panel recommended that FEMA establish a resident CEF training 
program at the Emergency Management Institute (EMI) of FEMA's National 
Emergency Training Center (NETC). The training would be for Public 
Assistance Project Officers, Technical Specialists, FEMA's Public 
Assistance Coordinators, Public Assistance Officers, and management 
officials responsible for disaster operations.

[[Page 61238]]

6. The Lower-Bound Percentile for Factor C.1 (Preliminary Engineering 
Analysis Stage) Should Be Revised to More Accurately Reflect the Risk 
in Bidding Simple Projects
    As noted in this preamble, the Part C factor accounts for the 
budgetary risk associated with project unknowns and complexities in 
determining the scope of work. It is included in the CEF estimate to 
create an appropriate level of probability for completing the project 
within that estimate. The C.1 factor, Design Phase Scope Contingencies, 
represents standard cost estimating contingencies based on the design 
and engineering process as a function of time. This contingency is 
based on the concept that there are typically more unknowns and items 
at the schematic design stage than at the final design stage. The 
unknowns gradually decrease as the scope of work is defined, details 
for completing the work are developed, and the project advances towards 
a set of construction drawings and specifications that can be used by a 
construction contractor. The project is evaluated to determine the 
design phase at the time the estimate is prepared.
    At the preliminary engineering analysis stage, concepts have been 
developed but without a significant level of detailing. It is difficult 
to accurately quantify work at this stage, and contractors assume a 
relatively high level of risk in bidding a project at this stage. CEF 
2.0 recommends a factor of 15 to 20 percent (depending on the 
complexity of the project). The Panel's recommendation is that the 
current lower-bound percentile of 15 percent does not accurately depict 
the actual risk of bidding a simple project; the lower-bound percentile 
of 7 percent is more realistic.
7. Cost Data Should Be Obtained for Use in Analyzing Results for Each 
Large Project Estimated by the CEF
    The Panel noted that the Public Assistance Officer forwards a CEF 
Large Project Report to FEMA Headquarters, and this report includes the 
CEF estimate of the large project and the actual cost of the completed 
large project. To facilitate FEMA's efforts in collecting this 
information, the Panel encouraged FEMA to incorporate CEF data 
collection into its existing database (the National Emergency 
Management Information System (NEMIS)), to allow FEMA the ability to 
standardize information reporting requirements, facilitate project cost 
data development, and to electronically access data for analysis.
    The Panel emphasized that data collection for estimated and actual 
costs should be designed for comparison of like work activities between 
the final CEF estimated costs and the eligible costs of actual work. It 
is critical that work activities not itemized in the CEF estimate be 
eliminated from the Project Worksheet (such as the deduction for 
insurance recovery), before comparing the CEF estimated cost and the 
eligible cost of the actual work. Only when like items of work exist is 
the plus or minus 10 percent threshold between the CEF estimated cost 
and the eligible cost of the actual work properly calculated.
8. The Engineering and Design Services Curves (A and B) Should Be 
Updated as Soon as Practicable When Received From the American Society 
of Civil Engineers (ASCE) Committee on Professional Practice
    As addressed in this preamble's discussion of the Part H factor, 
engineering curves are used to estimate the cost of basic engineering 
services as a percentage of the estimated construction cost. One of two 
curves, Curve A and Curve B, may be used to determine the appropriate 
percentage. Curve A applies to projects with above-average complexity 
and non-standard design. Curve B applies to projects of average 
complexity. In its recommendation, the Panel indicated that the 1975 
curves being used by FEMA are lower than current engineering and 
construction costs, and that a better estimate of A&E costs is 
necessary.
9. Incorporate Lessons Learned Into the CEF
    The Panel recommended that FEMA make periodic revisions and 
incorporate lessons learned from previous disasters into the CEF 
Instructional Guide and/or worksheet to better ensure that user 
guidance remains current.

V. Proposed Rule

A. General

    FEMA accepts the Panel's recommendation to adopt the CEF as the 
cost estimating procedure for large permanent work projects. FEMA has 
made several changes to CEF 2.0 as a result of the Panel's 
recommendations as well as other general improvements made as a result 
of using CEF in the field. The new version reflecting these changes is 
called CEF 2.1. FEMA also accepts the Panel's recommendation of a 10 
percent floor threshold for underruns and a 10 percent ceiling 
threshold for overruns.
    Pursuant to DMA 2000, FEMA will apply the CEF to large projects 
(projects above $67,500 for fiscal year (FY) 2013) involving permanent 
work (Categories C through G) only. These restrictions are implemented 
pursuant to section 2(d) of DMA 2000, which specifically limits 
applicability of the cost estimation procedures to large projects, and 
to projects authorized by section 406 of the Stafford Act, which are 
projects involving repairing, restoring, reconstructing, or replacing a 
disaster-damaged public facility or private nonprofit facility. FEMA 
categorizes such projects as permanent work.
    FEMA proposes to apply the CEF only to projects that are less than 
90 percent complete. By the time a project is 90 percent complete, most 
of the actual costs of the project are known, rendering little need for 
the CEF, which is designed to determine unknown costs. FEMA determines 
whether a project is 90 percent complete by dividing the total amount 
of the approved invoices for completed eligible work by the total 
construction contract award amount for eligible work, and then 
multiplying by 100. For example, if the total contract award is 
$100,000, and the total amount of approved invoices is $87,000, FEMA 
would divide $87,000 by $100,000 to get 0.87, and then FEMA would 
multiply 0.87 by 100 to get 87 percent complete.
    Once FEMA completes the CEF estimate, FEMA will attach the CEF 
Spreadsheet to the Project Worksheet, along with all supporting 
documentation. After FEMA approves the Project Worksheet, FEMA will 
obligate the Federal share of the total project cost estimate to the 
grantee. The grantee is responsible for drawing down funds from 
Smartlink \7\ and for using those funds to make incremental payments to 
the subgrantee in accordance with local rules and procedures as work is 
completed and documentation is submitted. Once FEMA has established a 
total eligible project cost of an approved scope of work, FEMA will not 
alter that amount, and any cost overruns or underruns will be addressed 
at project closeout. FEMA will not allow for revised scopes of work 
because the CEF estimate takes into account the possibility of any such 
revisions in the Part C Factor: Construction Cost Contingencies/
Uncertainties (Design and

[[Page 61239]]

Construction). The Part C factor accounts for the budgetary risk 
associated with project unknowns and complexities in determining the 
scope of work. It is included in the CEF estimate to create an 
appropriate level of probability for completing the project within that 
estimate.
---------------------------------------------------------------------------

    \7\ Smartlink is an electronic money transferring system. When 
FEMA obligates funds for an approved Project Worksheet, FEMA 
transfers the approved funds to the Smartlink system. The grantee 
uses an identification number and password to access the Smartlink 
system to draw down the funds to pay the subgrantee.
---------------------------------------------------------------------------

B. CEF Version 2.1

    FEMA proposes in this rulemaking to use CEF version 2.1 as the cost 
estimating procedure for determining the total project cost estimate of 
a large permanent work project. FEMA has incorporated the Panel's 
recommendations and lessons learned from version 2.0 into version 2.1.
    One of the major changes in version 2.1 is the revision of Factor 
C.1 (Preliminary Engineering Analysis). In accordance with the Panel's 
recommendation, the lower-bound percentile of bidding simple projects 
has been changed from 15 percent to 7 percent. For Factor C.2 (Facility 
or Project Constructability), the input of percentages is restricted to 
a maximum of 7 percent. The recommended range was not higher than 7 
percent in CEF 2.0, but the estimator had the option of using a higher 
percentage. CEF 2.1 no longer allows the estimator to use a percentage 
higher than 7 percent. This will help ensure that the CEF estimates are 
consistent and that the estimator chooses factors within the 
recommended ranges. If the FEMA estimator has sufficient information to 
support costs outside the recommended range, then that cost should be 
itemized in Part A rather than use a CEF Factor. For similar reasons, 
Factors B.1, C.2 and C.3 have been restricted to their recommended 
ranges.
    Regarding Factor C.4 (Economies of scale), Factor D.3 (General 
contractor's profit), and Factor G (Applicant's reserve for change 
orders), the step functions for these factors have been changed to a 
curve function. When using a step function, a certain percentage is 
applied to a project based on the dollar amount of the project. This 
approach is reasonable, except for projects at the boundary of the 
range, which resulted in sharp dollar changes at arbitrary boundaries. 
By changing to a curve function, the FEMA estimator can adjust the 
factors based on the size of the project in a way that avoids these 
sharp dollar changes. For example, for a project of $2,950,000 (the sum 
of CEF Parts A, B, C, D.1 and D.2) CEF version 2.0 assigned a general 
contractor profit of 7 percent for repair/retrofit work or 6.5 percent 
for new construction (for projects from $1.5 million to $3.0 million). 
For a similar project of $3,150,000 the general contractor profit 
decreases to 5.5 percent for repair/retrofit work and 5 percent for new 
work. As shown in Table 2, the increase in project size results in a 
substantial decrease in the dollar amount of the profit.
    In CEF version 2.1 the change in profit is continuous as the 
project size changes. The percentage continues to decrease but a drop 
in dollars at the boundaries is avoided.

