hma webinar: cost estimating principles for hma … the concepts behind creating a budget – how...

“FEMA’s mission is to support our citizens and first responders to ensure that as a nation we work together to build, sustain, and

Improve our capability to prepare for, protect against, respond to, recover from, and mitigate all hazards.”

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Hazard Mitigation Assistance Webinar Presentation: Cost Estimating Principles for Hazard Mitigation Assistance Applications This webinar on Cost Estimating Principles for Hazard Mitigation Assistance Applications was presented by the

United States Federal Emergency Management Agency (FEMA), Federal Insurance and Mitigation Administration

(FIMA), Hazard Mitigation Assistance (HMA) Division on May 10, 2017.

Notes contained in this webinar were adapted from the webinar transcript.

Slide 1

COST ESTIMATING PRINCIPLES FOR HAZARD MITIGATION ASSISTANCE APPLICATIONS

May 10, 2017

Presented By

Megan Hart, Sr. Program Specialist

Rusty Rickart, Sr. Program Specialist

Dial-in #: 1-800-320-4330

Meeting Code: 896047 #

This webinar was first delivered in early December 2014, to all ten Regions, and then delivered again in March 2015 to

States. FEMA took all comments received from both sessions and incorporated them into this presentation. The content in

this presentation can act as a quick and easy reference when working to develop or review cost estimates submitted within

HMA applications.

For additional resources, visit:



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Sample Local Mitigation Plan Scope of Work for Mitigation Grant Application (via FEMA Library)

Link: Sample Local Mitigation Plan Scope of Work

Cost Estimating Principles for Hazard Mitigation Assistance Applications presentation (via FEMA Library)

Link: Cost Estimating Principles Presentation

HMA Application Development website

Link: HMA Application Development

https://www.fema.gov/media-library/assets/documents/4170?id=1858

https://www.fema.gov/media-library/assets/documents/110217

https://www.fema.gov/application-development-1



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Slide 2

2

Goals of the Webinar

Provide a general understanding of the principles of reviewing cost

estimates for HMA projects (throughout the grant lifecycle).

Provide a process for determining “reasonable costs” as part of grant

application review.

Provide resources where you can go to get more detailed information and

examples.

FEMA makes funding available for mitigation projects through three Hazard Mitigation Assistance (HMA) grant

programs: the Hazard Mitigation Grant Program (HMGP), the Pre-Disaster Mitigation (PDM) grant program, and the

Flood Mitigation Assistance (FMA) grant program. Today’s presentation is not intended to go into great detail about each

of those, but rather the content is aimed at stressing the importance of putting the necessary time and effort into crafting a

solid budget for any application seeking funding from any of these grant programs.

The goals of our webinar are to:

Provide a general understanding of the principles of reviewing cost estimates for HMA projects

Provide a process for determining “reasonable costs” as part of grant application review

Provide resources where you can go to get more detailed information and examples



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Slide 3

3

Agenda

What is cost estimating?

Estimate documentation

Resources

Today’s presentation is broken into three topic areas:

1. Understanding the concepts behind creating a budget – How cost estimation formulation happens, including

addressing location factors, the concept of “reasonableness,” and cost eligibility.

2. The Basis of the Estimate - Emphasis of the unit being “documentation, documentation, documentation.” The key

here is about showing your work.

3. Where to turn – What industry guides and FEMA tools are out there to help you along the way.



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Slide 4

4

What is Cost Estimating?

This first section looks at the process of what goes into creating a cost estimate for a proposed project and how a reviewer

should approach the examination of a cost estimate for a proposed project.



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Slide 5

5

What is Cost Estimating? (continued)HMA Guidance (2015) Part IV.H.4.3

During our time together today we will cover the basics of construction cost estimates for common Hazard Mitigation

Assistance (HMA) program project types. The process involved to create an estimated budget includes an approximation,

computed based on available information, of the probable cost of a product, program, or project.

The text shown on the slide is taken directly from the FEMA HMA Guidance. Each subapplicant/subapplication must

provide a detailed cost estimate (sometimes called a budget) to support components of (1) the project Scope of Work

(SOW) and (2) the project schedule. The budget is composed of the line-item-activities that will be involved where a cost

will be incurred as the project is implemented.

Note that the call out box shown on this slide introduces a term of “Direct Cost Categories.” Employee salaries, fringe,

travel costs, and materials purchased related to the implementation of the project are examples of items under “Direct Cost

Categories.”

For more information, please refer to 2015 HMA Guidance Part IV.H.4.3.

Link: Link: https://www.fema.gov/media-library/assets/documents/103279




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Slide 6

6

Why is cost estimating important?

Fairness and consistency.

Tax payer dollars.

Program and budget planning.

