Emergency Procurements Following DisastersEileen M. Diepenbrock Leslie K. O’NealDiepenbrock Elkin Gleason, LLP Brasfield & Gorrie, LLC

James F. “Jim” Archibald Shannon J. BrigliaBradley Arant Boult Cummings LLP BrigliaMcLaughlin, PLLC

Who Cares About Emergency Procurements?

• 2017 was year for the disaster record books• Costs to respond and rebuild are staggering• Huge market for construction and engineering firms

• Public work (debris removal/infrastructure/utilities)• Private work for insurance companies

• Modified rules of engagement for public work• New and familiar pitfalls and business risks

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Does the Problem Qualify as an “Emergency?”

• Widespread Effect Impacting Large Area or Population• Consensus is that Repair or Correction is Necessary• Does the Government have a Duty or Obligation to

Repair or Correct?• Federal aid – Designation as “Major Disaster” or

“Emergency” by President that federal assistance necessary to supplement state and local efforts to save lives and to protect property and public health and safety, or lessen or avert the threat of a catastrophe

• State – designation by Governor

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What is a disaster? U.N. Definition

A serious disruption of the functioning of a community or a society resulting from:• Natural Disaster – wildfire, hurricane, superstorm,

earthquake, tornado, etc.• Environmental emergencies – chemical explosions or

spills, fuel oil spills• Complex emergencies – breakdown of authority, looting,

war• Pandemic emergencies – widespread disease outbreak

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Federal definition of disaster (42 USC § 5122)

Any natural catastrophe (including any hurricane, tornado, storm, high water, winddriven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm or drought), or, regardless of cause, any fire, flood, or explosion…which in the determination of the President causes damage of sufficient severity and magnitude to warrant major disaster assistance under this Act to supplement the efforts and available resources of States, local government, and disaster relief organizations in alleviating the damage, loss, hardship or suffering caused thereby. The Stafford Act, Title 1, § 102

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Human Created Disasters

• Vehicle Accidents which damage bridges or cut off interstate highways

• Dam or levee failures• Collapses or landslides caused by construction

activities

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Emergency Procurements

• What does designation as “Emergency” mean for the procurement process?

• Relaxation of rules?• Competitive bidding?

• Does the funding source matter?• State/local• Federal grants to states• Direct Federal funding

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Wildfires in the U.S.

• Multiple federal agencies implicated• Supression• Debris Removal• Rebuild Infrastructure

• Cause of concern for wildfires is to prevent the fire from spreading, unlike hurricanes and other disasters that cannot be controlled

• In 2016, there were 67,743 wildfires over 5,509,995 acres• Federal Firefighting Costs (Suppression Only)

• Forest Service: $1,603,806,000 • DOI agencies: $371,739,000• Total Cost: $1,975,545,000

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Hurricanes in the U.S. and cost of recovery

• According to NOAA, “the United States has suffered 212 weather and climate disasters since 1980 and have cost more than $1 billion, totaling $1.2 trillion.”

• NOAA put the total cost of Hurricane Katrina relief in 2005 at $160 billion and Superstorm Sandy in 2012 at about $70 billion

• 2017 Hurricanes Harvey, Irma, and Maria have damage estimates ranging from $300-$475 billion

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Hurricanes and Emergency Procurements

• “Eight days after addressing Hurricane Harvey in Texas, the General Services Administration … pivoted to the Irma storm aimed at Florida, relaxing certain contracting rules to encourage speed and local awards.”

• Federal Emergency Management Agency (FEMA) coordinates responses to disasters and state emergencies throughout the U.S.

• Department of Homeland Security oversees FEMA and releases information to contractors with System for Award Management (SAM) registration

• Every state has its own procurement requirements as does the federal government (2 C.F.R. part 200, subpart D, section 200.318-.326)

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Puerto Rico and Whitefish Energy Holdings –Legitimate or Scandal?

• Puerto Rico’s electric company (PREPA) contracted with Montana firm, Whitefish Energy, on October 2, 2017 for $300 million to repair the hurricane damaged electrical grid

• At the time the contract was signed, there were only two employees working for Whitefish Energy

• On October 29, 2017, the Governor of Puerto Rico called on PREPA to void the deal as it caused public outrage

• Possible inside dealings; terms of the contract were vague/broad; stated FEMA approved contract, but FEMA did not

• PREPA’s reasoning on hiring Whitefish was because it did not require a down payment whereas all the other bids did

• FBI preliminary inquiry initiated October 31 - pending

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Puerto Rico 100 days after Maria 12

As of December 29, 2017: • 100 days post Hurricane• 1.5 million people without power• 55% homes have electricity restored• Some parts of island will remain without power until

March or as long as May

Challenges facing hurricane recovery in Puerto Rico include funding from Congress