                                                     Table 2
----------------------------------------------------------------------------------------------------------------
                                                           Repair/retrofit                New construction
            CEF Version              Project size  -------------------------------------------------------------
                                                       % Profit       $ Profit        % Profit       $ Profit
----------------------------------------------------------------------------------------------------------------
CEF V.2...........................      $2,950,000            7          $206,500            6.5        $191,750
                                         3,150,000            5.5         173,250            5           157,500
CEF V2.1..........................       2,950,000            5.7         167,863            5           146,708
                                         3,150,000            5.5         174,409            4.8         157,509
----------------------------------------------------------------------------------------------------------------

    FEMA has not included the specific recommended percentages for the 
factors in the regulatory text. The percentages are listed in the CEF 
for Large Projects Instructional Guide V2.1 and in the CEF Spreadsheet. 
FEMA did not include them in the regulatory text because application of 
a specific percentage is in the discretion of the FEMA estimator. This 
allows the FEMA estimator the flexibility to adjust the percentages as 
necessary for each specific project. This flexibility will allow the 
FEMA estimator to reach the most accurate estimate possible, thus 
avoiding the possibility of large overruns or underruns. It also allows 
FEMA to adjust the recommended percentages for each factor if necessary 
due to lessons learned or any change of circumstances such as: (1) 
Inflation, (2) publication by the ASCE of new cost data requiring an 
update to the engineering design curves, (3) updated recommendations of 
the CEF Expert Panel, or (4) any other changes that affect the 
engineering and construction industry.
    Another major change to CEF 2.0 affects the Part H.2 Factor (A&E 
Design Cost Curves). FEMA has updated the A&E curves to be consistent 
with the Public Assistance Guide (FEMA 322/June 2007) and the 2005 ASCE 
data, as recommended by the CEF Panel.
    The Panel recommended that an appropriate amount of time be taken 
in preparing the eligible scope of work and in estimating the Part A 
costs. FEMA agrees, as this will result in a more accurate CEF 
estimate. FEMA has stressed the importance of preparing an accurate 
scope of work in the CEF Instructional Guide for version 2.1, as well 
as the importance of a detailed and thorough estimate in Part A.
    The Panel also recommended that FEMA identify personnel with 
discipline-specific, technical expertise to more accurately develop a 
complete scope of work before CEF estimates are generated and to 
include experienced cost estimators. FEMA recognizes that the success 
of the CEF system is predicated upon the development of an accurate 
scope of work in Part A and selection of the appropriate factors in 
Parts B through H, and that the professional experience of the 
estimator is an important consideration. Members of the CEF team should 
be engineers, cost estimators, or technicians with experience in 
design, construction, and cost estimating. FEMA generally recognizes 
that an individual with cost estimating experience who qualifies as an 
Engineer IV, according to the ASCE, or a U.S. Army Corps of Engineers 
GS-11, is qualified to use the CEF. The Panel also recommended that 
FEMA establish a resident CEF training program at the EMI FEMA's NETC. 
FEMA has implemented a training and credentialing program for CEF 
users.
    The CEF Instructional Guide for CEF 2.1 is available in the docket 
for this rulemaking at www.regulations.gov.

C. Floor and Ceiling Thresholds

1. Establishment of Set 10 Percent Floor and Ceiling Thresholds
    Due to the time that has elapsed between the Panel's Recommendation 
Report in 2002 and the publication of this proposed rulemaking, FEMA 
contacted individual panel members to

[[Page 61240]]

re-validate the 10 percent threshold recommendation.\8\ FEMA received 
responses from three panel members; all three re-validated the 10 
percent recommendation. FEMA also reached out to individual industry 
experts, who also supported the 10 percent recommendation. In addition, 
the 10 percent threshold is supported by industry research. See Ray R. 
Venkataraman and Jeffrey K. Pinto, Cost and Value Management in 
Projects, 43-57 (2008); J. Thomas Tanner, ``Construction Cost 
Estimating,'' in Land Development Handbook, 831-847 (2002); Nigel J. 
Smith, Project Cost Estimating, 51-59 (1995); Anghel Patrascu, 
Construction Cost Engineering Handbook, 75-95 (1988). The responses 
from the individual Panel members and the individual industry experts, 
as well as the supporting research, are available for viewing in the 
docket for this rulemaking.
---------------------------------------------------------------------------

    \8\ FEMA did not request that the Panel validate any other 
portion of its recommendation, as the other portions of the 
recommendation are not meaningfully effected by the time that has 
elapsed.
---------------------------------------------------------------------------

    FEMA finds that the 10 percent threshold is an acceptable threshold 
for a CEF version 2.1 cost estimate, which is an ASPE Level 4 cost 
estimate. The current Level 4 is equivalent to the Level 5 at the time 
of the Panel's recommendation. ASPE has revised its levels since the 
Panel's recommendation. In the most recent edition of the Standard 
Estimating Practice, there are now five levels rather than six. 
Essentially, Levels 1 through 3 are still the same. Level 4 (project 
control) was removed, and the old Level 5 (construction document) 
became the new Level 4, and the old Level 6 (bid) became the new Level 
5. The Panel recommendation that the CEF be a Level 5 estimate, which 
is when the level of design is 90 percent complete, would now be a 
Level 4 estimate.
    For an accurate estimate, estimators need a detailed scope of work, 
detailed project specifications, drawings, diagrams, floor plans, 
elevations, and other similar information about the project. The more 
information the estimator has to define the project, the more accurate 
the estimate will be. FEMA's CEF 2.1 Instruction Guide stresses to the 
FEMA estimator the importance of gathering these materials before 
completing an estimate.
    The Panel also stressed the importance of certain items that would 
ensure that the estimator is able to produce a Level 5 (now Level 4) 
estimate. The Panel recommended that the FEMA estimator should be an 
experienced estimator, with discipline-specific, technical expertise, 
and that the estimator take time preparing a CEF estimate at the outset 
to improve the chance that it will not have to be revisited in the 
future. The Panel also recommended that the FEMA estimator should work 
with the subgrantee early on in the disaster response and recovery 
process to determine an accurate, detailed, and clearly defined scope 
of eligible work, and to make use of the greatest degree of design and/
or construction documentation detail. These recommendations are 
incorporated into CEF 2.1 and ensure that the CEF estimate is a Level 4 
estimate (as per current ASPE levels). If this rule is finalized, the 
Instructional Guide will be revised to include a section on the 
application of the floor and ceiling thresholds.
    The Panel emphasized that work activities not itemized in the CEF 
estimate should be eliminated from the Project Worksheet (such as the 
deduction for insurance recovery) before the CEF estimated cost and 
actual costs are compared. The Panel stressed that the plus or minus 10 
percent thresholds cannot be applied except when there are like items 
of work in the CEF estimate and the determination of actual costs. When 
FEMA calculates the actual cost, it will only include those items that 
were included in the CEF estimate. This issue will be addressed in the 
Instructional Guide so that there is a valid comparison between the CEF 
estimate and the actual cost at the project reconciliation phase.
2. Ceiling Threshold
    The statutory language establishing a ceiling threshold under 
section 406(e) of the Stafford Act, as amended by DMA 2000, states that 
if the actual project cost is greater than the ceiling percentage of 
the estimated cost, the President may reimburse a portion of the actual 
cost that exceeds the estimated cost.
    There are at least two interpretations of the provision in the 
statute stating that FEMA may reimburse a ``portion of the actual 
cost.'' It could be interpreted to mean that if the actual costs exceed 
the ceiling threshold: (1) FEMA may reimburse the Federal share of any 
amount that exceeds the CEF estimate, or (2) FEMA may reimburse the 
Federal share of any amount that exceeds the ceiling threshold. The 
first interpretation views the provision as a de minimus statute, 
meaning that if FEMA's estimate is fairly accurate (the amount of the 
overrun is less than the ceiling percentage) then there is no need for 
the administrative chore of adjusting that estimate, but if FEMA's 
estimate is in error by more than the ceiling percentage, then 
adjustment is necessary. With the first interpretation, FEMA would 
share all of the cost if the estimate is so inaccurate that it is in 
error by more than the ceiling percentage. The second interpretation is 
that FEMA may reimburse any amount of the Federal share over the 
ceiling threshold. This is the interpretation of the CEF Panel, and it 
ensures that the subgrantee has an interest in keeping costs down 
during a project. If FEMA were to determine that ``a portion of the 
actual cost'' means any eligible costs over the CEF estimate, then as 
soon as the subgrantee surpassed the CEF estimate, it would have an 
incentive to spend more to go over the ceiling threshold in order to 
avoid paying for the portion that was over the CEF estimate but was 
less than the ceiling threshold.
    Thus, if the actual costs exceed the CEF estimate, but are under 
the ceiling threshold, FEMA would not reimburse the subgrantee for the 
excess amount. If there is a 10 percent ceiling threshold, the CEF 
estimate is $100,000, and the actual costs are $125,000 (which is 
$15,000 over the ceiling threshold of $110,000), then FEMA may 
reimburse the Federal share of any portion of the $15,000 excess 
amount.
3. Floor Threshold
    The statutory language establishing a floor percentage (referred to 
by FEMA as the floor threshold) under section 406(e) of the Stafford 
Act, as amended by DMA 2000, states that if the actual project cost is 
less than the estimate but more than or equal to the floor percentage 
of the estimated cost, the applicant may use the excess for mitigation 
activities. If the actual project cost is less than the floor 
percentage of the estimated cost, the applicant must return the 
difference.
    Under paragraph (B)(i), if actual costs are less than the CEF 
estimate but are equal to or above the floor threshold, the subgrantee 
may keep the amount that is equal to or above the floor threshold. 
Thus, if the floor threshold is 10 percent, and the CEF estimate is 
$100,000, then the floor threshold equals $90,000. If the actual costs 
are between $90,000 and $99,999.99, the subgrantee may keep the excess 
amount. For example, if the actual cost is $90,000, the subgrantee may 
keep the excess $10,000 and use it ``to carry out cost-effective 
activities that reduce the risk of future damage, hardship, or 
suffering from a major disaster.'' FEMA interprets ``cost-effective 
activities that reduce the risk of future damage, hardship, or 
suffering from a major disaster'' to mean activities that mitigate risk 
to undamaged elements of disaster-