(Federal, State and Local)

Why is cost estimating important? Cost estimation is important for a number of reasons:

1. First – being able to justify what the money will be used for is an inherent aspect of sound fiscal management. The

first bullet on the slide speaks to this under the banner of “fairness and consistency.” No two projects are the same,

but the communities should strive for this fairness and consistency.

2. Second – in working with HMA programs, we are stewards of Federal taxpayer dollars. As such, we all take that very

seriously at the federal, state, tribal, and local levels.

3. Third – There are important requirements to meet, such as program and budget planning and compliance with

Uniform Administrative Requirements for Federal Grants (Cost Principles) 2 CFR 200. Additionally, there may be

state and local grant administrative requirements that must be met as well.

If you have a good budget, then you have a chance at having a successful project implementation. Imagine a situation

where the project budget estimate was a total of $500,000, but once the implementation gets going it becomes clear the

total cost will be $1,000,000. What is effect? There are three options, either:

1. Scope gets scaled back/reduced;

2. Look for more non-federal funding sources; or,

3. Convince the federal agency to award more funding.

One other consideration not really listed on this slide is that estimating your project costs is a balancing act. The project

budget needs to have enough money identified in order to complete the full Scope of Work (SOW), but you don’t want to

“overinflate” a budget to the point where the project is no longer cost effective.



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Slide 7

7

Common Cost Indexes

Engineering News Record (ENR)

RSMeans

Different Indexes, Different Results

A cost index (or sometimes called a price index) (plural: “cost indices” or “cost indexes”) is a normalized average

(typically a weighted average) of price relative for a given class of goods or services in a given region, during a given

interval of time. It is a statistic designed to help to compare how these price relatives, taken as a whole, differ between

time periods or geographical locations.

When reviewing a cost estimate that has been developed for a project Scope of Work it can be helpful to know that there

are resources available that can assist in the examination of that budget.

For example, the trade magazine entity called ENR (Engineering News-Record) started collecting data in the early 1900s.

They provide engineering and construction news, analysis, commentary, and data to construction industry professionals

via an online subscription membership. ENR publishes both a Construction Cost Index (CCI) and Building Cost Index

(BCI) that are widely used in the construction industry. Their website contains an explanation of the indexes methodology

and a complete history of the 20-city national average, inclusive of both materials and labor components.

While analyzing indices to compare changes over time is appropriate, a single cost index should be used for a project.



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Slide 8

8

Common Construction Cost Data Mechanical Contractors Association of America (MCAA) Labor Estimating

Manual (LEM) for labor productivities

National Electrical Contractors Association (NECA) Manual of Labor Units (MLU)

RSMeans

Marshall & Swift Cost Guide

Construction Equipment Rental Rates:

Local Equipment Vendors

FEMA schedule of equipment rates

Communities that develop the budgets included within HMA grant applications often rely on the expertise of their in-

house staff or the information provided by consultants involved in the project scoping as they compose their line item

budgets. This slide lists various resources that may be helpful when reviewing a line-item budget.

The Mechanical Contractors Association of America (MCAA) Labor Estimating Manual (LEM) is an industry relied-

upon source for comprehensive labor units for typical project tasks. It also has a tool and equipment rental schedule.

The National Electric Contractors Association (NECA) Manual of Labor Units (MLU) is a very specific resource. This

reference could be extremely useful for reviewing estimated related to construction labor required to install typical

electrical and communications systems. The labor unit data comes directly from a national average of NECA’s member

contractors and is reviewed and updated bi-annually to ensure the best information is available to estimate accurately.

RS Means is a division of Reed Business Information that provides cost information to the construction industry so that

accurate estimates and projections for project costs can be determined. It has become a data standard in terms of pricing,

and is widely used by the industry as a whole. Cost information is updated annually and this estimating tool is available

online, via CD-ROM, or in book form. RS Means is often integrated in a variety of cost estimating software packages.

The Marshall & Swift Cost Guide can serve as an independent method to determine property value as well as project

construction costs and to adjust estimates to account for unique physical property features. Their guide incorporates three

cost methodologies; ensuring users have the tools for a complete and defendable cost estimate.

A simple, hands-on approach is sometimes very effective as well. A visit or call to a local equipment vendor can



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sometimes be a quick and easy way to validate listed budget estimates.

