Fridge Construction Co. v. Federal Emergency Management Agency (797 F. Supp. 1321, 1991)

BENCH OPINION

GEX, District Judge.

This cause came on for trial before the Court without a jury on April 22, 1991. The Court, having fully considered the testimonial and documentary evidence presented by both parties at trial, the arguments of counsel, and the applicable law, and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil Procedure:

Findings of Fact

I. Introduction

After teasing the Mississippi Gulf Coast in the late summer of 1985, Hurricane Elena approached the western coast of Florida. Then, Elena abruptly departed Florida’s waters for the Mississippi coast again. Finally, on September 2, 1985, Elena struck the Mississippi coast concentrating its fury on Jackson and Harrison Counties. Fortunately, Elena’s impact was not preceded by the deadly tidal surge which ordinarily accompanies such storms. Nevertheless, Elena’s high winds and tornadoes spawned by the ferocious storm did do substantial damage. However, the plaintiff’s suffering did not begin until after the cleanup was underway.

II. Federal Emergency Management Agency’s Initial Involvement

This litigation arises out of federal, state, and local governmental efforts to respond to Hurricane Elena. Paul Hall has held the position of Chief of Disaster Assistance Program Division for the Southeast Region since 1981. Hall stated that in 1985, he had a public assistance officer, Mel Schneider, and an individual assistance officer. According to Hall, Schneider’s responsibilities include coordinating and providing assistance to communities, local governments, and state governments. Hall further testified that Schneider normally has four full-time employees and that reservists, disaster assistance employees (DAE), are activated when disaster assistance is needed. After awakening one morning to learn that Elena had landed in Mississippi, Hall and Schneider stated that they and Mr. Polney, another Federal Emergency Management Agency (FEMA)- employee, drove to the Mississippi coast where they proceeded along U.S. Highway 90 from Pascagoula to Hancock County to survey the damage. Hall testified he contacted his national office and informed them of the damage. According to Hall, he contacted his own office in Atlanta and requested additional personnel. Hall said these persons were directed to perform a “windshield” survey in order to determine whether or not the damage was of such severity and magnitude that it was beyond the capability of the local governments to recover in an effective period of time. Hall described a “windshield” survey as consisting of observations of debris while driving down the street. Schneider said that he conducted a “windshield” survey of Jackson County. Hall testified that these “windshield” surveys revealed damage so severe the local governments could not handle it. He informed his national office of the results of these initial surveys who, in turn, notified the President of the United States.

While awaiting word form the President, Hall discussed the organizational structure with the state officials in Mississippi and potential sites for disaster application centers. Subsequently, the President declared Jackson County a major disaster area pursuant to the Disaster Relief Act of 1974, as amended, 42 U.S.C. §§ 5121, et seq. (the Act).

Pursuant to the Presidential declaration, FEMA and the State of Mississippi entered into a letter agreement (the Agreement) dated September 5, 1985, with respect to this disaster relief. (Exhibit P-10). The Agreement provided that FEMA was to pay 75 percent of the cost for the debris removal; the State of Mississippi was to contribute 12.5 percent; and the cities of Pascagoula and Ocean Springs (the Cities) were to pay the remaining 12.5 percent of the cost for their respective areas. (Exhibit P-10, para. 3). The Agreement declared that “[t]he Director of the Federal Emergency Management Agency (FEMA) or his Delegate shall make available such amounts of funds as he finds necessary for Federal disaster [sic] assistance within the limits of such funds available from” Congress and that “the maximum amount to be advanced on each project application will be determined by the FEMA Regional Director having responsibility for such actions.” (Exhibit A, paras. 1 and 3). The Agreement further provided for both public and individual assistance programs for Jackson County. (Id. at para. 5). One of the types of public assistance programs was debris removal funding, which is authorized by § 403 of the Act (42 U.S.C. § 5173). '

III. The Initial Meeting

Hall explained that he served as both the federal coordinating officer (FCO) and the disaster recovery manager (DRM) for the Hurricane Elena disaster assistance. Hall said that his primary duty was representing the President for the evaluation of disaster damages. Pursuant to that duty, he stated that his first task was to conduct a meeting with applicants and local governmental officials during which he explained the various programs along with their eligibility requirements. He also requested information on the categories and magnitude of storm damage to roads, parks, utilities, and buildings during this meeting. At the initial meeting in Jackson County, Hall and Schneider testified that Schneider instructed the local officials on their eligibility for debris removal and told them that they had the option of performing the debris removal themselves or of contracting for the work with private contractors. According to Hall, the state and local authorities were required to identify the types of damage by filing a “Notice of Interest” form.

IV. The Estimates

Hall said that the next step in the disaster assistance process was for a survey team to estimate the quantity of debris and wreckage in Jackson County. These survey teams consisted of a federal, state, and local governmental representative. The federal representatives were primarily from FEMA although Hall testified that some employees from the United States Army Corps of Engineers were used.

Hall stated that it was Schneider's responsibility to brief the survey teams on the applicable laws and regulations. Schneider stated that he met individually with teams of six to ten engineers. Schneider also said that these engineers were experienced in the removal of debris and the estimation of quantities of debris. Schneider testified that they separated the county into its separate entities and he next directed the federal engineers to meet with the local and state representatives before conducting the inspection of the debris. Schneider stated that the state representatives were engineers and the local representative was either a county or a city engineer.

Hall said that the team members are required to execute dámage survey reports (DSR). Hall testified 'that the purpose of the DSR is to attempt to quantify the amount of the debris to'facilitate the determination of the cost of removal of the debris. Schneider said that he then met with the survey teams and explained what they should look for and how to fill out the DSR forms. Schneider testified that he directed the teams to travel along every street to determine the quantity of debris located on the street at that time and how much debris would eventually be brought to the streets from the side yards, backyards, and alleys. Schneider said that he also told them to attach their sketches to the DSR, to show any projections they had and the basis for any projections. According to Schneider, he then discussed with the surveyors the estimating process in general and noted that the surveyors typically estimate in ten cubic yard increments. Schneider stated that it took the teams about a week to complete the survey of all of the communities in Jackson and Harrison Counties.