[[Page 61241]]

damaged facilities, activities that mitigate risk to undamaged elements 
of undamaged facilities, and activities that mitigate risk of future 
hardship and suffering. Although the CEF Panel recommended that the 
mitigation activities be limited to section 406 mitigation (i.e., 
mitigation authorized under section 406 of the Stafford Act) and 44 CFR 
206.226(e), FEMA notes that this is not a compelling incentive to keep 
costs down because a subgrantee would already have the ability to use 
section 406 hazard mitigation funds regardless of whether the 
subgrantee has a CEF underrun. The Stafford Act's CEF provision did not 
specify that cost-effective activities must be limited to section 406 
mitigation activities, because it includes reducing the risk of 
``future damage, hardship and suffering from a major disaster.'' 
Therefore, FEMA is interpreting such cost-effective activities broadly 
to include activities that mitigate undamaged elements of any disaster-
damaged eligible facility (not just the facility that is the subject of 
the grant award), activities that mitigate undamaged elements of 
eligible undamaged facilities, and activities that would mitigate 
future hardship and suffering. FEMA interprets hardship and suffering 
to include conditions of life that are difficult to endure and that 
could result from a future major disaster. Conditions of life that are 
difficult to endure include lack of food, water, safe shelter, and 
medical care.
    Types of activities that would mitigate undamaged elements of 
disaster-damaged facilities include installing shutters over undamaged 
windows similar to shutters installed over damaged windows, 
strengthening undamaged columns after seismic events, upgrading a roof 
in an area subject to hurricane-force winds, elevating critical 
facility components, such as electrical panels and heating, 
ventilation, and air-conditioning (HVAC) units, and adding berms and 
floodwalls for floodproofing. Types of activities that would mitigate 
undamaged facilities include flood proofing first floors, adding berms 
or floodwalls around public facilities in floodplains (e.g., sewage 
treatment plants), demolishing facilities, upgrading a roof in an area 
subject to hurricane-force winds, reinforcing designated emergency 
shelters, enlarging spillways on dams subject to overtopping by 
floodwaters, and raising bridges to prevent overtopping by allowing 
higher flows. Activities that would mitigate future hardship and 
suffering include purchasing equipment such as emergency generators and 
emergency vehicles (e.g., fire trucks and related personal protective 
equipment, and ambulances), recovery planning (e.g., infrastructure 
assessments and risk analyses), installing storm warning systems such 
as weather/tornado warning sirens, providing training related to 
emergency response and recovery training courses that would be 
beneficial to communities, training for search and rescue teams, 
offsetting costs to establish debris recycling programs, constructing 
or rehabilitating designated shelters or safe rooms such as safe rooms 
in high incident tornado areas and inside critical facilities (e.g., 
schools, hospitals, government buildings, etc.), evacuation plans and 
signage in hurricane prone areas, earthquake detection and warning 
devices, and new or replacement equipment for search and rescue teams.
    Under this proposed rule, the subgrantee must submit a separate 
Project Worksheet for FEMA approval before it may use a CEF underrun 
for a cost-effective activity. The subgrantee must submit the Project 
Worksheet within 90 days of identifying the project underrun, and the 
Project Worksheet must identify all projects under the same major 
disaster declaration with underruns that would be used to fund the 
cost-effective activity(ies). As with any other grant, if FEMA approves 
the proposed use of the subgrantee's underrun, the project would be 
subject to the applicable grant administration regulations at 44 CFR 
part 13.
    Paragraph (B)(ii) of section 406(e) of the Stafford Act, as amended 
by DMA 2000, applies to situations where the actual cost is less than 
the floor threshold. There are two possible interpretations of 
paragraph (B)(ii), which states that if the actual costs are less than 
the floor threshold, the subgrantee must ``reimburse [FEMA] in the 
amount of the difference.'' The ``amount of the difference'' may mean 
either: (1) The difference between the actual cost and the CEF estimate 
(i.e., the subgrantee would have to return the entire amount of the 
underrun), or (2) the difference between the actual cost and the floor 
threshold (i.e., the subgrantee would return the amount that is less 
than the floor threshold and keep the amount that is above the floor 
threshold). For example, under the first interpretation, if the CEF 
estimate is $100,000 and the actual cost is $70,000, the subgrantee 
would have to return the entire difference between the actual cost and 
the estimated cost, which is $30,000. Under the second interpretation, 
using the same fact pattern, the subgrantee would have to return the 
difference between the actual cost ($70,000) and the floor threshold 
($90,000), which is $20,000. The subgrantee could keep the $10,000 
above the floor threshold to use for cost-effective activities. 
Paragraph (B)(ii) does not contain the provision that excess funds may 
be used for cost-effective activities, however. That provision is only 
in paragraph (B)(i). Paragraph (B)(i) only applies when the actual cost 
is greater than or equal to the floor threshold. However, the CEF Panel 
endorsed the second interpretation, and FEMA's position is that the 
second interpretation is in keeping with the spirit and objective of 
the statute that excess funds be used for cost-effective activities to 
reduce the risk of future damage, hardship, or suffering from a major 
disaster. This is a logical interpretation of the statute, and within 
FEMA's discretion. It does not make sense to let the subgrantee apply 
the entire amount of the underrun to such cost-effective activities if 
the underrun is small, but to make the subgrantee return the entire 
amount of the underrun if the underrun is large. This would not be an 
incentive to keep costs low, and it would not encourage cost-effective 
activities to mitigate future loss. Therefore, FEMA proposes to adopt 
the second interpretation and with a restriction, for the sake of 
consistency with paragraph (B)(i), that excess funds greater than or 
equal to the floor threshold must be used for certain cost-effective 
activities.
4. Improved Projects
    When performing permanent restoration work on a disaster-damaged 
facility, a subgrantee may decide to use the opportunity to make 
improvements to the facility while still restoring its pre-disaster 
function and at least its pre-disaster capacity. For example, the 
subgrantee may decide to replace a firehouse that originally had two 
bays with one that has three. Projects that incorporate such 
improvements are called improved projects. An improved project could be 
either a small or large project and must meet Public Assistance program 
requirements.
    Funding for such projects is limited to the Federal share of the 
costs that would be associated with repairing or replacing the 
disaster-damaged facility to its pre-disaster design, or to the actual 
costs of completing the improved project, whichever is less. The CEF is 
only used to estimate the repair or replacement cost of the original 
facility to its pre-disaster design. Any additional costs not required 
by the original eligible scope of work are not eligible. In this 
proposed rule, the floor and ceiling thresholds are applied to the CEF 
estimate of the

