Infotech and the law: Look before you step into Katrina reconstruction work

Eliza Nagle

The immense damage Hurricane Katrina did to the Gulf Coast is projected to require the largest reconstruction effort in U.S. history, and there is no doubt that government contractors will play a significant role in the effort. However, navigating through procurement rules and regulations that are rapidly changing to accommodate Katrina reconstruction may not be without risks.

In his address to the nation, President Bush remarked that a primary goal is not only to get work done quickly, but also wisely and honestly. His remarks raise an interesting question: Is it possible to accomplish this enormous reconstruction in an accelerated fashion, while providing enough oversight to prevent fraud, waste and abuse?

Some would say that the recent track record on wise, honest and expedited reconstruction efforts is less than stellar. Bush and Congress have committed to having a team of inspectors general review agency expenditures.

To speed rebuilding efforts, the government may consider taking advantage of emergency procurement provisions, such as the unusual and compelling urgency exception to competition. The government may exercise this method of awarding a sole-source contract if it finds that a delay would cause it serious injury, financial or otherwise.

Companies holding contracts for goods and services needed in the rebuilding effort may benefit the most from the unusual and compelling urgency exception. However, the president and Congress also have responded by imposing changes to the standard procurement regulations to accelerate the rebuilding effort. The changes not only offer attractive business opportunities to contractors -- they also may heighten the risk of fraud, waste and abuse.

For instance, Congress initially raised the emergency micropurchase threshold for Katrina relief efforts from $15,000 to $250,000. However, in response to strong public criticism, the Office of Management and Budget announced that the micropurchase threshold for reconstruction efforts would return to pre-Katrina levels. The public was concerned that procurements under the micro-

purchase threshold generally were exempt from many standard procurement requirements, including competition and audit requirements.

OMB's recent announcement makes it less likely that government-issued credit cards will be used for Katrina relief efforts. Use of these credit cards has been an unfortunate source of fraud, waste and abuse, as chronicled in Government Accountability Office and inspector general reports.

OMB's announcement, however, does not affect an agency's ability to take advantage of the unusual and compelling urgency exception to enter into sole-source contracts. Additionally, the FedBizOpps Web site, on which the government posts business opportunities, notes that because of the immediacy, it is unlikely that opportunities dealing with Katrina will be advertised right away. Reduced competition and visibility could make Katrina procurements more vulnerable to improprieties.

Despite the more flexible procurement environment, contractors must step carefully as the Katrina rebuilding effort proceeds. If the experience in Iraq is any indication, contractors can expect an increase in audits and oversight after the initial wave of Katrina contracts. Contractors also are likely to see intense scrutiny by taxpayer watchdog groups and the press in search of improprieties.

Companies that enter into Katrina reconstruction contracts will need to navigate carefully through the modified, evolving procurement environment to ensure they are in full compliance with all requirements. Katrina reconstruction contracts may provide big opportunities to existing as well as new contractors in the gulf region, but there also is the potential for big risks.

Eliza Nagle is an associate in the Government Contracts practice of DLA Piper Rudnick Gray Cary LLP in Washington. Her e-mail address is eliza.nagle@dlapiper.com.

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