Hearings - Testimony
 
Subcommittee on Superfund and Waste Management
Impact of Certain Government Contractor Liability Proposals on Environmental Laws
Tuesday, November 8, 2005
 
Craig King
Government Contracts Attorney

Mr. Chairman, I appreciate the invitation to provide testimony regarding the impact of certain government contractor liability provisions – in particular, Senate Bill 1761 (hereinafter “S.1761” or the “Bill”) – on environmental laws.

 

There is an important federal interest in having the best, most responsible private contractors respond promptly and without reservation in the event of a disaster. In recent disasters, many private contractors have responded selflessly, even heroically, to provide the immediate response necessary to preserve life and property and, in subsequent months, to help remediate and restore normalcy to devastated communities.

However, disaster recovery efforts – even when performed responsibly by these companies and in accordance with contracts awarded by federal, state and local government authorities – expose private contractors to potentially costly litigation and even liability. The risks of litigation and potential liability that arise from contractors’ responsible, good faith performance in response to disasters threaten to undermine future responses. The best, most responsible companies must think twice before becoming involved in future disaster recovery efforts, and may opt to stay away altogether. Equally important, the price tag for disaster recovery efforts necessarily includes compensation to contractors for the risks associated with the work – which means significant increases in the Government’s costs to the extent contractors face lawsuits and potential liability for doing the work directed by the Government.

Thus, the federal government (“Government”) has a strong interest in establishing appropriate standards for liability of Government contractors for actions taken under the exigencies of a disaster response. Of course, any limitations on contractor liability must be narrowly tailored to the needs of the disaster response, and must complement, not undercut, the enforcement of environmental laws, labor laws, safety laws and similar laws that promote additional federal interests. Also, any limitations on contractor liability must not absolve private contractors from liability if they behave recklessly or commit willful bad acts. Contractors must remain accountable for improper conduct, as well as for proper performance of their contract obligations. Even in the exigencies of a disaster response, there can be no excuse for recklessness or willful misconduct.

The Bill provides a reasonable approach to achieving the foregoing objectives. Key provisions of S. 1761 that bear on Government contractor liability are discussed below.

A. The Government Contractor Defense

Section 5(d) of S. 1761 provides that, if certain requirements are fulfilled, a contractor can avail itself of the Government contractor defense in the event of third-party litigation arising out of disaster recovery efforts. As discussed more fully below, the essence of the Government contractor defense is that a contractor stands in the same legal position as the Government, and thus bears no liability to third parties, if it does what the Government tells it to do in the contract (provided, of course, that certain requirements are fulfilled).

The Government contractor defense is well established in the federal common law. The principles underlying the defense reach back as far as 1940, when the U.S. Supreme Court determined that a contractor that performed a federal contract to build dikes to improve navigation of the Missouri river was not subject to liability in a suit by a landowner for erosion caused by the work. Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940). In Yearsley, the Court found that where there is a valid federal contract, “there is no liability on the part of the contractor for executing [the Government’s] will.”

In 1988, the U.S. Supreme Court set forth more fully the parameters of, and rationale for, the Government contractor defense. In Boyle v. United Technologies Corporation, 487 U.S. 500 (1988), the Court found that a federal interest exists in Government procurement contracts – stating:

The imposition of liability on Government contractors will directly affect the terms of Government contracts; either the contractor will decline to manufacture the design specified by the Government, or it will raise its price. Either way, the interests of the United States will be directly affected.

Boyle, at 507.

The Court explained that the Government contractor defense is rooted in the Government’s sovereign immunity. The Court observed that when Congress waived the Government’s sovereign immunity in the Federal Tort Claims Act to enable suits against the Government arising out of acts of Government employees, Congress exempted from this consent to suit any claim “based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.” Boyle, at 511. The Boyle Court concluded that contractors should be subject to the same limits on liability as the Government officials who direct the contractor’s actions. The Court stated: “It makes little sense to insulate the Government against financial liability for the judgment that a particular feature of military equipment is necessary when the Government produces the equipment itself, but not when it contracts for the production.”

The Court reasoned as follows: the selection of the appropriate design for military equipment is a discretionary function which should not be second-guessed in tort litigation; the financial burden of tort judgments against contractors will predictably raise their prices to cover, or insure against, such contingent liabilities; and state law which holds Government contractors liable for design defects does in some circumstances present a “significant conflict” with federal interests and must be displaced. The Boyle Court embraced a standard that liability for design defects in military equipment cannot be imposed, pursuant to state law, when (i) the Government approved reasonably precise specifications; (ii) the equipment conformed to those specifications; and (iii) the contractor warned the Government about the dangers in use of the equipment that were known to the contractor but not to the Government.

