New England And Boston - Law Firms Homeland Security: The Massachusetts Advantage

Saturday, May 1, 2004 - 01:00



This article describes some of the significant commercial opportunities created by the Department of Homeland Security ("DHS"), with a focus on the unique advantages centered in Massachusetts.In addition, the article provides practical tips on doing business with the government.Finally, the article reviews the Support Anti-terrorism by Fostering Effective Technologies Act, or SAFETY Act, and the sweeping liability protections it offers to qualified providers of DHS related products or services ("DHS Provider").



The DHS Opportunity


DHS and its ambitious programs and initiatives offer a broad range of opportunities for technology-based companies.Estimates indicate that DHS will spend more than $4.1 billion in 2004 alone on information technology for projects such as the development of an e-mail directory, a dynamic web portal system, as well as secure communications links among local, state and federal agencies for webcasting and videoconferencing. DHS also has a large appetite for biotechnology initiatives as it seeks approximately $365 million to invest in technologies responsive to biological threats.


Various DHS programs such as the SAFETY ACT, described more fully below, provide additional powerful incentives for venture capital investors and entrepreneurs, as well as established businesses to spend, innovate and invest in the Homeland Security related sectors.In addition to the SAFETY Act, several other DHS initiatives warrant attention, including Project BioShield, which encourages spending on bio-terrorism prevention and response, the BioWatch Program, which enhances investment in environmental monitoring actions, and the Critical Infrastructure Information Act, which promotes the sharing of information related to the country's "critical infrastructure" by guaranteeing protections of confidentiality and other legal rights to private sector participants.



The Massachusetts Advantage


The business, professional and academic communities of Massachusetts, in particular its two cities along the Charles River, have tremendous opportunity to capitalize.Providers of products and services with defense and security applications immediately grasped the commercial opportunities.Other companies operating in sectors such as communications and information technology have now begun to recognize the scope of commercial possibilities.


The research and academic strengths of Massachusetts are formidable.Institutions of higher learning such as MIT, UMass, Harvard, Boston University and Tufts, among others, are nationally renowned for being leaders in multiple fields. According to a recent collaborative project by the Battelle Memorial Institute and Mass Insight Corporation ("Battelle Report"), MIT and Harvard were the leaders, nationally, in engineering and the physical sciences and the life sciences, respectively. In addition, the Battelle Report noted that other prominent local institutions were among the best in other key disciplines: information technology and communications systems (BU and UMass), artificial intelligence, robotics and auto control (BU), polymer sciences and computer sciences (UMass), Genomics (UMass Medical) and biotechnology and pharmacology (Tufts).


As further proof of the region's focus on innovation, research and development serves as a particularly influential catalyst to the economic growth of Massachusetts.R&D in Massachusetts produces approximately 4.5% of the Commonwealth's economic output, which is nearly twice the national percentage, according to the Battelle Report.


The Batelle Report also ranked Massachusetts among the top three states in the country with respect to the number of companies in the following disciplines:Signal Processing; Computer Sciences; Environmental Sciences; Genomics and Proteomics; Disease Research and Discovery; Renewable Energy; Sensing, Optical and Electro Mechanical Devices; and Biomedical Devices and Instrumentation.All of these core capabilities complement DHS initiatives.


Finally, Massachusetts boasts a strong lineage of private sector service to the government including, of course, the defense industry. The private sector is on the verge of participating in the most extraordinary governmental initiatives since the Great Depression.A local stalwart such as Raytheon has produced legions of alumni with considerable industry expertise.The market created by DHS demands these talents.


Massachusetts also is positioned to be the leading producer of so-called "smart materials" such as clothing and body sensors. The U.S. Army Soldier Systems Center in Natick, Massachusetts capitalizes on its extensive relationships in academia and industry to innovate state-of-the-art products.


In sum, the academic and business resources that have enabled Massachusetts to become a center for ingenuity and capitalism during, most recently, the '90s technology boom, ensure that Massachusetts will be a leader again during this DHS influenced boom.



Tips On Government Contracting Generally


Although commercial opportunities are available, a strong understanding of the strategic elements of government contracting is essential.Doing business with the government requires proactive compliance with the applicable regulatory framework. Experienced legal practitioners can develop cost-effective compliance programs for their clients to facilitate business opportunities with the government and to reduce the risk of adverse results during compliance audits.In addition to direct opportunities with the government, companies can strategically pursue engagements with prime contractors with existing governmental relationships.Although prime contractors properly should "flow down" governmental contractual requirements to the subcontractors, from the subcontractor's perspective these relationships are far less regulated.Moreover, a subcontractor will be subject to far less scrutiny from the prime contractor than the prime contractor will face from the government.To summarize, entrepreneurial firms endure less red tape in the role of subcontractor.However, the subcontractor should commit to proper compliance in order to secure its relationship with the prime contractor and to position itself for future opportunities with the government.


As a potential prime contractor to the government, a company can take certain steps to enhance its candidacy. First, when you are selling technology that lacks a track record in the marketplace, be prepared to back up product claims. If your proposal describes the capability of your technology and such technology is not yet market-tested, then obtain an assessment from an independent third party that has tested, evaluated and used the technology.In other words, answer the question before it's asked.


