Planning Ahead: Disaster Preparedness for Public Entities

Frank Russo (00:09):
Welcome everyone, back to another episode of Imperium's Risk Brief Podcast, where we tackle challenges around insurance, disaster response, FEMA and other types of claims issues for our clients. My name's Frank Russo, and I'm Managing Director of Imperium based out of New York, and I'm very excited to have two special guests join us today around the topic of public entities and how public entities specifically deal with disasters, whether it's fires, floods, hurricanes, and how they plan for and respond to those disasters. Two really great guests that are joining us today, I have Jim Wills. Jim, say hi to the group.

Jim Wills (00:44):
Hi everyone. Thanks for having us.

Frank Russo (00:46):
And Joseph Mascali. Hey, Joe.

Joe Mascali (00:48):
Hey, Frank. Happy to be here. Thanks for having me.

Frank Russo (00:52):
Absolutely. Thank you guys for joining. We, the three of us, have been involved in working together in different capacities around such disasters for over, many cases over 20 years. I'll let Jim and Joe describe their firms, but to frame the topic, it's an important topic, when you start to think back of the frequency of these types of disasters. I found a pretty interesting statistic that says since 2003, there's been over 2,500 events in the United States that have risen to the classification of a federally declared disaster, which triggers FEMA and other types of responses. If you think about that, that's one such event every three days for the better part of 20 years. For the audience that's in the industry, you know that those events are not getting less expensive. The value of those events continue to increase exponentially, so it is something that is happening much more frequently. We see, again, in our experience, clients dealing with those challenges in different capacities. Hopefully they're not one of those organizations that deal with those types of events that frequently, but either they're dealing with them themselves or they're seeing their peers deal with the same. It's always really good to be prepared for such challenges. So around that overall framing of the conversation, I want to kick off by asking Jim my first question. Jim, first of all, tell us about yourself, and tell us about your recommendations on how such public entities should deal with such catastrophes from a planning and response perspective.

Jim Wills (02:17):
Here, Frank, appreciate it. Gilbane Building Company has formed a group called GRS Disaster Response, and it was really out of the need to serve our clients better at Gilbane, but we're finding that there's a real need in the industry for a true builder in that space. I've been doing this, and Frank, you're going to make me feel real old here, but probably over 40 years now, and we've spoke together over the years and worked some projects together. But I think what we see all the time, and the three elements I think every public entity should be aware of is one, and I'm going to say insurance. Not to be funny, but most of the time everybody's insured, but they don't know what type of insurance they have, what their limits are, what their gaps of coverage are. A lot of times we find that going in, they should have an up-to-date emergency operations plan, but many times it's outdated. People have left, they don't have clearly defined rules of who's in charge. A lot of times the mistake is made that the person that runs the public entity is also running the loss, and that's not always the case and probably shouldn't be the case.

Communication protocols, when you hear about a public entity, a school getting in trouble or making the news, it's usually because something failed in the communication protocols. Even things like active shooter, should they shelter in place, should they not? Where's the muster point that people should go to? Those things should be done and planned ahead of time. Prearranged mutual aid agreements and vendor contracts is another important part of that. I think the mutual aid agreements where maybe an East Coast town in Florida has an agreement with somebody on the West Coast where they share equipment and share resources. As far as vendor contracts, a lot of that should be done in place. I think what we see happening most of the time is the vendor relationships they have are from their very local community that they live and operate in, which makes sense. But when a CAT event, like a hurricane, fortunately we're free from Erin as it's headed out to sea at this point. Well, when an event like that happens locally, those local resources and vendors such as mitigation companies who stabilize pump and power generation, electrical and structural engineers, industrial hygienists, all those different vendors may have to have outside resources brought in to really support that. I think the biggest mistake we see is those vendors many times are operating independently, and somebody needs to be working so that they work succinctly together. A lot of times they're all doing their own independent job if you will, but there's nobody putting the whole thing together to bring it to a close sooner, reducing that business interruption time.

