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THE GOVERNMENT®CONTRACTORInformation and Analysis on Legal Aspects of ProcurementVol. 44, No. 46 December 11, 2002rorism, and minimizing the danger of, and helpingin recovery from, any terrorist attacks that do oc-Focuscur. The Department will not, however, be a lawenforcement agency. The Justice Department andFBI would remain the lead law enforcement agen-¶ 490cies for investigating and prosecuting terrorist ac-tivities, along with state and local enforcementFEATURE COMMENT: Homeland Securityagencies.Act Of 2002The Department will be organized under fiveUnder Secretaries responsible for the followingOn November 25, 2002, President George W. Bushfunctions:signed into law the Homeland Security Act of 2002, Information Analysis and Infrastructureestablishing a massive, cabinet-level Department ofProtection—analyzing all intelligence informationHomeland Security (DHS). The Act, which becomesrelated to possible terrorists attacks on the U.S.effective January 24, 2003, represents the most ex-and evaluating vulnerability of key resources andtensive reorganization of the Federal Governmentcritical infrastructure of the U.S.in more than 50 years. See Homeland Security Act Science and Technology—combining variousof 2002, Pub. L. No. 107-296 and 44 GC ¶ 468.science and technology programs to develop coun-This FEATURE COMMENT addresses the provi-termeasures against terrorists threats, includingsions of the Act that are of greatest interest tothose that ...



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THEGOVERNMENT ® CONTRACTOR Information and Analysis on Legal Aspects of Procurement
Vol. 44, No. 46December 11, 2002 rorism, and minimizing the danger of, and helping in recovery from, any terrorist attacks that do oc Focus cur. The Department will not, however, be a law enforcement agency. The Justice Department and FBI would remain the lead law enforcement agen ¶ 490 cies for investigating and prosecuting terrorist ac tivities, along with state and local enforcement FEATURE COMMENT: Homeland Security agencies. Act Of 2002 The Department will be organized under five Under Secretaries responsible for the following On November 25, 2002, President George W. Bush functions: signed into law the Homeland Security Act of 2002, Information Analysis and Infrastructure establishing a massive, cabinetlevel Department of Protection—analyzing all intelligence information Homeland Security (DHS). The Act, which becomes related to possible terrorists attacks on the U.S. effective January 24, 2003, represents the most ex and evaluating vulnerability of key resources and tensive reorganization of the Federal Government critical infrastructure of the U.S. in more than 50 years. See Homeland Security Act Science and Technology—combining various of 2002, Pub. L. No. 107296 and 44 GC ¶ 468. science and technology programs to develop coun This FEATURE COMMENT addressesthe provi termeasures against terrorists threats, including sions of the Act that are of greatest interest to those that involve weapons of mass destruction. Government contractors. An overview of DHS Border and Transportation Security—com structure and missions is provided initially, fol bining various border control and transportation lowed by a summary of transition issues for trans agencies to secure U.S. borders and transporta ferred contracts and agencies. The FEATURE COMtion systems and to overhaul the nation’s immi MENTfocuses on the procurementrelated then gration enforcement and services. portions of the Act, including the provisions on Emergency Preparedness and Responseprocurement authorities and flexibilities, liability combining FEMA and the functions of various protections for suppliers of antiterrorism tech agencies to prepare for, and respond to, terrorist nologies, and protection of companies’ critical in attacks. frastructure information. Management—managing and administering Overview of DHS—The Department of the Department, including budgeting, accounting, Homeland Security will become the thirdlargest procurement, information technology and commu agency in the Federal bureaucracy, as it will con nications systems, facilities and other material re solidate 22 existing agencies and programs with sources, grants and assistance management pro an annual budget of approximately $37 billion. grams, and the transition and reorganization Major agencies to be transferred to the new de process. partment include the Transportation Security The Department will interact with nonfederal Administration, Coast Guard, Customs Service, entities—i.e., the private sector and state and lo Secret Service, Federal Emergency Management cal governments—through an Office for State and Administration, and Immigration and Naturaliza tion Service. The Department will be the primary federalThis material reprinted fromThe Government agency responsible for protecting against terrorContractorappears here with the permission of ism. It is charged with preventing terrorist attacksthe publisher, West Group. Further use without in the U.S., reducing America’s vulnerability to terthe permission of West Group is prohibited. 40025012West Group Copyright © 2002
