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Law360 (April 13, 2020, 6:36 PM EDT) --
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| Edward Arnold |
While contractors are undoubtedly trying to manage existing contracts in light of labor and supply chain disruptions, many will be looking at the procurement landscape for new business opportunities. Federal procurement law contains a number of provisions that authorize streamlined procurement procedures for major disasters or national emergencies.
Specifically, local contractors and small businesses should be mindful of increased opportunities during this national emergency. During a national emergency, the government is permitted to set aside solicitations to allow awards only to "offerors residing or doing business primarily in the area affected by ... [a] major disaster or emergency."
Contractors should determine whether they fall into this category by consulting the criteria set forth in the regulation at Federal Acquisition Regulation 52.226-3(d).
Additionally, the national emergency declaration permits the government to further restrict the solicitation to small business concerns in the designated area, either through a set aside or as an evaluation preference. To determine eligibility, contractors should consult the size standards established by the U.S. Small Business Administration, which are generally based on the number of employees or annual receipts the business.
Although large contractors may either be excluded from procurements by way of geography or size restrictions — or even be stripped of existing contracts — large contractors should look for opportunities to execute teaming agreements with contract awardees.
The SBA authorizes small businesses to subcontract a portion of their set-aside contracts to both large and small companies, unless specifically prohibited by statute, regulation or solicitation.
In addition to teaming with local contractors and small businesses, new opportunities may lie elsewhere for large contractors. The national emergency declaration may entice agencies to use procedures designed for limited or no competition, in lieu of typical procedures of full and open competition.
For instance, contractors who produce or provide unique goods or services, who are positioned for quick action, or who typically perform classified work, may find enhanced contracting opportunities depending on the government's needs to combat COVID-19.
Moreover, the government may employ a variety of other flexible acquisition procedures provided for under certain conditions. Among these are purchases under the micro-purchase threshold or the simplified acquisition threshold, and use of simplified procedures for certain commercial items, all of which increase during a national emergency.
Although the government has other tools to ramp up production lines and service orders, such as the president's recent invocation of the Defense Production Act,[1] this article addresses the procedures that federal agencies may employ during a national emergency such as COVID-19 to procure new contracts for supplies, services, and construction. Because these procedures do not often look like typical procurement procedures, contractors should be mindful of the rules to better position themselves as they seek out new opportunities.
Stafford Act
The president's emergency declaration triggered the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1974,[2] which primarily allows state and local governments to request disaster assistance from the federal government.
In order to receive federal aid, state governors must make a request to the president for federal disaster relief, which must be accompanied by a finding "that the disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments and that federal assistance is necessary."[3]
Because these funds are provided to state and local governments via federal grants, federal procurement law does not govern. Rather, state and local governments may procure goods and services in accordance with their own procurement procedures.
In addition to providing grants to the affected localities, the Stafford Act also governs contracts between federal agencies and private firms for certain services related to disaster assistance. Specifically, the Stafford Act authorizes federal contracts for "debris clearance, distribution of supplies, reconstruction, and other major disaster or emergency assistance activities"[4]
The Stafford Act encourages — but does not require — federal agencies to (1) contract with local contractors and (2) transition existing federal contracts to local contractors to the extent possible.[5]
Preference for Local Hire
After passage of the Local Community Recovery Act of 2006, which amended the Stafford Act, the FAR was amended to implement the statutory mandate of providing a preference for local organizations when contracting for major disaster or emergency assistance activities.[6]
The regulation mandates that the preferences shall be given to local firms "to the extent feasible and practicable," and this preference may be given in the form of a set-aside or an evaluation preference when using full and open competition.
A contractor is considered local if it is "residing or doing business primarily in the area affected by such major disaster or emergency."[7]
The regulation further states that a contractor is considered to be residing or primarily doing business in the set-aside area if, during the last twelve months: (1) the contractor had its main operating office in the area; and (2) that office generated at least half of the contractor's gross revenues and employed at least half of the contractor's permanent employees.[8]
To the extent a contractor does not meet those criteria, other factors may be considered including: (1) physical location(s) of the contractor's permanent office(s) and date any office in the set-aside area(s) was established; (2) current state licenses; (3) record of past work in the set-aside area(s) (e.g., how much and for how long); (4) contractual history the contractor has had with subcontractors and/or suppliers in the set-aside area; (5) percentage of the contractor's gross revenues attributable to work performed in the set-aside area; (6) number of permanent employees the contractor employs in the set-aside area; (7) membership in local and state organizations in the set-aside area; and (8) other evidence that establishes the contractor resides or primarily does business in the set-aside area.
For example, sole proprietorships may submit utility bills and bank statements.[9]
Contractors are reminded that they are required to self-certify whether it is local or not. However, to the extent it certifies it is local, it must furnish documentation at the request of either the contracting officer or the solicitation.
