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If you have been following the SPEED Recovery Act, you will know that the legislation would increase the maximum dollar threshold for Small Projects under the FEMA Public Assistance program to $1 million. After much anticipation, the bill was signed into law by President Biden on Oct. 10, 2022.
Even before the bill became law, FEMA began signaling forthcoming changes to state directors across the nation. On Aug. 3, 2022, FEMA Administrator, Deanne Criswell, publicly announced that the agency was moving forward with changing the Small Project maximum threshold for the Public Assistance Program to $1 million. Later that day, a FEMA advisory document was released stating that this change was intended to reduce programmatic red tape and ensure that subrecipients get the resources they need to recover more quickly. It also stated that subrecipients would not be required to submit Quarterly Progress Reports on Small Projects and that the tedious process to reconcile actual costs incurred will not be required.
Now that the Small Project threshold has been increased to $1 million, it is important to consider the implications for recipients and subrecipients of the Public Assistance Program.
Top three considerations for program participants
1) Cost eligibility standards have not changed
While faster project obligations and more expedient funding to local jurisdictions are generally viewed as favorable outcomes for program participants, increased scrutiny during project formulation can result in positive outcomes, like identifying ineligible costs prior to grant award. With the Small Project threshold raised to $1 million, approximately 94% of all obligated project worksheets will now be categorized as Small Projects. FEMA has stated that this is intended to put recovery dollars in the hands of subrecipients faster and more efficiently. This result is possible because Small Projects meet less FEMA scrutiny during project formulation as opposed to Large Projects that are more closely examined by design. Consequently, accepting a Small Project award could be riskier than before.
2) Record retention requirements have not changed
The SPEED Recovery Act is intended to help reduce administrative burdens on Public Assistance program participants. While participants will enjoy faster project obligations, the burden of tracking, compiling, and retaining cost documentation for all projects, regardless of “Small” or “Large” designation, does not disappear. Historically, the most prevalent audit finding by the Office of Inspector General leading to de-obligation of funding is the lack of project documentation. Program participants must remain diligent in maintaining records. If a federal auditor finds that costs are not properly supported, a program participant will risk a de-obligation of federal funds.
3) Small Projects will not be reconciled to actual costs or amended for cost overruns
To expedite project formulation, FEMA intends to fund disaster claims on estimates whenever possible. However, FEMA will not amend Small Projects to align original estimates with the actual costs incurred to complete the scope of work. FEMA’s Public Assistance Program and Policy Guide (PAPPG) Version 4, states: “Once FEMA obligates a Small Project, FEMA does not adjust the approved amount of an individual Small Project. This applies even when FEMA obligates the Project based on an estimate and actual costs for completing the eligible SOW differ from the estimated amount.”
To prevent getting stuck with a cost overrun on a Small Project, subrecipients should carefully review FEMA’s construction estimates and compare them to respective market conditions. If the plan is to contract out the work and purchase materials, it would be wise to solicit bids for the work and survey the market before hastily accepting the award.
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Frank Banda
CPA, CFE, PMP, Managing Partner – Government and Public Sector Advisory
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.