® The Government Contractor 2
Local Government Coordination. The Office will assess and advocate for the resources needed by state and local governments to combat and respond to terrorism, and it will ensure that adequate plan ning, equipment, training, and exercises are avail able at the firstresponder level throughout the U.S. In particular, the Office will coordinate and consolidate the Federal Government’s systems of communication relating to homeland security, as well as coordinate the distribution of warnings and security information to all nonfederal entities. In addition, the Department will have a Spe cial Assistant to the Secretary responsible for overseeing the Department’s relationship with the private sector. The Special Assistant will be re sponsible for strategic communications with the private sector, monitoring the impact of home land security policies and regulations on the pri vate sector, and promoting publicprivate part nerships. In addition, the Special Assistant is charged with promoting the private sector’s “best practices” in securing critical infrastructure, as well as with creating privatesector “advisory councils” composed of representatives of indus tries and associations affected by homeland secu rity challenges. See also 44 GC ¶ 484. Transition Issues—The Act “transfers” to the new Department the functions, personnel, records, balances of appropriations, and other assets and obligations of specific federal entities, programs, and functions. For the most part, these transfers willnot affecteither the “completed administra tive actions” or the pending proceedings and civil actions of a transferred agency. Completed admin istrative actions include,inter alia, contracts and regulations, so the transfer will be relatively trans parent for companies currently performing con tracts with the transferred agencies. In terms of preserving agency autonomy, al though the Coast Guard and the Secret Service will be transferred to the new Department, both agencies will be preserved as distinct entities. In addition, the Act provides that the Transportation Security Administration will operate as a distinct entity within the Department for a period of two years, to give that agency time to complete the implementation of its aviation security responsi bilities. Notably, this statutory grant of autonomy may provide support for continuation of TSA’s in dependent procurement authority, notwithstand
¶ 490
ing the application of Governmentwide procure ment laws to the balance of the Department (see discussion below). Streamlined Acquisition Authority—When the Bush Administration first proposed to create a Department of Homeland Security in June 2002, it wanted the Department to have special author ity to use “flexible” procurement practices. The administration proposed that the Department would generally follow existing, Governmentwide procurement laws, but would have broad author ity to deviate from those rules if they would “im pair” the agency’s mission or operations. Unfortunately, while this approach was rea sonable in concept, the limits and daytoday imple mentation of this socalled “nonimpairment au thority” were legally problematic. In fact, it was not clear that such authority would be interpreted in the manner expected by the Administration, nor was it clear that there would be adequate ac countability and transparency regarding the au thority. See Richard P. Rector, FEATURE COMMENT, Proposed Procurement Authority of Homeland Se curity Department Needs Clarification, 44 GC ¶ 264, July 17, 2002. The Homeland Security Act addresses these concerns by providing clear authority, through September 2007, for the Department to depart from existing, Governmentwide rules when such rules would “seriously impair” the agency’s mis sion. In addition, the Act includes justification, approval, and reporting provisions that will en sure substantial accountability and transparency of the Department’s actions. But the Act provides significantly less flex ibility than the Administration originally proposed. While the Act allows the Department to use “spe cial streamlined acquisition authority” if the Sec retary (or a delegee) determines in writing that the mission of the Department would be seriously impaired without the use of such authorities, the Act specifically defines—and restricts—the scope of that authority. Specifically, under § 833 of the Act, the Department’s streamlined acquisition authority
This material reprinted fromThe Government Contractorappears here with the permission of the publisher, West Group. Further use without the permission of West Group is prohibited.
