Acts of God, Acts of DoD: How Disasters Affect Contract Pricing

Econ 101: if demand exceeds supply, prices will increase. We’ve seen this fundamental of economics play out in real-time during the Texas power grid failure, the California wildfires, COVID-19, and more.

When natural disasters shift workforce demands and disrupt the global supply chain, how does the government adjust budgets, pricing, and forecasting?

To expedite recovery and relief, the government will often modify contracting procedures and rules. As state and federal disasters drastically increase the need for essential workers, supplies, and communications, you as a contractor must adjust and prepare accordingly.

Modified eligibility requirements and new pricing structures can present new opportunities for your business. But be cautious; some potentially lucrative relief efforts can also present award delays for new opportunities.

In this article, we’ll discuss how you can pivot, prioritize, and prepare when disaster strikes.

Natural disasters can be an opportunity for your business to profitably help with relief.

It may sound counterintuitive, but unexpected events could help launch or propel your government contracting business. Emergency relief requires quick award turnaround, and it often involves less competition among contractors.

Where to start: register, forecast, bid! (1)

Disaster Response Registry

When we’re faced with natural disasters and global crises, the government relies on contractors to provide emergency relief supplies and services. How do they find these vendors? The Disaster Response Registry (in accordance with FAR 4.11 and FAR 26.2). To participate, your business must be fully registered in the System for Award Management (SAM), followed by a two to three-day waiting period for registration approval.

Check your state and local government agencies for more registration opportunities that are low-risk and usually free to apply.

Expect Expedited Bidding Procedures

Typically, the FAR requires full and open competition for contracts but will permit simplified acquisition procedures during emergencies. Simplified acquisition is a contracting method aimed to reduce the amount of work and time the government takes to evaluate an offer. Vendors aren’t required to participate in the formal evaluation process, and contracting officers are tasked with granting awards. (1)

When the government declares a national emergency, the simplified acquisition threshold will often increase. This threshold is the dollar amount below which a non-federal entity may purchase products or services. Reducing compliance requirements, simplifying procedures, and permitting other “acquisition flexibilities” are in accordance with FAR Part 18 and used frequently to speed up the acquisition process.

(6)

The FAR also permits “Other Than Full and Open Competition” under FAR 6.3 during disaster recovery. In a 2017 government relief report published by the Government Accountability Office (GAO), 27% of contract obligations from Hurricanes Harvey, Maria, and Irma were considered “noncompetitive.”

Rules have exceptions. If you plan to bid on a relief-related contract, be prepared to adhere to the simplified acquisition procedures.

Agencies Can Modify Contract Requirements

When a major disaster erupts, some agencies can modify federal supply, service, and construction contract requirements. For example, The U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) granted National Interest Exemptions (NIE) for contracts providing relief to areas affected by the 2020 California Wildfires. The temporary exemptions waived certain Equal Employment Opportunity requirements. Keep in mind that qualifying NIE contractors must continue to follow the non-discrimination and non-retaliation rules and regulations under OFCCP's laws.

Tip: Always check for modified eligibility requirements. These temporary changes could increase your chances to win more contracts. (4)

Ready, set...be On-Point to Help

If you’re selected to support disaster relief efforts, you will most likely work alongside the Federal Emergency Management Agency (FEMA) to provide goods and services. Preparation and accountability are key, so make sure you’re presenting accurate inventory data and your business is in a state of readiness to provide critical help.

Top Five Products:

Non-alcoholic beverages

Prefabricated and portable buildings

Food

Miscellaneous electric power supplies

Composite food packages

Top Five Services:

Repair or alteration of buildings

Utilities (Electricity), Inspection

Data Collection

Architect and Engineering

Medical services (1)

COVID Results: existing contracts can be more lucrative, new contracts can be delayed.

As the pandemic and subsequent lockdowns slowed most industries to a halt, the workload accelerated for government contractors with existing contracts. Businesses providing critical communications, FEMA support, and intelligence were considered a vital component to the national response efforts. As government-led initiatives expanded, agencies were able to shift some of their contractors’ relevant skill sets toward specific pandemic response duties.

Delays and Layoffs

Although existing contracts were honored, many new contract awards were delayed by 30-60 days. Consequently, the sudden decrease in awards decreased contractor cash flow, and companies were forced to eliminate positions temporarily.

Proper forecasting is critical; the ever-changing landscape during the COVID-19 pandemic requires constant and direct communication between contracting officers and agencies. (2)

Climate change can impact DoD contractor supply chains.

The DoD officially identifies climate change and chronic weather patterns as a threat to supply chains and has since 2010. Beyond that year, acute weather events have become more catastrophic than ever and immediately require resources and “all hands on deck.”

Internally, the DoD has begun to implement the DoD Climate Assessment Tool (DCAT) for 5,000 U.S. installations and major overseas installations. The DCAT assesses climate-related hazards and climate projections to better understand and manage weather-related risks.

In the future, the DoD could consider development of similar projections for contractors, to determine supply chain vulnerability during mission-critical bids. (3)

This will help the DoD gauge and forecast future supply chain disruptions and help contractors price bids more competitively, given company-specific supply chain predictions. (7)

Mitigate a disastrous response. Pivot, prioritize, and prepare.

Accurate reporting and clear communication between contracting officers and agencies is a contractor’s direct line to success. When disaster strikes, providing accurate inventory data will strengthen your bids and protect your business from price gouging.

ProPricer Contractor Edition captures and manages data in ways other systems can’t. It maintains rate information on a global or proposal-specific basis, including direct, indirect, and custom rates. Add to that a reviewable history of price changes based on rate updates and time phasing, and now auditors can easily make sense of a contract’s cost data and be confident in its accuracy. Contact us for a demo.

Sources

4.National Interest Exemptions