The Hurricane and Contract Law

Setting the stage for rebuilding after Hurricane Katrina, the Bush administration has made two controversial decisions: to suspend the Davis-Bacon Act in the Gulf Coast, and to award rebuilding contracts without a competitive bidding process. George Washington University law professor Christopher Yukins discusses some of the implications with Scott Simon.

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SCOTT SIMON, host:

This is WEEKEND EDITION from NPR News. I'm Scott Simon.

Coming up, a man who evacuated New Orleans now finds himself at a crossroad he never wanted to reach.

But first, President Bush called Thursday night for what could prove to be the most extensive and expensive reconstruction project in US history. The amount of money involved could be over $200 billion. Now Congress has already approved $62 billion. To accelerate rebuilding, some early contracts have been let without competitive bids. Take a huge amount of money, mix in local, state and federal politicians, companies, contractors, adversity and opportunities and you often have the potential for mismanagement, waste, overbilling, favoritism and fraud. Christopher Yukins teaches government contract law at George Washington University in Washington, DC. He joins us in our studios.

Professor, thanks very much for being with us.

Professor CHRISTOPHER YUKINS (George Washington University): Thank you.

SIMON: For whatever good this $200 billion will accomplish, that would seem to be the opportunity for a lot of mischief, too.

Prof. YUKINS: Yes, unfortunately.

SIMON: And how does that--avoided. What are some of the ways?

Prof. YUKINS: In the $52 billion bill the administration included a key exception for contracting up to $250,000. That exception means that there'll be no competition and no transparency whatsoever. But approximately 60 to 65 percent of all federal contracting actions are actually below $250,000. You'd be astounded at how many small actions the federal government undertakes.

SIMON: And what kind of jobs are these?

Prof. YUKINS: Services to clean out garbage or a truckload of diapers. And, Scott, I'd like to emphasize that...

SIMON: Yeah.

Prof. YUKINS: ...in fact the--it's $250,000 per order, so it's very common to see, unfortunately, companies and agencies will agree to split requirements so that you always stay below a certain threshold--in this case, below $250,000.

SIMON: So somebody, for example, like a trash removal firm could do a whole series of jobs for $240,000 and never have to go through a competitive bidding process.

Prof. YUKINS: Exactly.

SIMON: But on the other hand, a lot of companies have to move quickly.

Prof. YUKINS: They do. In fairness, it is necessary to abbreviate the competition in a situation like this, but you really shouldn't abandon competition and transparency entirely.

SIMON: Now FEMA has already, I guess, obligated about $9 billion, and some of the corporate names are very familiar to Americans: Halliburton and Bechtel. Are there other firms that do the kind of thing these two companies do on such a huge scale?

Prof. YUKINS: There are very few. And that issue came up when the administration decided not to let non-coalition nations participate in Iraqi reconstruction efforts--major Iraqi reconstruction. It turns out that there are relatively few companies outside the United States that can do massive reconstruction projects. However, that's not to say that there aren't many smaller companies here in the United States that could do some of the work on an incremental basis.

SIMON: Is there an obligation to hire local firms and contractors, particularly in an area that needs the boost in the economy?

Prof. YUKINS: Federal law contemplates that they will make an effort to hire local firms, but it's not an absolute requirement. Unfortunately, with this new exception--the $250,000 exception--that goal in federal contracting may be pushed to the side.

SIMON: President waived the Davis-Bacon provisions that guarantee workers in government contracts union-level wages. Now we'll note that Louisiana, Mississippi, the states obviously hardest-hit by the hurricane, are right-to-work states. Does this mean that the wages that--paid will be market rate in a disaster area?

Prof. YUKINS: It means that the workers will not enjoy the benefits of the higher wages that they normally get under a federal construction contract. It's a major defeat for the labor movement.

SIMON: But--well, I understand the labor union. I'm trying to understand, if you please, the management argument that contractors might use that why should...

Prof. YUKINS: I think the argument for the Davis-Bacon exception is actually probably one based on administer of costs, that it costs a lot to be able to administer something like that and it might slow the disaster reconstruction process down. But I don't--not aware of anybody actually studying whether or not the requirement to pay these higher wages and the administer of costs that go with that somehow actually was slowing down the relief effort.

SIMON: Christopher Yukins, associate professor of government contract law at George Washington University Law School. Thanks very much.

Prof. YUKINS: Thank you.

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