Taylor Morgan “Slim” Bondurant, a FEMA reservist (a part-time FEMA employee who is called into active duty during disasters), testified that he was a member of one the survey teams and he participated in the survey of areas in Jackson County, Harrison County, Moss Point, Pascagoula, and Gulfport with the primary location of his work being in Jackson County and Moss Point. Bondurant stated that he had 15 years of experience in the estimation of debris. He said that his team began the estimating process soon after the storm hit and they traveled through their designated areas counting the cubic yards of the debris along the roads, in yards, and behind houses. Bondurant further stated that they each prepared an estimate, averaging their estimates to derive their final figure for the DSR. Bondurant explained that no one on his team disagreed with the amounts on the DSR forms. After completing the DSRs, Bondurant said he passed them along to Schneider.

Bondurant testified that in preparing the DSRs, he would walk the ditches and drive the streets estimating the amount of the debris while estimating the cost of equipment rental, labor, and materials. Bondurant stated that he also surveyed areas and estimated the amount of debris by viewing the debris in most cases or by actually measuring it in other cases. He said that after surveying half of their designated areas, the team members usually compared their totals by adding the amounts and dividing by three. Bondurant admitted that the local representative was occasionally too busy driving to make estimates so that they were left with his estimate and the state’s estimate. He said that his estimate was always reasonable as compared to the other team members’ estimates. Bondurant claimed that he instructed two to four people during the Elena estimates on how estimates are made.

Hall stated that the survey team members would have given the DSRs to Schneider and his staff who would have passed them onto Hall as part of the whole project application. Bondurant testified that he did in fact turn in his DSRs to Schneider’s staff. Hall and Schneider also explained that the survey teams were required to conduct a more detailed inspection than his initial “windshield” surveys and that the DSR was ■ a product of all three team members’ estimates because a team member had a right to file a written notice of disagreement with the federal official’s estimate. The FEMA handbooks also reflect that this objection process existed.

The agreement between FEMA, the State, and the Cities also stated, “Federal assistance will be made available in accordance with the Act, Executive Order 12148 and the implementing regulations found in Title 44 of the Code of Federal Regulations (CFR), as amended and currently applicable handbooks.” (Exhibit A at p. 2). Hall testified that the handbooks referred to in this Agreement would have been non-mandatory, guidance documents developed as a result of the implementation of regulations and they would have delineated the eligibility requirements for public assistance, for applicants for public assistance, and for debris removal. After scrutinizing Exhibits P-3A (entitled “DR & R-2” and dated “July 1981”), P-3B (entitled “DR & R-l” and dated “March 1981”), P-3C (entitled “DR & R 15” and dated “April 1985”), and P-3D (entitled “DR & R 7” and dated “August 1981”), Hall admitted that these were the types of handbooks alluded to in the Agreement.

Several handbooks contained references to the DSRs. Handbook DR & R 1 provided:

b. By signing item 16 of Damage Survey Report (DSR) the representative of the Federal agency performing the review indicates that from a professional engineering or construction point of view, the contents of the Damage Survey Report provide accurate and reasonable basis for FEMA to make a determination of eligibility of work and of project costs. The reviewer should annotate the Damage Survey Report or add attachments to it if necessary to make any corrections or comments deemed necessary. By signing item 16 of DSR, the FEMA representative indicates that he/she has reviewed the DSR and from an overall program point of view and is satisfied that it is detailed, complete and reasonable as the basis for preparation of a project application. The DSR, when reviewed, is a recommendation and is not approved for FEMA funding until included in a project application that is approved by the Governor’s Authorized Representative and by the Regional Director, or their duly authorized designees.

(Exhibit P-3B at p. “3-2”). Handbook DR & R 1 also stated:

b. Damage Survey Reports. The importance of complete and accurate DSR’s should be emphasized. Federal inspectors will follow normal procedures in preparing DSR’s for each applicant.

(Id. at pp. “0-3”—'“0-4”).

Handbook DR & R-2 provided a detailed analysis of the DSR. That Handbook stated:

3-3. Inspection Teams.

a. Damage surveys are usually conducted by a Federal-State inspection team. An authorized local representative accompanies the Federal/State inspection team and is responsible for representing the applicant and assuring that all damage and needs for assistance are inspected. The inspectors record pertinent information on a Damage Survey Report, including a description of the damage, proposed repairs or replacement, and the inspectors’ best estimate of the cost of the recommended work.

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c. Inspectors operating in the field as members of Damage Survey Teams are under the supervision by the field supervisors, who coordinate with the Regional Director or his representative. Damage surveys are expected to be accomplished by Federal inspectors jointly with State inspectors and local representatives.

3-4. Responsibilities of Federal Inspectors. Each inspector should:

a. Know the rules of eligibility for disaster assistance work as outlined in this handbook. When in doubt on questions of eligibility, the Inspector should consult with his supervisor, and not those of the Inspector’s Federal agency.

b. Know how to complete the DSR and other related forms.

c. Know the current methods of cost estimation and prevailing unit prices for labor, equipment, and materials used in the affected area and have appropriate references available for use in preparing DSRs.

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g. Report to the FEMA Disaster Field Office as requested;

h. Attend FEMA briefing for inspectors;

i. Arrange and follow schedule for visiting involved applicants in coordination with FEMA and the Governor’s Authorized Representative;

j. Visit each site of damaged facilities and review applicable records, to determine and document the extent of damage, the scope of eligible work, and the estimated cost of such work.

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k. When restoration of a facility damaged by a major disaster involves significant upgrading based on codes and standards, current at the time of occurrence of the major disaster, obtain a copy of the applicable standards to be submitted with the DSR, and verify consistent application of such standards by the applicant prior to the major disaster.

