A little more than two weeks ago, on September 28, 2024, the federal government issued a major disaster declaration for Tropical Storm Helene (“Helene”) in the State of North Carolina (FEMA-4827-DR). This declaration made federal funding available to state, tribal, eligible local governments, and certain private non-profits for Emergency Work, which includes debris removal (Category A) and emergency protective measures (Category B), under FEMA’s Public Assistance (PA) program. On October 2, 2024, FEMA amended the declaration to include permanent work (Categories C-G) under the Public Assistance program for the affected areas. Then, on October 4, 2024, FEMA amended the declaration to add Mecklenburg and Swain counties for Individual Assistance and Emergency Work (Categories A and B) under the Public Assistance program. You can read more about eligible Emergency Work activities under Categories A and B here in another School of Government blog post.

The mobilization of local governments across the State in response to Helene has been swift and significant. Public agencies at all levels of government have acted directly or through contracted services to rescue residents and restore communications, infrastructure, and utilities throughout Western North Carolina. Additionally, President Biden authorized an increase in the cost-share required by FEMA from 75% to 100% for the first 180 days of the incident period in North Carolina. This means that local governments in North Carolina may be eligible to have 100% of certain Helene response costs reimbursed by FEMA. However, in order to be reimbursable, costs must be eligible, reasonable, caused by the disaster, within the disaster area, properly procured, and properly documented.  Accomplishing all of this is no easy task amid a recovery effort. This blog post focuses on noncompetitive procurement and, in particular, outlines the emergency and exigency circumstances that allow a local government to forgo competitive procurement under FEMA guidelines and federal regulations. 

Noncompetitive Procurement under the Uniform Guidance

Upon receiving federal funds or in anticipation of FEMA reimbursements, local governments are expected to comply with the procurement standards of the Uniform Guidance, 2 C.F.R. 200, Subpart D, Sections 200.318 through .327. The procurement methods found in Section 200.320 are divided into informal procurement methods, formal procurement methods, and noncompetitive procurement (sometimes referred to as sole-source). Noncompetitive procurement is allowed in only five instances under the Uniform Guidance:

1. The aggregate amount of the procurement is below the micro-purchase threshold;
2. The procurement can only be fulfilled by a single source;
3. The public exigency or emergency for the requirement will not permit a delay resulting from providing public notice of a competitive solicitation;
4. The recipient or subrecipient requests use of noncompetitive procurement in writing and the federal agency approves the request in writing; or
5. After soliciting several sources, competition is deemed inadequate.

Note that only one of these circumstances must be met for a local government to use noncompetitive procurement. Thus, written approval from a federal agency is only required where none of the other circumstances are applicable. The third circumstance focuses on public emergency and exigency and allows noncompetitive procurement—meaning, contracting directly with a contractor without issuing a solicitation and receiving bids or proposals in response. Importantly, though, exigency or emergency requires an assessment of whether the delay from public notice of a solicitation will hinder the response to the exigency or emergency. Considering that FEMA Public Assistance funds are provided following emergencies, it is critical that local governments understand the contours of using the emergency or exigency justification for noncompetitive procurement. If that justification is insufficient or not documented appropriately, local governments risk not being reimbursed for the procurement.

Emergency versus Exigent Circumstances

Luckily, FEMA provides detailed guidance in its Procurement Disaster Assistance Team (PDAT) Field Manual and other resources. According to FEMA, an emergency exists when there is a threat to life, public health or safety, improved property, or some other form of dangerous situation that requires immediate action to alleviate the threat. An example of an emergency would be power lines downed during a storm that are live and threatening to catch an apartment building on fire. In such an emergency, a local government can contract directly with a contractor to perform the work necessary to end the emergency; no competitive procurement is needed.

Exigency occurs when there is a need to avoid, prevent, or alleviate serious harm or injury, financial or otherwise, and the use of competitive procurement proposals would prevent the urgent action required to address the situation. FEMA provides the following example to illustrate an exigent circumstance:

A tornado impacts a county in June and causes widespread and catastrophic damage, including to a county school. The county wants to repair the school by the beginning of the school year in September. Awarding a contract using a sealed bidding process would require at least 90 days, and the repair work would be another 60 days, extending the project beyond the beginning of the school year. Rather than conducting a sealed bidding process, the county—in compliance with state and local law—wants to sole-source with a contractor it has contracted with previously.

