A10b-Justification and Approval - Sole Source - KatRisk LLC 8-6-2020 (WS).pdf

U.S. Department of Homeland Security Washington, DC 20472

Justification for other than Full and Open Competition

Pursuant to FAR 13.5, Simplified Procedures for Certain Commercial Items (< $7 Million)

SSJ No.: FIMA-ACM-001

Date: July 23, 2020 PR Number: WX01310Y2020T

Pursuant to the requirements of the Competition in Contracting Act of 1984 (CICA), Title 41 U.S.C. §253, et seq., as amended, and under the authority of 41 U.S.C. §1901, et seq., as amended, as implemented by Federal Acquisition Regulation (FAR) 13.501 and consistent with the content requirements of FAR 6.303-2, this Justification for other than Full and Open Competition (JOFOC) sets forth in detail the basis, reasoning, and authority for the subject JOFOC, as noted below.

1. Agency and Contracting Activity.

The Department of Homeland Security (DHS), Federal Emergency Management Agency (FEMA), Office of Chief Procurement Officer (OCPO) 500 C Street, S.W., Washington, DC, 20472, henceforth referred to as the “FEMA”.

2. Nature and/or description of the action being approved.

(a) Type of Action: Firm Fixed Price Contract

(b) Amount: $2,460,784.44

(c) Type of Funding: Federal Assistance

(d) Year of Funding: FY 2020

(e) Nature of action. FEMA intends to award a contract to KatRisk, LLC for catastrophic data modeling licenses on a sole source basis. The contract will include a 12-month base period and four 12-month option periods. KatRisk, LLC is the only known source that provides the required modeling licenses.

This is a commercial service. KatRisk LLC’s address onwww.sam.gov is 2937 Shatuck Avenue, Suite #222, Berkeley, CA 94704-1567. The Contractor’s Dun and Bradstreet Number or DUNS number is 078842985 and their Commercial and Government Entity (CAGE) code is 7BQ60. The Contractor’s URL is http://www.katrisk.com.

3. Description of Supplies/Services.

KatRisk LLC provides inland flood and storm surge catastrophe modeling licenses. This includes rights to three separate and independent flood models to develop the necessary comprehensive view of flood risk on a national scale. The benefits of these models increase the accuracy of FEMA’s flood-related predictive capabilities. The data derived from the models will be used to develop the National Flood Insurance Program’s (NFIP’s) rating approach for floods insurance policy rates.

http://www.sam.gov/ http://www.katrisk.com/

The KatRisk LLC’s modeling software is needed for the stability and credibility to the NFIP’s new risk rating approach, subsequent policy rate changes, and to generate optimized information for reinsurance purposes. The NFIP requires the inland flood and storm surge catastrophe models to determine the price reasonableness of reinsurance costs and to encourage private insurance participation in the transfer of NFIP flood risk. In addition, this modeling capacity is necessary to perform resets of risk information related to flood risks nationwide.

The Government estimates the total of the contract, inclusive of the base and four option periods, is $2,460,784.44, as follows.

Period Unit Price Total Base Year 12-Month $463,500.00 $463,500.00 Option Year 1 12-Month $477,405.00 $477,405.00 Option Year 2 12-Month $491,727.15 $491,727.15 Option Year 3 12-Month $506,478.96 $506,478.96 Option Year 4 12-Month $521,673.33 $521,673.33

4. Identification of the authority.

In addition to the statutory and regulatory guidance as noted above, the authority permitting the use of non-competitive procedures is located at 41 U.S.C. §1901 as implemented by FAR 13.501.

5. Demonstration that the proposed contractor’s unique qualifications or the nature of the acquisition requires use of the authority cited.

KatRisk, LLC is the only known source that can provide catastrophe modeling software that includes probabilistic hurricane-induced precipitation within the inland flood model, which is a critical sub-peril for evaluating the NFIP’s view of flood risk. This is the only known product that meets the unique modeling capabilities needed for NFIP’s placement of insurance-linked securities (ILS) catastrophe bonds. Additionally, KatRisk LLC’s unique model approaches and flexible implementation allows the user to select the analytical parameters needed, such as sampling and methods for combining wind and flood losses with a single event.

KatRisk LLC is the only known source uniquely qualified to provide the necessary technical support required to help the user when selecting analytical parameters within its model without extensive transition to manage the ongoing services.