3-5. Preparation of Damage Survey Reports. Each Federal/State inspection team should:

a. Identify the damaged facility and describe the extent of damage in terms of its existing structural components.

b. Specifically define the scope of eligible work and clearly indicate the reasonable costs of eligible work. Know the difference between force account work and contract work and the manner in which to estimate for each; clearly specify the basis upon which the estimate was prepared.

c. For eligible emergency work, consider the various methods of performing such work and select the one which attains an optimum mix of speed, economy, utility, and safety. If the work is in process or has been completed by the applicant, evaluate his/her method for suitability to the circumstances.

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e. Record the scope of eligible work specifically and clearly, using pictures and/or sketches. Provide quantitative measures of the work to be performed and break down cost estimates to show pertinent details such as labor or equipment rates, or hours of work, quantities of materials and components, etc. Consider whether or not sufficient information has been recorded to permit others to review the DSR and obtain a clear picture of what work is considered to be eligible under PL 93-288.

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3-6. Submissions and Resurveys. The Federal agency in charge of each team of Federal and State Inspectors will review and submit completed DSRs to the RD or his representative. A FEMA official will review each DSR for completeness, accuracy, and general eligibility, and then initial the report. The RD will return reports which he finds to be unacceptable to the appropriate Federal agency for the inspecting team for additional information or resurvey. Such resurvey or revision must be made and resubmitted as soon as possible. In cases where the State or local Inspectors do not concur with the findings of the Federal Inspector, they should submit their comments on an attachment to the Damage Survey Report.

3-7. Importance of Damage Survey Reports.

a. General. Federal, State and local Inspectors should make every effort to provide clear and concise Federal Damage Survey Reports (DSR). These reports form the basis for the determination by the Regional Director of eligible work by approval or denial of specific line items in a project application (Appendix K). It should be emphasized that these DSRs do not constitute any approval of work or commitment of Federal funds. Federal Inspectors shall inform applicants that written approval of a project application is required to determine the scope of eligible work and to obligate Federal funds. The DSR should be complete and should provide a specific statement of the extent of damages, a complete description of the damaged facility, a statement of the scope of eligible work, and a detailed estimate of the reasonable cost of eligible work. Since flexible funding under Section 402(f) or any small project grant under Section 419 of the Act will be based on Government estimates, the reliability and validity of the DSR is of major importance (See Appendix D). The damage survey reports for emergency work must be expedited to enable the Regional Director to approve such work as soon as possible. DSRs for permanent work may be completed concurrently with those for emergency work, or when authorized by FEMA, the DSR for permanent work may be given lower priority than for emergency work. For some damaged permanent facilities, extensive engineering, and administrative work may be required to complete the DSR properly.

b. Responsibility. In preparing a DSR, the Federal Inspector must recognize that his recommendation is his best estimate of work for which the Federal Government can provide reimbursement under the Act. His responsibilities for effective response to FEMA in this work are just as great as his responsibilities to his own agency under any other program. Maximum use of photographs, maps, drawings, etc., should be included as part of the report to provide complete documentation and description. The DSR is considered to be a professional engineering report and recommendation, and should be representative of acceptable engineering practices and agency expertise.

(Exhibit P-3A at pp. “3-1”—“3-5”). Handbook DR & R2 also provided a DSR form which notes that “[c]ost estimates must be realistic.” (Id. at p. “D-2”).

Handbook DR & R 15 contained guidelines for the removal of debris. This Handbook also referred to estimates of debris and provided:

b. Development of the Project Estimate.

Procedures for developing the project estimate can be subdivided into two steps. First, preparation of a qualitative and quantitative estimate for contracting purposes and second, preparation of the government cost estimate for management purposes.

Let’s begin with the quantitative and qualitative estimate of debris to be moved.. This estimate is extremely important in order to clearly identify to contractors the scope of work which they are being asked to perform. This estimate will also be of assistance in preparation of project cost data.

* * * * *

The volume of debris can be approximated by an estimate of length, width, and depth of the material in question. The amount of material to be removed and the accuracy desired in the estimate will determine the procedures used for this volume measurement. On a large scale disaster, an approximate quantity estimate may be derived by marking the area on a scaled map and approximating an average depth. When developing quantity estimates inspectors should be instructed to note the type and location of the debris.

After the quantity, location and nature of the debris within the project area has been established the next step is to develop unit cost data. Several sources exist which may assist in determining the proper unit price to be used once the project scope has been defined, the type contract selected, and the units established.

* # * * * *

The development of a unit price includes many variables. Factors that influence the unit cost are: (1) types of debris, (2) method of removal, (3) distance to the disposal site, (4) routes to the disposal site, (5) permitting requirements, and (6) work site limitations. In their cost estimate, inspectors should address all items to be included in the scope of work. These items will include the actual work which may be required to accomplish the specific tasks. For example: If a damaged building is to be demolished and that building is located next to a main waterline serving the city, an indirect cost of the project would be protection of the line while the building is being demolished.

The individual performing the cost estimate must put himself in the place of the contractor who is being asked to submit a price for the work. This is very important in a disaster situation where there may be a large variety of factors which will affect the contractor’s pricing.

(Exhibit P-3C at pp. “4-4”-“4-6”). The “Foreword” to this handbook stated that it was “designed to provide guidance to community leaders in mobilizing, organizing, and controlling a large scale debris removal operation” and that FEMA “developed this guide to managing debris removal operations as a public service.” (Id. at unmarked p. 4).

Hall examined Exhibits P-8, P-9, and P-10 and admitted that they were compilations of the DSR’s. Exhibit P-8 is entitled “Preliminary Estimate”—“Quantities of Hurricane Elena Debris and Wreckage” and provided in pertinent part:

The quantities of Hurricane Elena debris and wreckage set forth in the Debris Removal Sites listed below are preliminary estimates derived by damage survey teams and should be considered accurate only for preliminary debris removal planning purposes. The federal, state and local governments make no representation as to the accuracy of these estimates. Each contractor submitting a bid for debris removal shall make his own estimate of the quantity of debris to be removed and the cost of removal.

