Emergency Contracting: Flexibilities in Contracting Procedures during an Emergency (2007)

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3 EMERGENCY CONTRACTING: FLEXIBILITIES IN CONTRACTING PROCEDURES DURING AN EMERGENCY By Julia L. Perry Counsel, Eastern Federal Lands Division, Federal Highway Administration and Margaret L. Hines Attorney, Washington, DC I. INTRODUCTION—WHEN IS EMERGENCY CONTRACTING APPLICABLE? There is a significant difference between what is re- quired to conduct a valid procurement under state and federal law, regulations, and procedures for contracting in an emergency—including natural disasters—as com- pared to a nonemergency situation. Federal contracting procedures have specifically identified flexibilities that are available in emergency contracting. Some states have statutes and regulations similar to the federal government. Other states track the State Model Pro- curement Code. Still others have developed extensive procedures based on a history of emergency contracting. This report addresses in a summary fashion the follow- ing topics: • Flexibilities available in federal procurement; • Flexibilities identified in the State Model Procure- ment Code; • Practices in selected states; and • Limitations imposed by federal grant agreements of the Federal Highway Administration (FHWA) and the Federal Emergency Management Agency (FEMA). What constitutes an emergency for contracting by federal agencies is defined in federal law and regula- tions. In order to be considered an emergency under federal law, the situation for which the procurement is being issued has to be declared to be a state of emer- gency by the President under authority of Title 42, United States Code, chapter 68—Disaster Relief, § 5121, et seq. The most common form of emergencies is natural disasters, such as hurricanes, tornadoes, flood- ing, landslides, earthquakes, etc. However, the impacts of a terrorist attack can be classified as an emergency under the law, as was done for New York City on Sep- tember 11, 2001. A declaration of an emergency under federal law has specific consequences that can have a significant impact on the states. Most importantly, federal funding be- comes available under both FHWA programs and FEMA programs. In the case of the FHWA programs, funds are made available to reimburse the state for expenditures related to bringing roads back into usable condition. In the case of the FEMA programs, funds may be available up front to fund emergency efforts. In the event of an emergency, the states must decide not only what work needs to be done, but also what type of contracts will be most expedient in alleviating the impact of the emergency situation on highways. Con- tract services may include such items as rubble re- moval, road repairs, design of temporary repairs to a bridge, design of a temporary bridge replacement, re- pair to gutter openings in the roadway, repair of sig- nalization and intelligent transportation system (ITS) capabilities, and access to utilities under the roadway. The contract types may include oral contracts, letter contracts, limited acquisitions, or full and open com- petitive bidding, depending on the circumstances. There are two basic methods to obtain emergency road or bridge repair work. The first is to issue a modification to an existing contract for work in the area. However, this type of action raises concerns as to whether the procurement is within the scope of the original contract. The second method is to issue a new contract. In either case—modification of an existing contract or new pro- curement—the issue is what flexibilities exist in con- tracting procedures to address emergency situations. II. THE CONCEPT OF FLEXIBILITY FOR CONTRACTING IN EMERGENCY SITUATIONS AND HOW IT CAN BE MISUSED A. Federal Acquisition Regulations (FAR) The Federal Acquisition Regulations (FAR) provide guidance for federal contracting, and several of their concepts have been incorporated into Office of Man- agement and Budget (OMB) Circular A-102, which is applicable to state and local governments seeking fed- eral grants. (OMB does not award grants; OMB has responsibility for the development of government-wide policy to assure that grants are managed properly and that federal dollars are spent in accordance with appli- cable laws and regulations.) In 50 chapters, the FAR covers everything from acquisition planning to termina-

