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.
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