ESTIMATED QUANTITIES—CUBIC YARDS Pascagoula Sites:

PI 32,360

P2 14,980

P3

P4 8,020

P5 5,230

P6

Ocean Springs Sites:

051 16,000

052 32.000

053 24.000

Total 72.000

Quantities will be added as they become available. The latest estimates are available from the Jackson County Planning Commission.

(Exhibit P-8). Exhibit P-9 contains the identical language that is contained within Exhibit P-8 but some of the figures were filled in. The pertinent alterations to the Pascagoula sites included: “P3 — 13,440”; “P6 — 13,330”; and the total, “87,360.” (Exhibit P-9). Like Exhibit P-9, Exhibit P-10 contains the same language as Exhibit P-8 but Exhibit P-10 has updated amounts for some areas in Pascagoula: “P3 — 43,000,” “P4 — 16,000”, and the total, “124,900.” (Exhibit P-10).

Wayne Fletcher, Johnny Smith, and Boyce Childs testified that Exhibits P-8 and P-9 were passed out by local authorities. They remembered receiving P-8 with the initial bid package and P-9 prior to the second bid opening. According to Smith and Fletcher, they received a copy of P-10 a few days after the second bid opening. Childs concurred that he did not receive P-10 until after the second bid was accepted. Smith insisted that he relied upon Exhibit P-9 in formulating his bid despite the warnings because he understood from the meetings and newspaper articles that FEMA officials would not pay more than $4.00 per cubic yard times their estimates.

Jim Williams, Administrator for Jackson County, stated that all of the estimates, Exhibits P-8, P-9, and P-10, were made available to the contractors before the opening of the second round of bids. Lewis Guirola, Attorney for Jackson County, agreed that Exhibits P-8 and P-9 were available prior to the opening of the second bids but was not sure about P-10. Roger Clark of the Jackson County Planning Commission stated that all of the estimates, P-8, P-9, and P-10, were available in his office. Guirola also testified that he and his engineers considered the estimates in P-8, P-9, and P-10 to be unreliable.

Oscar Jordan testified that he has been the city attorney for Ocean Springs since 1981. He further stated that he was not involved in the preparation of estimates and that Gene Copeland handled that responsibility for Ocean Springs. At trial, no party was able to locate Copeland. Charles Fulghum, city manager for Pascagoula from 1977-1986, admitted that the City relied heavily upon the FEMA personnel for the debris estimates. Fulghum also stated that he was never concerned about accuracy of the debris estimates because the contractors were told throughout the bidding process that they should be responsible for their own estimates and they should not rely on the FEMA estimates. He explained that the County Planning Commission was compiling the estimates and making them available. John Engel, Public Works Director for Pascagoula, testified that the contractors were never told to rely on the FEMA estimates.

Schneider admitted that P-8, P-9, and P-10 were a collection of the amounts from the DSRs for those areas. Both Schneider and Hall insisted that these “Preliminary Estimates” were not assembled by FEMA personnel. Schneider and Hall also said neither they or any FEMA personnel distributed the estimates. Hall said that he would have advised the local officials that they should not pass out copies of the estimates but that there was no prohibition on their publication. Hall also admitted that Schneider may have informed him of the publication of the estimates after they were released. Hall and Schneider stated that their only concern was that the estimates should be made available to all of the contractors so no one contractor received an advantage in making his bid. Melvin Mitchell, Pascagoula city attorney, said he was not concerned about the release of the estimates because they contained warnings. Schneider explained the local officials thought the estimates should be published to permit smaller contractors to bid on individual areas. Hall admitted that he did nothing to assure that all contractors received all of the estimates.

Engel stated that he drove down most of the streets in his City and discovered that the debris in Areas 3 and 4 of Pascagoula was underestimated. He recommended that these two areas be re-surveyed. Exhibits P-7 and P-10 reflect that the debris for Areas 3 and 4 in Pascagoula were increased from 13,440 cubic yards to 43,000 cubic yards (for Area “P3”) and increased from 8,020 to 16,000 cubic yards (for Area “P4”). Engel testified that these were the only two areas in which the FEMA estimates were unsatisfactory.

Schneider verified that he was informed of Engel’s complaints about the estimates on Areas 3 and 4 around September 12 or 13, 1985. Schneider said that the results from the resurvey did not cause him to question the amounts for the other areas because Engel felt the other estimates were reasonable. Bondurant stated that he performed a re-survey in Biloxi and one in Pascagoula.

Jordan testified that Copeland participated in a second drive around Ocean Springs to check the estimates of debris yardage. Fulghum recalled that Engel requested that two areas in Pascagoula be resurveyed because Engel felt the estimates inadequately reflected the amount of debris in those two areas.

V. The Preparation of the Contract

Melvin Mitchell testified that he, the local officials, local engineers, and the entities’ attorneys assembled on the Saturday after Hurricane Elena to draft the contracts. Melvin Mitchell declared that no FEMA personnel attended this meeting. Lewis Guirola was the Jackson County Board'of Supervisors’ Attorney in 1985 and he stated that this meeting occurred at the Emergency Operations Center in Jackson County. He and Melvin Mitchell testified that they formulated the contract which provided for the debris removal. Guirola said that there was a unified effort because they all wanted to get the lowest bids and because there was no use in developing separate contracts for each entity. Guirola and Melvin Mitchell testified that their engineers' specifications were considered but that the contract was drafted from “scratch,” mainly using contracts previously drafted by Melvin Mitchell as models. They admitted that they ignored the model contract contained in the handbook.

Guirola and Melvin Mitchell also testified that they decided to use a lump-sum contract because of problems that developed during the removal of debris following Hurricane Frederick in 1979. They said that during the Frederick cleanup, the local officials had discovered that a unit price contract (i.e., contractor paid by amount of debris removed) was impossible to monitor and that there was a substantial amount of abuse and fraud. Melvin Mitchell and Guirola stated that they designed the contract so that the local officials would not have to be concerned with monitoring the removal of debris. Guirola said that, then, he and Melvin Mitchell drafted the contract but never submitted it to FEMA for their review and he did not think FEMA reviewed the contract. After examining the contracts between the plaintiff and the Cities, Guirola stated that there was not substantive difference between the Pascagoula contract (Exhibit P-18) and the Ocean Springs contract (Exhibit P-19).