Lastly, “FEMA schedule of equipment rates” is a reference to an existing resource displaying subapplicant-owned

equipment rates. Link: Schedule for Equipment Rates.

http://www.fema.gov/schedule-equipment-rates



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Slide 9

9

Location Factors that Affect an Estimate

Site: Land, utilities, visual

quality/impacts, local access, amenities,

environmental, historic preservation

Accessibility: Labor, materials, energy,

markets, suppliers, customers

Social/Environmental: Capital, subsidies,

regulations, taxation, technology

Geographic: Short construction seasons,

inclement weather

Different kinds of location factors might affect a cost estimate. As a community creates a project budget, remember that

they are best positioned to know the particulars of the project location - limiting factors, attributes, unique characteristics,

etc. However, as a reviewer, your role is to ensure that they have taken the time to substantiate and/or justify all specifics

factored into the cost estimation formulation.

Site: The specific parcel/site (land) may have complexities related to implementation of the project. For example, it is

important to consider factors including but not limited to:

Is the proposed project for work occurring in a floodplain area? If so, will that affect the scope or budget of the

project?

What ifs there is a lack of utilities at the project location?

What if there are conflicting utility lines?

Is the activity happening in any shoreline erosion area, perhaps on an island, or any place where it may be difficult

to deliver materials? One project application budget submitted for a generator installation project on Macinac

Island, Michigan, had to include the unique factors associated with the fact that no motorized vehicles were

allowed on the island. Because of this unique situation, the barge that transported the generator over from the

main shore had be large enough to accommodate the transport truck as well as the generator, and the community

had to secure a special permit to make an exception for this project.

Are there hazardous materials considerations that need to be factored into the estimate? For example, will

asbestos abatement costs be incurred?

Are there any environmental planning or historic preservation costs that need to be considered?

Accessibility: Costs can be affected if the area has just experienced a large disaster; local labor and materials may not



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be available, and may be priced higher. Sometimes proximity impacts are reflected in the cost estimate in the form of

higher costs associated with a long transportation distance from available resources to the project site.

Social/Environmental: ________________________

Geographic: The geographic location of a project site may introduce project complexities, such as short construction

season leading to a longer overall project implementation period. For example, a project being considered for northern

Minnesota may have a considerably shorter construction window than an activity proposed for southern Georgia. So,

will the project implementation have to span multiple years? If so, how is that reflected in the budget?



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Slide 10

10

Location Factors that Affect an Estimate (continued)

Some cost estimating sources provide location factors (like the one displayed here) where the average cost in the US is

assigned a location factor of 1 and areas where construction (labor, equipment and material) is less expensive has a

location factor less than 1.0.

Note: The first column represents the first three numbers of the zip codes.



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Slide 11

11

How do I know if a unit cost is reasonable?

Comparability to similar projects

(including non-federal projects)

Evaluate using costing resources

Focus on major cost items

2015 HMA Guidance

H. Cost Review

All costs included in the subapplication should be reviewed to ensure that they are

necessary, reasonable, and allocable consistent with the provisions of 2 CFR Part 200.

Conducting this cost review at the earliest possible stage allows for improved project

scoping and facilitates project development, which facilitates FEMA project review.

When, as a cost reviewer, you begin to dissect a proposed project budget in an application you will examine the line

items. Those costs should be “reasonable.” A good rule of thumb is to think, “If I were using my OWN money how would

I budget for each item?” Being “prudent” is a responsibility that comes along with the use of the federal dollar.

Additionally, as noted on the slide the proposed cost should be comparable in similar communities, within the state

(allowing for similar project conditions). There are resources available to assist in the budget evaluation.

In your reviewer role, it is good practice to prioritize the task, especially working within limited time and resource

constraints. For example, a $100,000 line item should be reviewed more critically than a $5,000 item in a budget.

The text referenced at the bottom of the slide is an excerpt from the HMA Guidance. Note three terms taken straight from

the 2 CFR Part 200 Uniform Administrative Requirements for Federal Grants (Cost Principles):

Necessary (allowable) – The project outcome cannot be achieved without this cost item being used or present.

Reference: Allowable – 2 CFR Part 200.403

Link: www.ecfr.gov/cgi-bin/text-

idx?SID=85db6dee53e2409c94c7ddab97b7bb9c&mc=true&node=se2.1.200_1403&rgn=div8

Reasonable – reasonableness will be discussed in detail on an upcoming slide.

Allocable – The characteristic where cost can be assigned or charged to one or more activities or items (cost objects)

on the basis of benefits received. Put simply, a cost is allocable if the cost of a given item will yield a net positive

result or a known outcome can be attributed to this cost.



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Reference: Allocable – 2 CFR Part 200.405

Link: www.ecfr.gov/cgi-bin/text-

idx?SID=85db6dee53e2409c94c7ddab97b7bb9c&mc=true&node=se2.1.200_1405&rgn=div8

Note that a cost that is allocable may not necessarily be allowable or reasonable.

Note that acceptable “detailed documentation” includes bids or invoices that clearly identify relevant line items and

associated costs.