4 tion of a contract. It also delineates over 700 standard contract clauses and nearly 100 standard forms. However, in the event of an emergency, a federal con- tracting officer may have the authority to call a contrac- tor with which the contracting officer has either previ- ously done business, or has selected out of the phonebook, and discuss a need of the government, which may or may not be detailed. The contracting offi- cer can either agree on an overall price or agree to pay actual costs plus a reasonable profit, and, if the con- tracting officer has adequate authority, that phone con- versation constitutes a valid federal contract. The difficulty lies in identifying the appropriate con- tracting procedures that are somewhere in between those two extremes—when the work must be done quickly or under tight security but there is adequate time to follow some, but not all, of the procedures in the FAR. From a legal standpoint, the shortest answer is that the contracting officer can take whatever steps are necessary to deal with the situation, as long as the basis for the action and the contracting officer's determina- tion are adequately documented. If, for example, the contracting officer limits competition to only a few con- tractors but documents that it had to do so, based on the specific circumstances of the situation, in order to perform emergency work in a timely fashion, then the worst case scenario would involve someone with the authority to waive full competition ratifying that action at a later time based on the documentation that the contracting officer prepared. If there is no documentation of what was done and why it was done in some manner other than as specifi- cally required by the FAR, then there is no basis to rat- ify, waive, or approve such an action—and the conse- quences may be an audit exception or even, in extreme cases, lead to criminal prosecution. In addition, the per- son taking the action without appropriate authority must keep in mind that the decision to ratify at a later time is based on the interests of the government. Even with adequate documentation, that determination is not guaranteed. Therefore, it is in the best interest of the contracting officer, as an individual, not to abuse that process. However, the trust placed in the contracting officer to represent the best interests of the government is reflected in the FAR, which describes the responsibil- ity of the contracting officer as follows: Contracting Officers are responsible for ensuring per- formance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its con- tractual relationships. In order to perform these respon- sibilities, contracting officers should be allowed wide lati- tude to exercise business judgment. 1 B. The State Model Procurement Code The American Bar Association publishes the Model Procurement Code for State and Local Governments. 1 FAR 1.602-2. The 2000 edition has the following section on emer- gency procurements: Section 3-206 Emergency Procurements Notwithstanding any other provision of this Code, the Chief Procurement Officer, the head of a Purchasing Agency, or a designee of either officer may make or au- thorize others to make emergency procurements when there exists a threat to public health, welfare, or safety under emergency conditions as defined in regulations; provided that such emergency procurements shall be made with such competition as is practicable under the circumstances. A written determination of the basis for the emergency and for the selection of the particular con- tractor shall be included in the contract file. The key language is clearly "such competition as is practicable under the circumstances." Again, similar to the federal language cited above, there is broad discre- tion suggested in that the chief procurement officer, or other designated individual, can be expected to act ap- propriately under the circumstances. C. State Procedures To collect information on state practices, a survey form was sent to all the state Departments of Transpor- tation (DOT), asking that they identify statutes and regulations in their respective states that allow or rec- ognize emergency contracting procedures.2 Thirty-one state agencies returned responses to the survey, and all those responding indicated that their states have laws and regulations that recognize the concept of contract- ing in an emergency situation.3 The agencies polled were asked to provide citations to or copies of their statutes and copies of any additional guidance, such as regulations or handbooks, that have been adopted by the responding agency. An examination of these re- sponses and materials shows that generally (and not surprisingly) the more apt a state is to suffer natural disasters or emergencies, the more likely it is to have adopted detailed and complex regulations and guide- lines. For example, both Florida and Alaska provided references to detailed written procedures and guidance for emergency contracting and preprinted forms for a “Natural Disaster Emergency Contract.” Alaska also provided a full set of documents, which include an “Emergency Procurement Contract” and a “Documents 2 A copy of the survey is attached as Appendix A. The sur- vey also asked about the state’s experience in seeking reim- bursement for costs from FEMA, and whether FHWA had im- peded the state in dealing with an emergency situation. The survey questions were not directed toward, and the responses generally did not include, intergovernmental contracting be- tween the state and its subdivisions, such as provided in Wis- consin Statutes 84.06 and 84.07. 3 The responding states, in alphabetical order, were: Alaska, Arizona, Connecticut, Florida, Hawaii, Illinois, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, New Mex- ico, Ohio, Oklahoma, Oregon, North Dakota, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Utah, West Virginia, Wyoming, and Wisconsin.

