

U.S. Department of Homeland Security

FEDERAL EMERGENCY MANAGEMENT AGENCY
Office of Chief Counsel
                                       
                                       
                             REGULATORY EVALUATION
                                      FOR
                                  FINAL RULE
        DISPUTE RESOLUTION PILOT PROGRAM FOR PUBLIC ASSISTANCE APPEALS
                             (44 C.F.R. § 206.210)
OFFICE OF CHIEF COUNSEL
                          REGULATORY AFFAIRS DIVISION
                                  August 2013

Regulatory Evaluation Summary
      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.  This rule has not been designated a "significant regulatory action," under section 3(f) of Executive Order 12866.  Accordingly, the rule has not been reviewed by the Office of Management and Budget (OMB).  A Regulatory Evaluation with details and calculations related to the costs and benefits of the rule is available in the docket.  A summary of the evaluation follows:
      This rule establishes the procedures for a Dispute Resolution Pilot Program (DRPP) which provides an option for applicants in the FEMA Public Assistance Program to file for arbitration when they want to dispute a FEMA eligibility determination that involves an amount in dispute greater than or equal to $1,000,000.  Eligibility disputes are presently resolved through a two level administrative appeals process within FEMA, and arbitration will be an option to applicants instead of a second appeal.  This rule is entirely voluntary.  By statute, the DRPP will accept Requests for Arbitration until December 31, 2015.  
      Traditionally, under the appeals procedures in 44 C.F.R. § 206.206, an eligible applicant may appeal any determination made by FEMA related to an application for or the provision of Public Assistance.  There are two levels of appeal; the first level appeal is to the FEMA Regional Administrator and the second level appeal is to the FEMA Assistant Administrator for Recovery.  Typical appeals involve disputes regarding whether an applicant, facility, item of work, or project is eligible for Public Assistance; whether approved costs are sufficient to complete the work; whether a requested time extension was properly denied; whether a portion of the cost claimed for the work is eligible; or whether the approved scope of work is correct.  The first appeal process will be the same for all applicants.  Under this rule, applicants who seek further review of the first appeal will have the option of choosing a second appeal or arbitration.  The second appeal process is similar to the first appeal process, but constitutes a review of the first appeal, is considered at FEMA headquarters, and the decision on the second appeal is the final administrative decision of the Agency.  Despite some similarities, arbitrations under the DRPP will include a few procedural differences to second appeals.  Key differences include a formal process to interact with FEMA and provide explanatory information (e.g., statement of claim) as well as the opportunity to interact and present one's case to an independent panel.  See Table 1 for a comparison of the baseline second appeals process to the DRPP.     
Table 1:  Comparison Between Second Appeal & Dispute Resolution Pilot Program 

                                 Second Appeal
                                  Arbitration
Steps After First Appeal Decision
Decision to request a 2nd appeal within 60 days of receiving notice of the FEMA Regional Administrator's decision
Decision to request arbitration instead of a 2nd appeal within 15 days of receiving notice of the Regional Administrator's decision
Applicant File for 2nd Appeal
Appellant submits 2nd appeal request to the grantee; typically a letter which reiterates the information provided in the 1st appeal   
Applicant file a Request for Arbitration electronically to FEMA, the grantee, and the arbitration sponsor 
Grantee Recommendation
Grantee forwards 2nd appeal with a written recommendation to the FEMA Regional Administrator; typically a letter addressing any changes to previous recommendation
Grantee submits the name and address of its authorized representative(s) and may provide a written recommendation to FEMA, the grantee, and the arbitration sponsor
Transmission to FEMA Assistant Administrator of Recovery
FEMA Regional Administrator reviews the information provided with the 2nd appeal and forwards it with a recommendation for action to the FEMA Assistant Administrator for Recovery
Transmission covered by simultaneous distribution between applicant, grantee, FEMA, and arbitration sponsor
               Additional Dispute Resolution Pilot Program Steps
Administrative record - FEMA provides a copy of all the documents and materials directly or indirectly considered by the agency and relied upon in making the 1st appeal determination
                                       
Appointment of Panel  -  An independent review panel consisting of three Administrative Law Judges

Applicant statement of claim - applicant provides a statement clarifying the disputed aspects of the 1st appeal determination and support for their claim

FEMA response - FEMA provides a memorandum in support of its position and the name and address of its authorized representative(s)
Additional Info
FEMA Regional Administrator or FEMA Assistant Administrator for Recovery may request additional information if necessary.  This may include independent scientific or technical analysis regarding the subject matter of the appeal
The administrative record will constitute the whole of the evidence that may be considered in order to make a determination on the claim
                              FEMA Final Decision
FEMA Headquarters reviews the appeal and the FEMA Assistant Administrator for Recovery renders a decision on the appeal and informs the grantee of the decision
Preliminary administrative conference-   provides opportunity to discuss the conduct of the hearing and answer procedural questions


Hearing - presentation of positions and witnesses, as appropriate, to an independent panel either in person or by teleconference


Panel decision - The panel issues a written and reasoned decision that sets forth the findings of fact and conclusions of law
      
      To estimate second appeal applicants who may choose arbitration, FEMA uses disaster related second appeals received in FY 2011 and FY 2012 with amounts in dispute greater than or equal to $1,000,000 (adjusted for inflation).  There were 23 second appeals in FY 2011 and 8 second appeals in FY 2012.  Based on this data, FEMA rounds up to estimate a range of 10 to 30 second appeal applicants per year who may choose arbitration.  
      FEMA uses its experience from arbitrations statutorily mandated (section 601 of the American Recovery and Reinvestment Act of 2009, Public Law 111-5, 123 Stat. 115 (Feb. 17, 2009, 26 U.S.C. §1 note)) and codified in 44 C.F.R. § 206.209 for the Hurricanes Katrina and Rita disasters to help inform many of its estimates.  In particular, FEMA's experiences related to Mississippi arbitrations -- where the relevant Public Assistance Program is almost completed, the issues encountered have involved all phases of disaster operations, and the disputes are comparable to what FEMA historically encounters  -  has been particularly useful in informing our estimates.  To calculate the DRPP costs, FEMA estimates average annual costs associated with all aspects of the arbitration process, including initial arbitration processing, preliminary administrative conferences, oral hearings, jurisdictional challenges, and frivolous requests.  
      Initial arbitration processing costs largely include time spent by applicants, grantees, and FEMA developing and providing process documentation.  Using the existing second appeal information collection (1660-0017) as a guide, FEMA estimates an applicant will spend 1 hour of a State government management employee's time (or equivalent) submitting a Request for Arbitration and a grantee will spend 2 hours of a State government management employee's time (or equivalent) providing a recommendation.  In addition, based on its experience from Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates that an applicant's authorized representative will spend approximately 40 hours composing the statement of claim.  Also based on Hurricane Katrina and Rita Mississippi arbitration experience, FEMA estimates the equivalent of a General Service (GS) 11 employee located in Washington, DC will spend 2 hours processing the aforementioned material and the equivalent of a GS 14 employee located in Washington, DC will spend 40 hours composing its memorandum of response.  The estimated number of arbitration requests and associated wage rates are applied to the hour estimates for an average annual cost of $131,659.  The benefits of the initial arbitration process include a formal process which further clarifies the area and issues in dispute as well as articulating each party's position.  
      FEMA anticipates that all Requests for Arbitration will require a preliminary administrative conference with the selected panel.  Preliminary administrative conference costs include applicant, grantee, and FEMA participant time spent preparing for the conference plus time actually in conference.  The number of participants is a key cost contributor.  Based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates conferences will last 1 hour and each participant will spend 2 hours preparing for the conference.  Also based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates an average of 3 applicant participants (authorized representative), 2 grantee participants (State government management employee), and 3 FEMA participants (GS 14 (2 from Washington, DC)).  The estimated number of conferences and associated wage rates are applied to the hour estimates and the number of participants for an average annual cost of $34,198.  The benefits of a preliminary administrative conference include addressing any prehearing questions and matters, including conduct of the arbitration, clarification of the disputed issues, request for disqualification of an arbitrator (if applicable), and any other preliminary matters.  
      Based on the Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates that 60 percent (9/15 = 0.6) of all Requests for Arbitration will result in oral hearings and will last 2 days.  Oral hearing costs include applicant, grantee, and FEMA participant time preparing for the hearing plus time actually spent in the hearing.  The number of participants is a key cost contributor.  Based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates an average of 5 applicant participants (2 authorized representatives plus 3 witnesses (State government management employee)), 1 grantee participant (State government management employee), and 6 FEMA participants (GS 14 (1 from Washington, DC)).  Furthermore, based on experience from Hurricanes Katrina and Rita Mississippi arbitrations, FEMA estimates that all participants will appear in-person.  The FEMA employees who typically decide second appeals and the litigators who will defend the Agency will be based out of FEMA's Washington, DC office.  The closest facility the arbitration sponsor maintains near Washington, DC is in Baltimore, MD.  Further, based on the current disaster activity, FEMA anticipates that a significant number of arbitration requests that will be eligible for the DRPP will arise out of FEMA Region II (NY, NJ, PR, VI).  In addition, the arbitration sponsor's New York facility is larger and will hold more participants, if necessary.  Therefore, FEMA anticipates that half of the oral hearings will take place in New York, New York and half in Baltimore, Maryland.  As such, FEMA also accounts for travel to New York and Baltimore including airfare (round trip), lodging for 3 nights, meals and incidentals for 4 days, and travel time (2 days) per traveling participant.  The meals and incidental expenses are comprised of 2 days of the oral hearing plus 2 days for the travel time, so the total is 4 days.  Application of the estimated number of hearings to the associated wage rates, hour estimates, number of participants, and travel costs results in an average annual cost of $698,177.  Benefits of an oral hearing include the opportunity to enter into a dialogue with FEMA and present one's case to an independent panel, who will make a decision that is more likely to be accepted.  FEMA expects presentation of an applicant's views and positions in a neutral forum will solidify the finding and reduce requests for reconsideration (despite first and second appeal limitations in regulations) and the solicitation of involvement from other entities at the local, State, or Federal level to advocate on behalf of an applicant regarding an unsatisfactory final determination.  
      Under this rule, jurisdictional or arbitrability challenges may be raised at any time and are typically addressed independently of an oral hearing.  Such challenges include disputes over whether the Request for Arbitration is appropriately filed according to the scope, applicability, and limitations put forth by this rule and whether the applicant has filed a timely Request for Arbitration.  Based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates a 13-percent likelihood of such challenges.  Although time to address such matters will vary, FEMA's Response and Recovery Legal Division Litigation Branch estimates an applicant will spend on average 15 hours reviewing and responding to a challenge per presenter (2 authorized representatives), plus 1 hour of applicant and grantee (1 State government management employee) time per participant for resolution.  In addition, FEMA's Response and Recovery Legal Division Litigation Branch estimates an average of 25 hours of FEMA presenter time (2 GS 14 (1 from Washington, DC)) per challenge.  Application of the associated wage rates results in an annual average challenge cost of $15,729.  A benefit of allowing jurisdictional and arbitrability challenges is that it encourages the use of the arbitration process when appropriate and provides the ability to stop or adjust an arbitration if it is not appropriate or did not follow the proper process.
      Frivolous requests for arbitration, as determined by the panel, shall be denied and the applicant will be required to pay reasonable costs to FEMA relating to the review by the panel, including fees and expenses.  Such costs will be assessed on a case-by-case basis.  FEMA assumes the cost to address such requests is comparable to jurisdictional challenges -- 16 hours of an applicant's presenter(s) time (2 authorized representatives), 1 hour of a grantee's participant time (1 State government management employee), and 25 hours of FEMA's presenter time (2 GS14 (1 from Washington, DC)) on average.  Based on experience from Hurricane Katrina and Rita arbitrations, FEMA estimates the potential for such claims is 1 out of 40 (2.5 percent).  Application of the associated wage rates results in an annual average frivolous request cost of $3,024.  This provision discourages the use of arbitration when inappropriate, by penalizing the filing of requests without merit.         
      In addition, FEMA estimates cost savings associated with avoided second appeals for applicants, grantees, and FEMA, because arbitration must be selected instead of a second appeal.  Based on FEMA's existing Public Assistance Program Information Collection Request (1660-0017), FEMA estimates a second appeal request takes a State government management employee approximately 2 hours and a grantee recommendation takes a State government management employee approximately 1 hour.  In addition, FEMA's Recovery Office estimates that additional information will be necessary approximately 33 percent of the time (1/3 = 0.3333) and will take applicants, on average, 1 hour to locate, copy, and provide the information to FEMA.  FEMA also estimates processing second appeals takes approximately 40 hours of a GS 13 employee's time (located in Washington, DC), 20 hours of a GS 15 employee's time (located in Washington, DC), and 3 hours of an Senior Executive Service (SES) employee's time.  Therefore, cost savings include 2.33 hours of applicant time, 1 hour of grantee time, and 63 hours of FEMA time.  Application of the estimated number of arbitration requests and associated wage rates, results in an annual average cost savings of $90,640.  
      Furthermore, FEMA would incur costs associated with providing panels through an arbitration sponsor.  Consistent with section 1105(b)(3)(C) of SRIA, FEMA intends to have arbitration services provided by the U.S. Coast Guard's Administrative Law Judge (ALJ) Program.  Based on the prior costs of cases handled by the Coast Guard ALJ program, FEMA estimates that the cost of arbitration services will be approximately $600,000 annually.        
      The DRPP total annual average cost equals $1,392,147.  See Table 2 for details.  
Table 2:  Summary of Annual Average Costs and Benefits by Category
Categories
                                   Applicant
                                    Grantee
                                     FEMA
                              Annual Average Cost
Benefit
Initial Arbitration
                                    $71,357
                                    $2,170
                                    $58,132
                                   $131,659
Clearly identifies the areas/issues in dispute and each party's position
Preliminary Administrative Conference
                                    $15,811
                                    $6,510
                                    $11,877
                                    $34,198
Addresses prehearing questions, sets schedule, and resolves an annual average of 40 percent or 8 cases
Oral Hearing
                                   $307,789
                                    $53,174
                                   $337,214
                                   $698,177
Provides opportunity to state one's case and interact with FEMA in coming to a decision which contributes to it being accepted as final
Jurisdictional Challenges
                                    $7,308
                                     $141
                                    $8,280
                                    $15,729
Encourages use of arbitration process when appropriate and provides ability to stop or adjust arbitration if not appropriate 
Frivolous Requests
                                    $1,405
                                      $27
                                    $1,592
                                    $3,024
Encourages use of arbitration process, when appropriate by penalizing the filing of requests without merit
Second Appeal Cost Savings
                                    -$2,528
                                    -$1,085
                                   -$87,027
                                   -$90,640
Accounts for costs otherwise spent on second appeals
Arbitration Sponsor
                                      N/A
                                      N/A
                                   $600,000
                                   $600,000
Independent panel decision improves perception of objectivity and adds to acceptance of decision
Overarching
                                      N/A
                                      N/A
                                      N/A
                                      N/A
Increases flexibility for applicant recourse, speed at which disputes are resolved, and provides information that can be used to determine if arbitration should be a permanent option
Total
$401,142
$60,937
                                   $930,068
                                  $1,392,147
 