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Slide 12

12

How do I know if a unit cost is reasonable? (continued)2 CFR Part 200.404 Reasonable costs.

A cost is reasonable if,

It is recognized as ordinary and necessary for activity;

Uses sound business practices;

Complies with Federal, state and other laws and regulations;

Addresses terms and conditions of the Federal award; and

Is comparable with market prices for comparable goods or services for

the geographic area.

What is a reasonable cost and how is “reasonableness” determined?

At one time, there used to be three circulars from the Office of Management and Budget (OMB) that governed federal

awards. However, OMB has superseded and streamlined these three OMB Circulars for all federal awards into one

document referred to as the Super Circular, codified as 2 CFR 200 (effective December 26, 2014).

The question of reasonableness is particularly important when the non-federal entity is predominantly federally funded.

2 CFR Part 200.404 outlines reasonable costs. It states that 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 decision was

made to incur the cost.

In determining reasonableness of a given cost, consideration must be given to:

Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the non-federal entity

or the proper and efficient performance of the federal award;

Restraints or requirements imposed by such factors as sound business practices arm's-length bargaining; federal, state

and other laws and regulations; and, terms and conditions of the federal award;

Market prices for comparable goods or services for the geographic area;

Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the

non-federal entity, its employees, where applicable its students or membership, the public at large, and the Federal

Government; and,

Whether the non-federal entity significantly deviates from its established practices and policies regarding the

incurrence of costs, which may unjustifiably increase the federal award's cost.



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Slide 13

13

Major Cost Items

The focus of this slide is to bring attention to whether or not the costs that are highlighted are “reasonable.” Several items

standout because they have subtotals over $1,000,000 and they lack sufficient detail to explain and justify why the costs

are so high. Some questions that this table raises include:

What, specifically, does “land (33 – 50’ wide lots) entail?

Note that “AC” in the Unit field stands for “acre.”

What does “unclassified excavation” mean?

What is included in “class A concrete?”

The next unit discusses the documentation piece critical to showing your work.

Major costs of a project are often found in a relatively few line items. Using this sample budget for a minor flood control

project as an example, it is clear that $5,500,000 of the $8,500,000 cost is found in only three line items (outlined in red).

Note that there are some lump sums in this estimate that should be presented as unit costs, which would result in a request

for additional information. In general, FEMA requires lump sums to be broken down. Please watch for these as you

review estimates; FEMA will want more information if it is not initially provided.



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Slide 14

14

Eligible Costs Engineering and Architectural

• Costs for site analysis, engineering & design of a project

must be factored into the job

• Engineering service could be required for inspections

Labor

• Wages paid to the field personnel who work on the project

Material

• Material price that is incorporated into a project. Includes

all specified requirements & delivery charges

Construction Equipment

• The cost of equipment that a contractor uses to perform

the work

Subcontracts

• The total contractual cost to the general contractor for

using a subcontractor to complete portions of the work

This slide lists several of the “categories of eligible costs.” We’d like to highlight a few notes about the categories on this

slide:

Labor: Labor costs might vary based on one or more factors, including trade specialization. If you had a union shop

versus an open shop, certain aspects and/or job market pressures in a given locality may come into play.

Construction Equipment: When providing “construction equipment” related costs, generally FEMA sees

applications that include estimates for equipment rental rates.



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Slide 15

15

Eligible Costs (continued)

Other Associated Costs

• Bonding, permits, etc

Pre-Award Costs

• Incurred after the HMA application period has opened, but before a grant is

awarded

• Costs can cover Benefit Cost Analysis (BCA) development,

Environmental/Historic Preservation (EHP) data gathering (not Environmental

Impact Statement (EIS) preparation), subapplication or design development

• Does NOT cover implementation costs incurred before the subaward is awarded

• Are NOT reimbursed if a subaward is not awarded

Anything proposed in the budget falling under the banner of “other associated costs” must be shown to be directly

attributed to the project.

Pre-Award Costs

Costs incurred after the HMA application period has opened, but prior to the date of the grant award, are identified as pre-

award costs.

Pre-award costs are directly related to the development of the application or subapplication and may be funded through

HMA, as funds are available. Such costs may have been incurred, for example, to develop a Benefit-Cost Analysis, to

gather environmental planning and historic preservation data, for preparing design specifications, or for workshops or

meetings related to development and submission of HMA applications and subapplications.

Costs associated with implementation of the activity, but incurred prior to grant award are not eligible (projects initiated

or completed prior to grant award are not eligible).

Important note: If project grant funds have not yet been awarded (i.e., the project has not yet officially been approved by

FEMA), then any pre-award costs that have been incurred by applicants and subapplicants will not be reimbursed.