would be limited to one of four options: (1) treat ing any item or service to be acquired as a “com mercial item” for purpose of federal procurement laws, and allowing such acquisitions through “sim plified acquisition procedures” (FAR Part 13) for purchases up to $7.5 million in value (rather than the $5million threshold normally applicable to commercial items); (2) increasing the simplified acquisition threshold to $200,000 for contracts awarded and performed in the U.S.; (3) increas ing the simplified acquisition threshold to $300,000 for contracts awarded and performed outside the U.S.; and (4) increasing the micropurchase threshold from $2,500 to $7,500. The Act also imposes relatively strict approval and reporting obligations if these streamlined op tions are used. For example, the determination to use such authorities may not be delegated to an officer of the Department that is not appointed by the President, and the Department must no tify Congress within 7 days of a determination to use streamlined authority. In addition, the Comp troller General is to report to Congress at the end of Fiscal Year 2005 on the use and effective ness of the streamlined authority. Thus, the Act provides the Department with a modest amount of additional procurement flex ibility, while imposing significant approval and re porting burdens. For both the Department and for contractors, the most significant of these au thorities appears to be the Department’s ability to use commercialitem procurement practices for covered acquisitions, without regard to whether the supply or service was actually a commercial item. This authority may allow the Department to contract with commercial entities that are oth erwise reluctant about entering the federal mar ket. Emergency Procurement Flexibility—In addition to the streamlined acquisition authority that is granted to the new Department, the Act also provides procurement flexibility forall fed eral agencies in the event of certain homeland security emergencies in the next year. Specifically, §§ 851857 of the Act provide “federal emergency procurement flexibility” provisions that apply to procurements to facilitate defense against or re covery from terrorism or nuclear, biological, chemical, or radiological attack, but only if the solicitation for such procurement is issued within
Vol. 44, No. 46 / December 11, 2002 3
one year of enactment (hereafter referred to as “covered procurements”). The flexibility provisions are similar in na ture—but not identical—to the streamlined au thorities provided by § 833 of the Act. For instance, § 853 provides that, for covered procurements in support of humanitarian, peacekeeping, or con tingency operations, the simplified acquisition threshold is increased to $200,000 for contracts awarded and performed in the U.S. and to $300,000 for contracts awarded and performed outside the U.S. § 854 increases the micropur chase threshold for covered procurements to $7,500. Section 855 provides that, for covered pro curements, the head of an executive agency may apply certain laws applicable to commercialitem procurements without regard to whether the property or service is actually a “commercial item.” Unlike § 833, however, this provision does not allow an agency to treat a product or service as a commercial item for the purpose ofall fed eral procurement laws, but only for four speci fied laws concerning simplified acquisition pro cedures and laws inapplicable to commercialitem procurements (i.e., 41 U.S.C. §§ 427, 430, 253(g) and 10 USC § 2304(g)). There is no threshold, however, on the size of such procurements for purposes of using simplified acquisition thresh olds; in other words, the normal $5million threshold does not apply, and there is no substi tute threshold. Finally, § 856 of the Act provides that the head of an executive agency shall, when appro priate, use certainexisting streamlinedacqui sition authorities and procedures for covered procurements. The streamlined authorities identified in the Act are the use of certain ex ceptions to competition requirements, the use of task and delivery order contracts, and the use of exceptions to the requirement for pro curement notice. If the agency elects to use one of the specified exceptions to competition re quirements (i.e., one responsible source, un usual and compelling urgency, national security,
This material reprinted fromThe Government Contractorappears here with the permission of the publisher, West Group. Further use without the permission of West Group is prohibited.