  
      Based on the DRPP annual average costs above, FEMA calculates a total DRPP cost of $3,480,368 over the DRPP's duration; $3,213,101 discounted at 7 percent ($1,445,344 annualized) and $3,359,905 discounted at 3 percent ($1,415,041 annualized).  See Table 3 for details.  
Table 3:  Dispute Resolution Pilot Program Total Costs
Year[1]
                                   Applicant
                                    Grantee
                                     FEMA
                                     Total
                                7 % Discount[2]
                                3 % Discount[3]
2013
                                   $200,571
                                    $30,469
                                   $465,034
                                   $696,074
                                   $696,074
                                   $696,074
2014
                                   $401,142
                                    $60,937
                                   $930,068
                                  $1,392,147
                                  $1,301,072
                                  $1,351,599
2015
                                   $401,142
                                    $60,937
                                   $930,068
                                  $1,392,147
                                  $1,215,955
                                  $1,312,232
Total
                                  $1,002,855
                                   $152,343
                                  $2,325,170
                                  $3,480,368
                                  $3,213,101
                                  $3,359,905
1- Year 2013 only contains 6 months of activity; thus half the annual average cost.  Also, as the rule is expected to be published in 2013; the associated discount equates to 1 which does not change 2013 dollar values.
                                                                     Annualized
                                  $1,445,344
                                  $1,415,041
2- 7% Discount = Total x (1/(1+0.07)^(year-2013) 
3- 3% Discount = Total x (1/(1+0.03)^(year-2013) 
      
      The anticipated overarching benefits of the DRPP include increased flexibility and the perception of objectivity, which likely increases acceptance of final decisions.  In addition, the time to resolve disputes may be faster than the current second appeal process.  For instance, when comparing maximum process step timeframes for second appeals (44 C.F.R. § 206.206) and maximum process step timelines identified in this rule, the total number of days for arbitration with an oral hearing (225 days) versus a second appeal with one additional information request (270 days) is 45 days faster (270 days - 225 days = 45 days).  Furthermore, the information gathered from the DRPP will inform the Comptroller General's recommendation to Congress on whether an arbitration program should be implemented permanently.  See Table 4 for a comparison of DRPP net costs and benefits.  
Table 4:  Comparison of Dispute Resolution Pilot Program Net Costs and Benefits
Year[1]
                                     Total
                                7 % Discount[2]
                                3 % Discount[3]
Benefits
2013
                                   $696,074
                                   $696,074
                                   $696,074
Provides flexibility for applicant recourse and likely increases applicant satisfaction through use of an independent panel.
Institutes a streamlined process that clearly identifies areas/issues in dispute and encourages use of arbitration when appropriate thereby increasing speed at which disputes are resolved.  
Information from pilot will help determine if arbitration should be a permanent option.  
2014
                                  $1,392,147
                                  $1,301,072
                                  $1,351,599

2015
                                  $1,392,147
                                  $1,215,955
                                  $1,312,232

Total
                                  $3,480,368
                                  $3,213,101
                                  $3,359,905
 
 
 
 
                                                                     Annualized
                                  $1,445,344
                                  $1,415,041




1- Year 2013 only contains 6 months of activity; thus half the annual average cost.  Also, as the rule is expected to be published in 2013; the associated discount equates to 1 which does not change 2013 dollar values. 

2- 7% Discount = Total x (1/(1+0.07)^(year-2013)) 

3- 3% Discount = Total x (1/(1+0.03)^(year-2013)) 

      
      While the provision of arbitration by a panel is statutorily mandated, based on the subsequent analysis, FEMA believes that the benefits of the rule justify the costs.    
      The OMB A-4 Accounting Statement is provided below.
                         OMB A-4 Accounting Statement
 
 
 
 
 
 
 
Category
                                   Estimates
                                     Units

                               Primary Estimate
                                 Low Estimate
                                 High Estimate
                                  Year Dollar
                                 Discount Rate
                                Period Covered
Benefits
 
 
 
 
 
 
Annualized    Monetized ($millions/year)
                                                                            $0 
                                                                            $0 
                                                                            $0 
 
                                                                             7%
                                  2013 - 2015

                                                                            $0 
                                                                            $0 
                                                                            $0 
 
                                                                             3%
                                  2013 - 2015
Annualized Quantified 
                                                                            $0 
                                                                            $0 
                                                                            $0 
 
                                                                             7%
 

                                                                            $0 
                                                                            $0 
                                                                            $0 
 
                                                                             3%
 
Qualitative
This regulation provides flexibility for applicant recourse and likely increases applicant satisfaction through use of an independent panel.  It also institutes a streamlined process that clearly identifies areas/issues in dispute and encourages use of arbitration, when appropriate, thereby increasing speed at which disputes are resolved.  Furthermore, information from the DRPP will help inform the Comptroller General's recommendation to Congress on whether arbitration should be implemented permanently.  
Costs
 
 
 
 
 
 
Annualized    Monetized ($millions/year)
                                                                        $1.445 
                                                                        $1.034 
                                                                        $1.857 
                                     2013
                                                                             7%
                                  2013 - 2015

                                                                        $1.415 
                                                                        $1.012 
                                                                        $1.818 
                                     2013
                                                                             3%
                                  2013 - 2015
Annualized Quantified 
                                                                              0
                                                                              0
                                                                              0
 
                                                                             7%
 

                                                                              0
                                                                              0
                                                                              0
 
                                                                             3%
 
Qualitative
 
Transfers
 
 
 
 
 
 
Federal Annualized Monetized ($millions/year)
                                                                            $0 
                                                                            $0 
                                                                            $0 
                                       
                                                                             7%
                                  2013 - 2015

                                                                            $0 
                                                                            $0 
                                                                            $0 
                                       
                                                                             3%
                                  2013 - 2015
From/To
From:
Federal Government
To:
State, Local, and Tribal  Governments
Other Annualized Monetized ($millions/year)
                                                                            $0 
                                                                            $0 
                                                                            $0 
 
                                                                             7%
 

                                                                            $0 
                                                                            $0 
                                                                            $0 
 
                                                                             3%
 
From/To
From:
 
To:
 
Effects
 
 
 
 
 
 
State, Local, and/or Tribal Government
No Impact.
Small Business
Not Measured.
Wages
None.
Growth
Not Measured.

