Government Contracts andInsurance Issues: How Preparedis Your Company?

Justin A. ChiarodoJohn A. Gibbons

September 30, 2014

#3286785

Disaster Relief Contracting

Government Contract Issues

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FEMA Disaster Assistance

• Pursuant to the Stafford Act,FEMA provides funding tostate and local governments

– Known as the Public AssistanceGrant Program

– Federal requirements mayapply to these contracts

– There must be a “majordisaster” or “emergency”declaration by the President forFEMA to provide funding

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FEMA Disaster Assistance

• Federal assistance may include:– Debris removal

– Housing, transportation, medical, legal assistance to individuals

– Search and rescue

– Repair and replacement of damaged facilities

• Federal assistance may be provided:– Directly from the federal government

– Through federal contracts

– Through state and local governments and/or private organizationsusing federal funds furnished through cost-sharing arrangements,grants, and loans

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FEMA Cost Sharing

• Typical cost sharing under the Stafford Act:– 75% Federal / 25% State funding

• Federal share may be increased to 90% when a disaster isparticularly severe and may even be increased to 100% for alimited time period

• Contract may be administered by a federal agency or astate/local government agency

• Federal rules and regulations may apply, even when thecontract is issued by a state/local agency

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FEMA Disaster Assistance

Disaster Event Occurs

Governor Requests FEMAAssistance

Disaster/Emergency DeclarationIssued

FEMA Awards Grant to State

State/Local Government AwardsContracts for Disaster Relief

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FEMA Disaster Assistance

Major Disaster

• Any natural catastrophe orfire, flood, or explosion,which in the determinationof the president, causesdamage of sufficient severityand magnitude to warrantmajor disaster assistanceunder the Stafford Act

• Focus is on both immediateand longer-term needs

Emergency

• Any instance in which federalassistance is needed tosupplement state and localefforts and capabilities tosave lives and to protectproperty and public healthand safety, or to lessen oravert the threat ofcatastrophe

• Focus is on immediate needs

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Stafford Act Local Preferences

• Stafford Act contracts may either be:– Set-aside for local contractors (i.e., non-local contractors cannot

compete as a prime, but may serve as a subcontractor)

– Or local contractors must be given a preference in the evaluationscheme (but non-local contractors typically can still compete)

• The RFP should define who is a “local” contractor

• When contracts are set-aside for local contractors, thecontract may limit subcontracting to non-local contractors(see FAR 52.226-5)

• Contracts for services: at least 50% of the cost of personnelmust be spent on employees of businesses within the localarea

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Katrina Task Force = Increased Oversight

• Congressional Task Force examined Katrina response– Contracting urgency in wake of storm led to inadequate oversight

– Need for more trained procurement professionals

– Ambiguous guidance regarding local contractor preferences

• Has resulted in increased oversight of FEMA spending– High profile disasters/emergencies receiving scrutiny by Congress, the

media, GAO, etc.

– Focus on transparency, advance planning, and preventing fraud andabuse

– Heightened scrutiny for contractors

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High Stakes in Disaster Fraud Cases

• Disaster fraud post-Katrina estimated to reach $6 billion

• January 2008 – Emergency and Disaster Assistance FraudPenalty Enhancement Act

• $4 million settlement agreement in FCA suit involvingLighthouse Disaster Relief and its partners– Government alleged that Lighthouse accepted payment for work that

was not completely performed

– Also alleged false statements to FEMA for early payment

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Compliance Tips

• Carefully review your RFPs andrelevant guidance (e.g., localpreferences)

• Keep great written records ofcompliance

• Vet your teaming partners

• Consult legal and/or contractsprofessionals with questions

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Disaster Relief Contracting

Insurance Issues

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What Risks Keep You Up at Night?

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https://www.travelers.com/prepare-prevent/iw-images/risk-index/2014-Travelers-Business-Risk-Index-infographic.pdf

How to Use Insurance to Get a Better Night’sSleep

• Directors & Officers (D&O)

• Professional Liability and/or Errors & Omissions (E&O)

• Employment Practices

• First-Party Property– Business Interruption

– Contingent Business Interruption

• CGL Coverage (Advertising Injury)

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Directors & Officers (D&O)

• Typical claims against Directors and Officers– By shareholders

• Generally stem from stock devaluations and often include claims ofinadequate or inaccurate disclosure, dishonesty or fraud, and breach offiduciary duty.

– By governmental agencies

• Investigations by the SEC, DOJ or EPA and can have criminal implications

– By competitors

• Anti-trust and unfair competition claims

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First Party Insurance

• Private Insurance and Public Assistance

• Private Third Party Insurance insures against loss of, ordamages to, policyholder’s property (and lost businessrevenue)

• Examples: Business Property, Contingent BI

• Fires, Natural Disasters, 9/11, Hurricanes

• Other Specialized Types of Coverage

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Frequently Disputed Insurance Issues

• Issues frequently disputed between insureds and insurers– How do deductibles and the self-insured retentions work?

– How do your limits and sub-limits work?

– Who controls your defense?

– Is an investigation a “claim” against you?

– Does your property coverage match the value of your property?

– Dispute resolution?

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Questions?

• Justin A. Chiarodo | PartnerDICKSTEINSHAPIROLLP1825 Eye Street NW | Washington, DC 20006Tel (202) 420-2706 | Fax (202) 420-2201chiarodoj@dicksteinshapiro.com

• John Gibbons| PartnerDICKSTEINSHAPIROLLP1825 Eye Street NW | Washington, DC 20006Tel (202) 420-3644 | Fax (202) 420-2201gibbonsj@dicksteinshapiro.com

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