¶ 490
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and public interest), § 856 provides for a waiver of certain small business threshold require ments. In contrast to § 833, there are no approval and reporting obligations if these emergency pro curement flexibilities are used; however, the Comptroller General is to report to Congress not later than March 2004 on the use and effective ness of the emergency authority. In sum, the Act provides both the Department of Homeland Security and all federal agencies with new procurement authorities for acquisitions re lating to homeland security, but the authorities are relatively modest in scope. Thus, while con tractors should look for opportunities to take ad vantage of the flexibility provided by such authori ties, they can expect that most procurements in support of homeland security will follow existing, Governmentwide procurement practices and pro cedures. Critical Infrastructure Information—Title II of the Act, entitled “Information Analysis and Infrastructure Protection,” describes the Department’s responsibilities for coordinating pro tection of the nation’s critical infrastructure, in cluding the new Department’s role in cybersecurity. Subtitle B of Title II, “Critical In frastructure Information,” addresses the collec tion, analysis, and sharing among governmental entities of nonpublic information related to the vulnerability of critical infrastructure to terror ist attack. The Government’s desire and need for such information from private sources is obvious after the September 11 attacks. The vast majority of the nation’s critical infrastructure is owned and controlled by private concerns. American busi nesses, including many contractors, however, are reluctant to voluntarily submit information re garding their critical infrastructure assets, given the inherent risk of public disclosure. The Act at tempts to address this industry concern. To facilitate the Critical Infrastructure Pro tection Program, Congress has provided certain legal protections from public disclosure for criti cal infrastructure information submittedvolun tarilyby private entities to the Department. Spe cifically, § 214 of the Act sets forth the following restraints on the dissemination and use of such information:
¶ 490
• The information is exempt from disclosure under the Freedom of Information Act (5 USC § 552); • If the information is submitted “in good faith,” it cannot be used by any federal, state, or local governmental authority or third party in any civil action without the written consent of the sub mitting person or entity; • The information cannot be disclosed or used by any federal employee for any purpose outside the Critical Infrastructure Protection Program, without the written consent of the sub mitting party, except (a) in furtherance of a crimi nal investigation or prosecution, or (b) when dis closure is to Congress or the General Accounting Office; • If provided by the Federal Government to a state or local government, the information can not be disclosed or used for other than the pro tection of critical infrastructure, or in furtherance of a criminal investigation or prosecution, with out the written consent of the submitting party, notwithstanding any state or local laws requiring disclosure of information or records; and • The submission of information does not waive trade secret protection or any other legal protection or privilege. In order to be considered voluntarily submit ted—and therefore eligible for protective treat ment—the private party must accompany any written information with the following express statement: This information is voluntarily submitted to the Federal Government in expectation of protection from disclosure as provided by the provisions of the Critical Infrastructure Infor mation Act of 2002. To obtain disclosure protection for oral infor mation, the private party must submit a similar express statement to the Department within a reasonable period of time. The Act also requires the Federal Government to shield from disclosure the identity of any source of voluntarily submit ted critical infrastructure information, as well as any proprietary or business sensitive information,
This material reprinted fromThe Government Contractorappears here with the permission of the publisher, West Group. Further use without the permission of West Group is prohibited.
when issuing public advisories, alerts, or warn ings regarding potential terrorist threats. Any federal employee who knowingly discloses criti cal infrastructure information in any manner not authorized by law is subject to employment ter mination, fines, and up to a year in prison. The statute, however, contains no penalties for wrong ful disclosure of critical infrastructure informa tion by state or local government employees. Section 215 of the Act states that “[n]othing in this subtitle may be construed to create a pri vate right of action for enforcement of any provi sion of this Act.” Thus, any private entity seeking a court injunction to prevent public disclosure of infrastructure information should expect Govern ment counsel to request dismissal of the suit based on this statutory language. In contrast, private parties are entitled to sue the U.S. to enjoin the release of trade secrets or other competitively sensitive information under the Freedom of In formation Act. The Department must establish, within 90 days of the statute’s enactment, uniform federal procedures for the receipt, care, and custody of voluntarily submitted critical infrastructure infor mation. While official procedures and agency regu lations will provide greater insight into the op eration of the legislative protections, American businesses likely will have some residual concerns about whether they can depend on the Govern ment to protect their critical infrastructure in formation from public exposure. Liability Protection for AntiTerrorism Technologies—The Support Antiterrorism by Fostering Effective Technologies Act of 2002— known as the “SAFETY Act”—is set forth at Title VIII, Subtitle G, of the Homeland Security Act. Touted as the tortreform approach to liability protection for Government contractors involved in the war against terrorism, the SAFETY Act expressly limits the claims and damages poten tially faced by companies who provide antiter rorism technologies. Notably, the liability limita tions are intended to cover all federal, state and local contracts, as well as private contracts, in volving qualified antiterrorism products. In the SAFETY Act, Congress has provided liability pro tection that is fundamentally different in concept and scope than Government indemnification stat utes (e.g., P.L. 85804).