[[Page 61242]]

eligible scope of work. Reimbursement for cost overruns above the 
ceiling threshold is available only for projects where the approved 
eligible costs are clearly tracked and documented separately from 
improvement costs. If the costs cannot be separately documented, then 
funding for the improved project will not exceed the Federal share of 
the CEF estimate. FEMA may provide assistance with hazard mitigation 
under Section 406 of the Stafford Act, if the improved project is not a 
completely new facility.
5. Alternate Projects
    Alternate projects, authorized under section 406(c) of the Stafford 
Act and 44 CFR 206.203, may be approved by FEMA in any case in which a 
subgrantee determines that the public welfare would not be best served 
by repairing, restoring, reconstructing, or replacing the disaster-
damaged facility. If a subgrantee chooses to do an alternate project, 
FEMA would award a portion of the funding that would have been awarded 
for the original project for use in the repair, restoration, or 
expansion of another facility, to construct a new facility, or to fund 
hazard mitigation measures in the disaster-affected area.
    Funding for alternate projects is limited to 90 percent (for public 
facilities) or 75 percent (for eligible private nonprofit facilities) 
of the Federal share of the Federal estimate of the cost to repair, 
restore, reconstruct, or replace the disaster-damaged facility and of 
management expenses. Alternate project funding would be based on the 
CEF estimate to repair, restore, reconstruct, or replace the original 
disaster-damaged eligible facility. Any additional costs not required 
by the original eligible scope of work would not be eligible. FEMA 
would not apply the 10 percent threshold to alternate projects as the 
Stafford Act only provides for use of these thresholds for the repair, 
restoration, reconstruction, or replacement of a facility damaged or 
destroyed by a major disaster. Therefore, the threshold is not 
applicable to alternate projects.
    FEMA would award the subgrantee 90 percent of the Federal share of 
the estimate of the original project (or 75 percent of the Federal 
share of the estimate if it was an eligible private nonprofit facility) 
to do the alternate project. FEMA would not do a new or revised 
estimate or scope of work for the alternate project itself because, at 
its option, a subgrantee can apply the funding, the amount of which is 
based on the estimate of the original project, to another project. The 
alternate project may cost much more than the original project, but 
FEMA only awards the 90 percent or 75 percent of the Federal share of 
the estimate of the original project. FEMA, however, would only 
reimburse for actual costs.
    For example, a subgrantee decides that instead of rebuilding the 
disaster-damaged facility (the original project) estimated at $100,000, 
it wants to build a school (the alternate project) several miles away 
from the original project site, which is going to cost $4 million. FEMA 
would award the subgrantee 90 percent of the Federal share (or 75 
percent of the Federal share if it's a private nonprofit facility) of 
the original project estimate of $100,000. So, if the Federal share is 
75 percent, then the Federal share of $100,000 is $75,000. Ninety 
percent of $75,000 is $67,500. FEMA would award $67,500 for the 
alternate project.
    The Stafford Act does not provide for Federal funding to cover the 
$4 million project cost, which is in excess of the $100,000 project 
estimate to repair the original disaster-damaged facility. That is why 
FEMA does not prepare a scope of work or a revised estimate for the 
alternate project itself. Once FEMA obligates the money for the 
alternate project, it does not do any further monitoring of the 
project, except to make sure that the subgrantee uses the funds to 
build the alternate project, along with the other general grant 
requirements that FEMA must ensure that subgrantees meet (such as 
environmental and historic preservation). The subgrantee cannot request 
cost overruns under 44 CFR 206.205, because FEMA is not funding the 
entire project, but rather a percentage based on the Federal estimate 
of the cost to repair, restore, reconstruct or replace the original 
disaster-damaged eligible facility. If there is an underrun, FEMA will 
deobligate funds at project reconciliation and close-out.
    The amendment made by DMA 2000 that provides for modification of 
eligible costs outside of the floor and ceiling only applies to ``the 
actual cost of repairing, restoring, reconstructing, or replacing'' a 
disaster-damaged facility. Therefore, it is not applicable to alternate 
projects undertaken pursuant to section 406(c). Under that section the 
subgrantee must determine that it will not repair, reconstruct, or 
replace its disaster-damaged facility, and is then limited to receiving 
a certain percentage of the Federal estimate of the repair, 
reconstruction, or replacement of that original facility. FEMA does not 
have authority to modify that estimate based on the floor and ceiling 
thresholds.

D. Appeals

    As proposed, a subgrantee may appeal any FEMA determination made 
under the CEF. (See proposed new 44 CFR 206.211.) This includes a 
determination of the CEF estimate (which can be the original estimate 
and any revised estimates based on revised scopes of work, which are 
reflected in new versions of the Project Worksheet), the determination 
of the amount of actual costs, and the determination of the amount of 
any overrun or underrun. The appeal procedures for the Public 
Assistance program (44 CFR 206.206) would apply to any CEF appeals.

E. Consideration of Phased Funding

    As proposed, the rule would follow FEMA's current procedure, 
whereby the Agency works with an applicant to develop a Project 
Worksheet that includes a scope of work and cost estimate for the full 
project. FEMA bases the amount of the Project Worksheet on the 
Estimated Base Cost in Part A, with adjustments using the non-
construction cost factors B through H. As noted above, preparing a 
precise base cost estimate in Part A is critical to the accuracy of the 
total project estimate, as all other percentages such as initial 
planning and design, contingencies, and overhead and profit, are based 
upon the cost estimate in Part A. Generally, when FEMA approves that 
Project Worksheet, it obligates the full amount of the cost estimate 
for the entire project, from initial planning and design all the way 
through construction. For certain large or complex projects, this can 
result in the commitment of large amounts of money that may not be used 
for months or even years until the project is ready to enter into the 
construction phase. To provide for better overall financial and grant 
management, and to improve the quality of the estimate in Part A, FEMA 
may fund certain large and complex projects in two phases: (1) planning 
and design; and (2) construction and closeout. Under this process, FEMA 
would work with the applicant as it currently does to develop an 
initial estimate of the entire project and an estimate of the funding 
necessary for the planning and design phase of the project (CEF factors 
H.1 and H.2). FEMA would then approve one Project Worksheet to obligate 
the funding for the planning and design phase. FEMA and the applicant 
would use the results of the planning and design phase to develop a 
more accurate estimate for the construction phase, after which FEMA 
would approve a second Project Worksheet to obligate funding for the 
construction phase. Essentially, this

[[Page 61243]]

change would maintain Part A as currently written, but fund factors H.1 
and H.2, limited to the costs required for planning and design, as a 
separate subgrant to the applicant. Once the planning and design phase 
was complete, FEMA would then run the full CEF and provide a grant 
including Parts A-H for the construction and closeout. FEMA is not 
proposing regulatory text at this time; however, FEMA is seeking public 
comment regarding the efficacy and feasibility of such an approach.

F. Effective Date

    If FEMA publishes a final rule implementing the CEF, the rule will 
be effective 60 days after the date of publication of the final rule in 
the Federal Register. It will apply to large permanent work projects 
authorized under emergency or major disaster declarations issued on or 
after the effective date.

VI. Regulatory Analyses

A. Executive Order 12866, Regulatory Planning and Review and Executive 
Order 13563, Improving Regulation and Regulatory Review

    Executive Orders 13563 and 12866 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. FEMA has prepared and reviewed this rule consistent with 
Executive Orders 13563 and 12866. The annual impact (in 2010 dollars) 
is estimated at $11.65 million in net transfers from FEMA to 
subgrantees. Over a 10-year period from 2013 through 2022, the total 
net transfers would be $116.5 million (undiscounted), or $71.5 million 
(discounted at 7 percent), or $93.6 million (discounted at 3 percent). 
This rule is not an economically significant regulatory action under 
section 3(f)(1) of Executive Order 12866.
    FEMA provides grants to State and local governments, Indian tribes, 
and to certain private non-profit (PNP) organizations for debris 
removal, emergency protective measures, and the repair, restoration, 
reconstruction, or replacement of facilities damaged in Presidentially-
declared major disasters. This proposed regulation would allow FEMA and 
subgrantees to better estimate the actual cost to repair or replace 
eligible disaster-damaged facilities.
    Public Assistance projects are processed as either small or large 
projects. If the project cost is less than the annually updated cost 
threshold amount ($67,500 for FY2013) the project is processed as a 
small project. If the project cost equals or exceeds the threshold the 
project is processed as a large project. This proposed rule would only 
affect large projects. Because of the nature of most large projects, 
work typically is not complete at the time of project approval; 
therefore, FEMA obligates grants based on an estimated cost. Upon 
completion of a large project, a subgrantee submits documentation to 
account for all incurred costs. The grantee is responsible for ensuring 
that all incurred costs are associated with the approved scope of work 
and for certifying that work has been completed in accordance with FEMA 
standards and policies. The grantee then submits documentation of 
project costs to FEMA for review. FEMA may conduct a final inspection 
as part of this review. Once the review is complete, FEMA determines 
whether funds should be obligated or de-obligated for the project.
    This rule proposes to adopt the cost-estimating procedures 
recommended by the expert panel. When a grantee/subgrantee applies for 
a grant to fund a Public Assistance project, FEMA estimates the cost of 
the project to determine how much the grant award should be. FEMA uses 
the CEF to do that estimate. Implementation of the CEF via this rule 
would not create any impacts on grantees/subgrantees because FEMA has 
already been using the CEF to do these estimates since 1994. In that 
year, after the Northridge California earthquake, FEMA began to develop 
CEF version 1.0, referred to as the Grant Acceleration Program (GAP). 
The Northridge earthquake occurred in a large metropolitan area, so 
much of the damage was to large, complex buildings. The damage was 
often not apparent during the initial inspection (which is common with 
earthquake damage), and there were many cases of serious underlying 
structural damage that required sophisticated engineering analysis. To 
provide adequate funding for subgrantees to cover the repair to this 
damage earlier in the grant process, FEMA established a voluntary 
program using the GAP method that allowed participants to receive a 
fair and reasonable fixed budget amount up-front, thereby accelerating 
the normal funding procedure (hence the name Grant Acceleration 
Program). The main drawback to GAP was that the subgrantee could not 
request additional funding, which was problematic if there are large 
cost overruns. GAP was modified to address this and other problems, and 
eventually evolved into a new version of the cost estimating format in 
1998, which is referred to as CEF 2.0.
    CEF 2.0, used until 2009, provided a uniform method of estimating 
costs for large projects. It accounted for costs incurred across the 
entire spectrum of eligible work (from design to project completion). 
Under the CEF 2.0, FEMA obligated the entire amount of the Federal 
share of the estimate up-front to the grantee, and payments were made 
by the grantee to the subgrantee in increments as items of work were 
completed or near completion (i.e., less than a week from completion). 
The subgrantee could request additional amounts for cost overruns 
pursuant to 44 CFR 206.204. CEF 2.1, issued in 2009, is very similar to 
CEF 2.0, with a few minor differences.
    CEF 2.1 (as was CEF 2.0) is made up of various parts, categorized 
as parts A through H, that are compiled by a FEMA estimator (who is 
either the Public Assistance Project Specialist or is supervised by the 
Public Assistance Project Specialist) in a CEF Spreadsheet. The main 
part of the CEF is Part A, which is the base cost (construction costs) 
required to complete the approved scope of work. A FEMA cost estimator 
uses a Part A worksheet to determine the estimated base cost. After 
estimating the Part A base cost, the FEMA estimator applies a series of 
factors (referred to as Parts B through H) to the Part A base cost 
estimate. With the exception of Part F, these factors are percentage 
factors. For example, if a Part B percentage factor is 2 percent, the 
estimator adds 2 percent of the Part A estimated base cost to the total 
estimate. Sometimes the CEF provides a recommended range of percents 
for each factor, such as 3 to 6 percent, and it is up to the discretion 
of the FEMA estimator which percentage to apply, depending on the 
specifics of the project. The FEMA estimator must detail why he or she 
chose a specific percentage in a special section of the CEF worksheet 
designed for this purpose. This flexibility in the CEF methodology 
allows it to more accurately estimate the many different types of large 
projects under the Public Assistance program.
    The Part B through H factors represent the nonconstruction costs 
(also referred to as construction-related costs), and are used only if 
the costs represented by the Parts B through H factors are not