Introduction
      Under the Public Assistance Program, authorized by the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), FEMA awards grants to State and local governments, Indian Tribal governments, and certain private nonprofit organizations (applicants) to assist them to respond to and recover from Presidentially declared emergencies and major disasters.  Applicants for Public Assistance may disagree with FEMA's eligibility and valuation determinations.  In such circumstances, the Stafford Act requires FEMA to provide the applicant a right of appeal (see 42 U.S.C. § 5189a note).  As outlined in 44 C.F.R. § 206.206, FEMA provides applicants a two level appeals process.  
      The Sandy Recovery Improvement Act of 2013 (SRIA) requires FEMA to establish procedures under which certain applicants may request binding arbitration to resolve disputes related to eligibility and forgo rights to any further appeal.  In furtherance of this authority, FEMA is implementing the DRPP for Public Assistance Appeals final rule, which establishes an option for arbitration under the Public Assistance Program.    
      The following regulatory evaluation presents an economic analysis of the costs and benefits of the DRPP for Public Assistance Appeals final rule.  It is a supplementary analysis to the rule, consistent with Executive Order 12866, Regulatory Planning and Review and Executive Order 13563, Improving Regulation and Regulatory Review.  The evaluation first provides background information on Public Assistance, the appeals process, and arbitrations related to Hurricanes Katrina and Rita.  Next, it outlines the regulatory impacts and identifies the impacted population.  Then, it analyzes the associated costs and benefits of the rule.  Finally, it compares the identified costs and benefits and presents alternatives considered.  
Background
      The following discussion provides a brief overview of Public Assistance and the appeals process, including first and second appeals.  Next, it provides a brief discussion on arbitrations related to Hurricanes Katrina and Rita.  
Public Assistance 
      Following a Presidentially declared emergency or major disaster authorizing Public Assistance in an identified State, eligible applicants (see 44 C.F.R. § 206.222) may apply for Public Assistance.  Such assistance may include grants for the completion of debris removal, emergency protective measures, and permanent restoration of infrastructure.  A State or Indian Tribal government typically serves as the grantee and other eligible applicants (e.g. State agency or local government) apply for assistance as subgrantees to the State or Indian Tribal government.  
      A Project Worksheet is the primary form FEMA uses to document Public Assistance grants and generally includes the location, damage description and dimensions, scope of work, and cost estimate for an applicant project.  FEMA typically provides funding for a project scope of work based on estimated costs and relies on financial reconciliation at project closeout to determine final eligible costs.  At times an applicant/grantee or applicant may disagree with FEMA regarding a determination related to their request for Public Assistance.  Such disagreements may include, for instance, whether an applicant, facility, item of work, or project is eligible for Public Assistance; whether approved costs are sufficient to complete the work; whether a requested time extension was properly denied; whether a portion of the cost claimed for the work is eligible; or whether the approved scope of work is correct.  In such circumstances, the applicant may appeal FEMA's determination.
Appeal Procedures
      Traditionally, under the appeals procedures, outlined in 44 C.F.R. § 206.206, an eligible applicant may appeal any determination made by FEMA related to an application for, or the provision of, Public Assistance.  There are two levels of appeal.  The first level appeal is to the FEMA Regional Administrator.  The second level appeal is to the FEMA Assistant Administrator for Recovery.  
First Appeals
      An applicant must file an appeal with the grantee, including documentation supporting the appeal.  The grantee then forwards the request to the appropriate FEMA Regional Administrator, and in doing so may submit a written recommendation.  The FEMA Regional Administrator provides a decision on the appeal.
Second Appeals
      If the FEMA Regional Administrator denies the appeal, the applicant may submit a second appeal.  Second appeals are considered at FEMA headquarters and the decision on the second appeal is the final administrative decision of the Agency on the matter.
Katrina / Rita Arbitration
      Pursuant to section 601 of the American Recovery and Reinvestment Act of 2009 (ARRA), FEMA promulgated the Arbitration for Public Assistance Determinations Related to Hurricanes Katrina and Rita (Disasters DR-1603, DR-1604, DR-1605, DR-1606, and DR-1607) final rule.  The rule established arbitration procedures to resolve outstanding disputes regarding Public Assistance projects with a total value over $500,000 from the States of Louisiana, Mississippi, Alabama, and Texas.  Public Assistance applicants under these declarations may request arbitration instead of filing an appeal under 44 C.F.R. § 206.206 for any determination made by FEMA that is eligible for appeal and meets the $500,000 threshold.  See 44 C.F.R. § 206.209.  
Regulatory Impacts
      Section 1105 of SRIA directs FEMA to establish procedures by which certain applicants may request binding arbitration with an independent review panel for disputed Public Assistance projects.  Despite some similarities, the arbitration process required by SRIA is separate and distinct from the arbitration process established for Hurricane Katrina and Rita arbitrations.  Specifically, SRIA limits arbitration by an independent review panel to disaster projects with a dispute in the amount of $1,000,000 or more, for which the applicant has received a decision on a first appeal, and where there is a non-Federal cost share requirement.  In addition, SRIA permits requests for review under the DRPP only until December 31, 2015.  
Dispute Resolution Pilot Program

      Under the arbitration procedures contained in this rule, when an applicant receives a first level appeal decision from the FEMA Regional Administrator it disagrees with, the amount in dispute is greater than or equal to $1,000,000, there is a non-Federal cost share, and the applicant elects to pursue arbitration instead of a second level appeal, the applicant must submit a Request for Arbitration simultaneously to the grantee, arbitration sponsor, and FEMA within 15 days of receipt of notice of the first appeal decision.  The arbitration sponsor will be the U.S. Coast Guard Administrative Law Program which will provide an independent three member arbitration panel for each arbitration requested.
      Within 15 days of receipt of the Request for Arbitration, the grantee must forward the name and address of the grantee's authorized representative(s) and may submit a written recommendation in support or opposition of the applicant's claim simultaneously to the applicant, arbitration sponsor, and FEMA.  
      Also within 15 calendar days of receipt of the Request for Arbitration, FEMA will simultaneously provide a copy of the administrative record to the arbitration sponsor, the applicant, and the grantee.  The administrative record will consist of all documents and materials directly or indirectly considered by the agency and relied upon in making the first appeal determination pursuant to 44 C.F.R. § 206.206.  This record may include, but is not limited to, Project Worksheets (all versions and or amendments) and supporting backup documentation, correspondence, photographs, and technical reports.
      Within 30 days of an applicant's receipt of the administrative record, the applicant must submit a written arbitration statement of claim with sufficient detail and citing supporting documents from the administrative record, including specific section references, so that the circumstances of the dispute are clear.  Within 30 days of receipt of the applicant's statement of claim, FEMA will submit a memorandum in support of its position and the name and address of its authorized representative(s) simultaneously to the arbitration sponsor, the grantee, and the applicant.  
      Once formed, the panel will conduct a preliminary administrative conference within 15 days of FEMA's response.  During the conference, parties may request an oral hearing in person, by telephone conference, or other means during which all the parties may simultaneously hear all other participants.  If a hearing is requested, the panel will then set the date and place of the hearing.  The panel will then either issue a written decision within 60 days after the hearing or, if there is no hearing, within 60 days from the preliminary administrative conference.  
      Key differences between the previous Hurricane Katrina and Rita arbitrations and the DRPP include:
         # The pilot program is open to applicants with appeals related to disasters declared on or after October 30, 2012; whereas, the Katrina and Rita arbitrations are available only for certain disasters declared for Hurricanes Katrina and Rita;
         # Under the pilot program, the amount in dispute must be greater than or equal to $1,000,000, as compared to the Katrina and Rita arbitrations that are available for any application or Project Worksheet totaling more than $500,000;
         # The pilot program requires a State cost share (not 100 percent federally funded) and the Katrina and Rita arbitrations do not;
         # The pilot program requires completion of a first appeal; whereas, the Katrina and Rita arbitrations may be requested instead of filing a first appeal;
         # The pilot program limits the panel's review to an administrative record that is closed upon completion of the first appeal;
         # Under the pilot program the panel may set aside a decision of FEMA, only if the decision was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; whereas, the Katrina and Rita arbitration panels have no definitive standard of review; and
         # No arbitration requests may be made under the pilot program after December 31, 2015.  
Comparison of Second Appeal and the Dispute Resolution Pilot Program 
      The first appeal process will be the same for all applicants.  Under this rule, applicants who seek further review of the first appeal will have the option of choosing a second appeal or arbitration.  The second appeal process is similar to the first appeal process, but consists of a review of the first appeal, is considered at FEMA headquarters, and the decision on the second appeal is the final administrative decision.  Despite some similarities, arbitrations under the DRPP will include a few procedural differences to second appeals.  
      One key difference is the development of a formal process which provides explanatory information and articulates each party's position.  This mainly stems from providing the statement of claim and FEMA response.  A second key difference is the opportunity to interact and present one's case to an independent panel.  As opposed to the appeal decision being made by the FEMA Assistant Administrator for Recovery, applicants will participate in a preliminary administrative conference, oral hearing (as appropriate), and receive a decision from a neutral panel.  See Table 5 for a comparison of the baseline second appeals process to the DRPP.
Table 5:  Comparison Between Second Appeal & Dispute Resolution Pilot Program 

                                 Second Appeal
                                  Arbitration
Steps After First Appeal Decision
Decision to request a 2nd appeal within 60 days of receiving notice of the FEMA Regional Administrator's decision
Decision to request arbitration instead of a 2nd appeal within 15 days of receiving notice of the Regional Administrator's decision
Applicant File for 2nd Appeal
Appellant submits 2nd appeal request to the grantee; typically a letter which reiterates the information provided in the 1st appeal   
Applicant file a Request for Arbitration electronically to FEMA, the grantee, and the arbitration sponsor 
Grantee Recommendation
Grantee forwards 2nd appeal with a written recommendation to the FEMA Regional Administrator; typically a letter addressing any changes to previous recommendation
Grantee submits the name and address of its authorized representative(s) and may provide a written recommendation to FEMA, the grantee, and the arbitration sponsor
Transmission to FEMA Assistant Administrator for Recovery
FEMA Regional Administrator reviews the information provided with the 2nd appeal and forwards it with a recommendation for action to the FEMA Assistant Administrator for Recovery
Transmission covered by simultaneous distribution between applicant, grantee, FEMA, and arbitration sponsor
               Additional Dispute Resolution Pilot Program Steps
Administrative record - FEMA provides a copy of all the documents and materials directly or indirectly considered by the agency and relied upon in making the 1st appeal determination
                                       