According to Schneider, he conducted an initial meeting with local officials in Jackson County in order to discuss FEMA, the debris removal process, and the different types of contracts which the local officials could use to contract for the removal of debris. Handbook DR & R 15 provided:

A lump sum contract is suited for all work within prescribed boundaries or for building demolition contracts where the scope of work may be clearly defined.

As mentioned before the Lump Sum Contract should be used only when the scope of work is clearly defined and the areas of work can be specifically quantified.

(Exhibit P-3c at pp. “4-7”-“4-9”). This handbook also contained a model lump-sum contract as Appendix F. Schneider explained that the handbook simply contained non-mandatory guidelines and a general form contract which the local officials could use as a guide. He insisted that the officials had already decided to use a lump-sum contract and that he did not actually see the contract until he was travelling to the first pre-bid conference. Hall admitted that Handbook DR & R 15 (Exhibit P-3c) did indicate that lump-sum contracts should only be used where there is a clear scope of work but he insisted the scope of work in the removal of debris after Elena was clear. Hall and Schneider said that the local officials had been given a copy of the handbook on debris removal.

After reviewing Exhibit P-3c entitled “DR & R 15,” Hall admitted that this was the handbook which contained the guidelines for local officials for the removal of debris. Hall admitted that he did not review the local contracts to determine whether or not they complied with the handbook but he was sure that Schneider did. Hall insisted that he knows of no regulation or other prohibition on the use of lump-sum contracts for the removal of debris.

Schneider noted that the local officials had voiced concerns about the problems they had with the debris removal contracts after Hurricane Frederick. He said that because the local officials had administered unit price contracts, he had to explain very little about them but they did discuss the difficulties with monitoring such contracts. Hall noted that the Jackson County officials had decided from the outset to use a lump-sum contract for the removal of the debris due to problems that had arisen during the Hurricane Frederick cleanup (i.e., monitoring of the yardage under the unit price contract). Schneider indicated that his only involvement with the preparation of the contract was to explain to Melvin Mitchell the FEMA requirement that local contractors be given preference over nonresident contractors. According to Hall, the local officials developed the contracts that they used and he had not been consulted by them. Hall knew that the local officials in Jackson County had had problems administering the unit price contract after Hurricane Frederick.

Jordan testified that his first involvement with the debris removal efforts of Ocean Springs after Hurricane Elena occurred when city officials contacted him to inform him that there would be a concentrated effort to draft a lump-sum contract. Jordan stated that these officials directed him to attend a meeting at the Jackson County Planning Commission on the Saturday following the hurricane. He indicated that at this time, his information was primarily coming from Mayor Chester McPhearson. He insisted that he was not involved in a discussion as to what type of the contract they were going to use. He stated that when he became involved in reviewing the proposed contract, there was a clear understanding that a lump-sum contract would be used by the county and all cities located therein. Jordan also admitted that he did not have Handbook DR & R 1 or Handbook DR & R 15 or use them when he prepared the Ocean Springs contract (Exhibit P-19). According to Jordan, Guirola and Melvin Mitchell had performed preliminary work on the contract when he became involved with its preparation. Jordan admitted that he simply reviewed the document already drafted and the final version may have included some of his input. He denied knowing the extent of FEMA’s involvement in the contract preparation. After examining Exhibit P-19, he admitted that it was the Ocean Springs debris removal contract. Jordan also stated that he thought the contract required the contractor to remove all debris within the city which was on the right-of-way or adjacent thereto. Charles Fulghum explained that he was responsible for all of the City’s administration—i.e., hiring, firing, and personnel management. He also indicated that he attended the initial meeting with FEMA personnel after Hurricane Elena. He said that Roger Clark, Jackson County Planning Commission Director, or Jim Williams, Jackson County Administrator, would have conducted this meeting. According to Fulghum, they discussed the option of using a lump-sum contract or unit price contract. He insisted the everyone at this meeting had a general tendency towards the lump-sum contract. He denied that a decision was reached on their choice of contracts at this meeting but admitted that it was a general understanding. Fulghum stated that FEMA officials encouraged the use of lump-sum contract. He testified that everyone recalled the difficulties with the paperwork and monitoring of the unit price contract after Hurricane Frederick. He said that he had decided that the lump-sum contract would be the better option. Fulghum admitted that at the first meeting, no one knew how much debris would need to be removed. He stated that the attorneys had a handbook to use as a guideline to assure they stayed within the regulations and that he had reviewed the handbook. Fulghum also noted that FEMA reviewed the proposed contract but did not make any changes.

VI. The First Bids

Fridge Construction Company, Inc., and Johnny Smith Truck and Dragline Service, Inc., became a joint venture to allow Smith to take advantage of a federal practice which directs local officials to award bids to local bidders whenever their bids are within ten percent of a lower bid of a nonresident. Wayne Fletcher testified that he had worked for Johnny Smith Trucking for 15 years and his position in 1985 was comptroller and corporate secretary. He said that he had previously assisted Smith in preparing a bid for the removal of debris in Houston after a hurricane had struck that area. Johnny Smith testified that his company does general contracting work including site preparation, levee building, site cleaning, and hauling of debris. He said his past experience involving the removal of debris included Hurricane Camille in 1969, Hurricane Alecia in Houston in 1983, Indiana tornadoes, Corpus Christi hurricane, and the Pearl River County, Mississippi tornadoes in 1970.

Fletcher said that after Elena struck the Mississippi coast, he and Smith decided to have employees with previous debris removal experience (including Boyce Childs) assist them in estimating the quantity of debris and calculating their bids. Fletcher insisted that the estimating process began immediately after they received the bid package on September 6, 1985, and continued for four days. Fletcher admitted that he had seen Exhibit P-8 before he and Smith calculated the first bid but they did not rely upon this estimate. He said that they used a figure of approximately $4.00 per yard multiplied by their estimates. Fletcher explained that their cost for the Elena bids was higher than the Houston bids because they had to supply their own dump site and the cost for Pascagoula was higher because the debris was more difficult to remove there. He admitted that he and Childs recommended a unit price but that it was Smith’s final decision. Fletcher pointed out that each contractor was required to bid on the 21 areas individually.