1. The Government Contractor Defense Applies to Contractors that Enter Government Contracts to Respond to Disasters

The Supreme Court’s reasoning in Boyle and Yearsley applies equally today in the case of contractors that enter Government contracts to respond to disasters:

· There is a federal interest in having the best, most responsible private contractors respond promptly and without reservation in the event of a disaster.

 

· Determinations as to the work that should be done to respond to a disaster are a discretionary function of cognizant Government officials – and should not be second-guessed in tort litigation under state law.

· The financial burden of tort judgments against contractors will predictably raise the prices to cover, or insure against, such contingent liabilities – or may lead the best, most responsible contractors to decline to participate in disaster recover efforts.

· Here, as in Boyle, it makes little sense to insulate the Government against financial liability for the judgment as to work to be performed in response to a disaster if the Government performs the work itself, but not when it contracts for performance of the work.

It follows that state tort laws that would make Government contractors liable for work performed in response to a disaster present a “significant conflict” with federal interests and must be displaced. Applying the standards announced in Boyle, it is already clear that liability for work done under Government contracts to respond to disasters cannot be imposed, pursuant to state law, when: (i) the Government approved a reasonably precise scope of work; (ii) the work performed was in accordance with the scope of work; and (iii) the contractor warned the Government about any dangers in performing the work that were known to the contractor but not to the Government.

 

As set forth below, the effect of the Bill is to avoid costly litigation about the applicability of the Boyle standards in the case of contracts undertaken pursuant to the exigencies of disaster recovery.

2. The Effect and Limited Scope of the Applicability of the Government Contractor Defense Under S. 1761

S.1761 affirms that the Government contractor defense is applicable to certain contracts entered for the purpose of disaster recovery, and provides certainty and uniformity of approach to the application of the defense by providing, among other things, a process by which a cognizant Government official reviews the scope of work of a contract and certifies that the contract is necessary to the disaster recovery effort. More specifically, the Bill provides that the elements of the Government contractor defense shall be deemed satisfied without further proof in Court if the following conditions are satisfied:

i. A competent Government authority (i.e.. the Corps of Engineers) certifies in accordance with the Bill that it has reviewed the scope of work set forth in the contract and the work is necessary for the recovery of the disaster zone from a disaster. In order to so certify, the Government authority must determine that a majority of the scope of work set forth in the contract is for one or more of the following five activities:

 

a. The search, rescue, or recovery of individuals or property dislocated by the disaster;

b. The demolition, removal, repair, or reconstruction of structures or utilities damaged by the disaster;

c. The clean-up or remediation of property polluted by the disaster;

d. The removal of debris deposited by the disaster (including dredging); or

e. The dewatering of property flooded by the disaster.

ii. The contractor did not act fraudulently or with willful misconduct in submitting information to the Government to obtain the certification (Section 5(d)(3)), and did not act with recklessness or willful misconduct in performing the work (Section 5(e)(3)).

The Bill is subject to appropriately narrow limitations as to geographic scope (i.e., the Bill applies only to Government contracts necessary for the recovery from Hurricane Katrina or a similarly declared disaster that requires at least $15 billion in federal assistance – and does not apply to any other situation). In addition, the Bill applies only to contracts involving the five specified types of contracts.

 

S. 1761’s provision for deeming the elements of the Government contractor defense to have been satisfied is important to reduce risks and costs, and to provide for uniformity of application of the defense. In cases in which the Government contractor defense has been invoked, there often has been protracted litigation over the application of the Boyle standards. After considerable legal wrangling, it has by now become reasonably well settled that, for example, Boyle applies in non-military as well as the military contexts and applies to virtually all types of Government contracts, and Government decisions with respect to remediation efforts (e.g., EPA decisions regarding clean-up of contaminated sites) are “discretionary functions”. Nonetheless, there has been considerable litigation to reach these conclusions, and legal wrangling continues in particular cases to meet plaintiff’s challenges, for example, as to whether the Government’s work specifications in that particular case are sufficiently specific to support the Government contractor defense.