To be eligible for HMA funding, pre-award costs must be identified as separate line items in the cost estimate of the

subapplication. Applicants and subapplicants may identify such pre-award costs as their non-federal cost share.



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Slide 16

16

Contingencies What is a contingency cost?

• An allowance in the total cost estimate to cover situations that cannot be fully defined

at the time the cost estimate is prepared but that will likely result in additional eligible

costs.

What cannot be included?

• Allowances for major project scope changes, unforeseen risks, or extraordinary events

Recommended contingency range is 1 to 5 percent and 7 percent for historic

properties

Contingency cost should be included as a line item in the budget section of a

project application

• Applicants must justify the contingency estimate based on the nature of the proposed

project

Contingency funds are not automatically available for use.

• Must use get FEMA approval to re-budget contingency funds to another budget line

item

Source: 2015 HMA Guidance Part IV. D.3.4

The difficulty of construction activities varies among HMA project types. New construction is inclusive; that is,

something is created where nothing existed before. Conversely, repair and retrofit projects, which must be accomplished

within the physical and operational constraints of existing facilities, tend to consist of tasks that are more detailed and

sequenced, and require closer supervision throughout the process. Therefore, new construction may have a lower

contingency than projects that retrofit existing structures.

The contingency cost is an allowance in the total cost estimate to cover situations that cannot be fully defined at the time

the budget is being prepared, such as the following:

Steep embankments

Unstable soil conditions

Difficult subsurface construction conditions requiring activities such as rock excavation

Urban or remote rural sites

Special building code requirements

Availability of adequate energy, skilled craft labor, and building materials (e.g., any unforeseen shortages)

Community’s special requirements and restrictions (e.g., limited construction hours)

Environmental considerations (e.g., factoring in considerations for protected species mating seasons)

Weather delays

A contingency cost should be included as a line item in the budget section of a project application. As with other line

items in the budget, the subapplicant should justify the contingency estimate based on the nature of the proposed project.



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Note that FEMA recommends a range of 1-5% of the total cost estimate for contingency costs, with a possibly slightly

higher rate if a historic structure is involved in the project SOW. Keep in mind that this is a lower percentage than what

seems to be the industry “norm” of 10%.

Cost escalation due to inflation is generally not considered a contingency because there are many industry publications

that provide inflation factors to assist with cost estimations. Non-federal entities can add these inflation factors (e.g.,

solicitation for a bid, design work, permitting) to their cost estimate to account for the period before construction starts.

Cost escalation due to unforeseen factors – such as impacts to supply chains (i.e., wildfire limiting lumber availability) –

could be factored under contingencies.

Documentation is needed for contingency costs.



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Slide 17

17

Estimate Components

Description

Quantity

Unit Measure

Material cost

Labor costs

Equipment costs

Subcontract costs (if applicable)

Non-Construction Costs

Total cost

This list is provided to outline some factors that go into providing detailed and complete cost estimates. The more

understandable the information is, the easier it will be for the cost reviewer to ensure that the proposed project budget will

meet the need of ensuring the project award will provide the funding necessary to fully accomplish the entire defined

SOW.

A best practice is for the project to include a “budget narrative” as some line item costs may not be completely self-

explanatory and may require “further explanation.” For instance, a budget might list “generic labels” and a good narrative

should be included to provide details such as:

City Administrative Expenses - This cost covers the City’s management cost of the project and grant. The Utilities

Director ($35.21 per hour x 71 hours = $2,500) will oversee the project and City staff (3 staff x $22.22 per hour x 30

hours = $2,000) will provide inspection of the construction.

Engineering Fees – These fees will cover the cost for the City contracted engineering firm to oversee the design and

contract documents for the construction. This also covers the cost for the Engineering firm to bid the project and

perform contract-and grant-administration.

Equipment Costs – This cost covers the City’s equipment operating cost including a loader/excavator to assist in the

installation of the check valves. ($200 per hour x 25 hours = $5,000)

Equipment purchase and installation - These amounts are averages of three quotes from suppliers and installers.

Note that costs related to project management/grant administration would fall under the heading of “Non-Construction

Costs.” Additionally, costs associated with any outreach activity would also be defined under that header.



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Slide 18

18

Common Quantities of Measure

Each – EA

Linear Foot – LF

Square Foot – SF

Cubic Foot – CF

Cubic Yard – CY

Ton – TN

The point of this slide is just to remind that the units of measure that are used within the budget should make sense and be

accurate. When preparing an application, keep in mind that the budget can perform multiple functions:

It is needed at time of application so that a community can cost out their proposed activities.

It can also serve as a way for an applicant/subapplicant to cross-check their SOW. If the SOW identifies a project item

that has not been budgeted for, or vice versa, then may be a disconnect that needs to be resolved.