Frank Russo (04:55):
Yes, that's a really interesting point or points that you made there, Jim. You had me reflecting in some of the work that we've done together on those scenarios where the organization does have a local, let's say, restoration vendor to help with drying of facilities. They may be a great, good local company, but in that area-wide disaster, how many times have we seen that they're way over their head and the byproduct of not thinking through scope, scale, redundancy is delayed claims, where we sit on the recovery side as the insurance company and rightfully so says, well send us the documentation. We haven't received the documentation. We can't reimburse you. Aside from actually trying to physically prepare and restore the building these local smaller contractors are facing, there's a real big financial impact downstream that we see from that same issue.

Jim Wills (05:43):
Yes, I totally agree, Frank. We just see that there's a lot of time lost when you start with the mitigation, and then you could be going to getting your structural engineers report, working on permitting for reconstruction and things like that. A lot of times that's not flowing very well. There's huge gaps in that process.

Joe Mascali (05:59):
Frank, if I could just chime in for a second, because I think what both you and Jim just outlined is really important, especially in today's context as it relates to the uncertainty of certain federal programs, specifically the FEMA Public Assistance Program. I can imagine a number of the listeners may be public entities or brokers that work quite closely with public entities, and everybody's trying to figure out what the future landscape looks like. As our team and others in the industry provide insight and guidance to the advisory committees that have been set up to try to reframe and revamp the FEMA Public Assistance Program, specifically, the general consensus is that before something happens is really going to become more and more important today, now than ever. Certainly, we could talk about all the statistics. As you mentioned, the frequency of disasters I think is probably a bit surprising to most because we're just used to focusing on those large scale natural disasters that make the news outlets. But there are plenty that aren't as significant as say a hurricane that hits Florida or the recent wildfires that impacted LA so dramatically. In terms of preparation, something that we typically see at frame on the post-disaster side, things that are often missed, is actually having not just the plan but the vendors that are necessary to help execute that plan. Organizations sometimes separate their internal response, which is predicated on resuming their operations, which is first and foremost the most important.

Jim, you touched on school districts specifically, their mission statement is to resume in class learning as quickly and safely as possible for both the students and faculty. There's a number of statistics that show the consequences of not being in classroom environments following COVID, which we've all experienced and still working through and navigating today. They have their missions in terms of how they are going to begin a recovery. Oftentimes the disaster side of it, the recovery that you, Frank and I are experienced in dealing with, is an afterthought. These organizations will have emergency managers. Those emergency managers will be trying to work within the organization to plan for events, but planning for the future sometimes isn't a priority in terms of what organizations are prioritizing in the present moment. Pre-positioning contractors is really important in my opinion. The good thing about pre-positioning contractors is you don't have to use them unless you really need them. In addition to that, structuring your insurance policy I think is going to become more and more important today than maybe it once was, especially for those entities that maybe were leaning on the FEMA Public Assistance Program more and more, just given the traditional response from the federal government. The Trump administration has made it quite clear that they're looking at things a little bit differently. Though things are still in flux, what is likely to change is the responsibility is going to shift, whether that shifts to the states or to the locals, and locals meaning the individual public entities. We would recommend folks work closely with their broker to understand their risk profile and ensure that they have the necessary means to insure their losses, so that they can at least begin their recovery as the dust settles appropriately as the Federal Public Assistance Program continues to be evaluated and reassessed. The message has been quite clear that there will be a shift of priorities. Even if the shift doesn't happen as dramatic as some might think it will, it's always best to take ownership of your recovery. The best way to do that from our personal experience is to identify the necessary resources that could help to mitigate your loss and structure insurance programs or other sources of insurance, whether that be a captive program, a self-insurance program, possibly exploration of parametric insurances, to try to offset initial deductibles, which can be quite high following natural disasters. All of those steps are going to be quite critical and important, especially when folks resume their operations and then they start to try to figure out the reimbursement process for the significant investment in doing so.

