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In the wake of Hurricanes Katrina and Rita, the federal government needs to rebuild not just homes but also businesses in the damaged area. Fortunately, a federal statute provides a solution — if authorities would start paying attention. Thus far, signs are not encouraging. The Federal Emergency Management Agency and the Department of Homeland Security have been strongly criticized because too much of the disaster assistance to Louisiana, Mississippi, and Texas has come through contracts with large, nonlocal corporations. Of the initial 140 FEMA contracts, only two were awarded to Louisiana-based companies. Critics have pointed out that many of the large contractors have little to no geographic or business relationship to the disaster areas. As a result, federal dollars spent with these contractors are unlikely to benefit local businesses. One particular round of criticism was set off when the federal government, through the Army Corps of Engineers, awarded a contract for portable schoolrooms to an Alaskan native-owned corporation with headquarters in North Carolina. Although it appears the Army Corps of Engineers knew that a Mississippi contractor had portable schoolrooms available, the Alaskan corporation was not directed to purchase these products from a local business. Instead the corporation chose to acquire schoolrooms from more distant suppliers in Georgia and California. PREFERENCE FOR LOCALS It doesn’t have to work like this. In seeking to rebuild a disaster-struck region, the federal government could reasonably restrict competition to or prefer local businesses in areas affected by the disaster. Indeed, such preferences are created by the very statute that established FEMA. Section 307 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act creates such an override preference for local businesses. The Stafford Act requires that contracts for “debris clearance, distribution of supplies, reconstruction and other major disaster or emergency assistance” activities be awarded “to organizations, firms and individuals residing or doing business in the area affected by such major disaster or emergency.” Regulations implementing the Stafford Act’s preference for local contractors may be found in the Federal Acquisition Regulation (FAR) and the FEMA FAR supplement (FEMAAR). FAR 6.302-5 recognizes the Stafford Act as one of a number of statutes that allow for less than full and open competition. Upon the declaration made by the president under the Stafford Act (which occurred after the hurricanes), FAR Subpart 26.2 mandates that federal agencies give a contracting preference, to the extent feasible and possible, to “organizations, firms, or individuals residing in or doing business primarily in an area affected by the major disaster or emergency.” In addition, FAR 4.1102(a)(3)(ii) eliminates some of the red tape associated with federal contracting by exempting businesses in disaster or emergency areas from the requirement of registering in the Central Contractor Registration database before the award of a contract under the Stafford Act. FEMAAR 4417.70 sets out FEMA’s policies relating to preferences for local contractors. Unfortunately, these policies are less than clear. On the one hand, FEMAAR 4417.70(c) mandates that FEMA incorporate FEMAAR 4452.217-70 in each competitive solicitation for disaster response. The latter regulation reiterates the Stafford Act’s local preference requirements and grants local businesses whose bids fall within 130 percent of the lowest nonlocal business price the opportunity to match the lowest price offered by the nonlocal business. Under FEMAAR 4452.217-70, FEMA can also set aside procurements for local businesses in a disaster-struck region that has been declared a “labor surplus” area. And the agency can choose to advertise FEMA contracting opportunities only in disaster areas. But what FEMAAR 4417.70(c) gives, FEMAAR 4417.70(d) takes away by granting FEMA the discretion to determine whether the inclusion of FEMAAR 4452.217-70 in any competitive solicitation for disaster relief is in the “best interests of the government.” Thus, this allows the agency to exclude the preference clause from any disaster-related solicitation. CONFUSING AND FRUSTRATING In the wake of the recent criticism about the contracts awarded outside the hurricane-disaster areas, has the federal government attempted to use the Stafford Act’s preferences as implemented in FAR and FEMA regulations? Apparently not. Based upon the federal government’s recent (and limited) attempts to ameliorate its previous actions, it would seem that the federal government is unaware of the regulations, is purposely ignoring them, or is simply unable to adapt the government’s standard contracting processes. Despite the government’s flurry to set up Web sites intended to assist disaster-area businesses in finding contracting opportunities, all these sites ignore the fact