[[Page 61244]]

otherwise itemized in Part A. The costs represented by the factors are 
allowable project costs under 44 CFR part 13, Uniform Administrative 
Requirements for Grants and Cooperative Agreements to State and Local 
Governments. The cost estimator adds the estimated nonconstruction 
costs to the Part A base construction cost using a CEF Worksheet to 
estimate the total cost of completing the project. This ``forward-
pricing'' methodology provides an estimate of the total eligible 
funding at the beginning of the project. The estimate, which FEMA uses 
to approve funds for the project, allows the subgrantee to more 
accurately manage the budget with a greater degree of confidence.
    As noted above, CEF 2.1 was issued in 2009. It is very similar to 
CEF 2.0, but with a few substantive changes. One of the main changes in 
CEF version 2.1 was the revision of Factor C.1 (Preliminary Engineering 
Analysis). In accordance with the recommendation of the expert panel, 
the lower-bound percentile of bidding simple projects was changed from 
15 percent to 7 percent. For Factor C.2 (Facility or Project 
Constructability), the input of percentages was restricted to a maximum 
of 7 percent. In CEF 2.0, the recommended range was not higher than 7 
percent, but the estimator had the option of using a higher percentage. 
CEF 2.1 no longer allows the estimator to use a percentage higher than 
7 percent. This will help ensure that the CEF estimates are consistent 
and that the estimator chooses factors within the recommended ranges. 
If the FEMA estimator has sufficient information to support costs 
outside the recommended range, then that cost should be itemized in 
Part A rather than use a CEF Factor. For similar reasons, Factors B.1, 
C.2 and C.3 have been restricted to their recommended ranges. Regarding 
Factor C.4 (Economies of scale), Factor D.3 (General contractor's 
profit), and Factor G (Applicant's reserve for change orders), the step 
functions for these factors were changed to a curve function. When 
using a step function, a certain percentage is applied to a project 
based on the dollar amount of the project. This approach is reasonable, 
except for projects at the boundary of the range, which resulted in 
sharp dollar changes at arbitrary boundaries. By changing to a curve 
function, the FEMA estimator can adjust the factors based on the size 
of the project in a way that avoids these sharp dollar changes.
    As described above, FEMA has used the CEF for several years, and 
therefore, adoption of the CEF by this rule would have no additional 
economic impact. The qualitative benefits and efficiencies this 
proposed rule provides include the fact that subgrantees would now have 
the incentive to finish a project at or below the estimated costs 
because they can use the underruns (up to 10 percent) for other 
eligible projects. In addition, subgrantees would have a clear vision 
of their project and can budget up front for their project. Currently, 
subgrantees do not do this because they can get reimbursed for any cost 
overruns throughout the project. Under the proposed rule, subgrantees 
would absorb any cost overruns (up to 10 percent), and would not get 
reimbursed for any remaining cost overruns until the end at grant 
closeout.
    For large projects involving permanent work, this rule proposes -10 
percent and +10 percent, respectively, for the floor and ceiling 
thresholds required by section 406(e) of the Stafford Act. If the 
actual eligible cost of a project is up to 10 percent less than the 
estimated eligible cost, the subgrantee would be allowed to use the 
underrun on cost-effective activities that reduce the risk of future 
damage, hardship, or suffering from a major disaster. We interpret 
these activities to have a broader scope than eligible hazard 
mitigation under Sections 406 of the Stafford Act. This would provide 
subgrantees with an incentive to manage their projects so as to 
possibly achieve underruns. For instance, these cost-effective 
activities would not be limited to the project that generated cost 
underruns nor would the cost-effective activities be limited to damaged 
portions of disaster-damaged facilities. The subgrantee must submit a 
separate Project Worksheet for FEMA approval before it may use a CEF 
underrun for a cost-effective activity. The subgrantee must submit the 
Project Worksheet within 90 days of identifying the project underrun, 
and the Project Worksheet must identify all projects under the same 
major disaster declaration with underruns that would be used to fund 
the cost-effective activity(ies). As with any other grant, if FEMA 
approves the proposed use of the subgrantee's underrun, the project 
would be subject to the applicable grant administration regulations at 
44 CFR part 13.
    If the actual eligible cost is more than 10 percent below the 
estimated eligible cost, the subgrantee would be required to reimburse 
FEMA the amount of the underrun greater than the -10 percent threshold. 
If the actual eligible cost exceeds the estimated eligible cost by up 
to 10 percent, the subgrantee would absorb the cost. If the actual 
eligible cost exceeds the estimated eligible cost by more than 10 
percent, the amount over the 10 percent may be eligible for 
reimbursement from FEMA to the subgrantee. FEMA would perform its 
normal eligibility determination to determine which costs would be 
reimbursed. The Panel found that the selected thresholds best represent 
engineering and construction industry principles for accurately 
estimating large project costs. These thresholds were seen as 
reasonable and were the consensus choice of the Panel.
    FEMA selected a sample of 183 Public Assistance large projects from 
2004 through 2008 for which the permanent work was 100 percent 
complete. The CEF was used to develop the cost estimates for these 
large projects and the estimates were then used as the basis for 
obligating funds. This sample was drawn to represent a range of 
disaster type (45 disasters) and damage categories (Category C-G). For 
the sample of 183 large projects, the total approved estimated eligible 
costs under CEF were $52.77 million (in 2010 $), and the actual final 
project costs were $52.53 million (in 2010 $), resulting in an overall 
total net difference for all 183 large projects of $241,593 (or 0.46 
percent of $52.53 million). This seems like a relatively small 
difference between the estimated and actual costs. However, an 
individual large project could vary widely in terms having a cost 
underrun of greater than $200,000 or a cost overrun of greater than 
$600,000. When all of the underruns and overruns for the sample of 183 
large projects are summed together, the total net difference is 
$241,593.
    The distribution of the percent difference between the approved 
eligible costs and the final project costs is close to a symmetric 
distribution. FEMA expects that the amount of overruns and underruns 
would be about the same. Table 3 shows the distribution of the 
percentage difference between the approved eligible costs and the final 
project costs for the sample of 183 large projects. The figures in 
Table 3, column 3, represent the ``up to 10 percent'' transfer amount, 
and show the impact of the proposed rule. For example, the four large 
projects that had actual costs greater than 130 percent of the 
estimated costs would absorb the cost overruns up to 10 percent (a 
total of $390,612.62 for the four large projects) and could be 
reimbursed for the remainder of the cost overruns (e.g., the amount 
over 110 percent) as long as those costs are eligible under the Public 
Assistance program.