Frank Russo (10:31):
Right. Really good information there, Joe. One thing that I was thinking of as you were speaking that I'd like to follow up on is a really important point you made around the changing conditions politically. And again for the audience listening here on the public entity side, when you have a disaster, and you're absolutely right, Joe, they're working and rightfully so, to get their business or organization back up and running. They're not necessarily thinking at least on the front of mind perhaps of all the financial implications. They're getting students back in school, they're getting people back to work in offices, et cetera. But with all respect to our non-public entity clients, it becomes that much more of a challenge because an insurance claim on its own, without any potential FEMA recovery, let's say a non-public organization for example, is super challenging when you get into a large disaster. The policies, the insurance policies, which is different, there's certain limits, there's certain sublimits, claim disputes come down to the interpretation of one specific word, and then you overlay on that what you're saying. The FEMA process itself, as it exists today, is also quite complicated, and now it's also changing. So you really raise a good point on, sorry for our, let's say risk managers and chief financial officers in the public sector that are listening to this, but the reality is you're getting it from all different angles.

So the way to be, I think ahead of that is some of the great points you and Jim are making around pre-loss preparation and having your vendors in place and your relationships in place, is wherever you can be consistent. Since there's so much inconsistency in everything we just said, be consistent. Be consistent with your insurance broker, who can help you navigate what Joseph, you just explained on insurance and how to fill gaps. Be consistent with your recovery vendors like Jim described, have some redundancy in those vendors as well too. As an older person on this podcast, I know certainly over Joe, it really does, in my experience, come down to some relationships at the end of the day. Data I think is really what drives a good reimbursement for a client getting paid what they're owed as quickly as possible, but the relationships that exist. It’s not an unknown dealing with an insurance adjuster for the first time, for example, or not knowing who your restoration vendor is, like those relationships really matter and squeeze down the timeline to recovery. So again, just in reflecting on your comments, Joe, it's seems very much more complicated for a public entity to deal with these disasters in everything that you had just said. But I want to shift gears a little bit. You touched on this a bit already, Joe, but what are some mistakes that you've seen that some of these public entities make with these larger disasters? You did mention the day-to-day stuff, which is also a really important point, but if you could focus on, let's say that big hurricane or that big disaster, what are some mistakes that you think could be avoided for the future for some of those types of clients?

Joe Mascali (13:11):
Frank, the main area that we see specifically on the FEMA public assistance side as it relates to issues, and issues meaning risk of reimbursement, the number one category is procurement. Procurement is how you go about sourcing vendors that support you in your recovery, whether that be the reconstruction, whether that be consultants that help you quantify and present your losses to FEMA. How you go about procuring those vendors is typically the number one audit finding when dealing with public assistance claims. It's not entirely surprising that that's the case because organizations have their own process. A local municipality has its own defined procurement process, it's following state law. But when federal funding is involved, federal procurement requirements apply. So that's 2 CFR Part 200, and that is typically more strict than the local or state procurement requirements. As states get more and more accustomed to disasters, their procurement requirements are becoming more and more in line, but that doesn't mean that they're always in line. Typically we find that organizations will follow their process, but they won't actually follow the 2 CFR Part 200 process, which again, establishes the federal procurement requirements. One of the big examples is you first respond to an emergency, so typically emergency procurements are authorized, meaning that you can circumvent normal typical processes, the biggest one being open and competitive procurement. At some point, the emergency period, in the eyes of FEMA, goes away. At that point, it's necessary to either recompete or reopen the solicitation so that you can ascertain normal market dynamics following the initial disaster response, which creates quite a flurry of activity. Some resources aren't available to respond because they're oversaturated. When the market settles later on, there's an expectation that you go out and you pursue a more traditional solicitation to satisfy that federal procurement requirement. Now, it's important to keep in mind that you would only do that if you're seeking federal reimbursement. If there's situations in which your insurance policy is providing coverage, entities may want to look at the pros and cons of how they proceed on the procurement front. But if you are seeking federal reimbursement, it is a requirement that you have an open and competitive procurement. There are exceptions, these are non-competitive procurement exceptions that are listed in 2 CFR. Certainly if the audience wants to go and take a look at what those are, one of them is sole source. That's often misconstrued I'd say. A sole source provider needs to be justified as truly being the only person. A good example would be somebody that provides a particular piece of high precision medical equipment that holds a patent. They're the only one that can manufacture it, so there's really no alternative in terms of who you can pursue to purchase that particular unit from. That's often sometimes misconstrued by folks, but that is truly one of the bigger things there is, how do you go about from your initial response to a long stage recovery, who are you looking to fund that? If you're looking for the federal government to provide assistance for that, there is an expectation that you go out and you open and competitively bid for those services.

