Disaster Relief Contracting: How to Avoid the Pitfalls

Justin A. Chiarodo and Stephanie M. Harden

Hurricane Harvey’s damage to Texas and other areas is virtually unprecedented and is already estimated to be in the tens of billions of dollars. And Hurricane Irma, hurtling towards Florida, could likewise cause catastrophic damage. Though every disaster presents unique recovery challenges, a common theme in disaster relief efforts is the key role of the Federal Emergency Management Administration (“FEMA”) and a federal law known as the Stafford Act. Contractors eager to assist with relief and rebuilding efforts should pay close attention to the legal landscape underpinning the public funding behind disaster relief efforts, particularly given the scrutiny these efforts will receive in the wake of Hurricane Katrina.

The Stafford Act empowers FEMA to provide funding to state and local governments for disaster relief efforts. These efforts may include debris removal, search and rescue efforts, repair and replacement of damaged facilities, and services for individuals (i.e., housing, transportation, medical, and legal assistance). Stafford Act funding can be issued directly to states and localities, through federal contracts, or through other contract vehicles using federal funds. The FAR implements the Stafford Act at Subpart 26.2.

At the time that Stafford Act funds are distributed, the Government’s focus will be on quickly procuring available services so that it can begin to tackle the massive cleanup effort. These can be profoundly challenging contracts, with expenditures coming under close scrutiny after the fact. The Government Accountability Office (“GAO”) recently issued a report regarding FEMA disaster relief contracting that highlighted areas warranting continued focus, including the use of non-competitive contracts and contracting with local business.

A local business contracting preference is one key element of the Stafford Act (with what constitutes a “local” business often defined in a solicitation). To this end, Stafford Act contracts may be:

  • Set-aside for local contractors (i.e., non-local contractors cannot even compete as a prime contractor, though they may serve as a subcontractor); or
  • Local contractors may be given a preference in the evaluation scheme (but non-local contractors can still compete).

In either case, even if a non-local contractor is able to bid on a contract (whether as a prime or subcontractor), the RFP will likely limit the workshare that it can perform (see FAR 52.226-5). For example, if the contract is for services, typically at least 50 percent of personnel costs must be spent on employees of businesses within the local area (as defined by the RFP). The RFP may also limit the workshare that can be performed by businesses that do not qualify as small businesses or have other socio-economic designations.

Contractors should read solicitations carefully and maintain detailed records relating to contract performance (including correspondence with contracting officers). The Government has increased its oversight of FEMA spending in recent years, particularly for high-profile disasters. Years after performance has concluded, there will likely be scrutiny by Congress, the media, the GAO, and other entities regarding how funds were distributed, including the essential question of whether the correct percentage of the funds went to local businesses and/or small businesses. Contractors who do not comply with these restrictions may find themselves facing multimillion dollar False Claims Act lawsuits or even criminal charges.

Thus, while hurricanes and other disasters call for an “all hands on deck” approach, it is critical that contractors take the time to:

  • Carefully review solicitations and any relevant guidance for Stafford Act restrictions (and other key terms);
  • Keep written records of compliance—including the contractor’s plan for compliance from the outset of performance and documentation of compliance throughout performance;
  • Vet teaming partners carefully (especially for whether they qualify as local businesses); and
  • Consult legal and/or contracts professionals with questions.

Compounding Pharmacies Should Expect Greater Scrutiny as Government Healthcare Budgets Get Squeezed

Merle DeLancey

As Congress continues to grapple over healthcare reform, there are many uncertainties. However, one thing is clear: as government healthcare funding shrinks, federal and state enforcement agencies will continue to target compounding pharmacies for potential fraud.

Compounded drug use and related government spending, particularly on topical creams and ointments, has skyrocketed. Many argue that drug compounding regulation remains murky, making it too easy to prosecute traditional compounders. Compounding advocates suggest regulation of compounders has been heavy-handed and ignores the multiple benefits associated with compounding. Continue reading “Compounding Pharmacies Should Expect Greater Scrutiny as Government Healthcare Budgets Get Squeezed”

NDAA Section 811: New Waiver Authority—What Does It Mean?