5 Check List” for use by the contracting officer who awards the emergency contract. States such as Mon- tana and North Dakota, on the other hand, indicated they have not promulgated emergency contracting rules or special guidance. Montana’s statute does not refer to emergency contracting as such, but simply provides that the Transportation Commission can waive com- petitive bid requirements in any situation where a writ- ten determination is made that “special circumstances require it.”4 All of the state laws and regulations that recognize the concept of emergency contracting have provisions for limiting the process of competitive bidding, in order to save time and secure necessary goods and services immediately. This is the point at which the process may lead to misuse, since the competitive bidding process is designed to provide assurance that the government is getting “the best for the least” when it is spending pub- lic money. The survey did not ask state agencies to pro- vide information about any difficulties that had been experienced, but some of the problems encountered by the states in emergency contracting may be indicated by examining the guidance that has been written for contracting officers. As in the federal law, there are several ways that the states have attempted to insure that limited competi- tion contracting is done properly. The requirement that all actions, including the determination that an emer- gency exists, be justified and recorded in writing is the first and most generally used in the regulations and guidance. If time does not permit such recording before the fact, written justifications must be prepared after- ward and preserved in the contract file.5 An example of this is Pennsylvania’s Procurement Handbook, which requires that the written determination of an emer- gency and the basis for selection of the particular con- tractor must be included in the contract file, and that the records must be maintained for 3 years from the date of final payment. Other possible misuses of the emergency contracting processes that states have attempted to avoid can be seen by laws, regulations, and guidance that provide that emergency contracts must be “limited to those supplies, services, or construction items necessary to meet the emergency.”6 In other words, once the imme- diate need is met, then further goods or services must be obtained by following usually mandated procedures. Another approach to the same sort of problem can be seen in laws or regulations that prohibit the renewal, without competitive bidding, of a contract that has been awarded on an emergency basis.7 4 MONT. CODE ANN. § 60-2-112 (2005). 5 See, for example, Wisconsin Procurement Manual, PRO-C- 3 (effective June 19, 2003); Alaska Field Operations Guide 134–135. 6 Mississippi Procurement Manual § 3.206.03; Massachu- setts has a similar provision. 7 For example, FLA. STAT. § 287.057(19). Some state processes require that emergency con- tracts be entered into only with vendors who are on a list of “prequalified” bidders.8 This is a timesaving de- vice and assures that contracts are not awarded in an emergency to vendors who turn out later to be unable to provide the needed services or goods.9 One problem that states would like to avoid in emer- gency contracting situations is having the contract award challenged by unsuccessful bidders or other ven- dors. The careful adherence to their laws, regulations, and policies has obviated this problem for most of the states, according to an informal telephone survey that was conducted of a number of the responding state DOT officers. As the respondent from Illinois reported, the “stringent procurement code” and the fact that the agency is “cautious about when they use” emergency contracting procedures protect the agency from chal- lenges to emergency contract awards.10 Of the 11 states contacted, almost all reported no challenges. Minnesota reported that there had been some questions raised by unsuccessful bidders, but no formal protests. Oregon also reported some administrative contests.11The South Carolina agency reported that in the past there had been some complaints about awards of debris removal contracts. These complaints were handled administra- tively and did not rise to the level of protests. The agency now works from a list of prequalified bidders for debris removal, all of whom get notice when a contract is to be issued, and in that way has avoided complaints. In the area of equipment purchases, particularly re- placement signals, the Florida DOT also employs a pre- qualified products list.12 Among other problems that may arise is the at- tempted use of emergency contracting procedures to avoid the lapse of funds at the end of the fiscal year. Several of the state procurement handbooks point out that failure to plan ahead, or the possibility of loss of funds at the end of the fiscal year, is not an “emer- gency.” The Alaska Field Operations Guide, for exam- ple, which has much practical advice for its readers, states in the introduction that the “potential loss of funds at the end of the fiscal year is not considered an emergency.”13 The New Mexico DOT procedures manual 8 Ohio, Massachusetts, and Vermont, for example, require that contractors be on a list of prequalified vendors in order to be awarded an emergency contract (required in Ohio for high- way work, but not for nonhighway work). 9 In a telephone conversation on Dec. 7, 2006, Sonia Pitt of the Minnesota DOT discussed that state’s use of prequalified bidders for emergency contracting and stated that it “abso- lutely saves time,” as well as obviating many complaints or challenges about bidder selection. 10 Telephone conversation with Ken Martin, Illinois DOT (Dec. 7, 2006). 11 The states that were contacted were Connecticut, Florida, Illinois, Massachusetts, Minnesota, Mississippi, New Jersey, Ohio, Oregon, Pennsylvania, and South Carolina. 12 Telephone conversation between Margaret Hines and Charles Johnson, Florida DOT (Dec. 8, 2006). 13 See Alaska Field Operations Guide 132.