Boyce Childs testified that he had worked in the debris removal efforts after Hurricane Frederick in Mississippi in 1979 and after Hurricane Alecia in Houston in 1983. Childs stated that he assisted the plaintiff in its calculation of the bids for both Houston and Elena. Childs stated that he obtained the bid package for the Elena cleanup for the Jackson County Planning Commission office and it contained maps of the divided areas.

Childs, Fletcher, and Smith testified that they calculated their bid on each area individually and that it was $3.50 per cubic yard for Ocean Springs and $4.00 per cubic yard for Pascagoula. According to Smith, in preparing his bid, a contractor should consider the amount of debris, his bonding capacity, his dump site’s availability and cost, and his transportation time and costs. Smith admitted that as compared to the FEMA and local officials, he was more knowledgeable on all of those factors except the amount of debris. Fletcher and Smith testified that they submitted their bids for all of the areas in Jackson County, Ocean Springs and Pascagoula. They said they had estimated approximately 127,000 cubic yards of debris in Ocean Springs and 250,000 cubic yards for Pascagoula when they proposed their first bid.

Fletcher testified that the bids were read aloud on the morning of September 10, 1985. According to Fletcher, city, county, and FEMA officials conducted a meeting that afternoon. Fletcher said that Melvin Mitchell, Guirola, and Schneider definitely attended this meeting. Fletcher insisted that Schneider explained that all of the bids were rejected because they were too high. He then stated that Schneider told the contractors that the contractors were not experts (they did not know what they were doing) and he instructed the contractors to use the published estimates (Exhibits P-8 and P-9). When cross-examined, Fletcher admitted that he had previously stated in an affidavit that Guirola had made the statements concerning FEMA’s expertise on estimates of debris.

Childs stated that he had attended the meeting where their first bids were rejected and that Melvin Mitchell, Guirola, Fulghum, Copeland, and FEMA officials also attended it. He then said that either Guirola or Melvin Mitchell announced that the bids were too high and that the FEMA personnel were experts so their estimates should be relied upon. Smith testified that the bids were first read aloud and then later rejected as being too high. He admitted that Guirola ran the meeting but he stated that Schneider also spoke at this meeting. According to Smith, all of the officials, including Guirola and Schneider informed the contractors that they did not know what they were doing and that FEMA estimates should be used because FEMA’s personnel are experts. David Mitchell, an employee of Smith, testified that the bids were opened and read aloud in the morning and that the bids were rejected that afternoon. He also testified that the officials informed the contractors the bids were outrageously high and they would continue to reject the bids until the bids were more in line with the FEMA estimates.

Jim Williams testified that he attended the meeting at which the first bids were rejected and that no one represented the accuracy of the estimates to the contractors. Guirola admitted that he was the spokesman at all of the meetings with the contractors. He said he conducted the bid opening meeting from the stage of the auditorium of the Community College in Gautier, Mississippi and on September 10, 1985, he stated that he read the bids aloud and told the contractors they would take the bids under advisement.

Everyone, including Guirola, admitted that Exhibit P-11 was a compilation of all of the bids on each of the areas in Jackson County and all legal entities located therein. According to Guirola, that night, he, Melvin Mitchell, and the city administrator met to discuss their options. Guirola said that all of the local officials considered the bids high. He admitted that the primary factor in their evaluation of the bids was the amount of estimated cubic yards for each area (as estimated on Exhibit P-8 and P-9) multiplied by the $4.00 per cubic yard figure. Guirola also admitted that even though the contractors’ estimates were more reliable than the FEMA estimates, they did not use the contractors estimates to evaluate the bids. He stated that they would have accepted a bid if it had been within the figure arrived at by multiplying $4.00 per cubic yard by the FEMA estimates. Guirola then said that, after discussing their options, the local officials agreed to reject all of the bids and accept bids based on whole cities and the eastern and western parts of Jackson County. At this time, Guirola said Moss Point decided to use its own personnel to remove debris. Guirola does not remember any FEMA officials attending this meeting.

Hall testified that he did not attend the meeting at which the first round of bids were rejected. He also admitted that it would not have been unusual for someone to inform the contractors the reason for the rejections or to schedule a second round of bids three days later. Hall explained that due to the emergency situation (some streets were blocked by debris), they would have attempted to get a contract and remove the debris as fast as possible. He also insisted that he never informed the local officials the reimbursement amount was limited to $4.00 per cubic yard multiplied by the FEMA estimates. Hall said that after the bids were rejected, he met with them because they were considering a request of military assistance. He stated that at this meeting, he informed them of the prerequisites for military intervention and informed them that the $4.00 per cubic yard was not a limit. He insisted that several variables would have been considered in determining what exactly was a reasonable cost and that it would have been in the $2.50 to $6.00 range. Hall testified that Schneider informed him the first bids were rejected because they were too high but he did not remember the basis for that conclusion.