Vol. 44, No. 46 / December 11, 2002 5
A Government contractor or other business concern must satisfy three fundamental require ments to obtain the Act’s special legal protec tions. First, the contractor’s product must be des ignated as a “qualified antiterrorism technology” by the Secretary based on the Act’s prescribed criteria, and must be placed on the “Approved Product List for Homeland Security.” Notably, t h es t a t u t ed o e sn o ta d d r e s sw h e t h e rt h e Secretary’s decision is subject to protest or ap peal. Second, the contractor must maintain a reasonable amount of commercial liability insur ance coverage. Third, the contractor—and its subcontractors, suppliers, and customers—must waive any legal claims against each other for damages in the event of a terrorist attack. For contractors who sell qualified antiterror ism products, the SAFETY Act provides impor tant protection from lawsuits and damages that might otherwise result from the dire consequences of a terrorist act: • The Federal district courts have exclusive jurisdiction of such claims, thereby eliminating the state courts as a venue for plaintiffs; • A rebuttable presumption that the “Gov ernment contractor defense” applies to the quali fied technology helps shield the seller from prod uct liability claims. This legal presumption covers product sales to both federal and nonfederal customers and can be rebutted only if the seller acted fraudulently when submitting product in formation to the Department for purposes of obtaining this special liability protection. It re mains to be seen how the federal courts will in terpret and apply this legislative provision in the context of particular product liability claims; • Claim damages are limited to the amount of the seller’s insurance coverage, and any recovery must be reduced by the amount of any collateral compensation; • Noneconomic damages (e.g., pain and suf fering) require proof of physical harm, and are limited to the seller’s percentage of fault; and • Punitive damages and prejudgment inter est are barred.
This material reprinted fromThe Government Contractorappears here with the permission of the publisher, West Group. Further use without the permission of West Group is prohibited.
¶ 490
® The Government Contractor 6
For contractors doing business in the home land security market, the SAFETY Act provides a measure of certainty and comfort when assess ing potential liabilities. The legislation will en courage companies with valuable antiterrorism technologies to participate in the Government’s homeland security programs and to consider com mercial sales of antiterrorism products. The business community undoubtedly will watch care fully for important legal developments, however, as the Government prepares regulations to imple ment the SAFETY Act and the courts interpret the scope and details of the new statute’s liabil ity provisions. The Homeland Security Act will not only re structure the Federal Government, it will re shape the relationships among the Government, the private sector, and state and local entities on a broad range of securityrelated issues. There is still much work to be done in creating the new department, including the issuance of regulations implementing many of the Act’s key provisions (e.g., the process and procedures for designat ing “qualified antiterrorism technologies”). Con tractors should be sure to monitor these devel opments closely to ensure that they recognize the risks and opportunities presented by this important new legislation. This FEATURE COMMENT waswritten for THE GOVERNMENT CONTRACTORbyRichard P. Rector andKevin P. Mullen, both partners in the Washington, DC office of Piper Rudnick, LLP.
¶ 490
This material reprinted fromThe Government Contractorappears here with the permission of the publisher, West Group. Further use without the permission of West Group is prohibited.