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WASHINGTON — Is it safe to do business with the Department of Homeland Security? Not yet, say lawyers who specialize in guiding corporate clients to lucrative contracts with government agencies. These advisers say there are hundreds of companies anxious to pitch their products and services to the fledgling department. But many companies remain frustrated by a lack of guidance from the department on a crucial issue: their potential exposure to legal claims from victims of any future terrorist attacks. Homeland Security Secretary Tom Ridge’s new domain seems to offer a bonanza for government contractors. The agency’s 2004 budget provides $809 million for the development, testing and evaluation of anti-terrorism technology. And last week, President Bush asked Congress to dole out another $1.5 billion to the department to cover “terrorism-related prevention, preparedness or response requirements.” So far, say government contract experts, the homeland security contracting boom has yet to fully materialize. One key reason: fear of lawsuits. Under a provision of the law that breathed life into the department in November, companies that provide products and services may be eligible for a statutory shield against civil lawsuits based on terrorist acts. The trouble is that the homeland department has yet to spell out exactly how companies will qualify for this protection. “There is a real need for expedition here to get the regulations and procedures out and start the process,” says James McCullough, a D.C. partner in Fried, Frank, Harris, Shriver & Jacobson’s litigation department. “It’s not clear how anyone is going to qualify.” Included in the Homeland Security Act of 2002 is a provision designed to provide companies that contract with the department protection from lawsuits related to homeland security products and services. Known as the Safety Act, the provision makes it clear that a product needs Secretary Ridge’s approval for inclusion on a list of anti-terrorism technologies given liability protections. But the provision doesn’t explain how to apply for approval as a qualified anti-terrorism technology — or spell out how the department will go about certifying the products. The department’s general counsel is working on the regulations with its science and technology directorate, as well as the Office of Management and Budget, but department officials would not comment on when rules would be released. Sources close to the department say the regulations are expected to come out in a matter of weeks. Qualified anti-terrorism products could include technologies such as chemical weapons sensors, optical scanners and explosives detectors. Secretary Ridge has declared that one of his most pressing missions is the development of a certification process to create a list of qualified anti-terrorism technology. “It is up to us to take advantage immediately of what’s out there, and there will be no higher priority for this new unit,” Ridge said on March 20, during testimony before the House Appropriations Subcommittee on Homeland Security. SAFETY IN NUMBERS Despite those assurances, government contracts lawyers and their clients are left with uncertainties. “Since getting on the list is such a big deal in providing a bulletproof defense, there is a lot of anxiety about this,” says Fried, Frank’s McCullough. Rep. Zachary Wamp, R-Tenn., summed up the concerns when he pressed Ridge about the certification process at the hearing on Capitol Hill earlier this month. “How are we going to vet what works, what doesn’t work — and I mean rapidly, not like three or four years from now?” Wamp queried Ridge. Under the Safety Act, plaintiffs who sue makers of department-qualified anti-terrorism products that fail in the case of a terrorist attack can only bring suits in federal courts and cannot seek punitive damages or pre-judgment interest. The Safety Act coverage even protects manufacturers beyond those that contract with Ridge’s department. As long as a product is approved by the Homeland Security Department, the law provides the same kind of protection for federal, state, local government, and private contracts. The Safety Act outlines the criteria the department would look at in deciding if a company qualifies. The act says the department can weigh factors such as whether the product has been used effectively by the government in the past and whether it can be deployed swiftly in public and private settings. Another criterion for qualified technology is coverage under “reasonable insurance.” Liability is capped at whatever the contractor’s insurance will provide. But many makers of anti-terrorism products face prohibitive terrorism coverage premiums, says Raymond Biagini, head of McKenna Long & Aldridge’s product liability defense practice, who authored some of the provisions in the Safety Act. The act was crafted in part to spur a drop in terrorism insurance premiums by providing more protection for purchasers of the insurance and less risk to insurers, Biagini says. These are the kinds of provisions that have provoked some to fault the act as too protective of defendants. Sen. Joseph Lieberman, D-Conn., sharply criticized the Safety Act’s provisions in Congress in November, calling them “unnecessary and overreaching” and saying that granting qualified technology status “would entitle companies selling that technology to broad liability protection from any claim arising out of, relating to, or resulting from an act of terrorism, no matter how negligently — or even wantonly and willfully — the company acted.” EXISTING STATUTES Fried, Frank’s McCullough predicts the new department’s procurement rules will largely follow federal acquisition regulations that have been around since the 1980s. But, at least for now, there are many questions about how the Safety Act will interact with existing government contracting law. “No one knows how long the application process is going to take,” says Richard Rector, a member of Piper Rudnick’s government contracts group and a member of the firm’s homeland security committee. “Until they can get on that list, or get indemnification, there’s a concern.” Some lawyers are advising that clients wait to submit applications for homeland security contracts until the questions are answered. But Biagini of McKenna Long & Aldridge says the statute actually provides enough guidance about what companies need to do to qualify with the department. As a result, he says, there’s no need to wait on the sidelines. “Our strong hope and expectation is that the department will consider these submissions as they come in, because there is a palpable need to have these anti-terror technologies deployed,” Biagini says. Rand Allen, co-chair of the government contracts group at Wiley Rein & Fielding, says that because the homeland security legislation was authored so quickly, some details about how portions of it — particularly those related to procurement and contractor liability issues — will be enacted are unclear. The act has also created confusion for companies that had existing contracts with any of the 22 agencies folded into the new department. For example, when the Immigration and Naturalization Service became part of Homeland Security, it put a wrench in contract negotiations for one of Wiley Rein’s clients that has a large contract with the agency dating back long before the new department’s launch. “The creation of the new department has created a lot of uncertainty about the process,” Allen says. “How do you relate new regulations to all of this other stuff that’s out there? There are a lot of open questions.” Lily Henning is a reporter with Legal Times , a Recorder affiliate based in Washington, D.C.

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