Developing Compliant Emergency Contracts, Procurement Policies to Mitigate Post-Disaster Issues
By Mary Beth Coburn and Rebecca Chaparro, Best Best & Krieger LLP
Strategizing best practices around implementing disaster preparedness programs can be challenging.
The contracting requirements and statutes associated with utilizing federal emergency funds are fairly straightforward, but public agencies can run into issues when selecting contractors and developing federally compliant procurement policies — especially if attempting to implement statutes in a post-disaster environment.
Putting federally compliant procurement policies and procedures into place before an emergency strikes is key, as it can be highly challenging to implement procedures in the middle of a crisis situation. Additionally, failure to follow federal contracting rules puts agencies at risk of not receiving full reimbursement, or even having funding taken back years later, for associated disaster costs.
Between 2009 and 2014, the Federal Emergency Management Agency’s auditing arm, the Office of Inspector General, made more than 80 recommendations — totaling more than $387 million — for disallowed Public Assistance Program costs. In 2015 alone, the oversight body’s disallowed cost recommendations totaled $122 million. The number one issue cited: agencies engaging in non-competitive contracting and non-approved procurement practices.
With the appropriate tools and thorough emergency management, public agencies can avoid FEMA pitfalls to both receive needed funding following a disaster and successfully navigate an audit.
Fair, Open Playing Field Required for All Contracts
When using federal funds from FEMA or when expending funds for which a public agency hopes to be reimbursed for by FEMA, it is essential agencies procure contracts using fair and open competition.
The federal government considers the following situations as restricting competition:
- Placing unreasonable qualifying requirements on firms
- Requiring unnecessary experience and excessive bonding
- Non-competitive pricing practices and contracts
- Organizational conflicts of interest
- Specifying only a “brand name” product instead of allowing “an equal” product
- Any arbitrary action that could delay the procurement process
When procuring FEMA-compliant contracts, agencies are also required to take certain affirmative steps to assure minority- and women-owned businesses, as well as labor surplus area firms, are used when possible. These steps include:
- Place qualified small and minority businesses and women’s business enterprises on solicitation lists
- Assure small, minority and women’s businesses are solicited whenever they are included in the pool of potential sources
- Divide total requirements, when economically feasible, into smaller tasks or quantities to permit maximum participation
- Establish delivery schedules, where possible, which encourage participation
- Use the services and assistance of organizations such as the Small Business Administration and Minority Business Development Agency of the Department of Commerce
- Require prime contractors to take affirmative steps if subcontractors are to be used
Procurement Standards for Working with Federal Dollars
To receive federal aid, public agencies must follow their own documented procurement procedures that are in line with other local, state and federal procurement standards.
The federal standards, referred to as the “Uniform Guidance,” were adopted in 2014 to align the Code of Federal Regulations on procurements for states, local agencies, tribes, hospitals, nonprofits and schools.
There are overarching procurement requirements that agencies must adhere to that come into play when federal money is involved:
- Maintain written standards of conduct covering conflicts of interest that govern the actions of employees selecting and administering contracts
- Have procedures in place that avoid the acquisition of unnecessary or duplicative items, which could include analyses on economical approaches
- Only award contracts to responsible contractors
- Maintain records that detail the history of the procurement, including the rationale behind the procurement method, contractor selection/rejection, pricing and more
Additionally, agencies are encouraged to:
- Enter into state and local intergovernmental agreements, if doing so is more efficient and/or cost effective
- Use federal excess and surplus property in lieu of purchasing new equipment and property, when such use is feasible and if it reduces project costs
- Use value engineering clauses in construction contracts that allow for a reasonable assessment of cost-reduction opportunities
Procurement Methods, Contracts Permissible for Public Assistance
Federal regulations identify five permitted procurement methods:
- Micro Purchases: These apply to small purchases of $3,500 or less. A contract of this type can be procured without solicitation for quotes as agencies are given discretion as to whether the price is reasonable. Micro purchases must equitably be distributed to all qualified suppliers.