Appointment of Panel  -  An independent review panel consisting of three Administrative Law Judges

Applicant statement of claim - Applicant provides a statement clarifying the disputed aspects of the 1st  appeal determination and support for their claim

FEMA response - FEMA provides a memorandum in support of its position and the name and address of its authorized representative(s)
Additional Info
FEMA Regional Administrator or FEMA Assistant Administrator for Recovery may request additional information if necessary.  This may include independent scientific or technical analysis regarding the subject matter of the appeal
The administrative record will constitute the whole of the evidence that may be considered in order to make a determination on the claim
                              FEMA Final Decision
FEMA Headquarters reviews the appeal and the FEMA Assistant Administrator for Recovery renders a decision on the appeal and informs the grantee of the decision
Preliminary administrative conference-   provides opportunity to discuss the conduct of the hearing and answer procedural questions


Hearing - presentation of positions and witnesses, as appropriate, to an independent panel either in person or by teleconference


Panel decision - The panel issues a written and reasoned decision that sets forth the findings of fact and conclusions of law

Impacted Population
	The DRPP will only be available to applicants, if the disaster project amount in dispute is $1,000,000 or more, the project has a cost-share such that the applicant and/or the grantee bear a portion of the costs, and the applicant has received a decision on a first appeal, but not a second appeal pursuant to 44 C.F.R. § 206.206.  Arbitration is instead of a second appeal.  
	To estimate second appeal applicants who may choose arbitration, FEMA uses disaster related second appeals received between Fiscal Year (FY) 2011 and FY 2012 with amounts in dispute greater than or equal to $1,000,000 (adjusted for inflation).  There were 23 second appeals in FY 2011 and 8 second appeals in FY 2012.  Based on this data, FEMA rounds up to estimate a range of 10 to 30 second appeal applicants per year who may choose arbitration.  Although FEMA believes it is unlikely that all applicants eligible for arbitration will elect arbitration instead of a second appeal; due to the novelty of the new national program, FEMA expects greater participation and has chosen to estimate costs based on all potential arbitrations.  Therefore, the estimated number of second appeal applicants that may choose arbitration under the DRPP ranges from 10 to 30 per year with a primary estimate of 20 applicants.  
Dispute Resolution Pilot Program Costs
      To calculate DRPP costs, FEMA uses its experience from arbitrations mandated for the Hurricanes Katrina and Rita disasters to help inform many of its estimates.  In particular, FEMA's experiences related to --Mississippi arbitrations where the relevant Public Assistance Program is almost completed, the issues encountered have involved all phases of disaster operations, and the disputes are comparable to what FEMA historically encounters-has been particularly useful in informing our estimates.  However, as these programs have distinct differences, FEMA has, as appropriate, adjusted estimates to better reflect FEMA's DRPP expectations.  The subsequent analysis begins by providing applicant and grantee cost estimates for all aspects of the arbitration process including initial arbitration processing, preliminary administrative conferences, oral hearings, judicial challenges, frivolous requests, and second appeal cost savings.  Next, FEMA provides Federal cost estimates, including arbitration sponsor costs, and the overall cost of the rule.  
Applicant and Grantee Costs
Initial Arbitration Processing
      First, the arbitration process requires applicants to submit a Request for Arbitration simultaneously to the grantee, the arbitration sponsor, and FEMA.  This is similar to the effort put forth for a second appeal request under the current process.  However, as the Request for Arbitration is a simple form, which includes an applicant's indication to seek arbitration instead of a second appeal, contact information, and other initial information; FEMA expects it only to take 1 hour to review and complete.
      Similar to the request for second appeal, FEMA assumes the equivalent of a State government management employee would complete the aforementioned Request for Arbitration.  Per the Bureau of Labor Statistics, the national mean hourly wage for a State government management position is $38.75.  The Bureau of Labor Statistics hourly wage only reflects the direct cost of employment; therefore, FEMA multiplies the wage rate by 1.4 to derive a fully loaded wage rate of $54.25 ($38.75 x 1.4 = $54.25).  The resulting estimated unit cost for completing the Request for Arbitration is $54.25 (1 hour x $54.25 per hour = $54.25).  
       Second, within 15 days of receipt of the Request for Arbitration, the grantee must forward the name and address of the grantee's authorized representative(s) and may submit a written recommendation in support or opposition of the applicant's claim simultaneously to the applicant, the arbitration sponsor, and FEMA.  FEMA expects this to take approximately 2 hours of a State government management employee's time to review and complete.  The recommendation effort is similar to the effort for a recommendation under the current second appeal process; however, FEMA increases the effort from 1 to 2 hours to account for the unfamiliarity with the arbitration process and a tendency to expend greater effort to inform a third-party decision maker.  Using the fully loaded wage rate identified above ($54.25); FEMA estimates a grantee recommendation unit cost of $108.50 (2 hours x $54.25 per hour = $108.50).
      Finally, within 30 days of an applicant receiving the administrative record, it must submit a written arbitration statement of claim with sufficient detail and citing supporting documents from the administrative record, including specific section references, so that the circumstances of the dispute are clear.  FEMA assumes that the effort put forth to develop briefs provided for Hurricane Katrina and Rita Mississippi arbitrations is comparable to the effort necessary to complete an applicant's statement of claim.  Hurricane Katrina and Rita Mississippi arbitration briefs filed (minus exhibits) ranged from 4 to 35 pages with an average of 14.7 pages.   Based on its experience from Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates applicant authorized representative(s) will spend approximately 40 hours composing the statement of claim.  Also, based on its experience from Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates that applicant authorized representatives will largely be applicant counsel.  Per the Bureau of Labor Statistics, the national mean hourly wage for lawyers is $62.74.  The Bureau of Labor Statistics hourly wage reflects only the direct cost of employment; therefore, FEMA multiplied the wage rate by 1.4 to derive a fully loaded lawyer wage rate of $87.84 ($62.74 x 1.4 = $87.836).  The resulting statement of claim unit cost equals $3,513.60 (40 hour x $87.84 per hour = $3,513.60).
      FEMA uses the above estimates to calculate an initial arbitration unit cost of $3,567.85 ($54.25 + $3,513.60 = $3,567.85) for applicants and $108.50 for grantees.  Applying the Request for Arbitration estimates identified above, FEMA calculates a total annual average cost for initial arbitration ranging from $36,764 and $110,291 with a primary estimate of $73,527.  See Table 6 for details.  
Table 6:  Initial Arbitration Annual Average Costs
Parties
                           Requests for Arbitration
                         Initial Arbitration Unit Cost
                          Initial Arbitration Cost[1]

                                      Low
                                    Primary
                                     High

                                      Low
                                    Primary
                                     High
Applicant
                                      10
                                      20
                                      30
                                   $3,567.85
                                    $35,679
                                    $71,357
                                   $107,036
Grantee



                                    $108.50
                                    $1,085
                                    $2,170
                                    $3,255
Total
                                       
                                       
                                       
                                       
                                    $36,764
                                    $73,527
                                   $110,291
1- Initial Arbitration Costs are rounded to the nearest dollar.  

Preliminary Administrative Conference
      Within 15 days of the panel's receipt of FEMA's response, the panel will hold a preliminary administrative conference with the parties and/or their representatives by telephone.  The panel and the parties will discuss the future conduct of the arbitration, including clarification of the disputed issues, request for disqualification of an arbitrator (if applicable), and any other preliminary matters.  FEMA expects that all Requests for Arbitration will require a preliminary administrative conference with the designated panel.  At a minimum, one representative for each party (applicant, grantee, and FEMA) will participate in the conference.  However, data from Hurricane Katrina and Rita Mississippi arbitrations suggests an average of 2 representatives from the grantee and 3 representatives from the applicant.  Furthermore, building on its experience with Katrina and Rita arbitrations, FEMA estimates such conferences to take approximately 1 hour and that each participant will spend approximately 2 hours preparing.  
      Hurricane Katrina and Rita Mississippi arbitrations indicate that grantees will likely be represented by a State government management employee.  Using the fully loaded wage of $54.25 identified above, FEMA calculates a grantee preliminary administrative conference unit cost of $325.50 (2 participants x (1 hour + 2 hours) x $54.25 wage = $325.50).  
      Hurricane Katrina and Rita Mississippi arbitrations also indicate that applicant's authorized representatives have predominately been applicant counsel.  Thus, FEMA applies the fully loaded lawyer wage identified above ($87.84) to calculate an applicant preliminary administrative conference unit cost of $790.56 (3 participants x (1 hour + 2 hours) x $87.84 wage = $790.56).  
      Applying the Request for Arbitration estimates identified above, FEMA calculates an annual average applicant and grantee preliminary administrative conference cost range of $11,161 to $33,482 with a primary estimate of $22,321.  See Table 7 for details.      
Table 7:  Preliminary Administrative Conference Annual Average Costs
Parties
                   Preliminary Administrative Conferences[1]
                Preliminary Administrative Conference Unit Cost
                 Preliminary Administrative Conference Cost[2]

                                      Low
                                    Primary
                                     High

                                      Low
                                    Primary
                                     High
Applicant
                                      10
                                      20
                                      30
                                    $790.56
                                    $7,906
                                    $15,811
                                    $23,717
Grantee



                                    $325.50
                                    $3,255
                                    $6,510
                                    $9,765
Total
                                       
                                       
                                       
                                       
                                    $11,161
                                    $22,321
                                    $33,482
1- Preliminary Administrative Conference = Requests for Arbitration  x 100 percent
2- Preliminary Administrative Conference Costs are rounded to the nearest dollar.  