Set-Asides and Evaluation Preferences
The government has employed two forms of preferences for local hire that have been deemed acceptable — set-asides and evaluation preferences. The contracting officer may set aside solicitations to allowonlylocal firms within a specific geographic area to compete for contracts awarded pursuant to disaster relief under the Stafford Act.[10]
Thus, nonlocal firms would not even be allowed in the competition. The regulation permits the contracting officer to define the geographic area that is impacted by the disaster.
If a major disaster areas is declared in several contiguous states, or the declaration within one state spans several counties, the contracting officer may nevertheless limit the solicitation to a smaller geographic location within the declared areas.
Furthermore, the contracting officer is entitled to further restrict the set-aside to small business concerns within the geographic area. Under this regulation, no separate justification is required for these set-aside contract actions.
Rather than setting the solicitation aside for local hire, the agency may provide an evaluation preference for local firms.[11] This practice has been deemed acceptable by the U.S. Government Accountability Office.[12]
Transition Existing Contracts to Local Firms
FAR 26.203 provides that agencies awarding contracts for disaster relief are required to transition to local firms any work being performed under preexisting contracts, unless the head of the agency determines that it is not feasible or practicable to do so.
The FAR states that agencies should transition work to local contractors at the earliest practical opportunity, based on a number of factors.
These factors include (1) the potential duration of the disaster; (2) the severity of the disaster; (3) the scope and structure of the existing contract (i.e. period of performance and milestones achieved); (4) the potential impact of a transition (i.e. safety, national defense, and mobilizations); and (5) the expected availability of qualified local offerors who can provide the products or services at a reasonable price.
Justification for Expenditures to Nonlocal Firms
To the extent an agency decides not to award a contract to a local firm under the Stafford Act, the head of contracting activity must provide written justification for doing so. The written justification should include consideration of the scope of the major disaster or emergency, and the immediate requirements or needs of supplies and services to ensure life is protected, victims are cared for, and property is protected. [13]
Disaster Response Registry
The FAR instructs the contracting officers to consult the disaster response registry located atSAM.gov[14]in order to determine the availability of contractors for the effort associated with disaster or emergency relief.
Similarly, contractors wishing to be listed in the disaster response registry should register with the system for award management, or SAM. Once registered, the disaster response registry can be viewed by using theSAM.govsearch tool. Vendors may be identified by selecting search criteria for disaster response contractors.
Competition in Contracting Act
The Competition in Contracting Act of 1984, or CICA, requires contracting agencies to obtain full and open competition through the use of competitive procedures.
Among the competitive procedures that satisfy the standard for full and open competition include small business set-asides, including set-asides for debris clearance, distribution of supplies, reconstruction, and other major disaster or emergency assistance acquisitions to businesses that reside, or primarily do business, in the geographic area affected by the disaster or emergency, pursuant to the Stafford Act.[15]
To alleviate certain situations where the government is not advantaged through the use of full and open competition, Congress has authorized seven exceptions in CICA which permit the use of "other than competitive" procedures.[16]
In the case of COVID-19, there are several exceptions upon which the government could rely to circumvent the need for competition.
For instance, the first statutory exception — single source for goods or services — provides for the government to enter into a sole-source contract where there is a single responsible source, and no other supplies or services will satisfy the agency requirements.[17]
Full and open competition is also not required when an agency's need for supplies or services is of such an unusual and compelling urgency that the government would be seriously injured if it is not permitted to limit the number of sources from which it solicits bids or proposals.[18]
A final exception which could apply occurs when the disclosure of the agency's needs would compromise national security unless the agency is permitted to limit the number of sources from which it solicits bids or proposals.[19]
Any one of these exceptions could very well come into play depending on the complexities of the goods or services being acquired to combat COVID-19.
Emergency Acquisitions
FAR Part 18 includes many acquisition flexibilities that are available to the contracting officer when certain conditions are met. These procedures may be used even in the absence of an emergency declaration as long as certain factors are met.
Among these streamlined procedures include a relaxation of the requirement that a contractor be registered inSAM.govat the time of submission of its offer for certain types of procedures. These include contracts awarded without providing for full and open competition due to unusual and compelling urgency, or certain contracts awarded by a contracting officer for work related to military or emergency operations.[20]
Perhaps most notably, the president's emergency declaration makes the flexibilities identified in FAR Section 18.202 — defense or recovery from certain events — available for use in responding to COVID-19.
These flexibilities include increases to the micro-purchase threshold, the simplified acquisition threshold and the threshold for using simplified procedures for certain commercial items, pursuant to the following:
- The micro-purchase threshold is increased from $10,000 to $20,000 for domestic purchases and to $30,000 for purchases outside the U.S.;
- The simplified acquisition threshold is increased from $250,000 to $750,000 for domestic purchases and $1.5 million for purchases outside the U.S.; and
- Agencies may use simplified acquisition procedures up to $13 million for purchases of commercial items.