[[Page 61245]]

[GRAPHIC] [TIFF OMITTED] TP03OC13.030

    This rule proposes -10 percent and +10 percent, respectively, for 
the floor and ceiling thresholds for large projects. The impact of this 
proposed change to the sample of 183 large projects was a small 
increase in Public Assistance funding by $447,962, which is 0.85 
percent of the total project costs of $52.53 million. FEMA funds 
approximately 2,745 large projects for permanent work (Category C-G 
work) per year for $1,365 million (in 2010 dollars). When the same 0.85 
percent is applied to all 2,745 large projects with the total amount of 
$1,365 million, the economic impact of this proposed rule is estimated 
at $11.65 million per year (= $1,365 million x 0.85 percent). This 
economic impact would be an increase in the Public Assistance funding 
amount in the form of a net transfer from FEMA to subgrantees for 
Public Assistance projects. However, as discussed above and shown in 
Table 3, this is a net effect of the proposed rule and not all 
subgrantees may benefit from an increase in the Public Assistance 
funding. Subgrantees would absorb overruns if the actual eligible cost 
exceeds the estimated eligible cost by up to 10 percent. In addition, 
subgrantees would be required to reimburse FEMA the amount of underruns 
greater than the -10 percent threshold. Because the proposed rule would 
have an annual economic impact of less than $100 million, this 
rulemaking is not an economically significant regulatory action.
    This rulemaking is not a significant regulatory action because it 
does not create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency--the rule is unique to FEMA 
and its Public Assistance program. It does not materially alter the 
budgetary impact of the Public Assistance grant program or the rights 
and obligations of recipients thereof. The rule proposes to adopt a 
method of estimating eligible cost that has already been well developed 
and utilized by FEMA for large projects. Therefore, it does not raise 
novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in Executive Order 
12866, nor does it affect the rights and obligations of the 
subgrantees. Although the floor and ceiling thresholds represent a new 
component of the large project funding process, implementation of the 
thresholds is required by statute.
    To facilitate the periodic review of existing significant 
regulations, Executive Order 13563 requires agencies to consider how 
best to promote retrospective analysis of rules that may be outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned. This proposed rule would result in a net decrease in the 
burden on applicants by providing an additional $11.65 million per year 
in Federal assistance as a net transfer from FEMA to applicants, and it 
would also provide applicants an incentive to keep actual costs low 
because applicants would be able to keep the portion of any cost 
underrun up to 10 percent of the original estimated costs. Another 
qualitative benefit is that the proposed rule would increase 
efficiencies because the subgrantees would have a clearer vision of the 
project funding streams, and it would be easier for them to plan.

B. The Paperwork Reduction Act

    The Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq., requires 
government agencies to acquire approval from the Office of Management 
and Budget (OMB) for collections of information from the public. This 
rule does not include any new collections of information. Under this 
rule, a FEMA estimator will prepare the CEF estimate using a 
spreadsheet template specifically designed for use with the CEF. 
Although the subgrantee is part of the Federal-State team that assists 
the FEMA estimator in developing the estimate, the subgrantee does not 
input data into the CEF spreadsheet, nor does the subgrantee calculate 
the CEF estimate. After the FEMA estimator completes the CEF 
spreadsheet, it is attached to the Project Worksheet as documentation 
of FEMA's calculations of the estimate of the total eligible cost of 
the approved scope of work.
    During the Public Assistance process, FEMA and the subgrantee work 
together to complete the various aspects of the Project Worksheet, 
which includes a detailed location of the project, a detailed scope of 
work, and the estimate of the total cost of the scope of work. FEMA 
estimators may use various methodologies to calculate this estimate, as 
explained in this rulemaking. If this rule becomes effective, the CEF 
method will be the mandatory estimating method for large permanent work 
projects.
    OMB has approved the Project Worksheet under the ``Public 
Assistance Program'' information collection, OMB Control No. 1660-0017. 
The Public Assistance Program information collection covers any 
information or data that a FEMA estimator may need from a subgrantee in 
order for the FEMA estimator to calculate a project estimate. There is 
no additional data or other information that a FEMA estimator needs 
from a subgrantee in order to complete an estimate using the CEF

[[Page 61246]]

methodology. The CEF is simply an alternate method that is used to 
calculate an estimate, using the same data and information that FEMA 
already collects from a subgrantee to aid the FEMA estimator. 
Therefore, FEMA's use of the CEF spreadsheet to calculate the CEF 
estimate does not affect the burden hours of the subgrantee's 
preparation of the Project Worksheet.
    The CEF for Large Projects version 2.1 requires a Public Assistance 
Group Supervisor to prepare and submit a CEF Large Project Report for 
each large project that was estimated using the CEF. This report is not 
an information collection because it does not gather information from 
the public and is not prepared or submitted by the public. It is 
prepared by FEMA personnel, using information already possessed by 
FEMA. The report includes the disaster number and name of the Public 
Assistance Group Supervisor preparing the report, the declaration date 
and the date prepared, the subgrantee name, the Public Assistance 
identification number, the Project Worksheet number, the category of 
permanent work (C, D, E, F or G), the CEF estimated cost, the CEF 
actual post-construction cost, the dollar amount of obligation or de-
obligation, the reason for cost reconciliation, and the primary 
function of the facility. FEMA does not need to request this 
information from the public; it is information that FEMA possesses in 
the course of administering the Public Assistance program. Therefore, 
the Project report is not an information collection under the PRA.

C. The Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1531-
1538) requires Federal agencies to assess the effects of their 
discretionary regulatory actions. In particular, the Unfunded Mandates 
Reform Act addresses actions that may result in the expenditure by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100,000,000 (adjusted for inflation) or more in any one 
year. UMRA exempts from its definition of ``Federal intergovernmental 
mandate'' regulations that establish conditions of Federal assistance 
or provide for emergency assistance or relief at the request of any 
State, local, or Tribal government. Therefore, this proposed rule is 
not an unfunded Federal mandate under that Act.
    Even if UMRA did not include this exemption, this rulemaking does 
not include an unfunded mandate. It provides for an alternate method of 
estimating eligible project costs for Public Assistance grants. The 
alternate method (the Cost Estimating Format) should provide a more 
accurate estimate of the cost of a large project than the traditional 
method of estimating project costs. State, local, and Tribal 
governments are required to pay a cost share of the Public Assistance 
grant. This cost share is not expected to increase with the use of the 
Cost Estimating Format.

D. OMB Circular No. A-119, Federal Participation in the Development and 
Use of Voluntary Consensus Standards and in Conformity Assessment 
Activities

    OMB Circular A-119 establishes policies on Federal use and 
development of voluntary consensus standards and on conformity 
assessment activities. The National Technology Transfer and Advancement 
Act of 1995 (NTTA), Public Law 104-113, codified existing policies in 
A-119, established reporting requirements, and authorized the National 
Institute of Standards and Technology to coordinate conformity 
assessment activities of the agencies. The Circular directs agencies to 
use voluntary consensus standards in lieu of government-unique 
standards except where inconsistent with law or otherwise impractical. 
It also provides guidance for agencies participating in voluntary 
consensus standards bodies and describes procedures for satisfying the 
reporting requirements in the Act. The policies in the Circular are 
intended to reduce to a minimum the reliance by agencies on government-
unique standards.
    Voluntary consensus standards are technical standards (e.g., 
specifications of materials, performance, design, or operation; test 
methods; sampling procedures; and related management system practices) 
that are developed or adopted by voluntary consensus standards bodies. 
This rule uses technical standards other than voluntary consensus 
standards, which are as follows:
1. Construction Specifications Institute
    The CEF uses the MasterFormat developed by CSI. CSI is a national 
association dedicated to creating standards and formats to improve 
construction documents and project delivery. MasterFormat is a 
structured hierarchy of 50 divisions, and sections within each division 
that standardizes information in construction project manuals. 
MasterFormat minimizes confusion and miscommunication, leading to 
fewer, costly project delays, errors, and omissions. The MasterFormat 
2004 edition replaces MasterFormat 1995 and is available from the CSI 
Web pages located at  http://www.csinet.org/s_csi/docs/9400/9361.pdf.
2. Reed Construction Data
    The CEF also uses commercial cost reference manuals, known in the 
construction and engineering industry as RS Means Cost Data, as 
developed and published annually by Reed Construction Data, a supplier 
of construction cost information. RS Means Cost Data provides accurate 
and up-to-date cost information that helps owners, developers, 
architects, engineers, contractors and others to carefully and 
precisely project and control the cost of both new building 
construction and renovation projects. Key information includes: city 
cost indexes, productivity rates, crew composition, and contractor's 
overhead and profit rates. Reed Construction Data performs these 
functions by collecting data from all facets of the industry, and 
organizing it in an accessible format. From the preliminary budget to 
the detailed unit price estimate, the data is useful for all phases of 
construction cost determination. Annual cost data publications are 
available from the RS Means Web pages located at http://www.rsmeans.com/bookstore/booksearch.asp?c=5.
    MasterFormat and RS Means Cost Data were developed in the private 
sector but not in the full consensus process. They are widely used and 
accepted de-facto standards by the engineering and construction 
industry.
    These standards are used because FEMA did not find voluntary 
consensus standards that are applicable to this rule on a national 
basis. If you are aware of voluntary consensus standards that might 
apply, please identify them in a comment to the address under the 
ADDRESSES caption and explain why they should be used.

E. Executive Order 13132, Federalism

    Executive Order 13132, Federalism, 64 FR 43255, August 10, 1999, 
sets forth principles and criteria that agencies must adhere to in 
formulating and implementing policies that have federalism 
implications, that is, regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.'' FEMA has 
determined that this rule does not have federalism implications as it 
does not limit the policymaking discretion of the States and does not 
preempt any State laws.

