Memorandum

Memorandum
To:	Our Clients and Friends
From:	Petrillo & Powell, P.L.L.C.
Date:	December 5, 2002
Subject:	Contracting Opportunities Created by the New Department of Homeland Security

The legislation setting up the new Department of Homeland Security has some unique provisions:

Perhaps the most important change is that the new Department can use the more flexible authority for "commercial items" for all of its purchases. This includes the streamlined acquisition procedures contained in FAR Part 12. Other Federal agencies are now also authorized to take advantage of this authority pursuant to a FAR change effective January 24, 2003.

The new Department can exempt itself from procurement rules which impair its mission.

Several of the Department's components, including the Transportation Security Agency, the Coast Guard and the Secret Service, have a two-year phase-in period to integrate their existing systems and procedures with the other DHS components.

The thresholds for mandatory small business set asides are changed for procurements by DHS or other Federal agencies supporting the war on terrorism. The new thresholds require procurements which will exceed $7,500 but are less than $200,000 to be set aside if two or more responsible small businesses are expected to compete. Another provision, however, removes the restriction on sole source awards under the 8(a) and HUBzone programs.

These provisions have important implications for contractors seeking to do business in these markets, such as the following:

The "commercial item" rules mean that many of the boilerplate clauses used in Government contracting don't apply and can be modified. This opens the door to different and more innovative contracts, such as alternative licensing arrangements and the use of performance based incentive payments and award terms.

The use of simplified acquisition procedures means that procurements will be faster and with limited notice. TSA has already used alternative means of publicizing procurements.

Expect the components with a two year phase-in period to continue contracting as they have in the past, at least for the immediate future. Note, however, that this situation is dynamic and changes rapidly. For example, TSA, although enjoying a broad exemption from general procurement regulations, has made innovative and largely unpublicized use of alternate dispute resolution in bid protests.

We stand ready to help our clients understand and benefit from these new features of the Department of Homeland Security. We encourage prospective contractors to consult their legal representatives early in the marketing cycle to understand opportunities and mitigate risks. Contact us if you would like to discuss how to deal with the new Department of Homeland Security.

Joseph J. Petrillo 202_887_0405 jp@petrillopowell.com

Karen D. Powell 202_887_4827 kdp@petrillopowell.com

Contracting for homeland security has put new emphasis on indemnities. But it is instructive to see how problems with these have frustrated other contractors. Joseph J. Petrillo discusses this topic in: How an old contract came back to bite du Pont, GCN, Feb. 24. 2003.