Oral Hearing

      If an oral hearing is requested, the parties will make an oral presentation in person at a location designated by the panel, by telephone conference, or other means during which all the parties may simultaneously hear all other participants.  FEMA anticipates that half of the oral hearings will take place in New York, New York and half in Baltimore, Maryland.  Hurricane Katrina and Rita Mississippi arbitration data indicates 60 percent (9/15 = 0.6) of all requests for arbitration will result in an oral hearing.  Applying the 60 percent hearing rate, FEMA estimates a low of 6 (10 preliminary hearing conferences x 0.6 = 6) and a high of 18 (30 preliminary hearing conferences x 0.6 = 18) oral hearings per year with a primary estimate of 12 (20 preliminary hearing conferences x 0.6 = 12) oral hearings per year.     
      Based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates an oral hearing to take an average of 2 days (16 hours) and include 1 grantee participant and 8 applicant participants (2 presenters and 6 witnesses).  However, due to the limitations on the introduction of new information under the DRPP, FEMA expects half the amount of applicant witnesses will participate for a total of 5 applicant participants (2 presenters and 3 witnesses).  In addition, FEMA estimates participants will spend approximately 20 hours preparing for the hearing which includes activities such as reviewing material, witness preparation, and mock hearings.  
      FEMA expects a State government management employee would participate in the oral hearing on behalf of the grantee.  Using the fully loaded wage of $54.25 identified above, FEMA calculates a grantee oral hearing unit cost of $1,953 (1 participant x (16 hours + 20 hours) x $54.25 wage = $1,953).  To calculate an applicant oral hearing unit cost, FEMA assumes applicant authorized representatives will act as presenters and the equivalent of a State government management employee will serve as witnesses.  The resulting applicant presenter oral hearing unit cost equals $6,324.48 (2 participants x (16 hours+20 hours) x $87.84 wage = $6,324.48) and applicant witness oral hearing unit cost equals $5,859 (3 participants x (16 hours+20 hours) x $54.25 wage = $5,859).      
      Although an in-person appearance is not required (voluntary), based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates that all applicants will make an in-person appearance and that if an applicant is making an in-person appearance, so will the grantee.  FEMA estimates one travel day to and from the hearing (16 hours) resulting in a total time dedicated to oral hearings equal to 3 nights and 4 days (2 hearing days + 2 travel days).  To calculate an in-person appearance unit cost; FEMA first estimates an average transportation cost of $749.28 per person.  FEMA then multiplies a New York City and Baltimore weighted average lodging rate of $192.29 per night by 3 nights for an estimated average lodging cost of $576.87 ($192.29 x 3 nights = $576.87).  Next, FEMA multiplies the meals and incidental expenses rate of $71 per day by 4 days for an average meals and incidental expense cost of $284 ($71 x 4 = $284).  Finally, to account for travel time, FEMA again uses the above wage rates to estimate a travel time unit cost of $868 (16 hours x $54.25 wage = $868) for the grantee and applicant witnesses and an applicant presenter travel time unit cost of $1,405.44 (16 hours x $87.84 wage = $1,405.44).  The resulting in-person appearance travel unit cost is $2,478.15 (1 participant x ($749.28 + $576.87 +$284 + $868) = $2,478.15) for grantees, $6,031.18 (2 participants x ($749.28 + $576.87 +$284 + $1,405.44) = $6,031.18) for applicant presenters, and $7,434.45 (3 participant x ($749.28 + $576.87 +$284 + $868) = $7,434.45) for applicant witnesses.    
      Applying the estimated annual number of oral hearings identified above results in a total annual average cost for oral hearings ranging from $180,482 to $541,445 with a primary estimate of $360,963.  See Table 8 for details.      
Table 8:  Applicant and Grantee Oral Hearing Annual Average Costs
Parties
                               Oral Hearings[1]
                            Oral Hearing Unit Cost
                               Travel Unit Cost
                          Oral Hearing Total Cost[2]

                                      Low
                                    Primary
                                     High


                                      Low
                                    Primary
                                     High
Applicant (presenter)
                                       6
                                      12
                                      18
                                   $6,324.48
                                   $6,031.18
                                    $74,134
                                   $148,268
                                   $222,402
Applicant (witness)



                                   $5,859.00
                                   $7,434.45
                                    $79,761
                                   $159,521
                                   $239,282
Grantee



                                   $1,953.00
                                   $2,478.15
                                    $26,587
                                    $53,174
                                    $79,761
Total
                                       
                                       
                                       
                                       
                                       
                                   $180,482
                                   $360,963
                                   $541,445
1- Oral Hearings = Preliminary Administrative Conference x 60 percent
2- Oral hearing Total Cost = Oral Hearings x (Oral Hearing Unit Cost + Travel Unit Cost) (rounded to the nearest dollar)

Jurisdictional Challenges
      Any party may raise a jurisdictional or arbitrability challenge at any time during the arbitration.  Jurisdictional and arbitrability challenges include disputes over whether the Request for Arbitration is appropriately filed according to the scope, applicability, and limitations put forth by this rule and whether the applicant has filed a timely Request for Arbitration.  Hurricane Katrina and Rita Mississippi arbitrations data shows 2 challenges from 15 Mississippi arbitrations related to jurisdiction and arbitrability; or 13 percent (2/15 x 100 = 13.333).  Such challenges will generally be addressed independently of an oral hearing.  Although the time addressing such matters may vary widely, FEMA's Response and Recovery Legal Division Litigation Branch estimates it would take an average of 15 hours of applicant time (per presenter) reviewing and responding to the challenge plus 1 hour of grantee participant and applicant presenter (2) time for resolution.  Applying the wage rates identified above results in an average grantee challenge unit cost of $ 54.25 (1 hour x $54.25 wage x 1 participant = $54.25) and applicant challenge unit cost of $2,810.88 ((15 hours + 1 hour) x $87.84 wage x 2 presenters = $2,810.88).  Application of the challenge frequency (13 percent) and Requests for Arbitration results in a total annual average challenge cost range of $3,725 to $11,174 with a primary of $7,449.  See Table 9 for details.  
Table 9:  Applicant and Grantee Jurisdictional Challenge Annual Average Costs
Parties
                           Requests for Arbitration
                              Challenge Unit Cost
                              Challenge Frequency
                            Challenge Total Cost[1]

                                      Low
                                    Primary
                                     High

                                       
                                      Low
                                    Primary
                                     High
Applicant
                                      10
                                      20
                                      30
                                   $2,810.88
                                      13%
                                    $3,654
                                    $7,308
                                    $10,962
Grantee



                                    $54.25
                                       
                                      $71
                                     $141
                                     $212
Total
                                       
                                       
                                       
                                       
                                       
                                    $3,725
                                    $7,449
                                    $11,174
1- Challenge Total Cost = Requests for Arbitration x Challenge Unit Cost x Challenge Frequency (rounded to the nearest dollar)
      
Frivolous Requests
      Upon notification by FEMA, or on its own initiative, if the panel determines that the applicant's Request for Arbitration is frivolous, the panel shall deny the Request for Arbitration and direct the applicant to pay the reasonable costs to FEMA relating to the review by the panel, including fees and expenses.  Such costs will be assessed on a case by case basis.   FEMA assumes the cost to address such requests is comparable to jurisdictional challenges; 16 hours of an applicant's presenter time (2 presenters) and 1 hour of a grantee's participant time (1) on average.  Based on experience from Hurricane Katrina and Rita arbitrations, FEMA estimates the potential for such claims is 1 out of 40 (2.5 percent).  Applying the wage rates identified above results in an average grantee frivolous request unit cost of $ 54.25 (1 hour x $54.25 wage x 1 participant = $54.25) and applicant frivolous request unit cost of $2,810.88 ((15 hours + 1 hour) x $87.84 wage x 2 presenters = $2,810.88).  Application of the frivolous request frequency and Requests for Arbitration results in a total annual average frivolous request costs range of $717 to $2,149 with a primary of $1,432.  See Table 10 for details.
Table 10:  Applicant and Grantee Frivolous Request Annual Average Costs
Parties
                           Requests for Arbitration
                          Frivolous Request Unit Cost
                          Frivolous Request Frequency
                        Frivolous Request Total Cost[1]

                                      Low
                                    Primary
                                     High

                                       
                                      Low
                                    Primary
                                     High
Applicant
                                      10
                                      20
                                      30
                                   $2,810.88
                                     2.5%
                                     $703
                                    $1,405
                                    $2,108
Grantee



                                    $54.25
                                       
                                      $14
                                      $27
                                      $41
Total
                                       
                                       
                                       
                                       
                                       
                                     $717
                                    $1,432
                                    $2,149
 1- Frivolous Request Total Cost = Request for Arbitration x Frivolous Request Unit Cost x Frivolous Request Frequency (rounded to the nearest dollar)

Second Appeal Cost Savings
      Participants in arbitration will not incur costs for the second appeals since arbitration must be selected instead of second appeals.  Under the existing second appeals process, applicants would be required to submit a request for second appeal and grantees their associated recommendation.  Based on FEMA's existing Public Assistance Program Information Collection Request (1660-0017); FEMA estimates a second appeal request takes approximately 2 hours and a grantee recommendation takes approximately 1 hour.  In addition, FEMA's Recovery Office estimates that additional information will be necessary approximately 33 percent of the time (1/3 = 0.3333) and will take applicants, on average, 1 hour to locate, copy and provide the information to FEMA.  
      As indicated in the information collection request, FEMA assumes the equivalent of a State government management employee at a fully loaded wage rate of $54.25 would complete the second appeal request and recommendation.  FEMA assumes the same employee would also provide any additional information requested.  Based on the aforementioned estimates and the State government management employee fully loaded wage rate of $54.25; FEMA calculates a second appeal unit cost of $126.40 ((2 hours + (0.33 x 1 hour)) x $54.25 wage = $126.4025) for applicants and $54.25 (1 hour x $54.25 wage = $54.25) for grantees.     
      The resulting total cost savings from not going through the second appeals process ranges from $1,807 to $5,420 with a primary estimate of $3,613.  See Table 11 for details.  
Table 11:  Second Appeal Average Annual Cost Savings
Parties
                           Requests for Arbitration
                             2nd Appeal Unit Cost
                         2nd Appeal Total Cost Savings
 
                                      Low
                                    Primary
                                     High

                                      Low
                                    Primary
                                     High
Applicant
                                      10
                                      20
                                      30
                                    $126.40
                                    $1,264
                                    $2,528
                                    $3,792
Grantee



                                    $54.25
                                     $543
                                    $1,085
                                    $1,628
Total
                                       
                                       
                                       
                                       
                                    $1,807
                                    $3,613
                                    $5,420
      
Applicant and Grantee Subtotal
	The overall applicant annual average net cost ranges from $200,573 to $601,715 with a primary estimate of $401,142.  See Table 12 for details.  
Table 12:  Applicant Annual Average Costs
Categories
                                   Applicant

