Costs Eligilbilty

Reasonable Cost

Detailed Discussion

Reasonable Cost

A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the Applicant makes the decision to incur the cost. This is in accordance with 2 Code of Federal Regulations 200.404 Reasonable costs.

FEMA determines reasonableness by evaluating whether:

  • The cost is of a type generally recognized as ordinary and necessary for the type of facility of work
  • The cost is comparable to the current market price for similar goods or services based on:
  • Historic documentation
  • Average costs in the area
  • Published unit costs from national costs estimating databases

FEMA determines reasonableness by evaluating whether (cont'd):

  • Any of the following factors caused escalation of costs:
  • Shortages in equipment, materials, supplies, labor, or contractors. When escalating costs are due to shortages, FEMA considers whether the Applicant's work continued beyond the period of shortages and whether there was an opportunity for the Applicant to obtain more reasonable pricing
  • Project-specific complexities, such as environmental or historic issues, remote access or location, provision of a unique service with few providers, or elements requiring an extraordinary level of effort
  • The Applicant deviated from its established practices
  • Exigent circumstances existed. If so, FEMA evaluates the length of time the circumstances existed compared to the length of time costs were incurred
  • The Applicant participated in ethical business practices, ensuring parties to a transaction are independent of each other, without familial ties or shared interest and on equal footing without one party having control of the other
  • The Applicant complied with procurement requirements

The Applicant is responsible for providing documentation to demonstrate its claimed costs are reasonable. If FEMA determines any of the costs to be unreasonable based on its evaluation, FEMA may disallow all or part of the costs by adjusting eligible funding to an amount it determines to be reasonable.

Project Cost

FEMA or the Applicant prepares the Project based on actual or estimated costs as follows:

  • If the Applicant has completed the scope of work, the Project is prepared based on actual documented costs
  • If the Applicant has not completed the scope of work, FEMA and the Applicant work together to estimate costs and reach agreement.

FEMA uses the Applicant's cost estimate if the estimate:

  • Is prepared by a licensed Professional Engineer or other estimating professional, such as a licensed architect or certified professional cost estimator who certifies that the estimate was prepared in accordance with industry standards
  • Includes certification that the estimated cost directly corresponds to the repair of the agreed upon damage
  • Is based on unit costs for each component of the scope of work and not a lump sum amount
  • Contains a level of detail sufficient for FEMA to validate that all components correspond with the agreed-upon scope of work
  • Is reasonable

If the Applicant lacks the resources, it may request technical assistance from FEMA to develop the cost estimates.


Related Subjects & Topics

Costs Eligilbilty

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