The Bill’s process for the Government to provide a certification that the scope of work of a contract fulfills one of the five purposes of disaster recovery is a reasonable approach that will provide certainty in the application of the Government contracts defense to contracts for disaster recovery. The “discretionary function” requirement of Boyle is fulfilled by the certification. A cognizant Government official will have reviewed the scope of work and determined that the work is necessary for the recovery of the disaster zone from a disaster. The limitation to a specified geographic region and to the five specified types of activities keeps the application of the Bill appropriately narrow. The exigencies of a disaster response warrant providing the assurance that, for contracts within the five specified disaster response activities, the Government’s exercise of discretion as to the work that will be performed will not be second-guessed in a tort litigation.

Certainty and uniformity of approach are enhanced in a reasonable manner by S. 1761’s provisions for: (i) a federal cause of action for claims arising out of performance of a contract that is certified by a Government official; and (ii) original and exclusive federal jurisdiction over lawsuits for loss of property, personal injury, or death arising out of the performance of such a contract. Consistent with U.S. Supreme Court’s findings in Boyle and Yearsley, S. 1761 amounts to a Congressional declaration that: there is federal interest in having the best, most responsible private contractors respond promptly and without reservation in the event of a disaster; a certification by a cognizant Government official under the Act that certain work is necessary for the recovery of the disaster zone is “discretionary” and should not be second-guessed under state tort laws; and therefore state tort laws must be displaced absent evidence of contractor fraud, recklessness or willful misconduct. As the Court stated in Boyle, these are matters of federal common law that involve federal preemption to displace state tort laws. It is appropriate that such be resolved in the federal courts. Indeed, one would be hard pressed to think of issues more suited to be resolved in federal, rather than state, court.

Of course, this does not complete the analysis. Under the Act, the Government contractor defense would apply only if the contractor did not act fraudulently or with willful misconduct in submitting information to the government to obtain the certification, and did not act with recklessness or willful misconduct in performing the work. These seem to be reasonable parameters for proscribing wrongful conduct of contractors vis-à-vis third parties – especially in view of the exigencies associated with a disaster response. The ultimate effect is that contractors are held accountable under the contract to perform the work set forth therein – but they are not liable to third parties for the Government’s decisions as to what work should be done or for their non-reckless performance of that work. Absent recklessness of willful misconduct, third parties must look to the Government for any available relief – if not through tort litigation against the Government, then in some other manner. But where a private suit against the Government is barred by sovereign immunity (i.e., is not available under the Federal Tort Claims Act), there is no alternate route under the law to sue a contractor that performed the job the Government asked it to do.

Private litigants simply cannot recover indirectly from contractors that which federal law bars them from recovering directly from the Government. This is the essence of the U.S. Supreme Court’s holdings relative to the Government contractor defense. The Bill recognizes what is embodied in federal common law, and provides assurances of certainty and uniformity of approach in the application of the Government contractor defense for contracts entered to respond to disasters.

What S.1761 means as a practical matter is that, for contracts certified as necessary for disaster relief, there will be no litigation as to the application of the Boyle standards. The first Boyle standard (i.e., Government approval of a reasonably precise scope for the work) is satisfied by the certification process, and thus is appropriately deemed fulfilled under the Bill. The second Boyle standard (i.e., the work was performed in accordance with the scope of work), is deemed fulfilled subject to a showing that the contractor was reckless or committed willful misconduct. The Bill does not provide protection for contractor conduct that is not covered by the second Boyle standard – i.e., activities that are outside of the scope of work.

Finally, the deeming of the third Boyle standard (the contractor’s obligation to warn the Government of dangers about which the contractor is aware but not the Government) means that contractors may proceed with disaster recovery work directed by the Government even though many risks are unknown and unknowable. The Bill eliminates costly litigation over what the contractor knew or did not know in undertaking work in a disaster relief situation. It is inherent in the nature of disaster relief work that many risks are unknown and unknowable. Government officials and contractors make good faith efforts to act in a prudent manner, but cannot fully assess the risks. By deeming the Boyle elements to have been satisfied, a contractor can proceed immediately with disaster recovery work as directed by the Government without the type of risk assessments that may be expected in normal construction and remediation efforts but that cannot reasonably be done in a disaster relief situation.

3. Potential Amendments to S. 1761

As discussed below, the Subcommittee may wish to consider an alteration to the provisions of S. 1761 that designate the Army Corps of Engineers (“Chief of Engineers”) as exclusively responsible for the review and certification of Government contracts under the Bill.