The models uniquely demonstrate specific capabilities related to the perils of floods and flood damages. The models are deployable on a desktop and this feature is critical in the event of an internet outage. FEMA also uses this modeling capacity to enhance the public’s, as well as private insurance industry’s understanding of flood hazards, federal flood insurance and NFIP flood risk. One of the main goals of the NFIP reinsurance program is to encourage participation from the private insurance market to underwrite flood risk. In order to communicate flood risk to the private market efficiently and effectively, the use of the specified catastrophe models provided by KatRisk LLC are required. Credibility of the NFIP’s risk rating methodology is paramount to the program’s success. KatRisk LLC’s multi-model approach uniquely encompasses the most reliable catastrophe models to develop rating variables that will add to the credibility of the rating variables and therefore the rating approach.

Katrisk, LLC provides industry leading, independent and probabilistic catastrophic flood models that have the authority to operate on a FEMA system. FEMA’s requirement for increased credibility through multiple catastrophic data modeling is unique and essential to FIMA’s mission with its relevant Risk Rating 2.0 and Reinsurance Programs.

The NFIP Reinsurance Program currently transfers over $1B dollars in risk to the private sector using traditional reinsurance. The KatRisk LLC’s model is used by reinsurers to understand and price flood risk. It is imperative that FEMA provides the KatRisk LLC modeling results to the reinsurance markets so that they can evaluate the

NFIP risk profile and price the reinsurance policies. Without this model, homeowners would not be able to continue buying traditional reinsurance.

6. Description of efforts made to ensure that offers are solicited from as many potential sources as is practicable.

A Sources Sought Notice (SSN) was posted in FBO on July 19, 2019. No other viable sources responded to the

SSN.

7. Determination by the Contracting Officer that the anticipated cost tothe Government will be fair and reasonable.

The Contracting Officer will determine price reasonableness based on historical pricing and comparison to the Independent Government Cost Estimate.

8. Description of market research.

Extensive market research was conducted on an ongoing basis by members of both FIMA and OCPO, to include phone and email conversations with knowledgeable individuals in government and industry to identify market capability and potential sources commencing in January 2017. A Request for Information (RFI) was posted on FedBizOpps (FBO) on January 6, 2017 and a Request for Quotation (RFQ) was posted on FBO August 30, 2017 and contract HSFE60-17-C-0205 was issued to KatRisk LLC. Additional RFIs were posted to FBO on February 14, 2018 and March 12, 2019. Additional internet searches and review of the acquisition history of similar contracts continued throughout the market research process from the periods of January 2017 to June 2020.

Furthermore, the OCPO posted an additional RFI on FBO on July 19, 2019 and received no responses. Finally, on June 11, 2020, the OCPO posted a special notice to beta.SAM.gov of the Government’s intent to do a sole source modification to extend the period of performance of the current contract by two months and no responses were received.

As determined by market research, FIMA identified 4 industry leaders in the reinsurance market as follows:

• Risk Management Solutions, Inc.

• AIR Worldwide Corporation

• CoreLogic Solutions LLC

• KatRisk LLC

FIMA engaged with the forgoing companies to ascertain their capabilities. FIMA currently has an existing contract with CoreLogic Solutions LLC which was evaluated to ascertain if CoreLogic Solutions LLC could meet the Government’s needs in the subject action. FIMA has expiring contracts with AIR Worldwide Corporation and KatRisk LLC which were likewise evaluated to ascertain if these firms could meet the Government’s needs. FIMA’s and OCPO further engaged all four industry leaders to ascertain if a sole source procurement could be avoided. As a result of that engagement, the information acquired indicated, although multiple dad modeling is required, the KatRisk LLC model is the only model that allows the user to select specific analytical parameters, which is a required in the development of Risk Rating 2.0 for specific regions.

Further, the program office asked Katrisk LLC whether they had authorized resellers for their software. KatRisk LLC responded negatively citing the specialized nature of their software and the risk of degradation in training and technical support should FEMA procure these licenses through a reseller. For this reason, FEMA is unable to procure the required licenses through any other means, including DHS strategic sourcing vehicles, such as First Source II, or GSA Federal Supply Schedules.

FIMA and OCPO have leveraged and expanded upon extensive market research, which spans more than three years to the present, and no other source can but KatRisk LLC can meet the Government’s needs for the subject action.