[[Page 61247]]

F. Executive Order 13175, Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments, 65 FR 67249, November 9, 2000, applies to agency 
regulations that have Tribal implications, that is, regulations that 
have substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes. Under this Executive Order, to the extent 
practicable and permitted by law, no agency may promulgate any 
regulation that has Tribal implications, that imposes substantial 
direct compliance costs on Indian Tribal governments, and that is not 
required by statute, unless funds necessary to pay the direct costs 
incurred by the Indian Tribal government in complying with the 
regulation are provided by the Federal Government, or the agency 
consults with Tribal officials.
    This rulemaking does not have Tribal implications. The Public 
Assistance program is a voluntary program that provides funding to 
subgrantees, including Tribal governments, in need of emergency and 
disaster response assistance. There is no substantial direct compliance 
cost associated with this proposed rule. This proposed rule would not 
affect the distribution of power or responsibilities of Tribal 
governments.

G. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), and 
section 213(a) of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (Pub. L. 104-121) require that special consideration be 
given to the effects of proposed regulations on small entities. Under 
the RFA, FEMA has considered whether this proposed rule would have a 
significant economic impact on a substantial number of small entities. 
The term ``small entities'' includes small business, small non-profit 
organization, and small governmental jurisdictions. Small governmental 
jurisdictions mean the government of cities, counties, towns, 
townships, villages, school districts, or special districts that have 
populations of less than 50,000.
    FEMA used 2000 U.S. Census Bureau data to identify actual Public 
Assistance subgrantees that under the RFA could be considered small 
entities. In the sample of 183 Public Assistance large projects for 
which the permanent restorative work was 100 percent complete during 
2004 and 2008, FEMA identified 109 Public Assistance subgrantees with 
populations of 50,000 or less that have received Public Assistance 
funding for 119 Public Assistance large projects. These 109 small 
entities amount to approximately 76 percent of the total 144 
subgrantees in the sample.
    FEMA measured the annual impact of the rule on each of the 109 
small governmental jurisdictions based on the estimated increase or 
decrease in Federal assistance and annual revenues. Annual revenues for 
these 109 small governmental jurisdictions were estimated from the per 
capita revenue for local governments by State. For example, the per 
capita revenue for all local governments in Florida in 2007 (in 2010 
dollars) was $4,192.\9\ Therefore, annual revenue for a small 
governmental jurisdiction in Florida with a population size of 1,000 is 
estimated approximately at $4.19 million (= $4,192 x 1,000). FEMA 
compared the estimated increase or decrease in Federal assistance with 
the estimated annual revenue for each of these 109 small governmental 
jurisdictions. Out of these 109 small governmental jurisdictions, only 
1 percent (or less than 1 percent) was expected to have a negative 
impact (a decrease in Federal assistance) higher than 1 percent of 
their annual revenues. Since this sample was drawn to represent a range 
of disaster type (45 disasters) and categories C through G for Public 
Assistance large projects for which the permanent restorative work is 
100 percent complete, FEMA expects that this finding would also apply 
to all 2,745 Public Assistance large projects per year. Consequently, 
FEMA certifies that there is no significant economic impact on a 
substantial number of small entities.
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    \9\ http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=513.
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H. National Environmental Policy Act

    The National Environmental Policy Act of 1969 (NEPA), as amended, 
42 U.S.C. 4321 et seq., requires agencies to consider environmental 
impacts in their decision-making. Specifically, NEPA requires agencies 
to prepare an Environmental Impact Statement (EIS) for ``major federal 
actions significantly affecting the quality of the human environment.'' 
If an action may or may not have a significant impact, the agency must 
prepare an Environmental Assessment (EA). If, as a result of this 
study, the agency makes a Finding of No Significant Impact (FONSI), no 
further action is necessary. If the action will have a significant 
effect, the agency uses the EA to develop an EIS.
    Pursuant to 44 CFR 10.8(c)(1) and (2), action taken or assistance 
provided under sections 402, 403, 407, or 502 of the Stafford Act and 
action taken or assistance provided under section 406 of the Stafford 
Act that has the effect of restoring facilities substantially as they 
existed before a major disaster or emergency are statutorily excluded 
from NEPA and the preparation of environmental impact statements and 
environmental assessments by section 316 of the Stafford Act, 42 U.S.C. 
5159.

I. Executive Order 12630, Governmental Actions and Interference With 
Constitutionally Protected Property Rights

    FEMA has reviewed this rule under Executive Order 12630, 
``Governmental Actions and Interference with Constitutionally Protected 
Property Rights'' (53 FR 8859, Mar. 18, 1988) as supplemented by 
Executive Order 13406, ``Protecting the Property Rights of the American 
People'' (71 FR 36973, June 28, 2006). This rule will not affect the 
taking of private property or otherwise have taking implications under 
Executive Order 12630.

J. Executive Order 12988, Civil Justice Reform

    FEMA has reviewed this rule under Executive Order 12988, ``Civil 
Justice Reform'' (61 FR 4729, Feb. 7, 1996). This rule meets applicable 
standards to minimize litigation, eliminate ambiguity, and reduce 
burden.

List of Subjects in 44 CFR Part 206

    Administrative practice and procedure, Coastal zone, Community 
facilities, Disaster assistance, Fire prevention, Grant programs-
housing and community development, Housing, Insurance, 
Intergovernmental relations, Loan programs-housing and community 
development, Natural resources, Penalties, Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, the Federal Emergency 
Management Agency proposes to amend 44 CFR part 206, subpart G, as 
follows:

PART 206--FEDERAL DISASTER ASSISTANCE

0
1. The authority citation for part 206 continues to read as follows:

    Authority: Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5121 through 5207; Homeland Security Act 
of 2002, 6 U.S.C. 101 et seq.; Department of Homeland Security 
Delegation

[[Page 61248]]

9001.1; sec. 1105, Pub. L. 113-2, 127 Stat. 43 (42 U.S.C. 5189a 
note).

0
2. Amend section 206.203 by revising paragraph (c) (1)to read as 
follows:


Sec.  206.203  Federal grant assistance.

* * * * *
    (c)  * * * (1) Large projects. When the approved estimate of 
eligible costs for an individual project is $35,000 or greater, Federal 
funding equals the Federal share of the actual eligible costs 
documented by a grantee, or, if FEMA estimated the eligible costs of 
the project pursuant to Sec.  206.211, Federal funding equals the 
Federal share of the estimated total eligible cost, subject to set 
floor and ceiling thresholds, in accordance with Sec.  206.211. Such 
$35,000 amount is adjusted annually to reflect changes in the Consumer 
Price Index for All Urban Consumers published by the Department of 
Labor. FEMA publishes the threshold for large projects each year in the 
Federal Register.
* * * * *
0
3. Add section 206.211 to read as follows:


Sec.  206.211  Cost Estimating Format (CEF) for restoration of 
disaster-damaged facilities.