The budget can also assist applicants/subapplicants at the time of implementation by providing a single reference of

those items that have been approved for inclusion into the construction.

Note also that lump sums are not allowed in FEMA project budgets.



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Slide 19

19

Estimate documentation

(Basis of Estimate)

The next section looks at estimate documentation. In the world of Project Management, this is sometimes referred to as

the Basis of Estimate. Your estimate documentation will ultimately include descriptions of how all costs were estimated,

any assumptions made, and copies of any studies, analyses, or price quotes used as a reference.



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Slide 20

20

The Scope of Work identifies the eligible mitigation activity, as described in

Part IV, H.1:

Required Components of Project Application

Scope of work

Schedule

Cost Estimate

All these components help FEMA determine if the costs are reasonable.

Estimate Contents

A good cost estimate with strong supporting documentation will help the reviewer in determining if costs are reasonable

and necessary. One of the first things the reviewer should look for is the connection between the project scope of work,

the schedule, and the cost estimate. It’s critical that these three components support each other. During project

development, any one (or all) of these elements might be modified, so pay particular attention to verifying that changes in

one element are reflected in the other two elements.

For example, perhaps a floodwall project has a requirement to create compensatory floodwater storage in the form of a

detention basin, and that basin is included in the project scope, schedule, and budget. But then, prior to award of the grant,

new information becomes known and that requirement is lifted and the basin is removed from the scope or work.

However, the budget and schedule are not altered. The reviewer, while comparing the budget to the scope, will note that

there is a substantial activity included in the budget that is not described in the proposed scope. This is clearly a red flag

and would result in a request for further information, and ultimately the basin activity would be removed from the budget.

This scenario can also work the other way around, where an activity is identified in the scope but not included in the

budget. If this is due to an oversight and the cost estimate really should include the costs, depending on the grant program

there may be some leeway to amend the budget.

Consistency between the cost estimate, the scope of work, and the schedule will help the reviewer gain a comprehensive

understanding of the proposed activity.



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Slide 21

21

Document the overall project scope

Provide a record of all documents used to prepare the estimate

Communicate the estimator’s knowledge of the project by demonstrating

an understanding of scope and schedule as it relates to cost

Establish a realistic baseline for the scope, quantities and cost, which

should eliminate cost overruns

Facilitate the review and validation of the cost estimate

A well prepared basis of estimate will:

Understanding how cost estimates were put together will help you determine if a project budget is well developed. Basis

of estimate documentation should accomplish a number of goals:

It should document the project scope. Everything on the budget should be identified in the scope of work.

It should provide a record of all documents used to develop the estimate. A budget narrative is the centerpiece here.

The budget narrative will describe how each cost item in your estimate was derived. As a reviewer, you should be

able to point to any item on the budget and find on the narrative a description of how that cost relates to the scope and

how the estimate was derived.

Tip: When cost reviewing a project, pull out the budget and the budget narrative, and set them side by side. For

each budget line item, look for the narrative description of the item, and then any supporting documents

referenced in the narrative.

Using the project example from earlier, an item on a storm water project budget might be Equipment Costs:

$5,000. The budget narrative entry might say, “This cost covers the City’s equipment operating cost, including a

loader/excavator to assist in the installation of the check valves. $200 per hour x 25 hours.” The supporting

documentation could be an email from the Public Works department giving their rate and the amount of time they

estimate the job would take. This is the type of detail you should see for every line item.

The documentation should communicate the estimator’s knowledge of the project by demonstrating an understanding

of scope and schedule as it relates to cost.

It should also establish a realistic baseline for the scope, quantities, and cost, which will lessen the chance of cost

overruns. Cost fluctuations happen, but if the estimate is based on carefully thought out assumptions, it will have

factored in many of the changes that come along as the project implementation evolves.



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For example, HMA has funded a number of projects to bury power lines to protect them from repeated damage

from severe weather. One of the main materials involved in this type of project is copper wire, which in the past

has experienced large price fluctuations over relatively short periods of time. In several of these projects, the price

more than doubled from the time of application development to the completion of the project. If your estimator

has a good knowledge of the activity and the factors affecting the cost estimate, the likelihood of a price increase

will be factored into the cost estimate.

Avoiding overruns is desirable for many reasons: 1) applicants/subapplicants may not be able to obtain additional

grant funds, and even if you do, the match amount will increase, 2) difficult decisions about reducing the scope

may need to be made, and 3) depending on the nature of the overrun, the benefit cost may need to be rerun.

The estimate documentation, and particularly the budget narrative, will facilitate the review and validation of the cost

estimate. These documents will help to tell the story of the project, and if well done, will give the reviewer a high

level of confidence that the project is viable and likely to succeed.