that FAR 4.1102(a)(3)(ii) permits an agency to award a contract under the Stafford Act to a business not registered in the Central Contractor Registration. Instead these Web sites require that all contractors register in the Central Contractor Registration before pursuing any federal contract. The sites that needlessly require Central Contractor Registration include the DHS site titled “Working With DHS: Hurricane Katrina Emergency Contracting Information,” FEMA’s site titled “Doing Business with FEMA,” and the new site created by the Department of Commerce, titled “Hurricane Contracting Information Center.” Perhaps most egregious is the Army Corps of Engineers’ site for the Vicksburg, Miss., Consolidated Contracting Office. This one advises potential contractors that “in order to view or download solicitations,” they must be registered not only in the Central Contractor Registration database but also in a system called FedTeDS, which appears to be an “online dissemination solution designed to safeguard sensitive acquisition related information for use by all Federal Agencies and their approved business partners.” Only the Army Corps of Engineers provides Web sites that focus on and advertise contracting opportunities specifically within Louisiana, Mississippi, and Texas. The DHS, FEMA, and Commerce Department sites all refer potential contractors — whether local or nonlocal — to www.fedbizopps.gov. And that Web site proves to be of little assistance to any business in a disaster area that is attempting to obtain disaster-related contracts. This site’s Hurricane Katrina page advises potential contractors of the following: “Due to the immediacy of emergency opportunities, it is unlikely that solicitations dealing with the hurricanes will be advertised through the FedBizOpps system right away.” It then advises potential contractors that they must obtain a Data Universal Number Systems number from Dunn & Bradstreet, register their company in the Central Contractor Registration database, and complete the online representations and certifications found at orca.bpn.gov. Perhaps most frustrating to businesses in disaster areas that seek government contracts to assist in disaster recovery, the fedbizopps site refers potential contractors right back to the FEMA, DHS, and Army Corps of Engineers sites for actual contracting opportunities. The result is a runaround for local businesses that imposes needless requirements and slows the very contracts that the Stafford Act was intended to encourage. Finally, while various government Web sites currently attempt to identify subcontracting opportunities for small and disadvantaged businesses, the law in this case comes up short. Nothing in the Stafford Act nor in its implementing regulations require that contractors award their subcontracts to businesses in the disaster areas. As a result, there is no incentive for prime contractors to behave differently from the Alaskan corporation that chose not to award a subcontract to a Mississippi contractor that was ready, willing, and able to perform. TIME TO REBUILD The Stafford Act, FAR, and FEMAAR provide the federal government with the authority to cut through bureaucratic red tape and award contracts to responsible businesses in Louisiana, Mississippi, and Texas. But the federal government has not done so, and its efforts to date can serve only to confuse and frustrate any business in the disaster areas that seeks to obtain government contracts to assist in disaster relief. Further, without any incentive, the major prime contractors that do this kind of work — such as Halliburton, the Shaw Group, and AshBritt Environmental — are unlikely to subcontract out to local businesses. The federal government’s actions, or inaction, to date have created an opportunity for critics of the current administration. Senate Democrats have responded by proposing the Rebuild with Respect Act. This bill would restrict the federal government from entering into any contract for disaster-relief services in response to Hurricanes Rita and Katrina unless workers affected by the hurricanes made up at least 50 percent of the work force employed by the contractor to provide such services. The same 50 percent rule would apply to the work force of each subcontractor at each tier of the contract. The Stafford Act was meant to help restore the normal functioning of governments, communities, and residents in disaster-struck areas. The act recognizes that putting local companies back to work is a vital part of this process. As the federal government reviews its disaster-relief efforts and responses to the hurricanes, it should focus on the goal of rebuilding Louisiana, Mississippi, and Texas economically as well as physically. Ensuring full compliance with the Stafford Act would be a good step.
Holly A. Roth is a partner in the government and regulatory group of the D.C. office of Manatt, Phelps & Phillips.

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