Scott Arnold

The Senate’s markup of the 2018 National Defense Authorization Act (“NDAA”) adds new language to 10 U.S.C. § 2304 that would give the Secretary of Defense authority to waive provisions of law that result in only one responsible bidder for a contract for purposes of expanding competition. However, the new provision, which appears in Section 811 of the bill and which, if enacted, would be part of a new subsection (m) added to 10 U.S.C. § 2304, contains a significant carve-out such that it would not permit the Secretary of Defense to impose additional competition in connection with the Small Business Administration’s 8(a) program.

Continue reading “NDAA Section 811: New Waiver Authority—What Does It Mean?”

ASBCA Grants $253 Million Northrop Post-Retirement Benefits Claim

David Yang

Pension and other post-retirement benefit expenses have long constituted a substantial obligation on the part of contractors under cost-type contracts and are often the subject to disputes with the government as to the calculation and allowability of such costs. While court and board decisions regarding pension-related disputes have tended to be a mixed bag, the decisions have more often sided with the government. However, the Armed Services Board of Contract Appeals’ (“ASBCA” or “Board”) July 13, 2017, decision in Northrop Grumman Corp., ASBCA No. 60190, may signal a more favorable trend for contractors in connection with such issues. In this case, Northrop filed a claim for $253 million in retiree health benefits over an 11-year period from 1995 to 2006, which the Defense Contract Management Agency (“DCMA”) disallowed because Northrop used an outdated accounting practice for accruing such costs under the relevant Federal Acquisition Regulation (“FAR”) cost accounting requirements. Continue reading “ASBCA Grants $253 Million Northrop Post-Retirement Benefits Claim”

Deficient Administrative Record Leads Federal Court to Vacate 15-Year Debarment

Justin A. Chiarodo and Stephanie M. Harden

A recent federal court decision vacating a staggering 15-year debarment based on shortcomings in the administrative record offers a glimmer of hope to contractors facing exclusion from federal programs, and reinforces the importance that any final debarment decision be based on a fulsome record—particularly in “fact-based” debarments where there are disputed material facts. The big takeaway for contractors facing an exclusion is to ensure that the administrative record on which a debarment decision is based reflects all information showing why an exclusion is unwarranted (or unnecessary) to protect the Government.

Continue reading “Deficient Administrative Record Leads Federal Court to Vacate 15-Year Debarment”

Targeting Generic Drug Prices

Merle DeLanceyJames Staiger, Jennifer Daniels

For years, states and the federal government focused their drug pricing enforcement efforts on higher priced and more expensive branded drugs. Not surprisingly, private qui tam lawyers followed on the coattails of these government enforcement efforts. The focus on branded drugs was not wrongheaded. States, the federal government, and qui tam plaintiffs were handsomely rewarded for such efforts, as in the multiple Average Wholesale Price (“AWP”) cases against brand manufacturers. However, while regulators focused on brands, they subsequently found that the pricing for generic drugs had increased unimpeded. In more recent years, the focus has shifted to generic drug price increases. For example, effective for the first time at the start of 2017, the Medicaid Program applied an inflation penalty component to Medicaid rebate payments for generic drugs. Historically, the inflation penalty applied only to branded drugs. The inflation penalty provides that when a drug’s price increases faster than the increases in the Consumer Price Index for All Urban Consumers, a manufacturer is required to pay an additional Medicaid rebate amount to state Medicaid programs. Continue reading “Targeting Generic Drug Prices”

DOJ’s New Healthcare Fraud Target—Medicare Advantage Insurers

Merle DeLancey

The government continues to seek ways to rein in healthcare costs. Now it has set its sights on the Medicare Advantage Program. Medicare Advantage Plans, sometimes called “Part C” or “MA Plans,” are offered by private companies approved by Medicare. If you join a Medicare Advantage Plan, you still have Medicare, but you get your Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) coverage from the Medicare Advantage Plan and not original Medicare. Medicare Advantage Plans may also offer extra coverage like dental, vision, hearing, and wellness programs. Continue reading “DOJ’s New Healthcare Fraud Target—Medicare Advantage Insurers”