Among other streamlined procedures identified are those goods and services available under federal supply schedule contracts,[21] multi-agency blanket purchase agreements,[22] or multi-agency, indefinite-delivery contracts.[23]
Each of these contract vehicles, issued and managed by the General Services Administration, are fixed price indefinite delivery indefinite quantity contracts awarded to multiple vendors through a qualification process.
These contract vehicles allow agencies gain access to products and automatic regulatory compliance. If you buy from GSA vendors through the GSA schedules program, the price is pre-negotiated so agencies can assume they are receiving a fair and reasonable price. Thus, such vehicles offer agencies advance planning, pre-negotiated line items, and special terms and conditions that permit rapid response during an emergency.[24]
Of note, the president's emergency declaration also opens the door to state and local purchasing from the GSA. The GSA's disaster purchasing program allows state and local governments to purchase supplies and services directly from all GSA schedules to facilitate disaster preparation, response or major disaster recovery.
Other relaxed procedures that can be employed include: (1) relaxation of qualification requirements; (2) use of sole source contracts; (3) use of oral requests for proposals; (4) use of letter contracts; (5) interagency acquisitions; (6) awards to small disadvantaged businesses; (7) retroactive overtime approvals; (8) waivers of bid guarantees when an emergency exists; and (9) use of protest overrides where necessary for contracting process to continue, to name a few.[25]
Tracking New Procurements Related To COVID-19
The GSA has added a new national interest action, or NIA, code to the federal procurement data system to permit tracking of procurements related to COVID-19. This type of tracking system allows contractors to see what types of goods, services and construction the government is procuring related to COVID-19.
Contractors can simply go to the federal procurement data system website and select COVID-19 2020 in the NIA drop-down field to view all related activity.
Recommendations
There are a myriad of procedures the government may rely upon to procure goods, services and construction during a major disaster or emergency declaration. Most notably, now that Trump has declared COVID-19 to be a national emergency, federal money is available to be expended in the geographic area that is impacted by the disaster pursuant to specific rules.
Because COVID-19 has been classified as a global pandemic, the geographic area defined by the regulation could be anywhere.
Although the geographic area could be large and sweeping, the monies to be expended under the Stafford Act and its implementing regulation will still likely advantage local contractors and small businesses.
Contractors seeking opportunities set aside for specific geographic areas should carefully review the regulations to determine whether, during the last 12 months, the contractor had its main operating office in the geographic area affected and that office generated at least half of the contractor's gross revenues and employed at least half of the contractor's permanent employees.
Even if contractors do not meet the threshold criteria, other factors may be considered for a locality determination. Small businesses also stand to benefit, either through set aside contracts or from an evaluation preference. Contractors with questions regarding their eligibility as a small business should consult the SBA's size standards before competing.
In addition to new procurements, contractors should be on the lookout for agencies transitioning existing contracts from nonlocal firms to local firms. Although a more drastic action, such transitions could occur depending on a number of factors, including the duration and severity of COVID-19.
Large contractors will also have increased opportunities, either by teaming with local contractor or small business awardees, or through solicitations designed to bypass the various exceptions to full and open competition.
Contractors who provide goods, services or construction that are unique and specifically tailored to combatting COVID-19 may have little or no competition depending on the type of procedures being utilized.
In sum, it is likely that a flurry of diverse procurement activity will take place to combat COVID-19. Contractors should register with SAM.gov, ensure they are listed on the disaster response registry and actively monitor the government portal to best position themselves for opportunities.
Edward V. Arnold is an associate at Seyfarth Shaw LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 50 U.S.C. App. §§ 2061–2070.
[2] 42 U.S.C.A. § 5150.
[3] § 5170.
[4] 42 U.S.C. § 5150(a).
[5] 42 U.S.C. § 5150(b).
[6] FAR 26.202.
[7] FAR 26.201.
[8] FAR 52.226-3.
[9] FAR 52.226-3.
[10] FAR 26.202-1
[11] FAR 26.202-2.
[12] See Hap Constr. Inc.
, B-280044 (Sept. 21, 1998) (protest that solicitation terms do not adequately implement statutory requirement to provide preference for local firms is denied where solicitation provides evaluation credit to local firms and the agency process for determining how to provide an appropriate preference is consistent with the statute and implementing regulations and is not otherwise objectionable).[13] FAR 26.204.
[14] https://sam.gov/SAM/.
[15] See FAR 6.208.
[16] 10 U.S.C. §2304(c) & 41 U.S.C. §3304(c).
[17] 48 C.F.R. § 6.302-1(a)(2).
[18] 10 U.S.C. § 2304(c)(2); 41 U.S.C. § 253(c)(2).
[19] 10 U.S.C. § 2304(c)(6); 41 U.S.C. § 253(c)(6).
[20] FAR 18.102.
[21] FAR 8.4.
[22] FAR 8.405-3(a)(6).
[23] FAR 16.505(a)(8).
[24] FAR 18.105.
[25] See FAR Part 18
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