                                      Low
                                    Primary
                                     High
Initial Arbitration Processing
                                    $35,679
                                    $71,357
                                   $107,036
Preliminary Administrative Conference
                                    $7,906
                                    $15,811
                                    $23,717
Oral Hearing
                                   $153,895
                                   $307,789
                                   $461,684
Jurisdictional Challenges
                                    $3,654
                                    $7,308
                                    $10,962
Frivolous Requests
                                     $703
                                    $1,405
                                    $2,108
Second Appeal Cost Savings
                                    -$1,264
                                    -$2,528
                                    -$3,792
Total
                                   $200,573
                                   $401,142
                                   $601,715


      The overall grantee annual average net cost ranges from $30,469 to $91,406 with a primary estimate of $60,937.  See Table 13 for details.  
Table 13:  Grantee Annual Average Costs
Categories
                                    Grantee

                                      Low
                                    Primary
                                     High
Initial Arbitration Processing
                                    $1,085
                                    $2,170
                                    $3,255
Preliminary Administrative Conference
                                    $3,255
                                    $6,510
                                    $9,765
Oral Hearing
                                    $26,587
                                    $53,174
                                    $79,761
Jurisdictional Challenges
                                      $71
                                     $141
                                     $212
Frivolous Requests
                                      $14
                                      $27
                                      $41
Second Appeal Cost Savings
                                     -$543
                                    -$1,085
                                    -$1,628
Total
                                    $30,469
                                    $60,937
                                    $91,406
      
Federal Costs
      Federal costs include those costs incurred by FEMA to implement the DRPP.  Many of such costs align with the costs incurred by applicants.  FEMA will also pay all fees associated with the panel, including arbitrator compensation.  
FEMA
      As suggested above, many of the cost categories identified for applicants and grantees also align with FEMA costs.  The following discussion breaks costs into initial arbitration processing, preliminary administrative conference, oral hearing, jurisdictional challenge, and frivolous request costs, in addition to second appeal cost savings.  
Initial Arbitration Processing

      Based on its experience with Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates the equivalent of a General Service (GS) 11 employee (located in Washington, DC) will spend 2 hours processing applicant and grantee initial arbitration materials (Request for Arbitration, recommendation, and statement of claim).  FEMA estimates the equivalent of a GS 14 employee (located in Washington, DC) will spend 40 hours reviewing the statement of claim and providing FEMA's memorandum in support of its position.  Documenting the administrative record will be part of the first appeals process.  As such, providing the administrative record for arbitrations does not impose a new burden.  
      Per the Office of Personnel Management, a GS 11 employee, located in Washington, DC, hourly wage is $29.93.  FEMA multiplies this wage rate by 1.4 to derive a fully loaded hourly wage rate of $41.90 ($29.93 x 1.4 = $41.902).  A GS 14 employee, located in Washington, DC, hourly wage is $50.41.  FEMA also multiplies this wage rate by 1.4 to derive a fully loaded hourly wage rate of $70.57 ($50.41 x 1.4 = $70.574).  FEMA uses the above hour estimates and wage rates to calculate a FEMA initial arbitration unit cost of $2,906.60 ((2 hours x $41.90 wage) + (40 hours x $70.57 wage) = $2,906.600).    
      Applying the Request for Arbitration estimates identified above, FEMA estimates a total annual average FEMA cost for initial arbitration processing range of $29,066 to $87,198 with a primary estimate of $58,132.  See Table 14 for details.
Table 14:  FEMA Initial Arbitration Annual Average Cost
                           Requests for Arbitration
                      FEMA Initial Arbitration Unit Cost
                       FEMA Initial Arbitration Cost[1]
                                      Low
                                    Primary
                                     High

                                      Low
                                    Primary
                                     High
                                      10
                                      20
                                      30
                                   $2,906.60
                                    $29,066
                                    $58,132
                                    $87,198
1- FEMA Initial Arbitration Costs are rounded to the nearest dollar. 
      
Preliminary Administrative Conference
      As stated previously, within 15 days of the panel's receipt of FEMA's response, the panel will hold a preliminary administrative conference with the parties and/or their representatives by telephone.  FEMA expects that all requests for arbitration will require a preliminary administrative conference with the designated arbitration panel.  Based on experience from Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates 3 FEMA representatives will participate in the conference which is estimated to take approximately 1 hour and that each participant will spend approximately 2 hours preparing.  
      FEMA expects the equivalent of a 2 GS 14 employees located in Washington, DC and 1 regional GS 14 employee will participate in the preliminary administrative conference.  FEMA uses the GS 14 base rate of $40.58 to calculate a fully loaded GS 14 base wage of $56.81. FEMA uses the above estimates to calculate a FEMA preliminary administrative conference unit cost of $593.85 ((2 participants x (1 hour + 2 hours) x $70.57 wage) + (1 participant x (1 hour + 2 hours) x $56.81 wage) = $593.85).  FEMA applies the Request for Arbitration estimates identified above to calculate an annual average FEMA preliminary administrative conference cost range of $5,939 to $17,816 with a primary estimate of $11,877.  See Table 15 for details.   
Table 15:  FEMA Preliminary Administrative Conference Annual Average Cost
                   Preliminary Administrative Conferences[1]
             FEMA Preliminary Administrative Conference Unit Cost
              FEMA Preliminary Administrative Conference Cost[2]
                                      Low
                                    Primary
                                     High

                                      Low
                                    Primary
                                     High
                                      10
                                      20
                                      30
                                    $593.85
                                    $5,939
                                    $11,877
                                    $17,816
1- Preliminary Administrative Conference = Requests for Arbitration  x 100 percent
2- FEMA Preliminary Administrative Conference Costs are rounded to the nearest dollar. 
      
Oral Hearing
      As stated previously, if an oral hearing is requested, the parties will make an oral presentation in person at a location designated by the panel, by telephone conference, or other means during which all the parties may simultaneously hear all other participants.  FEMA anticipants that half of the oral hearings will take place in New York, NY and half in Baltimore, MD.  Based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates approximately 60 percent (9/15 = 0.6) of all requests for arbitration will result in an oral hearing.  Applying the 60 percent hearing rate, FEMA estimates a low of 6 (10 preliminary hearing conferences x 0.6 = 6) and a high of 18 (30 preliminary hearing conferences x 0.6 = 18) oral hearings per year with a primary estimate of 12 (20 preliminary hearing conferences x 0.6 = 12) oral hearings per year.     
      Again using information from Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates an oral hearing to take an average of 2 days (16 hours) and include 10 FEMA participants (2 presenters and 8 witnesses).  However, due to the limitations on the introduction of new information under the DRPP, FEMA expects half the amount of FEMA witnesses will participate for a total of 6 FEMA participants (2 presenters and 4 witnesses).  In addition, FEMA estimates participants will spend approximately 20 hours each preparing for the hearing which includes reviewing materials, preparing witnesses, and mock hearings.  FEMA estimates the equivalent of GS 14 employees would participate in the oral hearing, one from Headquarters (Washington, DC) and the remaining five from regional offices.  The resulting FEMA oral hearing unit cost equals $12,766.32 ((1 participant x (16 hours + 20 hours) x $70.57 wage) + (5 participants x (16 hours + 20 hours) x $56.81 wage) = $12,766.32).       
      Although an in-person appearance is not required (voluntary), based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates all applicants to make an in-person appearance and that if an applicant is making an in-person appearance, so will FEMA.  Therefore, FEMA applies the same travel estimates identified for grantees and applicants for a FEMA in-person appearance unit cost of $15,334.82 ($2,519.11 per regional participant x 5 regional participants + $2,739.27 for one DC participant = $15,334.82).  ($2,519.11 = average travel cost ($749.28 per person) + average lodging cost ($576.87) + average meals and incidental expense cost ($284) + travel time (16 hours x $56.81 = $908.96) for a regional participant; $2,739.27 = average travel cost ($749.28 per person) + average lodging cost ($576.87) + average meals and incidental expense cost ($284) + travel time (16 hours x $70.57 = $1,129.12) for a DC participant).  
      Applying the estimated annual number of oral hearings identified above results in a total annual average cost for oral hearings ranging from $168,607 to $505,821 with a primary estimate of $337,214.  See Table 16 for details.
Table 16:  FEMA Oral Hearing Annual Average Costs
                               Oral Hearings[1]
                          FEMA Oral Hearing Unit Cost
                         FEMA Oral Hearing Travel Cost
                            FEMA Oral Hearing Cost
                                      Low
                                    Primary
                                     High


                                      Low
                                    Primary
                                     High
                                       6
                                      12
                                      18
                                  $12,766.32
                                  $15,334.82
                                   $168,607
                                   $337,214
                                   $505,821
1- Oral Hearings = Preliminary Administrative Conference x 100 percent
2- FEMA Oral Hearing cost = Oral Hearings x (Oral Hearing Unit Cost + Oral Hearing Travel Cost)
      
Jurisdictional Challenges
      As stated previously, any party may raise a jurisdictional or arbitrability challenge at any time during the arbitration and based on Hurricane Katrina and Rita Mississippi arbitrations, there is a 13 percent likelihood of such a challenge.  Jurisdictional or arbitrability challenges will generally be addressed independently of an oral hearing.  FEMA's Response and Recovery Legal Division Litigation Branch estimates it would spend 25 hours researching, drafting, reviewing, filing, and ultimately resolving such a challenge.  Applying the FEMA presenter wage rate identified above ($70.57 and $56.81) results in an average FEMA challenge unit cost of $3,184.50 (((25 hours x $70.57 wage x 1 presenter) + (25 hours x $56.81 wage x 1 presenter))= $3,184.50).  Application of the challenge frequency and Requests for Arbitration results in a total annual average challenge costs range of $4,140 to $12,420 with a primary of $8,280.  See Table 17 for details.
Table 17:  Jurisdictional Challenge FEMA Annual Average Cost
                           Requests for Arbitration
                           FEMA Challenge Unit Cost
                              Challenge Frequency
                         FEMA Challenge Total Cost[1]
                                      Low
                                    Primary
                                     High

                                       
                                      Low
                                    Primary
                                     High
                                      10
                                      20
                                      30
                                   $3,184.50
                                      13%
                                    $4,140
                                    $8,280
                                    $12,420
 1- FEMA Challenge Total Cost = Request for Arbitration x FEMA Challenge Unit Cost x Challenge Frequency (rounded to the nearest dollar)
      
Frivolous Requests
      As stated previously, upon notification by FEMA, or on its own initiative, if the panel determines that the applicant's Request for Arbitration is frivolous, the panel shall deny the Request for Arbitration and direct the applicant to pay the reasonable costs to FEMA relating to the review by the panel, including fees and expenses.  Such costs will be assessed on a case by case basis.  FEMA assumes the cost to address such requests is comparable to jurisdictional challenges; on average 25 hours of FEMA's presenter time (2 presenters).  Based on experience from Hurricane Katrina and Rita arbitrations, FEMA estimates the potential for such claims is 1 out of 40 (2.5 percent).  Applying the FEMA presenter wage rate identified above ($70.57 and $56.81) results in an average FEMA frivolous request unit cost of $3,184.50 (((25 hours x $70.57 wage x 1 presenter) + (25 hours x $56.81 wage x 1 presenter)) = $3,184.50).  Application of the frivolous request frequency and Requests for Arbitration results in a total annual average frivolous request costs ranges of $796 to $2,388 with a primary of $1,592.  See Table 18 for details.
Table 18:  Frivolous Request FEMA Annual Average Cost
                           Requests for Arbitration
                       FEMA Frivolous Request Unit Cost
                          Frivolous Request Frequency
                     FEMA Frivolous Request Total Cost[1]
                                      Low
                                    Primary
                                     High

                                       
                                      Low
                                    Primary
                                     High
                                      10
                                      20
                                      30
                                   $3,184.50
                                     2.5%
                                     $796
                                    $1,592
                                    $2,388
1- Frivolous Request Total Cost is rounded to the nearest dollar.  

