By Bill Gammon of Nelson Mullins, LLP
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (Public Law No. 111-5) ("ARRA" or the "Recovery Act"). The Recovery Act is one of several tools that the Federal Government has created to provide economic aid and a stimulus to combat the ongoing economic problems afflicting the entire country. The Recovery Act provides $111 Billion for domestic infrastructure and science, $43 Billion for energy infrastructure, $59 Billion for health care, $53 Billion for education and training, $144 Billion for state and local fiscal relief, and additional funds for tax relief and aid to the vulnerable.
Of particular interest to the readers of this article should be the funds established for infrastructure projects, as those funds provide many significant contracting opportunities. For example, billions go to GSA for energy renovations on existing federal facilities, billions to the Corps for environmental restoration, and infrastructure, billions to help develop the "smart" electrical grid, billions for clean water and drinking water programs, and billions for VA, Agriculture and other executive agencies. In short, a huge amount of money is set aside for construction projects across the country.
One of the key elements of both the Recovery Act and guidance issued by the Office of Management and Budget is that there must be a "transparency and accountability framework" to ensure that the funds from the Recovery Act are used properly to stimulate the economy, and that the public at large has confidence that the funds are not being used in a way that would favor any one entity. These transparency and accountability requirements, new to the world of government construction contracting, are covered in Title XV of the ARRA.
The Federal Acquisition Regulation (the "FAR") has now been modified to accomplish those goals. The FAR rules apply to contracts funded wholly or in part by the Recovery Act. Additionally, the FAR rules apply to both prime contractors and first-tier subcontractors. The FAR now requires that:
- Contractors must report on their use of funds received on contracts let using ARRA funds;
- Federal agencies must use clauses that will aid in meeting this transparency goal by requiring review and audit of awards;
- Agencies must have pre-award and award publications for both contracts and orders under larger contracts;
- The Government must apply existing whistleblower protections to Recovery Act contracts; and
- Federal agencies must include certain Buy American Act provisions that relate to specified construction materials.
The reporting requirements are a wholly new requirement in federal contracting. Contracting Officers are charged with ensuring that the reporting requirements are met, but they are not required to validate the reports. For all contracts awarded prior to June 30, the contractor reports on the use of funds to that point will be due on July 10. Thereafter, subsequent reports will be due no later than 10 days following the end of a calendar quarter. The reports then must be posted on public websites.
Contractors will have to provide the following in their reports: the amount of Recovery Act funds invoiced during the reporting period; a list of all significant services performed or supplies delivered including construction deliverables, a description of the overall purpose and expected results from the award of the contract, and a narrative description of the employment impact of the work. And, as noted above, the general contractor will have to ensure its first tier subcontractors are preparing and timely submitting its reports, and that those reports are accurate. All of this reporting is new to the contracting community and will require close attention by contractors.
Agency inspector generals and the Government Accountability Office ("GAO") are then charged with reviewing those reports and other records. Moreover, they will have the ability to interview contractor and subcontractor personnel; and with such interviews comes the greater potential for incomplete or inaccurate statements, either of which pose significant risks on the contractors involved. And, GAO will be able to audit those contracts and subcontracts.
The reporting requirements are further strengthened by applying federal whistleblower protections. Contractors and subcontractors are prohibited from discharging, demoting or discriminating against employees in retaliation for disclosing adverse information to federal officials regarding the use of the Recovery Act funds.
And, one area of the Recovery Act that has received perhaps as much attention as any other portion has been the rules implementing Buy American provisions. It is designed to protect US jobs in the steel, iron and manufactured construction materials industries. These provisions contain somewhat competing requirements in that the wording of ARRA states that all of the iron, steel and manufactured goods must have been produced in the US, but a last minute addition in the Senate said that the provision must be applied consistent with existing US international agreements which of course allow for the use of foreign produced materials and goods under certain situations. This provision has been receiving much attention.
Of particular note, the Environmental Protection Agency announced on June 1, a new national waiver of ARRA's Buy American requirements on clean water and drinking water projects that receive funding from the Recovery Act. This relaxation will be accomplished through Agency waivers based on necessary product not being available in the US, or the use of such American product will increase the cost of the project by 25%. It is premature to anticipate the impact of this waiver, and whether such waivers will occur in other agency procurements; however, the situation should be closely watched.
It will be important for all contractors to closely monitor further implementation of the Recovery Act. Without question, the Recovery Act is providing significant new funding for major contracting activity. However, as seen through the regulatory implementation discussed above, there are major new reporting requirements on contractors, and with those reporting requirements are opportunities for contractors to err and become subject to enforcement actions.
Questions about this article may be referred to William H. Gammon, a Nelson Mullins partner in the Raleigh Office, at 919.877.3809 or Bill.Gammon@nelsonmullins.com. For more information about ARRA projects, be sure to visit the NCMBC ARRA website by Clicking here.
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