Jim Wills (16:45):
Yes, Joe, you make a great point. I think the other, on the tail end, mistake that is made, and I found this out turning in a bill one time, and I had a school official say, why so much information? Why is this bill so big? It wasn't big in dollars, it was big in support documentation. They went to a back room, pulled out a loss that they had before and showed me the bill. The bill had all sorts of charges, like $380,000 for diesel fuel, a line item, no backup documentation for it. That's where they get in trouble too, is just having that bill put together with all the supporting documentation, so they can actually collect if they are going to an outside source like FEMA. I think it should be prudent right from the beginning during that whole RFP process, that you take a look at what they've done in the past and what their references are and whether they've been able to serve clients well. That really, it speaks to the end, can they actually collect from their insurer or collect from FEMA.

Joe Mascali (17:43):
Jim, to that point, what we touched on previously in terms of how do you prepare, by prepositioning contractors, again, identifying which avenues of recovery you're going to source vendors from, whether it be insurance or FEMA. But certainly on the FEMA side, when you prepare under blue sky environments, you can dictate what the expectations are from those vendors, whether it be documentation to substantiate invoices, whether it be transparent as to what your expectations are. A good example could be, we have the expectation that you respond within 24 to 48 hours. It allows vendors to prepare what they need to on the backend to ensure that the information is flowing appropriately to the insured or public entity in this case, so that they can begin the reimbursement process. The next item that I would've touched on is time and material contracts. That is typically how things are billed from a remediation and restoration standpoint in the early stages of a recovery. The emergency protective measures is how FEMA would define that or their category B work. 2 CFR requires that insureds, public entities, set a ceiling price. Whether that be a purchase order or a contracted cap, a not to exceed, we recognize the conditions on the field may change once you actually get into a school, get into that facility. But it's important to establish that there is effective management because from a federal perspective, a FEMA perspective, there's concern that contractors just show up and they do a lot of things. Those things aren't necessarily required to mitigate, prevent further damages, stop gap the damages that have been sustained and bills are artificially inflated. Having effective contract management specifically on T&M, though that requirement is true for all forms of contracting, but even more importantly on the T&M side, because that is one of the more common findings is that there wasn't proper supervision and oversight. Certainly there are types of entities that actually can help in the management of those services. Those are often program managers that can be retained prior to a loss that actually oversee the remediation work to ensure compliance. This only would help to facilitate the insurance claim and it's a requirement on the FEMA public assistance claim.

Frank Russo (20:17):
Wow, thanks guys. That was a really interesting exchange and some really good information there. So far I think we've been able to learn a lot from the comments you've both provided. I want to end with an overall question on, which we touched on a little bit, but dealing with these disasters, our experience, we're involved in these types of issues every day. Luckily our clients are not, but that's the world that we live in. I'll start with you, Jim. What's one lesson learned, thinking back on a recent event for a public entity, that you wish that public entity leader would've known beforehand that you can offer your advice on?

