American Recovery & Reinvestment Act Contains Complex Procurement Requirements

Introduction  In February, President Barack Obama signed the American Recovery and Reinvestment Act of 2009. According to its supporters, the Act is designed to jumpstart a sluggish economy and control the growing unemployment rate. It authorizes $60 billion in contract spending to fund, among other things, projects to modernize roads, transit systems, bridges and schools throughout the United States.[i] In fact, state and federal officials have already contracted with businesses to begin spending the stimulus funds.[ii] However, the ARRA also imposes a variety of contracting requirements for businesses who engage in these public works and public building projects for state and local governments.[iii] While the Act creates significant opportunities for contractors, states and local governments, these opportunities are accompanied by a new set of obligations. Essentially, businesses that are funded “in whole or in part by Recovery funds” must comply with federal contracting requirements under the Federal Acquisitions Regulations. What’s more, passage of this Act significantly modifies accepted procedures under current public contracts law for municipalities around the country by increasing the obligations of both companies and government. American Recovery & Reinvestment Act - The Basics ARRA includes various “use it or lose it” provisions that force contracting agencies to use approximately $120 billion dollars almost immediately following its passage.[iv] In order to achieve its goals of “unprecedented” transparency and “maximum competition,”[v] the Act outlines obligations for contracting agencies and federal contractors to prevent co-mingling of stimulus funds and to track where, when and how stimulus funds are spent.[vi] Moreover, to aide in this effort, the Act created the Recovery Act Accountability and Transparency Board as well as federal online accounting tools.[vii] Responsibilities of Agency Contracting Officers Under the ARRA, state and local agencies providing contracts with stimulus funds should promote transparency and competition.[viii] Contracts funded under the Act should, to the maximum extent possible, be awarded using competitive procedures.[ix] Any contract that is not awarded using these competitive procedures must be posted under a special section of the Recovery Website and all contract awards must be entered into the Federal Procurement Data System.[x] Moreover, on the FedBizOpps.gov site, contracting officers must identify the action by posting pre-solicitation notices, announce contract awards and provide a rationale for awarding any contract that is not fixed priced or competitive.[xi] Pre-award notifications is required for task and delivery contracts worth more than $25,000 and post-award publications are required for contracts, task, modifications or delivery orders over $500,000. These post-award publications describe the products and services in a clear and unambiguous manner to the public.[xii] ARRA-What do Contractors Need to Know? The ARRA increases contractor responsibilities by mandating periodic disclosure reports, purchase requirements on contract materials, encouraging governmental access to company records and personnel and minimum wage requirements, to list a few.[xiii] It is crucial for contractors to adhere to these provisions because failure to abide by rules and regulations can result in fines, contract termination or criminal investigation. A. Reporting Requirements All contractors receiving partial or complete Recovery funds for a contract must adhere to the ARRA’s strict reporting obligations. Unlike most local governments’ public contracting requirements, these reporting obligations apply to contracts below the $25,000 threshold, commercial item contracts and Commercially Available Off-The-Shelf (COTS) item contracts.[xiv] Under the Act, contractors must file quarterly reports detailing the contract amount, the dollar amount from the contractor invoices, supplies or services delivered and performed to date.[xv] The reports, due no later than 10 days after the close of the calendar quarter, must also include an assessment of the completion status of work, an estimate of the number and types of jobs created, as well as the number and types of jobs retained due to Recovery Funds.[xvi] Because of the huge emphasis on transparency, contractors, and even first-tier subcontractors, must provide the names and total compensation for their five most highly compensated officers for the calendar year in which the contract was awarded. This disclosure is required only if the contractor, in the preceding fiscal year, received 80% or more of its annual gross revenue from Federal contracts, grants, loans and cooperative agreements, $25 million in annual gross revenues from federal funding sources and the information is inaccessible to the public under the Securities Exchange Act or the Internal Revenue Code.