Schneider testified that he was present when the first bids were read aloud. He said a few minutes later, he attended a meeting involving the local officials in the stairwell. Schneider stated everyone agreed that the bids were unreasonably high. He claimed that no one said the contractors did not know what they were doing or that the FEMA estimates should be relied upon. He denied ever telling the officials that FEMA would not pay more than $4.00 per cubic yard. Schneider further stated that he never told the officials that FEMA would not reimburse the local officials if they accepted the first bids since no one asked him to accept them. He also insisted that FEMA had paid more than $4.00 per cubic yard in the past and that he explained to some officials from Moss Point that FEMA would consider any amount within 30 percent of $4.00 per cubic yard to be reasonable. Schneider also asserted that the local officials felt the bids were unreasonable and that he did not give them advice. He also denied knowing that the estimates were inaccurate and since Moss Point had no problem removing their debris, he believed the estimates were accurate. Roger Clark agreed that Guirola conducted the meetings. He also insisted that no one directed the contractors to disregard their own estimates and use the FEMA estimates to calculate their bids. Clark further stated that the FEMA officials did not limit their reimbursement to $4.00 per cubic, yard multiplied by the FEMA estimates. He testified that the FEMA yardage estimates were not necessarily used in rejecting the bids. Melvin Mitchell testified that no one ever stated the FEMA officials should be relied upon. He said the bids were rejected simply because they were too high but that no FEMA official .ever told them that FEMA would not pay more than $4.00 per yard. “Circular A-102 (Rev.)” was entitled “Uniform Requirements For Assistance To State and Local Governments” and provided:

Procurement under grants shall be made by one of the following methods, as described herein: (a) small purchase procedures; (b) competitive sealed bids (formal advertising); (c) competitive negotiation; (d) noncompetitive negotiation.

* * „ * * * *

b. In competitive sealed bids (formal advertising), sealed bids are publicly solicited and a firm-fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose invitation of bids, is lowest in price.

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(2) If formal advertising is used for a procurement under a grant the following requirements shall apply:

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(e) Any or all bids may be rejected when there are sound documented business reasons in the best interest of the program.

(Exhibit P-3e at pp. “0-7”-“0-8”). Hall testified that the sound documented business decision for rejecting the first bids was that they were unreasonably high.

Jordan testified that he did not attend the first bid opening or rejection and that he did not participate in the evaluation of the bids. He stated that he had heard that the bids were too high. Jordan also indicated that he did remember FEMA officials insisting on a bid at $4.00 per cubic yard. Fulghum stated that he did attend the bid opening at the Jackson County Junior College and that Melvin Mitchell, Clark, Williams, Schneider, and other officials were present. He also testified that he did not remember anyone stating that FEMA would not pay more than $4.00 per cubic yard. Fulghum said the bids were read aloud and someone else wrote them down. According to Fulghum, they told the group they would be informed later if the bids were accepted. He said afterwards all of the local officials discussed the bids and agreed that they were unreasonably high— that is, much higher than he and Melvin Mitchell had anticipated. He admitted that they thought bids should have been around $4.00 per yard but that the FEMA officials did not limit their payment to $4.00 per yard. Fulghum stated that Schneider strongly recommended that the officials not accept the first bids. Fulghum also explained that they knew the bids were much higher than $4.00 per yard because they divided the bids by the FEMA-Statelocal survey team estimates. He said that he then met with the Pascagoula City Counsel who rejected the bids and that Melvin Mitchell probably informed the contractors.

VII. The Second Bids, Contract Award, and Execution

On September 12, 1985, the second prebid conference was conducted. Guirola said they announced that bids based on entire cities and on east or west county zones would be considered. He also stated that they were questioned again about the FEMA estimates (on the amount of debris) and Guirola informed them that the FEMA estimates were unreliable and should not be used in calculating their bids. He further insisted that FEMA personnel did not participate in the discussion and were not on stage at the second pre-bid conference.

Smith and Fletcher testified that because the officials said the contractor estimates were inaccurate and because they had to submit their bids within a couple of days, they based their second round of bids upon the FEMA estimates (Exhibits P-8 and P-9). Fletcher, Smith, and Childs testified that their second bids were calculated by multiplying their costs per cubic yard times the FEMA estimates. Exhibit P-15 was a compilation of the second round of bids. It revealed that the plaintiffs bid was $341,-404.80 for Pascagoula and $246,400 for Ocean Springs. The yardage figures on Exhibit P-11 mirror the yardage totals for each of the areas on Exhibit P-10. However, the plaintiff did not submit the lowest bids for the areas in the non-incorporated areas of Jackson County. The plaintiffs lower bids in the second round of bidding were approximately 70% lower for Pascagoula and 50% lower for Ocean Springs.

Fletcher stated that they did not have Exhibit P-10 when they prepared their second bid and that they would have used it to calculate the second bid. Exhibit P-10 indicated that there was 50% more debris in Pascagoula than Exhibit P-9 did. Fletcher and Childs admitted that they advised Smith of rumors of a change in the estimates after they had submitted their second bid but before it had been accepted. Childs testified that after their first bids were rejected, he re-examined some of the areas in Pascagoula but that they ended up calculating their bid by multiplying $3.90 per yard for Pascagoula and $3.42 per yard for Ocean Springs by the FEMA estimates on Exhibits P-8 and P-9. Childs did not remember checking with the Planning Office to see if there were new estimates before they submitted the second bids. Exhibit P-15 indicated that the next closest bid to the plaintiff’s bid in the second round was $77,000 higher for Pascagoula and $31,000 higher for Ocean Springs.

Jordan stated that he attended the opening of the second round of bids. He remembered that the plaintiff was the low bidder for both Ocean Springs and Pascagoula. Fulghum said the second group of bids were read aloud and someone compiled them. He stated that the plaintiff was the low bidder for Pascagoula and Ocean Springs. Fulghum said that the next step was for them to present the bid to the City Counsel who then approved the bid.

Smith and Fletcher testified that they attended another meeting wherein the bids were read aloud. According to them, a short while later their bids were accepted for Ocean Springs and Pascagoula. Fletcher stated that a meeting was held later that day in which the contracts were to be executed. Fletcher, Childs, and Smith testified that they mentioned the rumors of new estimates, but Melvin Mitchell said they should not worry because the city would “work with” the plaintiff in order to get the work done. Melvin Mitchell admitted that he could have said they would work with the plaintiff but that he simply meant the city would cooperate with the plaintiff’s performance. He also said that he did not remember whether or not the contractor questioned him about the estimates but he does reinember that everyone was happy.