Government contracts certified under the Bill might be awarded by the Army, FEMA or other federal agencies. In addition, state and local governments may enter contracts for work in the five areas identified in the Act, and then request that FEMA reimburse them with federal funds. As I understand it, if FEMA were to deny reimbursement for a contract awarded by a state or local government, the Bill nonetheless would apply and such a state or local contract could qualify for certification.

S. 1761 contemplates that, in order for the certification provisions to apply, the Chief of Engineers will review the scope of work and provide the requisite certification for all disaster recovery contracts – whether issued by a federal agency or a state or local government. This imposes a burden on the Chief of Engineers that may be undue and unnecessary. It also divorces the certification process from the contract award process (and from the decision whether to provide federal funds to reimburse a state or local government contracts) – and this has been shown in another context not to be a particularly effective approach.

The certification process described in S. 1761 is similar to the process for certifying antiterrorism technologies under the SAFETY Act. In the SAFETY Act, Congress invited companies to apply to have their technologies certified by the Government as desirable for use against terrorism. In the event of lawsuits arising out of the use of a certified technology, the Government contractor defense applies and, as under the Bill at issue here, the elements of the government contractor defense are deemed to have been satisfied through the certification. The Department of Homeland Defense was given exclusive responsibility for certifying antiterrorism technologies under the SAFETY Act. The certification process was divorced from the procurement process. The result has been that few certifications have been granted, and the certification process has not been very effective in meeting the needs of the companies or Government procurement officials.

The Subcommittee may, instead, want to consider having the certifications done by: (i) in the instance of a contract awarded by a federal agency, the Government contracting officer who awards the federal contract; and (ii) in the instance of a contract awarded by a state or local government, by the federal official who determines whether to reimburse the contract with federal funds. As to the first of these, the Government contracting officer would be well suited to review the scope of work and make the appropriate determinations, and could do so as part of the contract award process. Nobody is in a materially better position to make the type of determinations required by the Act – and having the contracting officer provide the certification likely would result in little or no delay due to the need for a certification. As to the second point, the federal official who reviews the scope of work for reimbursement would be well positioned to make the certification. For state and local contracts that are not submitted for federal reimbursement, an alternate mechanism for providing the certification may need to be developed – or the Committee might choose to exclude such contracts from the coverage of the Act.

B. What the Bill Does Not Do

As a conclusion, it may be appropriate to emphasize what the Bill does not do.

The Bill does not abrogate the applicability of any other laws or regulations. All environmental laws would continue to apply. Federal state and local government enforcement officials would continue to be able to take whatever steps they deem necessary to enforce full compliance with the environmental laws, and to punish noncompliance. As I understand it, the Bill would limit certain private rights of action, but would do nothing to impair the ability of cognizant federal, state and local officials to fully enforce these laws.

Similarly, all federal, state and local labor and employment laws would continue to apply. The rights of cognizant government officials, individual applicants and employees to enforce these laws in court are unaffected by the Bill.

The same holds true for health and safety laws. The enforcement authorities of the U.S. Occupational Safety and Health Administration are not affected by the Bill.

Perhaps most important, as discussed above, the Bill does not limit the liability of Government contractors for recklessness or willful misconduct, nor does it limit the ability of the Government to require proper performance of contract obligations. The Bill does not allow contractors to escape liability for bad acts.

C. Conclusion

The thrust of S. 1761 is merely to put contractors that perform Government contracts on the same legal footing as the Government personnel who award them those contracts. It provides for cognizant Government personnel to review the scope of work for such contracts, and determine that the work is necessary to the disaster recovery effort. With such deliberation and exercise of discretion on the Government’s part, it is fair and reasonable for Contractors to proceed with the work promptly and without fear of legal liability so long as they are not reckless and commit wrongful misconduct. In view of the exigencies of disaster response, and the federal interest in having the best, most responsible contractors available for recovery efforts, the Bill seems a measured and appropriate approach.

Thank you.

_______________________________________________

1 A disaster zone is any region of the United States in which major disasters relating to Hurricane Katrina were declared by the President on August 29, 2005 under the Stafford Disaster Relief and Emergency Assistance Act (42 U.S. C. 5170), or were so declared thereafter if the disaster requires Federal assistance in an amount that exceeds $15 billion.

Majority Office
410 Dirksen Senate Office Bldg.Washington, DC 20510-6175
phone: 202-224-8832
Minority Office
456 Dirksen Senate Office Bldg.Washington, DC 20510-6175
phone: 202-224-6176