Second, procure knowledge of the procurement rules.Government agencies require compliance with the Federal Acquisition Regulations, or FARs, in addition to the specific rules of the applicable agency.Understand what they require you to do.If contractual provisions in a typical private sector purchase order or contract can impact price, imagine what a knee high stack of governmental provisions can do.In fact, depending on your business, only certain key provisions will deserve your greatest attention.Experienced practitioners can direct your focus on a cost-effective basis.


Third, get on everybody's dance card.Register as a vendor to tap into the pipeline of information and updates with respect to requests for proposals, procurement trends and supplier requirements.Qualify as a "preexisting contract vehicle," which means you agree on an open-ended basis to sell your products at a set price.Fourth, determine your eligibility to be classified as a small and small disadvantaged business.Criteria can include status as a minority owned business or a business from an economically disadvantaged area.Such status may result in favorable treatment.



The SAFETY Act


To address in part the myriad risks associated with servicing an anti-terrorism agenda, Congress adopted an astonishing piece of legislation called the SAFETY Act.Its acronym is a misnomer.It should be called the "Business Booster" since the law provides additional reasons for businesses to invest their capital in Homeland Security related products and services. The SAFETY Act provides for significant limits of liability in the event of a terrorist act for businesses offering products and services to the DHS market.The SAFETY Act offers protection for qualified applicants in two tiers: designation of qualified anti-terrorist technology ("QAT") and certification of eligibility for the government contractor defense ("GCD").The protections under the Act constitute particularly appealing incentives to established businesses that, unlike an undercapitalized entrepreneur, stand to lose quantitatively much more if their product or service creates an event of liability.


The SAFETY Act specifies several distinct forms of liability limitations, including a general limit on liability equal to the business's liability coverage, an exclusion of punitive damages, and limits on non-economic damages such as pain and suffering.In addition, the SAFETY Act makes clear that the protection available to the business that produces the qualified technology also extends through the supply chain to businesses that integrate, use or market such technology.



How To Qualify For SAFETY ACT Protections.


To qualify for the protections under the Act, a DHS Provider must satisfy certain criteria.First, the DHS Provider must be dealing in a qualified anti-terrorism technology which is defined as any technologies "designed, developed, modified or procured for the specific purpose of preventing, detecting, identifying or deterring" terrorism.A company can avail itself of the Act's protections only after submitting an application seeking QAT designation and receiving proper approval from DHS. The Act includes numerous broad criteria to guide the DHS in determining what constitutes qualified anti-terrorist technologies, including the significance of the danger the technology addresses, evidence of the technology's usefulness, likelihood of effectiveness against the targeted threat, academic support for potential effectiveness, liability risks for the DHS Provider and time to market.Second, the DHS Provider must obtain the highest levels of liability insurance that can be reasonably obtained.Such insurance must provide protection for each participant in the supply chain including the suppliers, vendors, customers and endusers.Ultimately, the DHS must certify to the sufficiency of insurance levels before an application will be approved.


The SAFETY Act also codifies and broadens the so-called government contractor defense, or GCD, which is a doctrine that provides immunity from liability to government contractors who provide goods or services to the government in accordance with agreed-upon specifications, provided that the contractor properly disclosed all defects to the government.For qualified applicants, the Act extends this defense to cover transactions with government and non-governmental entities.Moreover, the defense becomes a rebuttable presumption subject to a high evidentiary standard, which means that, in order to impose liability on the DHS Provider, the plaintiff must show that the DHS Provider engaged in willful misconduct or fraud.


As noted above, to obtain favorable treatment under the SAFETY Act, the DHS Provider must submit an application seeking to qualify its products or services as QAT or to receive a certification of GCD entitling such applicant to the government contractor defense if successful.A candidate must receive designation for its QAT before it can seek certification for the GCD.A candidate might consider submitting a concise "pre-application" to receive feedback about the opportunity to qualify for designation or certification. This approach also serves to determine if DHS has particular interest in the subject technology that, in turn, would enable the provider to make appropriate preparations.Note that the Freedom of Information Act ("FOIA") as a general matter requires that information submitted to the government appear on the public record.The Act creates an exemption from the FOIA rules for confidential information properly identified and submitted under the Act.


You can obtain applications to qualify for QAT or GCD on-line at http://www.SAFETYact.gov.The Act sets forth a clear timetable concerning the process for reviewing, revising, rejecting or approving these applications.After DHS approves an application, the authorization lasts for between 5 and 8 years.



Conclusion


DHS is an extraordinary event - culturally, politically and commercially. Congress created it in 2002 by amalgamating 22 separate agencies to produce a bureau with an annual budget of $36 billion and approximately 170,000 employees. In a nutshell, DHS is a motivated buyer. These staggering procurement requirements could theoretically expand any business that offers a DHS related product or service to governmental or private buyers. Companies in Massachusetts enjoy a decided advantage with their talent, academic resources and industry expertise. While the DHS procurement bonanza will benefit start-ups of all stripes, established companies - with a lot more to lose in the face of heightened liability dangers - are buoyed by the liability protections of the SAFETY Act. In sum, DHS promises to achieve two extraordinary goals: the enhanced protection of our country and citizens and the revitalized productivity, innovation and wealth-making capability of our business, academic and investment communities.The greatest advances toward these goals may well be achieved on Massachusetts soil.

James P. O'Hare and Ronan P. O'Brien practice corporate law in the Boston office of Kirkpatrick & Lockhart LLP and represent a variety of public and private companies involved in technology-based industries. They are also members of the firm's Homeland Security Practice Group.

Please email the authors at johare@kl.com or robrien@kl.com with questions about this article.