When cross-examined, Fletcher admitted that he had some experience in working under a lump-sum contract, that plaintiff had performed larger contracts, and that there was no reason for the Cities to have been concerned that the plaintiff could not perform the contract. Smith testified that he has 25 years of contracting experience and that he has dealt with subcontractors and contracts before. He also admitted that he understood the differences between a lump-sum contract and a unit price contract. He explained that the owner usually has a representative verify the amounts hauled under a unit price contract. James Adams, a contractor who bid on the Elena debris removal contracts, testified that he never relied upon the FEMA estimates because when he bids a job, he bases the bid upon his own estimates. Adams said his second bid was lower than his first bid because he found that there were some private individuals and organizations removing debris. The second bid opening was held three days after the first bid opening. Fulghum said that there was a great deal of pressure on the Cities to get the debris removed because there were large amounts of debris blocking parts of some streets and the debris was becoming a fire hazard.

VIII. Problems During the Performance of the Contract

Fletcher, Smith, and Childs testified that they experienced several problems during the performances of the debris removal contracts.

A. Excessive Debris

Childs testified that it was his responsibility to manage the debris removal efforts in Pascagoula and Ocean Springs. He said that he had hired several subcontractors to remove the debris. Childs stated that he initially paid these subcontractors for the streets they had cleared based upon the amount of debris FEMA had estimated for those streets. He claimed that these people began quitting because they were having to remove far more debris than was estimated. Childs stated that they eventually began to pay workers an amount per cubic yard of debris that they actually removed, regardless of the FEMA estimates. He also admitted that he requested assistance from Smith and Fletcher because there was so much debris and he was making little progress. Fletcher verified Childs’ description of the problems with the crews. Fletcher and Smith stated that because of Childs’ slow progress, they brought all of their equipment to Ocean Springs to assist in the debris removal efforts.

Fletcher said that he maintained the records of the quantities of debris actually removed from Ocean Springs and Pascagoula. After examining Exhibits P-32, P-33, and P-34, Fletcher and Smith testified that these were the quantities of debris actually removed from Ocean Springs and Pascagoula. These Exhibits revealed that 189,650 cubic yards were removed from Pascagoula and 127,816 cubic yards were removed from Ocean Springs. All three of the preliminary estimates (P-8, P-9, and P-10) indicated that 72,000 cubic yards were estimated for Ocean Springs. Exhibits P-9 revealed that 87,360 cubic yards were estimated for Pascagoula and Exhibit P-10 indicated that there was 124,900 cubic yards of debris in Pascagoula. Childs, Smith and Fletcher, all testified that they used trucks with excessively high side rails and packed the trucks tightly so that approximately 50%-70% more debris was moved than the actual figures indicated. They also said that these excessive amounts of debris (i.e., more than they anticipated since they had reviewed the estimates located on Exhibit P-9) contributed to the delay in their removal of the debris beyond the 30-day period.

David Mitchell testified that he estimated some of the areas for the plaintiff and that there was far more debris on the streets than the estimates indicated. According to David Mitchell, he and a co-worker surveyed area 4 in Pascagoula. He said that he estimated 21,000 cubic yards of debris and his co-worker estimated 18,500 cubic yards while the estimates indicated there were only 8,020 cubic yards. David Mitchell felt that this was not a reasonable deviation. Jim Williams also testified that these estimates were too low and did not account for the debris located in the backyards. Guirola likewise stated that the estimates were considered low and unreliable by him and the county’s engineers.

Hall recalled the meeting that he had with Smith after the debris removal was underway where Smith voiced his complaints of excessive debris. Schneider testified that he did not know the plaintiff was complaining of excessive debris until the plaintiff’s attorney sent a letter to FEMA in October 1985. Schneider testified that the complaints of the contractor did not make him question the accuracy of the estimates because the plaintiff’s calculations were not verified by independent officials. He noted that in a lump-sum contract, the local officials do not have a reason to check the amount of debris being removed. Bondurant and Engel stated except for the areas that Engel requested be re-surveyed, they had no complaints about the estimates being too low and they felt that the estimates were reasonable. James Adams testified that when he conducted his estimates, he determined that there was more debris than the published estimates indicated.

B. Non-Hurricane Debris

Fletcher, Childs, and Smith stated that 20% of the debris that was removed from Pascagoula and 30% of the debris removed from Ocean Springs was non-hurricane debris. Exhibits P-23 and P-24 were introduced which verify that the plaintiff claimed those amounts of non-hurricane debris in October 1985.

Fletcher stated that as soon as they started seeing non-hurricane debris, he and Childs met with city officials (including Melvin Mitchell) and FEMA officials to inform them of the problem. After examining the contracts, Fletcher said that he considered “hurricane debris” to be limited to items actually damaged by the hurricane. According to Fletcher, there were old refrigerators, old furniture, and recently-cut trees in the piles by the roads. Fletcher said they responded to his verbal complaints by telling him to pick up everything on the street. Childs testified that as soon as they started removing debris, they discovered non-hurricane debris—e.g., paint cans, toilets, live pecan trees—which were cleared from an orchard, and tractor tires from a store which had been destroyed by fire before Hurricane Elena. Childs insisted that he voiced his complaints to Bondurant and Melvin Mitchell as representatives for FEMA and the City, respectively.

Smith reviewed the contracts (Exhibits P-18 and P-19) and testified that he thought hurricane debris had to be storm caused or related. Smith said that he witnessed the clearing of four lots of trees within a subdivision which were placed by the street. He also insisted that he showed this problem to city and FEMA officials. Smith claimed the non-hurricane debris included kitchen sinks, barbecue pits, shoes, and footballs. Smith admitted that the problem with non-hurricane debris was not significant. David Mitchell stated that he saw private tree services removing live trees and placing them along the streets.

Hall admitted that Smith may have complained to him about the problem of non-hurricane debris such as live trees (because he remembers there was some removal of live trees) but he denied ever hearing complaints about old appliances or furniture. Bondurant stated that he had never heard of any problems concerning the forced removal of non-hurricane debris. He also explained that the “green” tree limbs and trees were probably caused to lean by the storm and were cut for safety reasons. Melvin Mitchell stated that he was not informed of any complaints concerning n