New Law Lets In Out of State Contractors During Emergencies

Emergency crew working on power line

During a major crisis, such as a natural disaster, or massive industrial explosion, critical roadways, utilities, medical facilities, schools and other physical structures are likely to be damaged. Debris, such as downed trees or, even worse, toxic spills, can block even emergency services. A community’s ability to recover depends on how quickly and effectively the construction industry can repair the damage, so government, utility companies and other critical social institutions can resume functioning. However, during, and after emergencies, critical shortages quickly develop in qualified contractors, skilled labor, and construction materials. Everyone needs repairs urgently at the same time, creating spikes in demand, at the same time that firms and workers have to deal with their own crises in their workplaces and homes, and disruptions in transportation and communications make it difficult for people and goods to move to where they are most needed.

To help address these problems, New Jersey has enacted a new law which will allow out of state contractors and licensed trade workers to restore critical infrastructure in declared emergencies. This law, 19 PUB.L. CHP. 7, exempts out of state companies and employees from New Jersey’s business and income taxes and corporate and contractor/professional licensing requirements if they come into the state to help restore critical services, during a natural disaster or other emergency. As a practical matter, any contracts for government and quasi-governmental agencies, during such an emergency period, whether with an in-state licen see or an out of state, “special exemption” contractor will need to meet both New Jersey public contracting laws and the Federal Emergency Management Agency procurement standards.

The New Statutory Exemption

The new statute creates an emergency exemption for out of state companies which applies for a limited period, if and when:

  1. Either the Governor issues a formal State of Emergency Proclamation and/or the President of the United States issues a Declaration of a Major Disaster or Emergency; and
  2. Such companies with the registration and licensing requirements of their home state; and
  3. All the employees who come to work in New Jersey have complied; and
  4. The out of state company and employees engage in the repair, renovation, installation, building, or other business activities that relate to critical electrical, water, natural gas or communications infrastructure which was impaired, or destroyed by the declared disaster or emergency; and
  5. The out of state business provides a written statement to the New Jersey Director of Taxation within 45 days of entering New Jersey for this emergency work, that it has done so and the date of its entry. The statement must contain its federal tax identification number, address and other contact information.

The exemption period lasts from 10 days before the emergency declaration to 60 days after the end of the declared emergency period. If the out of state company or employees remain in the state thereafter, they must comply with all taxation, registration and licensing requirements

New Jersey Public Contracting and Public Utility Law Still Applies to Emergency Procurements

The new statute does not limit the exemption to contracts awarded during the emergency. Therefore, there is no reason why owners and operators of crucial infrastructure and civic functions cannot preplan by entering into contingent emergency services agreements with either in state or out of state contractors. By doing so, the owner and operator can utilize their regular procedures, seek as wide a set of qualified bidders as possible and may be able to secure a more stable and predictable price. Any request for proposal should require demonstration by the bidder that it has realistic and detailed plans on how it will function and supply sufficient skilled workers, equipment and materials to respond in emergency conditions.

Any contracts with state and local government units, must conform to New Jersey’s Local Public Contract and parallel school public statutes for public contracts. These laws apply during emergencies, although they allow short term emergency contracts in true emergencies. For instance, public schools can only procure services on an emergency no bid contract where “An actual or imminent emergency must exist requiring the immediate delivery of the goods or the performance of the service” and the need for the goods and services “could not have been reasonably foreseen.”

Even then the contract must be of limited duration and the school district must notify the county superintendent within 3 days. N.J.A.C. 5:34-6.1.Furthermore, even a local government emergency contract for public utility services is ultimately subject to state regulation and modification. This is particularly true for debris removal contracts, since the NJDEP has specific power to regulate solid waste disposal, and the burden is upon the provider to show its rates are justified. § 48:13A-7. The state, therefore, may argue it has the power to modify excessive rates after the fact. See In Request for Solid Waste Customer Lists, 106 N.J. 508, 524 A.2d 386, (N.J.) (state had power to strike clause requiring service price to rise as Consumer Price Index rose from emergency waste transfer contracts).

FEMA and the Stafford Act

As a practical measure, any emergency contract, whether with a New Jersey contractor and business, or one from out of state, should also be sufficient to satisfy the Federal Emergency Management Agency standards for reimbursement. Under the Stafford Act,  42 U.S.C. 5121 et seq. the FEMA Public Assistance Program provides most of the funding for emergency infrastructure repairs after a federally declared disaster. The Public Assistance Program, (“PA”), operates by providing grants and direct assistance to state and local governments, and some nonprofit entities providing government-type services. In general, under the Stafford Act, the federal government reimburses “not less than 75%” of the cost of “emergency measures” such as police overtime and debris removal incurred by states, tribes, local governments, and some nonprofit organizations in response to either a declared major disaster or emergency. Additionally, the federal government reimburses “not less than 75%” of the cost of repairing, restoring, reconstructing, or replacing, eligible facilities damaged  or destroyed by a major disaster. In other words, the very type of emergency contracts and work which the New Jersey Emergency Contracting opens up to out of state contractors, are the ones likely to be ultimately subject to FEMA standards, review and auditing.

State, local and qualifying nonprofits receiving the aid from FEMA and their contracts using such aid must comply with the general federal procurement standards. FEMA has the power to conduct reviews of the emergency contracts, before and after the contract was issued under 2 CFR, § 200.317-200.326. When the rules are not followed, including the rules for submitting documentation or failure to follow procurement regulations, the Federal Emergency Management Agency (FEMA) may disallow or “de-obligate” costs already incurred by the community. This means that all or a portion the federal award provided, whether spent or not, must be returned or be offset against other requests for reimbursement.

FEMA applies the standards of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Rules”) of 2 CFR, Part 200, as adopted by the Department of Homeland Security at 2 CFR, Part 3002. FEMA has the ultimate power and responsibility for emergency contracts and work done under a FEMA award, including compliance with these procurement standards.

These include requirements regarding non-discrimination clauses, documentation, record retention, monitoring, and audit. Similarly, the uniform requirements contain enforcement provisions for noncompliance. Contractors, both in-state and out of state, who wish to participate in post disaster emergency repairs may wish to have draft contracts prepared with the necessary language in terms.

In 2018, FEMA disallowed over $22.3 Million in Grant Funds previously Awarded to the Chippewa Cree Tribe because in awarding these contracts, the Tribe neglected to conduct procurement transactions in a manner proving full fair and open competition (44 C.F.R.13.36(c); neglected award “sole source” no-bid only when public emergency will not permit a delay for competitive solicitation or bidding; neglected to perform a cost or price analysis for every procurement action including every change order; neglected to maintain sufficient records; neglected to include all required federal contract provisions; neglected to maintain a contract administration system to ensure proper performance by contractors, and awarded two of the six prime contracts, for design and construction management systems on a percentage of cost basis, a payment formula prohibited by federal regulations. The program resulted in several federal corruption convictions, but FEMA extended the disallowance beyond those particular contracts to entire projects because the lack of project documentation prevented FEMA from determining what expenditures, if any, were reimbursable.