[xvii] Finally, since contractors must also provide detailed information on all first-tier subcontractors with subcontracts over $25,000, a limited burden is placed on first-tier subcontractors as well.[xviii] However, the federal government has attempted to make periodic disclosures manageable for contractors by constructing an online reporting tool for the upcoming disclosure report due on October 10, 2009.[xix] The site, www.FederalReporting.gov, also allows contracting officers to track the progress of contract performance.[xx] Moreover, all disclosed information will be available to the public. B. “Buy American” Requirements The Act prohibits the use of iron, steel and manufactured goods that are not produced in the United States for public work projects.[xxi] However, contractors must still comply with United States international agreement obligations if the contract’s estimated acquisition value is over $7.443 million. This responsibility to use American products is waived in only three circumstances: 1) iron, steel or manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of satisfactory quality; 2) the use of these goods will increase contract costs by more than 25%; or 3) applying the domestic preference would be inconsistent with the public interest.[xxii] On the other hand, construction materials remain covered by the provisions of the Buy American Act. Any unmanufactured article, material or supply bought for incorporation into the building or work must also originate from the United States.[xxiii] C. Increased Whistleblower Protections The ARRA increases whistleblower protections for employees of any employer who receives a contract, grant or other payment appropriated or made available by the stimulus bill, including private employers and federal, state and local government contractors and subcontractors.[xxiv] Unlike the narrowly drawn whistleblower laws that protect private sector employees, crafted to protect concerns about public health, public safety or violations of the law, the ARRA applies the federal whistleblower protections that were designed to protect concerns about mismanagement, waste and abuse of public funds.[xxv] Non-Federal employers are prohibited from retaliating or discriminating against any employee as a reprisal for disclosing covered information to a supervisor or specific categories of government officials[1], including the Recovery Act Accountability and Transparency Board.[xxvi] Employees must have a reasonable belief that this covered information is evidence of gross mismanagement of the contract or subcontract; gross waste of covered funds; any abuse related to implementation or use of public funds or a violation of law, rule, or regulation related to an agency contract; or that implementation or use of these covered funds present a substantial and specific danger to public health or safety.[xxvii] The protections[2] expressly cover internal disclosures, including those made in the ordinary course of work. Finally, the Act expressly prohibits pre-dispute arbitration agreements with respect to whistleblower provisions.[xxviii] D. Wage Requirements  All contractors are subject to the wage requirements of the Davis-Bacon Act and the McNamara-O-Hara Service Contract Act. The Davis-Bacon Act requires that contractors pay specified minimum wages to various classes of laborers and mechanics employed under public works contracts over $2000.[xxix] Workers, who work directly on the worksite, must be paid “no less than locally prevailing wages and fringe benefits paid on projects of a similar character.”[xxx] These wage rates are determined by the Secretary of Labor.[xxxi] The Service Contract Act applies to prime contracts exceeding $25,000.[xxxii] It requires contracts and subcontracts to pay service employees, in various classes, the wage rates and fringe benefits found in the prevailing locality or the rate contained in the contractor’s collective bargaining agreement.[xxxiii] For contracts equal to or less than $25,000, contractors must pay the federal minimum wage.[xxxiv] For prime contracts exceeding $100,000, contractors and subcontractors must also pay laborers and mechanics, including guards and watchmen, one and a half times their regular pay rate if they work over 40 hours in a regular workweek.[xxxv] Access to Company Employees for Audits  The Act gives auditing and supervisory power to the Government Accountability Office (GAO) and agency inspector generals (IGs).[xxxvi] Both the GAO and agency IG’s can audit prime contracts and subcontracts as well as interview prime contractor personnel.[xxxvii] However, only the GAO can interview subcontractor personnel, even for contracts under the simplified threshold. These provisions also apply to commercial item contracts and COTS Item Contracts.