    (a) General. FEMA will use the Cost Estimating Format (CEF) to 
calculate an estimate of the total eligible project cost of the 
approved scope of work for restoration of disaster-damaged facility 
projects under the Public Assistance program. Once FEMA has established 
a total eligible project cost of an approved scope of work, FEMA will 
not allow revisions to the approved scope of work. Any cost overruns or 
underruns will be addressed pursuant to paragraph (e) of this section.
    (b) Limitations. (1) Restoration of disaster-damaged facilities. 
This section applies to restoration of damaged facilities projects 
only, which are projects authorized by section 406 of the Stafford Act. 
It does not apply to emergency work projects, which are projects 
authorized by sections 403, 407, 418, 419, and 502 of the Stafford Act.
    (2) Large projects. This section applies to large projects only. 
FEMA publishes the threshold for large projects each fiscal year in the 
Federal Register. For purposes of this section, the applicable fiscal 
year is the year in which the emergency or major disaster is declared.
    (3) Projects must be less than 90 percent complete. This section 
applies only to projects that are less than 90 percent complete at the 
time the CEF estimate is calculated. The percent complete is the sum of 
approved invoice amounts for eligible work divided by the approved 
contract amount for eligible work multiplied by 100. For projects that 
are over 90 percent complete, funding will be based only on the actual 
costs of performing eligible work.
    (c) Funding. (1) General. Upon project approval by FEMA, Federal 
funding will equal the Federal share of the CEF estimate of the total 
eligible cost of the approved scope of work. (2) Improved projects. For 
improved projects, Federal funding is determined as described in 
paragraph (c)(1) of this section and is limited as provided in Sec.  
206.203(d)(1). Project reconciliation and closeout apply as described 
in paragraph (e) of this section; however reimbursement will only be 
provided for actual cost overruns under subparagraph (e)(1), if 
eligible actual costs are tracked and documented separately from the 
improvement costs.
    (3) Alternate projects. When the CEF is used for a large project 
and the subgrantee subsequently decides to do an alternate project, 
final Federal funding for the alternate project is a percentage of the 
Federal share of the CEF estimate of the total eligible cost of the 
approved scope of work of the original project. This percentage is 
determined according to Sec.  206.203(d)(2). The CEF is not applied to 
the alternate project itself, and the floor and ceiling thresholds 
described in paragraph (e) of this section do not apply.
    (d) Parts of the CEF Estimate. The CEF estimate includes itemized 
base construction costs (Part A) plus nonconstruction costs (CEF Parts 
B through H Factors), as applicable. A FEMA cost estimator itemizes the 
unit costs in Part A and then applies one or more of the Parts B 
through H factors (usually a specific percentage for each factor) to 
the Part A estimate. The Parts B through H factors must not duplicate 
any itemized cost in Part A.
    (1) Part A. Part A is the estimated sum of itemized construction 
costs required to directly complete the approved scope of work. The sum 
of these costs is referred to as the base cost. The base cost includes 
labor, equipment, materials, small tools, incidentals, and hauling 
costs necessary to complete the approved scope of work, as well as 
subcontractor overhead and profit.
    (2) CEF Parts B through H Factors. The CEF factors reflect 
nonconstruction costs that are not itemized in Part A.
    (i) Part B Factor: General Requirements and General Conditions. The 
Part B factor includes general requirements, which includes safety and 
security, temporary services and utilities, safety and security 
measures, quality control, and administrative submittals, and general 
conditions, which include a prime contractor's on-site project 
management costs.
    (ii) Part C Factor: Construction Cost Contingencies/Uncertainties 
(Design and Construction). The Part C factor addresses uncertainties in 
completing the approved scope of work and unforeseeable costs. The Part 
C factor includes the following:
    (A) Factor C.1: Design Phase/Scope Definition Contingencies. This 
factor represents standard cost estimating contingencies based on the 
status of the design and engineering process at the time of the 
estimate. A greater percentage is applied for this factor at the 
beginning stages of the design and engineering process; a lesser 
percentage is applied for this factor at the later stages of the design 
and engineering process.
    (B) Factor C.2: Facility or Project Constructability. This factor 
addresses project complexity. A greater percentage is applied to more 
complex projects; a lesser percentage is applied to less complex 
projects. The C.2 factor applies to repair and retrofit projects only; 
it does not apply to new construction projects.
    (C) Factor C.3: Access, Storage, and Staging Contingencies. This 
factor addresses project site conditions that impose additional costs 
on the work activities included in Part A. It addresses access to the 
project site, storage of construction materials and equipment, and the 
timing and execution of the work.
    (D) Factor C.4: Economies of Scale. This factor accounts for the 
increases or decreases in cost associated with the repetitive elements 
of a project. The larger the size of the project, the less it will cost 
for each repetitive element.
    (iii) Part D Factor: General Contractor's Overhead and Profit. The 
Part D factor includes:
    (A) Factor D.1: General Contractor's Home Office Overhead Costs. 
This factor addresses the general contractor's main office expenses, 
including labor and salary costs for personnel plus all other 
operational expenses associated with working out of the main office.
    (B) Factor D.2: General Contractor's Insurance, Payment, and 
Performance Bonds. This factor addresses the general contractor's 
payment and performance bonds, builder's risk insurance, and public 
liability insurance.
    (C) Factor D.3: General Contractor's Profit. This factor addresses 
the general contractor's profit, which is a specific percentage 
depending on the project size and type of work (repair, retrofit, or 
new construction). For purposes of the application of Factor D.3, the 
project

[[Page 61249]]

size is the sum of Parts A, B, C, D.1, and D.2.
    (iv) Part E Factor: Cost Escalation Allowance. This factor accounts 
for cost escalation over the duration of the project and is based upon 
an inflation adjustment from the time the estimate is prepared until 
the mid-point of construction for the approved scope of work. The 
escalated cost of construction is equal to the sum of Parts A through 
D, multiplied by the number of months to the midpoint of uncompleted 
construction, multiplied by the escalation factor. The escalation 
factor is based on a 2-year average of either the Building Cost Index 
(BCI) or the Construction Cost Index (CCI), depending on the nature of 
the project.
    (v) Part F Factor: Plan Review and Construction Permit Costs. The 
Part F factor equals actual fees charged by State and local agencies 
for plan reviews and construction permits.
    (vi) Part G Factor: Applicant's Reserve for Construction. The G 
factor addresses the applicant/subgrantee's reserve for eligible work 
change orders approved by FEMA. It does not include discretionary 
change orders for upgrades or ineligible work. The percentage applied 
is based on project size. Project size for purposes of applying this 
percentage is the sum of Parts A through F.
    (vii) Part H Factor: Applicant's Project Management and Design 
Costs. The H factor addresses the applicant/subgrantee's cost to manage 
the design and construction of the project. These costs are not part of 
the statutory administrative cost allowance provided to the applicant/
subgrantee to manage the overall recovery effort. The administrative 
allowance implemented in 44 CFR part 207 reimburses the applicant/
subgrantee's cost of requesting, obtaining and administering Federal 
assistance, and does not account for project management costs. The H 
factor includes:
    (A) Factor H.1: Applicant's Project Management--Design Phase. This 
factor includes the applicant/subgrantee's costs to manage the project 
during the design phase, including managing the architecture and 
engineering contracts for final design, managing the permitting and 
special review process, and interfacing with other agencies. The H.1 
factor is not applicable in situations where a design is not required.
    (B) Factor H.2: Architecture & Engineering Design Contract Costs. 
This factor addresses the applicant/subgrantee's cost for basic design 
and inspection services, including preliminary engineering analysis, 
preliminary design, final design, and construction inspection.
    (C) Factor H.3: Project Management--Construction Phase. This factor 
addresses management costs during the construction phase, including 
quality assurance and management of additional testing during 
construction, advertising and awarding of the construction contract, 
decisions on construction problems and requests for information, 
management of change orders for on-site construction conditions and 
design errors, and omissions and unforeseen problems, such as differing 
site conditions and hidden damage. The H.3 factor is applied depending 
on the amount of total estimated construction costs.
    (e) Project reconciliation and closeout. Upon completion of the 
approved scope of work FEMA will determine final grant funding for 
projects described in paragraphs (c)(1) and (c)(2) of this section, in 
accordance with Sec.  206.205(b)(2), except for the application of 
floor and ceiling thresholds as indicated in this section. For purposes 
of determining the amount of an overrun or underrun under this section, 
the actual cost must include every item that was included in the CEF 
estimate, and must not include any item that was not included in the 
CEF estimate.
    (1) Cost overruns. The cost overrun procedures in Sec.  206.204(e) 
do not apply to this section. A subgrantee may not apply for 
reimbursement for cost overruns before the completion of the approved 
scope of work. After completion of the approved scope of work, the 
project enters the reconciliation phase. If FEMA determines at the 
reconciliation phase that the actual costs to complete the approved 
scope of work exceed the CEF estimate of the approved scope of work by 
more than 10 percent, the amount of the Federal share over that 10 
percent may be eligible for FEMA reimbursement. If the actual costs to 
complete the approved scope of work for a project exceed the CEF 
estimate of the approved scope of work by 10 percent or less, the 
subgrantee will not receive reimbursement from FEMA for the amount that 
exceeds the CEF estimate.
    (2) Cost underruns. (i) If the actual cost to complete the approved 
scope of work is at least 90 percent of the CEF estimate of the 
approved scope of work, the subgrantee may use the Federal share of the 
underrun for the following cost-effective activities:
    (A) Activities that mitigate future risk to undamaged elements of 
any disaster-damaged eligible facility;
    (B) Activities that mitigate future risk to any element of any 
eligible facility owned or operated by the subgrantee;
    (C) Activities that reduce the risk of future hardship and 
suffering as a result of a major disaster. Hardship and suffering 
include conditions of life that are difficult to endure and that could 
result from a future major disaster.


If the subgrantee plans to use an underrun for any of these cost 
effective activities, the subgrantee must submit a Project Worksheet 
for the cost effective activity(ies) within 90 days of identifying the 
project underrun. The Project Worksheet must identify all projects 
under the same major disaster declaration with underruns that would be 
used to fund the cost-effective activity(ies).
    (ii) If the actual cost to complete the approved scope of work is 
less than 90 percent of the CEF estimate of the approved scope of work, 
the subgrantee must return the Federal share of the underrun less than 
90 percent of the CEF estimate. The subgrantee may use the Federal 
share of the remaining 10 percent underrun for cost-effective 
activities as indicated in paragraph (e)(2)(i) of this section.
    (iii) If the subgrantee has not started its cost-effective 
activities described in paragraph (e)(2)(i) of this section within 12 
months of final reconciliation, FEMA will de-obligate those funds or 
take other appropriate action to recover funds according to procedures 
set forth in 44 CFR part 13.
    (f) Appeal. A subgrantee may appeal a determination made by FEMA 
under this section in accordance with Sec.  206.206, Appeals.
    (g) Effective date. This section is applicable to emergency or 
major disaster declarations issued on or after [insert date 60 days 
after date of publication of the Final Rule in the Federal Register].

    Dated: September 19, 2013.
W. Craig Fugate,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2013-23258 Filed 10-2-13; 8:45 am]
BILLING CODE 9111-23-P