9. Any other facts supporting the justification.

It is necessary to secure licenses for more than one-year, as in a capital investment, for up to five-years (inclusive of options) because utilizing any other modeling tool would negatively impact this requirement. It will take substantial time and revision to the current risk rating methodology to implement and incorporate any new modeling tool. A change in modeling software over the next five years could jeopardize the consistently of risk rating results and potentially harm NFIP’s credibility. As stated above, the modeling is needed to enhance the public and private insurance industry’s understanding of flood hazards, federal flood insurance and NFIP flood risk. One of the main goals of the NFIP reinsurance program is to encourage participation from the private insurance market to underwrite flood risk. Changing software tools over the next five-years could undermine FIMA’s ability to obtain the necessary flood insurance underwriting due to inconsistent or delayed risk rating communications.

In order to communicate flood risk to the private market efficiently, effectively, and consistently over the next five-years, the use of the specified catastrophe models provided by KatRisk LLC are required.

The benefit of using this model over the next five-years (as in a capital investment) increases the accuracy and consistency of FIMA’s flood-related predictive capabilities. The data derived from models will be used to develop the NFIP’s rating approach for flood insurance policy rates. Securing licenses for up to five-years is the most advantageous method of fulfilling the Government’s need considering the reliability, consistency, and effectiveness of NFIP modeling capabilities.

This timeframe takes into account the Government’s need for continuity of operations and potential costs of disrupting those operations. This modeling capacity is vital to the Government and must be continued without interruption and consistency over the next five-years.

Further, this contract is necessary to avoid a break in service for this critical mission requirement. KatRisk LLC possesses a unique catastrophe modeling service. An open competition to complete the work would cause intolerable delays to the FEMA/FIMA program and pose a risk to the Government. Further, based upon three years of market research, there is a significant chance that no vendor would, or could, submit a proposal to meet the Government’s needs.

The requirement cannot be modified in any manner to increase competition. The industry base is already limited in that there are not many capable companies with widespread data and modeling software in the reinsurance and risk rating industry. The four industry leaders previously identified: Risk Management Solutions, Inc., AIR Worldwide Corporation, CoreLogic Solutions LLC, and KatRisk LLC are the most widely used catastrophe models in the world. FEMA has previously awarded contracts to KatRisk LLC to produce models to develop rates and needs to continue using the catastrophe models to maintain the stability of these rates.

The rate setting process that uses these models was recently developed under Risk Rating 2.0, an initiative that has taken multiple years and millions of dollars to launch. The KatRisk LLC model is one of the models that is foundational to Risk Rating 2.0. In order to maintain this methodology, FEMA requires the KatRisk LLC model for the next five years. Without the KatRisk LLC model, FEMA would not be able to continue updating rates under Risk Rating 2.0, which would severely impact the ability of the NFIP to price and sell insurance.

FIMA will continue to conduct market research on an annual basis prior to exercising any option under the resultant contract to ensure continued use of the software is in the Government’s best interest with consideration given to any new technology. Significant administrative costs are saved versus awarding single-year awards, year after year. Risks are mitigated as option year pricing is determined in advance at the time of contract award.

No option period is mandatory and, if the FIMA identifies a new source during this market research, then a competitive award would be solicited and the use of a five-year sole source vehicle with options does not preclude other sources in the future or prejudice a possible expanding marketplace.

10. A listing of the sources, if any that expressed, in writing, an interest in the acquisition.

No sources have expressed, in writing, an interest in this requirement.

11. A statement of the actions, if any, the agency may take to remove or overcome any barriers to competition before any subsequent acquisition for supplies or services required.

FEMA intends to utilize a multi-model approach to add credibility to the Risk Rating program until FEMA is able to conduct its own catastrophe modeling. If FEMA procures models in the future, it will continue to conduct market research to ascertain which new models are utilized by industry and post future requirements on beta.SAM as applicable. Prior to any option period being exercised, the requiring activity will update the market research to ascertain if a viable source other than KatRisk LLC is capable of meeting the Government’s needs.

12. Technical/Requirements Personnel Certification.

I certify this requirement meets the Government’s minimum need and that the supporting data, which forms a basis for this justification, is complete and accurate.

Digitally signed by BARBARA J

BARBARA J PICKENS PICKENS

Date: 2020.07.23 19:01:11 -04'00'

July 23, 2020

Barbara Pickens Date Contracting Officer Representative (COR)

13. As the Contracting officer for the subject action, I hereby certify that the justification is accurate and complete to the best of my knowledge and belief.

William Sanfilippo Date Contracting Officer (FEMA)

14. Competition Advocate Approval:

Tyuana Bailey Date Competition Advocate (FEMA)