Here, FEMA explains that the local government can demonstrate that this is an “exigent circumstance” because use of a sealed bidding process would cause an unacceptable delay, affecting children’s education and the county’s economy if parents must stay home with the children. Thus, procurement by noncompetitive methods is necessary.

The determination of whether a circumstance qualifies as exigent or emergency is left to the applicant. No prior approval is required from FEMA to undertake a noncompetitive procurement if an applicant is relying on the emergency or exigency exception. However, as an applicant for Public Assistance, a local government must document why noncompetitive procurement is necessary and why immediate or urgent action is needed. This documentation should include a description of the threat, harm, or injury that led to the decision to use noncompetitive procurement instead of full and open competition. The documentation should also provide a brief description of the goods and services covered by the contract, including a description of the type of work performed. In general, contracts procured in reliance on the emergency or exigency exception will involve Emergency Work performed under Categories A and B. Note that a separate justification is required for each instance of noncompetitive procurement. FEMA has developed a checklist for noncompetitive procurement, which is available here.

Local governments may also need to waive their own procurement standards or regulations following a disaster or emergency and federal regulations allow for this. Any such waiver should be documented. Even if a local government waives its own procurement policies, it cannot waive the applicable federal procurement standards. Local governments should be mindful that state law provides an exception to the formal bidding statute applicable to purchases and construction or repair, G.S. 143-129, but it does not provide an exception for an “exigent circumstance.” This School of Government blog post explores the meaning of “emergency” under state law. Ultimately, local governments need to consider whether a purchase or construction or repair that is exigent under FEMA guidance also qualifies for noncompetitive procurement under state law as an emergency.

Additional Tasks are Necessary

In either instance of noncompetitive procurement, whether an emergency or exigent circumstance, a local government must take additional steps to ensure compliance with other provisions of the Uniform Guidance, as follows:

1. A local government must perform a cost or price analysis to determine that the cost or price of the contract is fair and reasonable. (2 C.F.R. 200.324(a) and (b)).
2. The local government must award the contract to a responsible contractor. (2 C.F.R. 200.318(h)).
3. The contract must include the applicable federal bonding requirements, if the contract is for construction or facility improvements. (2 C.F.R. 200.326).
4. The contract must include the required contract clauses. (2 C.F.R. 200.327 and Appendix II).
5. A local government must not use cost-plus-percentage-of-cost contracting. (2 C.F.R. 200.324(c)).

Each of these requirements is described in more detail below. Note that these are the additional provisions of the Uniform Guidance applicable when noncompetitive procurement is being used. If competitive procurement is being used, there are additional requirements that apply, which will be covered in a separate, forthcoming blog post.

First, a local government must determine that the costs under the contract are reasonable. According to 2 C.F.R. 200.404, a cost is reasonable if it does not exceed that which would be incurred by a prudent person under the circumstances at the time the cost is incurred. Thus, some market research or other inquiry should be done to conclude the costs are reasonable. Moreover, if the costs for the contract exceed the simplified acquisition threshold (SAT), a cost or price analysis must be done pursuant to 2 C.F.R. 200.324.

Second, a local government must conclude that the contractor is responsible, which requires analyzing several sources of information. A local government should ensure that the contractor is not debarred by checking the System for Award Management (SAM) database at SAM.gov. Additionally, the business should be registered with the North Carolina Secretary of State. A local government should also confirm that the contractor is adequately licensed—for example, a firm must be licensed as a general contractor pursuant to G.S. 87-1 if the contractor will be managing the construction of any building, highway, public utilizes, grading, or any improvement or structure where the cost of the undertaking is $40,000 or more. Lastly, if time allows, a local government can seek input from other local governments about the contractor’s past performance.