An additional benefit to having comprehensive documentation is that it can act as a source of support during dispute

resolutions, helping to clarify what was agreed upon and approved. Put it in writing: the less ambiguity the better.



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Slide 22

22

Common Alternate Bid Items

Structure Elevations

• Additional square footage

• New porches or decks

• New siding

• Interior renovation

Safe Rooms

• Acoustic ceiling tiles

• Paint

• Floor covering

• Upgraded bathroom fixtures

• Landscaping

Good budget support documentation can also help you identify ineligible items, specified as an add or deduct alternate. In

this case, you would have a bid for the eligible items, and separate pricing for the ineligible items.

This is common in structural elevation projects. Since the home is already under construction, many homeowners choose

to take advantage and do repairs or renovations concurrently. The two photos here, believe it or not, are the same house.

This was a project in Michigan. The top was pre-elevation and the bottom photo was after completion of the project. As

you can see, this homeowner definitely exercised the “alternate bid” option. The only costs covered by the grant were

those related to the elevation of the original structure shown in the top photo. The Recipient for this project submitted

several additional photos taken throughout the elevation process to document the transformation and to prove that the

original structure was indeed elevated before any of the add alternates took place.

It’s also common practice in tornado safe room budgets to add alternate bid items. The funding from HMA grants pay

only for components that contribute to the life safety function of the safe room, and items required to meet minimum

building code. Therefore, there are many items that are ineligible for grant funding, but may still be desirable and can be

included in the construction at the cost of the sub-recipient. Some of the most common items are acoustic ceiling tiles,

paint, floor covering, upgraded bathroom fixtures, and landscaping. If the budget is not broken down well enough up front

to identify ineligible items, there can be an unpleasant surprise when payments are denied after-the-fact.

A word of caution – while adding alternate bid items is allowable and can be practical; one potential drawback is that it

can give the appearance of impropriety. Take the above elevation, for example. Other homeowners in the city may have

been aware that this elevation was part of a FEMA HMA project. They would not necessarily know that the extensive



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renovations were not paid for with FEMA funds, and this can create bad feelings with others in the project who simply

elevated their homes as-is, or others in the community who are not interested in their tax dollars paying for their

neighbor’s home improvements.

If you are interested in learning more about eligible costs for different project types, the 2015 HMA Guidance Addendum

contains specifics about cost eligibility for five different project types.



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Slide 23

23

Recommended Practice

Be factually complete

Be able to support facts and findings

Identify estimating team members and their roles

Describe the tools, techniques, and data used to develop the cost estimate

Identify other projects that were referenced or benchmarked during

estimate preparation

Establish the context of the estimate and support estimate review and

validation

As a reviewer, you should ensure that the detailed budget, budget narrative and back-up documents are included and

justified prior to submission to FEMA. A few additional recommended practices include:

Be factually complete. Make sure there are no gaps in the scope or budget, and anticipate questions that the next level

review may have.

Be able to support what is in the budget.

Identify who is responsible for the estimate components.

For example, an estimate for elevation costs should come from someone knowledgeable in that field of work,

such as a contractor who does elevations.

Describe the tools, techniques, and data used in the cost estimate.

For instance, maybe you are estimating acquisition costs for a mobile home park by using the average value of ten

structures and applying that value to the other 90. That is something you would want to see explained in the

budget narrative.

Alternatively, for a construction project, if you are using a location factor, that should be explained.

Identify other projects referenced or used as a cost basis for your estimate.

As an example, a recent planning grant for an Ohio county based their budget on a neighboring county’s plan

update cost. They noted that the county was of similar population size and had similar risks, and that both were

urban counties bordering large cities. Some factors to consider when using another project as a benchmark are

recency, proximity, and similar scope or conditions. These connections should be explicitly pointed out, as

reviewers may not have knowledge of the project area.



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Finally, establish the context of the estimate. This goes back to ensuring that the scope, schedule, and budget are in

harmony.

This is a good place to note that new OMB regulations were released under 2 CFR Part 200, and these are the

administrative regulations that apply to all new HMA grants.

A few reminders:

If a contractor prepares your grant application, in most cases they would need to be excluded from competing for the

subsequent project work.

Also, a contractor that defines the scope of work is in most cases excluded from bidding on the work.

Be sure to follow your local, state, or tribal procurement rules, and if you have any doubts consult with your local

counsel.



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Slide 24

24

Resources

This last section provides a quick look at a few of the resources mentioned in earlier sections, and some final advice.



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Slide 25

25

Cost Resources for Estimators

Marshall & SwiftRSMeans

Here are a few visuals of the industry reference guides for estimating that discussed earlier.

One of the most popular is RS Means. RS Means is published once every year and released its 75th edition in 2017.