I-65 “Malfunction Junction” Bridge Disaster 13

Tanker loaded with fuel collides with car and crashes into bridge

Truck driver was killed

Bridge and road closed indefinitely

January2002

I-65 Overpass Collapse and Rebuild 14

Governor declared emergency, permitting emergency procurement

Proposals from 3 companies and negotiating contract with one offeror rather than competitive bid

I-65 Overpass Rebuild 15

4-1/2 days to Design ~ 37 days to Construct ~ 57 total days

Hurricane Katrina – Emergency Procurement Done “Wrong”

• August 25, 2005, Hurricane Katrina hits Louisiana, Mississippi, and Alabama as a Category 4 Hurricane

• $108 billion in property damage• 1,245 deaths in the US

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Fraud and Abuse in the Wake of Katrina

• By September 9, 2005, Congress had provided $63 billion in disaster relief funds

• House Committee on Government Reform found that “the circumstances and urgent needs created by the storm created an unprecedented opportunity for fraud and mismanagement.”

• Disaster of incredible proportions • Loss of life• Infrastructure destroyed• Countless homes lost• Debris everywhere

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Katrina Fraud and Abuse

• Two major problem areas:• debris removal• housing

• Government awarded large “Technical Assistance Contracts”• Not competitively bid• Not lump sum or fixed price• Formal task orders lacking – many verbal authorizations

• $400 million in estimated costs increase to $3.4 billion• Large contractors involved include Shaw, Bechtel, CH2M and Fluor

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Katrina Contract Award Statistics

• $10.6 billion in contracts awarded• 1,237 valued at $500,000 or more• Only 30% involved competition• Awards of “emergency” contracts without competitive

bidding continued at a high rate into November and December of 2015

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Debris Removal• Paid by the load/mile• Double-billing for debris• Mileage overstated• Ineligible debris hauling• Prices high -- $23 per

cubic yard instead of $12 per cubic yard

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Katrina Blue Tarp Program

• $300 million to provide temporary roof protection

• Average cost: $300 per roof• Average amount paid: $2,480 per

roof• Widespread Overbilling• Lots of mark-ups from work

performed by sub-subcontractors

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Katrina Manufactured Homes

• 24,967 manufactured homes purchased

• 1,755 modular homes purchased• By January of 2006:

• 4,600 manufactured homes used

• 100 modular homes used• 11,000 stored on a runway in

Arkansas• Total cost: $915 million

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FEMA Trailers

• 114,000 purchased• Total Cost: $1.7

billion• 23,700 never used• Many contained

formaldehyde and other contaminants

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Carnival Cruise Ships

• US Military Sealift Command paid $236 million to Carnival for 3 ships to house relief workers and hurricane victims over a 6 month time period

• Three ships: Ecstasy, Sensation and Holiday• Depending on occupancy rates, government was paying Carnival

$50,000 per person for 6 months or $2,000 per week• Congressmen loved pointing to Carnival promotions showing week-

long cruises for $599.

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Widespread Criminal Prosecution

• FBI’s Hurricane Katrina Task Force charged almost 1,000 people in 43 districts with Katrina-related fraud

• Ray Nagin, Mayor of New Orleans, sentenced to 10 years in federal prison in 2014 for taking $500,000 in bribes and kickbacks to hand out Katrina contracts

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Oroville Damn – Emergency Procurement Done “Right”

California Department of Water Resources

Tallest dam in the U.S.;770 feet high

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Spillway used to control lake level; crater discovered

February 7, 2017

California Department of Water Resources

Water overtops emergency spillway

February 11, 2017

California Department of Water Resources

February 27, 2011

California Department of Water Resources

Contracts for Repair

• Emergency Award for Phase 1

• Informal Bids for Phase 2• Incomplete Plans• Price Doubles• Change Orders

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BEWARE IN CALIFORNIA

• Public agencies must comply with applicable legal authority in awarding contracts

• Constitution, statutes, local ordinance, municipal code, and/or regulations

• Caselaw• Solicitation document

• Failure to comply risks void contract

• No right to be paid on void public contract

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Lessons Learned

• Large and lucrative market• More risky than traditional government procurement

• Common to have claims because• Limited information at bid time• Time more important than accuracy• Changing conditions during performance

• False Claims Act• Emergency and Disaster Assistance Fraud Penalty Enhancement Act of 2007 (18 U.S.C. § 1040)

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Lessons Learned (con’t)

• Be prepared for audits• Noncompetitive procurements (i.e. sole-source) may

be subject to greater scrutiny so require more careful administration

• Continuing under sole-source after urgent need has ended should be avoided

• Clean-up/repair v. replacement (betterment)• T&M contracts without a ceiling are risky• Cost plus percentage contracts are extremely risky –

barred in federal arena• Carefully document claims/changed conditions

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Questions 34