Third, a local government needs to establish whether bonds are required pursuant to 2 C.F.R. 200.326. Under the Uniform Guidance, a bid guarantee, typically in the form of a bid bond, is required for 5% of the bid price for a construction of facility improvement contract exceeding the simplified acquisition threshold (SAT). Likewise, performance and payment bonds are required from contractors for any construction or facility improvement contracts in the amount of 100% of the contract price. If a local government secures bid, payment, and performance bonds under the Uniform Guidance, it will likely be in compliance with state law. (As a reminder, state law requires a bid bond for 5% of the bid price where construction or repair will cost $500,000 or more, and performance and payment bonds are required for each contract exceeding $50,000 in 100% of the contract price when the total amount of construction contracts for a public project exceeds $300,000.)

Fourth, even when contracting using noncompetitive procurement, a local government’s contract must contain the applicable contract clauses required by 2 C.F.R. 200.327 and Appendix II to Part 200. This can be accomplished using a contract addendum. FEMA has a Contract Provisions Guide that details required and recommended contract clauses. School of Government faculty are currently working on a model FEMA contract addendum, which will be published in a separate, forthcoming blog post.

Finally, the Uniform Guidance limits contract types. “Cost plus percentage of costs” contracts are prohibited by 2  C.F.R. 200.324(c).  These are contracts where the contractor’s profit is based on a percentage of the underlying project costs actually incurred. Such contracts are explicitly prohibited because they incentivize the contractor to increase their actual cost to increase the associated profit. The Uniform Guidance also discourages the use of “time and materials” contracts, in which the cost to an applicant the sum of the actual cost of materials and direct labor hours charged at fixed hourly rates. If an applicant decides to use a time and materials contract—which may be the case for debris removal contracts following Helene—the applicant must make a determination that no other contract is suitable and the contract must include a ceiling price that the contractor exceeds at its own risk (i.e., not to exceed amount). 2 C.F.R. 200.318(j).

When the Emergency or Exigent Circumstance Ends

Use of noncompetitive procurement is limited to the duration of the actual emergency or exigent circumstance. Once the exigency or emergency ends, local governments are expected to procure remaining services or goods competitively. Of course, it can be challenging to know when an emergency ends. However, FEMA expects that justification documentation for an emergency or exigency includes a prediction of such a timeline. Thus, local governments should carefully consider how a particular noncompetitive procurement fits into an overall project or provision of services. For example, if a sewer line was damaged, the installation of a bypass system would clearly qualify as an emergency circumstance. Once the bypass system is installed and the flow of sewage is contained, though, FEMA may expect competitive procurement to follow for the installation of the permanent sewer infrastructure.  While this may seem onerous, remember that the Uniform Guidance does not require any specific period for advertisement for formal procurement and state law requires only 7 days of advertisement between publication and public bid opening for construction or repair. Thus, if this timing will allow for competitive procurement without furthering serious harm or injury, financial or otherwise, then competitive procurement should be used. Ultimately, the path that a local government pursues involves the assessment of risks and balancing community needs with the possibility of FEMA not reimbursing costs.

Document, Document, Document

The importance of documentation for FEMA reimbursement cannot be overstated. FEMA hears hundreds of appeals of reimbursement denials every year and a common theme among these appeals is a failure to sufficiently document processes and purpose. For example, FEMA denied the City of Key West’s reimbursement request for a disaster consultant for failure to comply with federal procurement procedures and a lack of justification for its noncompetitive advance procurement of sole source emergency support services.

While there must be clear, documented justification for any noncompetitive procurement, FEMA also reviews local governments’ records to determine whether costs were related to the disaster, whether a local government was legally responsible for the work, whether the costs were assessed as reasonable, and more. In some instances, these appeals by applicants are ultimately successful. The Kansas Department of Wildlife, Parks, and Tourism (“Department”) was initially denied the replacement of a playground that had been sitting in floodwater because the Department did not demonstrate the playground was damaged as a result of the declared incident. FEMA eventually approved the reimbursement after a second appeal once the Department provided pre-disaster photographs of the playground and a letter from a playground company stating that plastic components such as the slides must be replaced after flooding because they are susceptible to damage and possible structural failure from pollutants present in the floodwater. In other instances, applicant appeals are only partially successful, and the applicant shoulders significant costs. Where the University System of Georgia Board of Regents failed to monitor a debris removal contract and did not comply with procurement requirements, the University System was denied $407,000 of its request. Ultimately, oversights in documentation can be costly.  Thus, local governments should document proper procurement procedures, along with compliance with other FEMA requirements for reimbursement.