Second Appeal Cost Savings
      As with applicants and grantees above, FEMA will not incur costs for the second appeals because arbitration must be selected instead of a second appeal.  FEMA estimates a GS 13 employee in Washington, DC at a fully loaded wage rate of $59.72 would have spent 40 hours reviewing, researching, and drafting an initial response to an applicant's appeal.  Next, FEMA estimates the equivalent of a GS 15 employee in Washington, DC at a fully loaded wage of $83.02 would have spent 20 hours on review and concurrence.  Finally, FEMA includes 3 hours of a Senior Executive Service (SES) employee's time, including the FEMA Assistant Administrator for Recovery, at a fully loaded wage of $100.72, that would have been spent on review, concurrence and decision.  The resulting total FEMA second appeal unit cost equals $4,351.36 ((40 hours x $59.72 wage) + (20 hours x $83.02 wage) + (3 hours x $100.72 wage) = $4,351.360).
      Based on the aforementioned Requests for Arbitration estimates, the resulting total cost savings from not going through the second appeals process ranges from $43,514 to $130,541 with a primary estimate of $87,027.  See Table 19 for details.  
Table 19:  Second Appeal FEMA Annual Average Cost Savings
FEMA Employee Level
                           Requests for Arbitration
                         FEMA Second Appeal Unit Cost
                      FEMA Second Appeal Cost Savings[1]

                                      Low
                                    Primary
                                     High

                                      Low
                                    Primary
                                     High
GS 13 Step 1
                                      10
                                      20
                                      30
                                   $2,388.80
                                    $23,888
                                    $47,776
                                    $71,664
GS 15 Step 1



                                   $1,660.40
                                    $16,604
                                    $33,208
                                    $49,812
SES



                                    $302.16
                                    $3,022
                                    $6,043
                                    $9,065
Total



                                   $4,351.36
                                    $43,514
                                    $87,027
                                   $130,541
1- Second Appeal Cost Savings are rounded to the nearest dollar

FEMA Subtotal
      FEMA's average annual net subtotal, not including arbitration sponsor costs, ranges from $165,034 to $495,102 with a primary estimate of $330,068.  See Table 20 for details.
Table 20:  FEMA Annual Average Subtotal
Category
                                     FEMA

                                      Low
                                    Primary
                                     High
Initial Arbitration Processing
                                    $29,066
                                    $58,132
                                    $87,198
Preliminary Administrative Conference
                                    $5,939
                                    $11,877
                                    $17,816
Oral Hearing
                                   $168,607
                                   $337,214
                                   $505,821
Jurisdictional Challenges
                                    $4,140
                                    $8,280
                                    $12,420
Frivolous Requests
                                     $796
                                    $1,592
                                    $2,388
Second Appeal Cost Savings
                                   -$43,514
                                   -$87,027
                                   -$130,541
Total
                                   $165,034
                                   $330,068
                                   $495,102
      
Arbitration Sponsor
   As stated previously, FEMA will pay all fees associated with the independent review panel.  To implement the provision of an independent review panel; FEMA is engaging the U.S. Coast Guard to provide Administrative Law Judges for the arbitration of eligible Public Assistance disputes arising in the FEMA Public Assistance Program during the DRPP.  The DRPP is authorized to accept Requests for Arbitration through December 2015; this equates to approximately 2.5 years (August 2013 to December 2015).  Although a number of variables affect the cost of an arbitration (e.g. complexity, location, party interaction), FEMA estimates the annual cost associated with the services at $600,000 per year (the U.S. Coast Guard Administrative Law Judge Program indicated that the average unit hearing cost (including the cost of a transcript) would be $29,366; FEMA rounded this number to $30,000 and multiplied it by the estimated 20 arbitrations per year to arrive at $600,000 per year); $1,500,000 over the duration of the DRPP.  This value is based on providing support and arbitration services for 20 arbitrations per year and includes salary expenses and operational costs.  Anticipated services provided include:
   * Designation of a panel of three qualified arbiters unaffiliated with the dispute; 
   * Review of legal briefs drafted and provided by both parties to the panel;
   * Research of the applicable law of each case;
   * Teleconferences where scheduling deadlines are determined or to hear pre-hearing issues that may arise;
   * Hearing, if the applicant so chooses, where parties present arguments, witnesses, and evidence for consideration by the panel; and
   * Drafting and issuing of a decision by the panel within 60 days following the hearing.
Dispute Resolution Pilot Program Total Costs
      FEMA calculates DRPP costs by estimating applicant, grantee, and FEMA costs related to all aspects of the arbitration process including initial arbitration processing, preliminary administrative conference, oral hearing, jurisdictional challenges, frivolous requests, and arbitration sponsor costs.  FEMA also estimates the cost savings associated with not choosing a second appeal.  The resulting average annual cost is $401,142 for applicants, $60,937 for grantees, and $930,068 for FEMA.  The total average annual estimated cost of the DRPP ranges from $996,076 to $1,788,223 with a primary estimate of $1,392,147.  See Table 21 for details.  
Table 21:  Dispute Resolution Annual Average Total Costs
Categories
                                   Applicant
                                    Grantee
                                     FEMA
                                     Total
                                   Low Total
                                  High Total
Initial Arbitration Processing
                                    $71,357
                                    $2,170
                                    $58,132
                                   $131,659
                                    $65,830
                                   $197,489
Preliminary Administrative Conference
                                    $15,811
                                    $6,510
                                    $11,877
                                    $34,198
                                    $17,100
                                    $51,298
Oral Hearing
                                   $307,789
                                    $53,174
                                   $337,214
                                   $698,177
                                   $349,089
                                  $1,047,266
Jurisdictional Challenges
                                    $7,308
                                     $141
                                    $8,280
                                    $15,729
                                    $7,865
                                    $23,594
Frivolous Requests
                                    $1,405
                                      $27
                                    $1,592
                                    $3,024
                                    $1,513
                                    $4,537
Second Appeal Cost Savings
                                    -$2,528
                                    -$1,085
                                   -$87,027
                                   -$90,640
                                   -$45,321
                                   -$135,961
Arbitration Sponsor
                                      N/A
                                      N/A
                                   $600,000
                                   $600,000
                                   $600,000
                                   $600,000
Total
                                   $401,142
                                    $60,937
                                   $930,068
                                  $1,392,147
                                   $996,076
                                  $1,788,223

      The DRPP is authorized to accept Requests for Arbitration for 2.5 years, August 2013 through December 2015.  FEMA uses the average annual costs identified above to calculate a total DRPP cost of $3,480,368 over its lifetime; $3,213,101 discounted at 7 percent ($1,445,344 annualized).  See Table 22 for details.    
Table 22:  Dispute Resolution Pilot Program Total Costs
Year[1]
                                   Applicant
                                    Grantee
                                     FEMA
                                     Total
                                7 % Discount[2]
                                3 % Discount[3]
2013
                                   $200,571
                                    $30,469
                                   $465,034
                                   $696,074
                                   $696,074
                                   $696,074
2014
                                   $401,142
                                    $60,937
                                   $930,068
                                  $1,392,147
                                  $1,301,072
                                  $1,351,599
2015
                                   $401,142
                                    $60,937
                                   $930,068
                                  $1,392,147
                                  $1,215,955
                                  $1,312,232
Total
                                  $1,002,855
                                   $152,343
                                  $2,325,170
                                  $3,480,368
                                  $3,213,101
                                  $3,359,905
1- Year 2013 only contains 6 months of activity; thus half the annual average cost.  Also, as the rule is expected to be published in 2013; the associated discount equates to 1 which does not change 2013 dollar values.
                                                                     Annualized
                                  $1,445,344
                                  $1,415,041
2- 7% Discount = Total x (1/(1+0.07)^(year-2013) 
3- 3% Discount = Total x (1/(1+0.03)^(year-2013) 
      
      Applying the same approach used above, FEMA calculates a DRPP low total cost of $2,490,190 (undiscounted); $2,298,961  discounted at 7 percent ($1,034,138 annualized) and a DRPP high total cost of $4,470,558 (undiscounted); $4,127,251 discounted at 7 percent ($1,856,555 annualized).  See Table 23 for details.  
Table 23:  Dispute Resolution Pilot Program Low & High Total Costs
Year[1]
                                   Low Total
                                7 % Discount[2]
                                3 % Discount[3]
                                  High Total
                                7 % Discount[2]
                                3 % Discount[3]
2013
                                   $498,038
                                   $498,038
                                   $498,038
                                   $894,112
                                   $894,112
                                   $894,112
2014
                                   $996,076
                                   $930,912
                                   $967,064
                                  $1,788,223
                                  $1,671,236
                                  $1,736,139
2015
                                   $996,076
                                   $870,011
                                   $938,897
                                  $1,788,223
                                  $1,561,903
                                  $1,685,572
Total
                                  $2,490,190
                                  $2,298,961
                                  $2,403,999
                                  $4,470,558
                                  $4,127,251
                                  $4,315,823

                                                                     Annualized
                                  $1,034,138
                                  $1,012,457