[xxxviii] Conclusion The compliance obligations will undoubtedly change and perhaps increase overtime as the Recovery Board and the Office of Management and Budget review periodic reports and document the success or pitfalls of the Act. Moreover, since these changes in compliance for federal contracts could expose contractors to new legal liabilities both now and in the future, contractors should always be “on the lookout” for new rules or regulations. -------------------------------------------------------------------------------- [1] Categories of government officials include the following entities or their representatives: a member of Congress, a court or grand jury, the head of a federal agency, a state or federal regulatory or law enforcement agency, and Inspector General, the Comptroller. [2] Whistleblower protections also apply to the competition for or negotiation of a contract. -------------------------------------------------------------------------------- [i] Donald G. Featherstun, General Partner, Seyfarth Shaw LLP & Donald F. Innis, Shareholder, Rogers Joseph O’Donnell, Council Meeting of the American Bar Association Section of Public Contract Law: Implementation of the American Recovery and Reinvestment Act, Slide 3 (May 16, 2009). [ii] See generally, Bryan Cave LLP, American Recovery and Reinvestment Act of 2009: Shovel-Ready Projects-Challenges and Strategic Opportunities (March 5, 2009) http:// www.bryancave.com (follow “Bulletins” hyperlink; then follow “American Recovery and Reinvestment Act of 2009 Shovel-Ready Projects-Challenges and Strategic Opportunities” hyperlink). [iii] Id. [iv] Id. [v] Posting of Michael Payne to Federal Construction Contracting Blog, The American Recovery and Reinvestment Act of 2009: What it Means for Federal Construction Contractors, http://federalconstruction.phslegal.com (follow “Federal Procurement Policy” hyperlink) (May 16, 2009, 9:33 E.S.T.). [vi] Id. [vii] Featherstun, supra note 1, at 8-10. [viii] Id. at 8, 17. [ix] Id. at 17. [x] FAR Case 2009-010, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Publicizing Contract Actions, 74 Fed. Reg. 14,636-14,639 (Mar. 31, 2009). [xi] Id. at 14,637. [xii] Featherstun, supra note 1, at 20. [xiii] See generally, American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5 (2009). [xiv] FAR Case 2009-009, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Reporting Requirements, 74 Fed. Reg. 14,639-14,646 (Mar. 31, 2009). Featherstun, supra note 1, at 21. [xv] FAR Case 2009-009, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Reporting Requirements, 74 Fed. Reg. 14,640 (Mar. 31, 2009). [xvi] Id. at 14,641-14,642. Payne, supra note 5. See also, Featherstun, supra note 1, at 22. [xvii] FAR Case 2009-009, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Reporting Requirements, 74 Fed. Reg. 14,642 (Mar. 31, 2009). Featherstun, supra note 1, at 23. [xviii] Id. 14,639-14,646. [xix] Featherstun, supra note 1, at 9. [xx] Id. at 16. [xxi] FAR Case 2009-008, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Buy American Requirements for Construction Material, 74 Fed. Reg. 14, 623-14,633 (Mar. 31, 2009). [xxii]Id. at 14, 624-14,625 (Mar. 31, 2009). Featherstun, supra note 1, at 36. [xxiii] FAR Case 2009-008, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Buy American Requirements for Construction Material, 74 Fed. Reg. 14, 623-14,633 (Mar. 31, 2009). [xxiv] FAR Case 2009-012, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Whistleblower Protections, 74 Fed. Reg. 14,634-14,635 (Mar. 31, 2009). See also, Featherstun, supra note 1, at 24. HRTools, How Do Whistleblower Provisions in the American Recovery and Reinvestment Act (ARRA) of 2009 Affect Employers? https://www.hrtools.com/legal_compliance/how_do_the_whistleblower_provisions_in_the_american_recovery_and_reinvestment_act_(arra)_of_2009_affect_employers.aspx [hereinafter Whistleblower Provisions]. [xxv] Id. [xxvi] FAR Case 2009-012, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Whistleblower Protections, 74 Fed. Reg. 14,635 (Mar. 31, 2009). [xxvii] Id. See also, Whistleblower Provisions, supra note 24. [xxviii] [xxviii] FAR Case 2009-012, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-Whistleblower Protections, 74 Fed. Reg. 14,635 (Mar. 31, 2009). [xxix] Davis-Bacon Act 40 U.S.C. § 3142 (1931). [xxx] Id. [xxxi] Id. [xxxii] The Service Contract Act of 1965 41 U.S.C. § 351 (1965). [xxxiii] Id. [xxxiv] Id. [xxxv] Id. [xxxvi] FAR Case 2009-011, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-GAO/IG Access, 74 Fed. Reg. 14,646-14,649 (Mar. 31, 2009). Payne, supra note 5. [xxxvii] Id. at 14,646-14,647. [xxxviii] FAR Case 2009-011, Interim Rule, American Recovery and Reinvestment Act of 2009 (the Recovery Act)-GAO/IG Access, 74 Fed. Reg. 14,647 (Mar. 31, 2009). For more infomation, please contact Francis J. Vernoia. This alert is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. It is recommended that readers not rely on this publication but that professional advice be sought for individual matters.