This middle image is from the Marshall & Swift webpage. The Marshall & Swift cost guide is similar to RS Means.

Marshall & Swift may be a little stronger for residential cost estimating than for commercial but it could be useful for

elevations, mitigation reconstruction, residential safe rooms, residential wind retrofits, seismic retrofits, and similar

projects. Like RS Means, it is widely used in the cost estimating industry for Architectural and Engineering design,

construction, insurance, and real estate appraisal.

This third resource is the CEF (Cost Estimating Format) for Large Projects. It is a tool primarily used by FEMA

Public Assistance, but this may be an appropriate source for some mitigation projects (e.g., culvert up sizing).



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Slide 26

26

Estimating Checklist1. Date

2. Job Name

3. Project Type

4. Scope of Work

5. Basis of estimate document

6. Quantities for all line items of work

7. Unit prices applied to all line items

8. Description

9. Unit of measure

10. Equipment / Labor / Material / Subcontractor

11. Non Construction Costs (contingencies, bonds, permits…)

12. Do math check

This Estimating Checklist lists items that should be verified by the cost estimator, then again by the state or tribe reviewer,

and once again by the FEMA reviewer. Some of the items on this list may seem simple or obvious, but when multiple

people are contributing to the development of a project application, usually under a tight deadline, even the basics might

be overlooked.

Note that the fourth item on the list is Scope of Work – once again, we see the close connection between the project scope

and the cost estimate. Numbers 5 and 8 on this checklist refer to the budget narrative, which describes each line item and

its relationship to the scope.

The final item on the list is an important reminder – check the math!



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Slide 27

27

Estimating Checklist (continued)

Reasons for sending estimate back for rework:

1. Missing important info on previous checklist

2. Lump sum cost items with no quantities

3. Inaccurate math or calculations in the estimate

4. Contingency line item – where justification has not been provided.

5. Ineligible costs

6. Unreasonable costs

*This list is not limited as other inconsistencies may arise.

If you have reviewed the budget, verified that all cost documentation is in order, and ensured that the budget narrative

walks the reviewer through the project, then you are taking a significant step toward expediting the review and approval

process.

Here are the main reasons that a cost estimate would be returned for revisions:

Missing information from the cost estimation checklist.

Unfortunately, the most common missing item is the budget narrative. It is difficult to review a cost estimate

without an accompanying budget narrative.

Lump sum cost items, especially with no quantities. Lump sums are not acceptable on budgets for HMA funded

projects.

One unacceptable lump sum example would be “Line item: Construction, Quantity: 1, Unit: each, Cost:

$400,000” with insufficient description or justification breakdown in the budget narrative.

Inaccurate math or calculations. This is easily preventable by thoroughly reviewing the documentation.

Contingency line item is not explained or justified, or is found to be too high.

Note: One to five percent (1-5%) of the total project cost is viewed as reasonable, for most HMA grants, for the

contingency line item.

Ineligible costs.

Unreasonable costs – When reviewing a project if you come across a cost that is above the norm, ask for

justification, and sometimes that resolves the issue.



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For example, an acquisition/demolition project was submitted for a few industrial structures on three parcels. The

demolition cost listed in the budget was more than twice the norm for that state. Upon further clarification, it

turned out that the parcels were completely covered in cement, and a large part of the demo cost would be

incurred in breaking up and removing that debris. With that further explanation, the reviewer was able to

determine the cost reasonable.

So, in summary:

Check for completeness

Check for accuracy

Make sure the narrative describes each line item

Working with Federal Government grants, we are all stewards of taxpayer dollars. Take the time to ensure that you are

comfortable walking someone through the budget, explaining and supporting each item. This will help not only in getting

the project approved, but also throughout implementation, while making payments, and especially at time of closeout.

Thank you all again for your time and attention today. We sincerely hope that the information we conveyed will make

your future project submissions that much more successful.



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Slide 28

28

Questions and Comments

That concludes this presentation.



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Additional Resources There are other resources available for you to learn more, including:

HMA Guidance - link;

HMA website - link;

HMA news and updates - link;

State Hazard Mitigation Officer - link; and,

HMA application development website - link.

For more information on basic program elements, please reference the Hazard Mitigation Assistance Program Digest.

If you are interested in applying for a Hazard Mitigation Assistance grant, please contact the Hazard Mitigation

Assistance helpline by telephone 866-222-3580 or email [email protected] for more

information.

https://www.fema.gov/media-library-data/1424983165449-38f5dfc69c0bd4ea8a161e8bb7b79553/HMA_Guidance_022715_508.pdf

https://www.fema.gov/state-hazard-mitigation-officers

https://www.fema.gov/application-development-1


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