- Small Purchases: Applies to purchases no greater than the Simplified Acquisition Threshold, which is currently $150,000. Quotes for small purchases must be obtained from at least three sources. Agencies will still have to follow stricter local and state laws and internal policies, many with lower thresholds.
- Sealed Bids/Formal Advertising: This is the preferred method for construction as it lends itself to a firm fixed-price contract with which bidder selection can be made principally on price. Agencies should provide bidders a complete, adequate and realistic specification or purchase description.
Under this procurement method, agencies are required to:
- Publicly advertise an invitation for bids
- Solicit bids from an adequate number of sources
- Provide sufficient time for responses
- Award the contract to the lowest responsive and responsible bidder
- Maintain sound documented reasoning for both rejecting and selecting bids
- Competitive Proposals: This procurement method is normally conducted with more than one source submitting an offer when conditions are not appropriate for use of sealed bids. Agencies may award either a fixed-price or cost-reimbursement contract.
Under this procurement method, agencies are required to:
- Publicize the request for proposals
- Identify all evaluation factors and their relative importance
- Solicit proposals from an adequate number of qualified sources
- Document the method for technical evaluations/selections of proposals
- Award the contract to a responsible firm that is most advantageous to the program/project
- Non-Competitive Proposals: This is the solicitation of a proposal from only one source.
This may be used when one of the following situations apply:
- The item is only available from a single source
- A public exigency or emergency doesn’t allow a delay
- A federal awarding agency or pass-through entity expressly authorizes it
- Or, after solicitation, competition is determined inadequate
The federal government also places limits on the types of contracts for which it will reimburse funds.
- Cost Plus Percentage: No federal funding stream will permit the use of cost-plus-percentage-fee contracts, where contractors could be enticed to raise project costs to receive a larger fee payout.
- Time and Materials: FEMA may reimburse costs incurred under a time-and-materials contract only if all the following apply:
- A determination was made that no other contract was suitable
- The contract includes a ceiling price that the contractor exceeds at its own risk
- Contract is capped of 70 hours of work
Limited Staff, Strict Rules Make FEMA Hard to Navigate
A majority of FEMA’s workforce solely provides disaster assistance and is engaged on a moment’s notice. Given this, it is important to note the FEMA employee you deal with one day will likely not be the person you deal with another — even on the same project or problem.
In closing, public agencies should consider the following when preparing for and responding to a disaster:
- Keep FAATS at your fingertips. FEMA has a lot of acronyms. Thankfully, the agency also has a manual (about 80 pages) listing multiple definitions for them. Keep the FAAT List (short for FEMA Acronyms Abbreviations and Terms) close when dealing with FEMA to navigate the abbreviations appearing in publications and correspondence.
- Institute a competitive process. FEMA’s goal is to promote fair and open competition. Be sure to remove any competition barriers the would keep bidders away and ensure that small and minority businesses and women’s business enterprises are included in bid solicitations.
- Document, Document, Document! Document every interaction you have with FEMA in writing. Send follow-up emails once communication channels are open and think about how these documents will be maintained in the long-term to make them accessible. Also, document the details of all procurements and contracts. These documents could prove critical during an audit – likely to come years later.
- Avoid prohibited contracts. Don’t use cost-plus-percentage-fee contracts as all federal funding streams prohibit these. And use time-and-materials contracts wisely. These contracts will require diligent oversight to ensure contractors are using efficient methods and effective cost controls.
- Use a federal contract checklist. The federal government has a number of contract provisions that agencies must meet. Checklists are a great tool to ensure that each requirement is addressed.
Mary Beth Coburn is a partner in Best Best & Krieger LLP’s Municipal Law practice group and California licensed civil engineer. Based in the firm’s San Diego office, she works with municipalities as well as special districts and school districts on issues related to the construction of public facilities, from master planning to claims resolution. She can be reached at firstname.lastname@example.org.
Rebecca Chaparro, a San Diego-based associate of Best Best & Krieger LLP, advises public and private clients through all phases of construction. Her practice centers on public contracting with a focus on public works and infrastructure construction, including contract procurement, prevailing wage compliance and construction claims resolution. She can be reached at email@example.com.