                                  $1,856,555
                                  $1,817,631
1- Year 2013 only contains 6 months of activity; thus half the annual average cost.  Also, as the rule is expected to be published in 2013; the associated discount equates to 1 which does not change 2013 dollar values.
2- 7% Discount = Low/High Total x (1/(1+0.07)^(year-2013) 
3- 3% Discount = Low/High Total x (1/(1+0.03)^(year-2013) 

Dispute Resolution Pilot Program Benefits
      There are a number of anticipated benefits associated with the DRPP.  FEMA first identifies overarching benefits of the rule followed by a discussion on specific benefits related to each category identified in the cost section.  
	Overarching benefits of the rule include increased flexibility for applicant recourse.  Under the DRPP, applicants can select between arbitration by an independent review panel or second appeal to the FEMA Assistant Administrator for Recovery.  The option for independent panel review also improves perception of objectivity which likely increases acceptance of final decisions and increases applicant satisfaction in the process.  
	A second overarching benefit due to the streamlined procedures is the increased speed at which disputes are resolved which in turn helps facilitate an efficient recovery from disasters.  Based on the maximum allowed time set out in current second appeal procedures; 210 days are allowed to reach a decision if no additional information is requested and an additional 60 days for each additional information request.  A maximum time of 165 days without hearing and 225 days with a hearing is set out in the arbitration procedures under the DRPP.  Thus, when comparing process step maximum values, arbitrations with no hearings would be resolved faster than second appeals and arbitrations with hearings would be resolved faster than second appeals with at least one additional information request.  For instance, the total number of days for arbitration with an oral hearing (225 days) versus a second appeal with one additional information request (270 days) is 45 days faster (270 days - 225 days = 45 days).  See Table 24 below.  
Table 24:  Maximum Process Time Comparison
Second Appeal Steps
                                      Max

Dispute Resolution Pilot Steps
                                      Max
First Appeal Decision
                                     Start

First Appeal Decision
                                     Start
Applicant File for 2nd Appeal
                                      60

Request for Arbitration
                                      15
Grantee Recommendation
                                      60

Grantee Recommendation 
                                      15
Transmission to FEMA HQ
                                       0

Administrative Record

Additional Info?
                                      60

Applicant Statement of Claim
                                      30
FEMA Final Decision
                                      90

FEMA Response
                                      30
Total (no additional info)
                                      210

Preliminary Admin Conference
                                      15
Total (+ additional info)
                                      270

Hearing?
                                      60



Panel Decision
                                      60



Total (no hearing)
                                      165



Total (+ hearing)
                                      225

      In addition, based on FY11 and FY12 second appeals greater than or equal to $1,000,000 (adjusted for inflation), resolution of second appeals has taken an average of 314 days with a low of 89 days and a high of 659.  Despite the distinct differences between Hurricane Katrina and Rita arbitrations and the DRPP; some of which likely increase arbitration time (e.g. standard of review) while others decrease time (e.g. lower total max allowed time); such a comparison provides insight into time differences between second appeals and arbitrations.  Time to resolve Hurricane Katrina and Rita Mississippi arbitrations over $1,000,000 (adjusted for inflation) took an average of 263 days with a low of 55 days and a high of 475 days  -  7 days faster (270 - 263 = 7) than the total max allowed time for second appeals with one additional information request and 51 days faster (314 - 263 = 51) than the actual average second appeal resolution time for FY11 and FY12.   
      A final overarching benefit of the DRPP is to provide FEMA with valuable information such as participation levels, average process times, associated costs, and satisfaction levels.  This information will inform the Comptroller General's required recommendation to Congress on whether an arbitration program should be implemented permanently.  In addition, performance information from the DRPP can be used as a comparison point for the existing second appeal process.  
Initial Arbitration
      Benefits specifically associated with initial arbitration processing include a formal process, which clearly identifies the area and issues in dispute, as well as articulating each party's position.  The Request for Arbitration clearly identifies an applicant's desire for arbitration and who will be representing the applicant.  The grantee recommendation identifies their position (similar to a second appeal) and who will be representing them.  The administrative record outlines the substance of discussion and provides support for each party's position.  The applicant statement of claim identifies the applicant's position and ensures the circumstances of the dispute are clear.  Finally, FEMA's response to the statement of claim identifies FEMA's position.    
Preliminary Administrative Conference
      Benefits associated with preliminary administrative conferences include addressing any prehearing questions and setting the schedule.  Specifically, the panel and parties will discuss the future conduct of the arbitration, including clarification of disputed issues, request for disqualification of an arbitrator (if applicable), and any other preliminary matters.  Furthermore, based on Hurricane Katrina and Rita Mississippi arbitrations, FEMA estimates 40 percent (6/15 = 0.4) of disputes will be resolved at or following an administrative conference (prior to an oral hearing).  This equates to an annual average range of 4 (10 Requests for Arbitration x 0.4 = 4) to 12 (30 Requests for Arbitration x 0.4) with a primary estimate of 8 (20 Requests for Arbitration x 0.4) resolved disputes following a preliminary administrative conference.   
Oral Hearing
      A benefit of an oral hearing is the opportunity to state one's case and interact with FEMA in coming to a decision.  The dialog allows for the progression of thought and better understanding of each party's side.  Furthermore, a decision by an objective body contributes to the decision being accepted as final.  FEMA expects presentation of an applicant's views and positions in a neutral forum will solidify the finding and reduce requests for reconsideration (despite first and second appeal limitations in regulations) and the solicitation of involvement from other entities at the local, State, or Federal level to advocate on behalf of an applicant regarding an unsatisfactory final determination.  
Jurisdictional and Arbitrability Challenges
      Allowing for jurisdictional challenges encourages use of the arbitration process when appropriate and provides the ability to stop or adjust arbitration if not appropriate.  Furthermore, it promotes following the arbitration procedures.  
Frivolous Requests
      Penalties associated with frivolous requests discourage the inappropriate use of the arbitration process.  It will also prevent the inappropriate use of Federal funds for arbitrations where the applicant knew, or reasonably should have known, that its actions lack an arguable basis in law, policy, or fact.
Independent Review Panel
      A benefit of using an independent panel is the improved perception of objectivity.  In addition, decisions made by a professional and objective organization will likely improve acceptance and finality of such decisions.  Specifically, FEMA expects the presentation of an applicant's views and positions in a neutral forum will solidify the finding and reduce requests for reconsideration (despite first and second appeal limitations in regulations) and the solicitation of involvement from other entities at the local, State, or Federal level to advocate on behalf of an applicant regarding an unsatisfactory final determination.
Comparison of Costs and Benefits
      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.  FEMA first compares each of the cost categories in the above cost section to their associated benefits.  See Table 25 for details.  

Table 25:  Summary of Annual Average Costs and Benefits by Category
Categories
                                  Total Cost
Benefit
Initial Arbitration Processing
                                   $131,659
Clearly identifies the areas/issues in dispute and each parties position
Preliminary Administrative Conference
                                    $34,198
Addresses prehearing questions, sets schedule, and resolves an annual average of 40 percent or 8 cases
Oral Hearing
                                   $698,177
Provides opportunity to state one's case and interact with FEMA in coming to a decision which contributes to it being accepted as final
Jurisdictional Challenges
                                    $15,729
Encourages use of arbitration process when appropriate and provides ability to stop or adjust arbitration if not appropriate 
Frivolous Requests
                                    $3,024
Encourages use of arbitration process when appropriate by penalizing the filing of requests without merit
Second Appeal Cost Savings
                                   -$90,640
Accounts for costs otherwise spent on second appeals
Arbitration Sponsor
                                   $600,000
Independent panel decision improves perception of objectivity and adds to acceptance of decision.
Overarching
                                      N/A
Increases flexibility for applicant recourse, speed at which disputes are resolved, and provides information that can be used to determine if arbitration should be a permanent option
Total
                                  $1,392,147
 

      Next, FEMA compares the DRPP total costs to associated benefits.  Based on this comparison, FEMA believes the benefits of the rule justify its costs.  See Table 26 for a side by side comparison of the net costs and benefits of the rule.  Furthermore, based on the above analysis, FEMA has determined that this rule will not have a significant economic impact of $100 million or more per year.

Table 26:  Comparison of Dispute Resolution Pilot Program Net Costs and Benefits 
Year[1]
                                     Total
                                7 % Discount[2]
                                3 % Discount[3]
Benefits
2013
                                   $696,074
                                   $696,074
                                   $696,074
Provides flexibility for applicant recourse and likely increases applicant satisfaction through use of an independent panel.
Institutes a streamlined process that clearly identifies areas/issues in dispute and encourages use of arbitration when appropriate thereby increasing speed at which disputes are resolved.  
Information from pilot will help determine if arbitration should be a permanent option.  
2014
                                  $1,392,147
                                  $1,301,072
                                  $1,351,599

2015
                                  $1,392,147
                                  $1,215,955
                                  $1,312,232

Total
                                  $3,480,368
                                  $3,213,101
                                  $3,359,905
 
 
 
 
                                                                     Annualized
                                  $1,445,344
                                  $1,415,041




1- Year 2013 only contains 6 months of activity; thus half the annual average cost.  Also, as the rule is expected to be published in 2013; the associated discount equates to 1 which does not change 2013 dollar values.
2- 7% Discount = Total x (1/(1+0.07)^(year-2013)) 
3- 3% Discount = Total x (1/(1+0.03)^(year-2013)) 

Alternatives Considered
      Many aspects of the DRPP are mandated by SRIA leaving FEMA no discretion.  However, the following discussion provides two alternatives FEMA considered; no action and the inclusion of a mediation requirement.  
No Action Alternative
      Although this alternative would have no new costs, it also would not satisfy the requirements set forth in the SRIA.  Therefore, FEMA has selected not to pursue this alternative.  
Dispute Resolution Pilot Program 
      Implementation of the DRPP allows for the use of arbitration rather than second appeals.  The procedures established satisfy the requirements specifically called for in the SRIA with minimal burden.  For this reason, FEMA has selected this alternative.  
Dispute Resolution Pilot Program with Mediation Requirement
      This option would require an attempt at mediation prior to arbitration as presented in the preferred alternative.  The costs of mediation can vary relative to the situation and parties involved.  If resolving a dispute in mediation is quicker and less costly than arbitration, then it would provide a less costly option for those instances where mediation is successful.  However, it would also add time and cost to instances where mediation is unsuccessful.  Therefore, due to the potential for increased cost and time beyond what is specifically required in SRIA, FEMA has selected not to pursue this alternative.  