Jim Wills (20:50):
I think the thing we see all the time is that front end pre-loss planning is time well spent. A lot of times there's a sense of it's not going to happen to me, so why plan? I read something one time and I've never forgot it, it was in Time Magazine, but it was the Director of Emergency Management for King County Seattle, Eric Holdeman. He says, there's really four stages of denial. One, it won't happen. Two, if it does happen, it won't happen to me. Three, if it does happen to me, it won't be that bad, or four, if it happens to me and it's that bad, I couldn't have done anything anyways. I think that the more you can do on the front end and really try to develop a culture of readiness and preparation, it's like looking at safety in a company. It's not something you do and you teach a lesson on safety and then everything's safe. It's really that mindset of what are we doing today, tomorrow and the next day to really plan for events that could happen. I've seen a lot of emergency management books where you look in it and their change management is not very good because vendors change, coverages change, people change within the public entity. I think it's being on top of all that and bringing in some of the points that Joseph made about sourcing vendors, but really doing more of a detailed source of vendors and what's out there, and then create that expectation so that before a loss has started, there's some sort of agreement on scope and a rough order of magnitude of what the cost should be. Then you get some controls from the beginning and you could see it through to the end.

Frank Russo (22:18):
Great. Joe, how about you?

Joe Mascali (22:20):
To add to what Jim was saying in terms of the theme of preparation, which I think is really the message ultimately, and Frank, you touched on certain aspects as it relates to insurance. And again, I think a good topic for a next podcast could be the future landscape of the FEMA Public Assistance Program and we can create a think tank as to what it might look like. But as I alluded to, responsibility is going to shift. So in terms of lessons learned, we find that our clients who understand their insurance policy have either experienced or understand the FEMA public assistance process, pre-position those contractors to execute the recovery. But also something that you noted, which I think is really important for the listeners, is constructing your insurance policy with relationships that you have. Work with your broker, identify the right insurance adjuster, develop a relationship with them, because ultimately we see that our clients that have been most successful have shifted the paradigm a little bit where the expectation is that everybody actually works for them after the recovery. And prioritization, whether it be insurance or FEMA, only helps to facilitate the reimbursement, which is the biggest hurdle that clients need to overcome when the dust settles and things return to normal.

There's this potentially, a shortfall of funding and things are either not documented appropriately or just sitting idle. It’s critical to develop those relationships because we find that when the insured can call the adjuster and that adjuster picks up their phone, or the broker can call the carrier and say, hey, we need to see some resolution on this particular issue. Or the insured has a relationship with their local senator or their local congressman, and they can utilize pressures at the appropriate time to get the right people to the table to try to resolve issues, typically yields to a better outcome. I find sometimes insureds, public entities, may be hesitant to pick up the phone and develop those relationships. Sometimes those relationships really help to pave the way when things aren't working out as smoothly as one would hope for during a recovery.

Frank Russo (24:52):
That's fantastic, Joe and Jim, and recapping on what you said for the audience, I heard a few things, there were a few notes. Plan, plan, plan. Don't be in denial. Stay informed of the changing policies and conditions if you're a public entity, especially with the FEMA program politically. And then relationships matter. Some other good nuggets in there as well, of course, but that's how I would summarize it, the great comments that you guys offered us today on this latest edition of our podcast. I really want to thank you both for joining. It's always great to be working with you guys, and I know I can say this to the audience that we are all available if you're listening to this and you have some follow up questions, you want to kick around some ideas. Like I mentioned earlier, we're in these types of disasters daily. I know I could speak for Jim and Joe, we always like to offer our advice because it could help others that don't deal with this on a daily basis. It's always a nice thing to do to have a phone call with those types of clients that have those follow-up questions. So again, Joe and Jim, thank you so much for joining today. For our listeners, thank you for joining this latest installment of the Imperium Risk Brief Podcast. We have a series of these episodes on our website. You can check them out at ImperiumCG.com. We thank you again for your time. Thanks guys.

Joe Mascali (25:58):
Thank you.

Jim Wills (25:59):
Thank you.