Section 4: Dollars Available For Private Sector In Federal Stimulus But Be Mindful of Important Details
Transparency and Labor and Materials Requirements
The Act provides a framework for the oversight of the use of funds appropriated under the Act (so-called "covered funds") to ensure that the process of obtaining and using covered funds on the one hand, and issuing and managing covered funds on the other, will be transparent from start to finish and will comply with the applicable parts of the Act and other laws.
Reporting Responsibilities
The Act imposes significant certification and reporting obligations on state governments and other entities that receive covered funds directly from a federal agency. These entities are referred to as "recipients" under the Act. If a state intends to use covered funds, its governor must certify that the state will request and use the covered funds and that those funds will be used to create jobs and promote economic growth. Further, the governor of any state that uses covered funds for infrastructure investments must post to www.recovery.gov a certification that includes specific details of the infrastructure project. The governor must also certify that he or she accepts responsibility that the infrastructure investment is an appropriate use of taxpayer dollars.
Recipients of covered funds also have reporting duties. Under Section 1512 of the Act (the Jobs Accountability Act), recipients must submit quarterly reports to the federal agency that issued the covered funds. The report must list in detail all projects or activities that use covered funds. For infrastructure investments made by state and local governments, the report must include the purpose, total cost, and rationale for funding the infrastructure investment and the name of the person to contact to discuss concerns with the infrastructure investment. If applicable, the report must also contain specific information about subcontracts or subgrants awarded by the recipient. Further, recipients that report subcontracts or subgrants must register with the Central Contractor Registration database or complete other registration requirements as determined by the Director of the Office of Management and Budget.
The reports required by the Jobs Accountability Act apply to all recipients. But reports are also required elsewhere under the Act. For example, under Title XIV of the Act, which provides for Department of Education funding, a state receiving covered funds must provide to the Secretary of Education the same reporting information required under the Jobs Accountability Act. A report under Title XIV, however, must contain additional information, including a description of the state's progress in reducing inequities in the distribution of highly qualified teachers.
The Act expects that its certification and reporting requirements will cause confusion, particularly among recipients. To address these concerns, the Act requires that the federal agencies expending covered funds provide user-friendly means for recipients of funds to meet those requirements. The Act does not indicate, however, how that information will be provided to recipients.
The frequent publication of comprehensive reports will allow the federal government to trace the covered funds to end-users. End-users should be aware that their use of covered funds is subject to the Act and understand the implications of violating the Act's provisions. As a corollary, it appears that the recipients who subcontract and make subgrants remain liable for the actions of their subcontractees or subgrantees. These recipients will not be able to "contract away" their obligations under the Act. The accountability of recipients is even more apparent when assessing the far-reaching investigative and auditing authority of the inspectors general and other federal entities created for the purpose of tracking the use of covered funds as outlined below.
Accountability
The Act contains many important auditing and investigation provisions designed to prevent waste, fraud and abuse. The Act includes some unique restrictions on the use of covered funds, such as the "Buy American," prevailing wage standard and "shovel ready" requirements that are discussed below. Compliance with these provisions will certainly be included in the rubric of heightened scrutiny and transparency created by the Act.
Inspectors General
The inspectors general, in particular, are directed to take a lead investigatory role. The Act grants specific appropriations to the inspectors general, ensuring their financial independence and that funding will be used by the inspectors general to conduct audits and investigations of projects and activities carried out with covered funds.
The Act grants considerable investigative authority to the inspectors general to complete those audits and reviews. With respect to each contract or grant involving covered funds, any representative of the appropriate inspector general is authorized (a) to examine the records of the contractor or grantee, any of its subcontractors or subgrantees, or any state or local agency administering a contract that pertains to or involves transactions relating to, the contract, subcontract, grant, or subgrant; and (b) to interview any officer or employee of the contractor, grantee, subgrantee, or agency regarding those transactions.
The Act also requires inspectors general to review concerns raised by the public relating to investment of the funds. Generally, those review findings must be relayed to the head of the appropriate federal department or agency. In addition, the findings of such reviews and the results of any related audits must be posted on the inspector general's website and linked to www.recovery.gov.
The Recovery Accountability and Transparency Board
The Act creates an additional layer of oversight by establishing a Recovery Accountability and Transparency Board (the "Board"), which is made up of the inspectors general from the various federal agencies and a chairperson designated or appointed by the President. The Board's purpose is to prevent fraud, waste, and abuse of the use of covered funds. Among other responsibilities, the Board is required to review recipient reports, review whether competition requirements applicable to contracts and grants using covered funds have been satisfied, audit covered funds to determine whether there is wasteful spending, poor contract or grant management, or other abuses are occurring. The Board must also refer matters it considers appropriate for investigation to the inspector general for the agency that disbursed the funds.
Board Interaction with Inspectors General
The Board's audit and review authority is similar to the audit and review authority of the inspectors general. The Board's audits and reviews may be independent of the auditing efforts of the relevant inspector general. To avoid duplication, however, the Act encourages the Board to coordinate its audits and reviews with the inspectors general. Whether or not it coordinates with the inspector general, the Board has broad authority in conducting its audits and reviews, including the right to issue subpoenas to compel the testimony of persons who are not federal officers or employees.
Despite the Board's concurrent oversight powers, the Act preserves the independent auditing authority of the inspectors general. The Board may ask an inspector general to conduct or refrain from conducting an audit or investigation. If the inspector general rejects that request, the inspector general must submit a report to the Board, the head of the applicable agency, and the congressional committees of jurisdiction, including the Committees on Appropriations of the Senate and House of Representatives. The report must contain the reasons that the inspector general has rejected the request. The inspector general's decision, as stated in the report, is final.
Board Recommendations and Hearings
The Board is required to recommend to federal agencies measures to prevent fraud, waste and abuse relating to covered funds. An agency that receives a recommendation from the Board must report to the President, the congressional committees of jurisdiction, including the Committees on Appropriations of the Senate and House of Representatives, and the Board on (a) whether the agency agrees or disagrees with the recommendations; and (b) any actions the agency will take to implement the recommendations.
The Board must also submit reports to the President and Congress, including the Committees on Appropriations of the Senate and House of Representatives. The Board will provide (a) "flash reports" on potential management and funding problems that require immediate attention; (b) quarterly reports summarizing the findings of the Board and the findings of inspectors general; and (c) annual reports that consolidate the quarterly reports. The Board will also submit to Congress other reports that the Board considers appropriate. All reports submitted by the Board shall be made publicly available and posted on recovery.gov.
The Board is authorized to hold public hearings, conduct necessary inquiries and demand certain information and assistance. At the Board's request, the head of the applicable agency is required to (a) make all officers and employees of that agency available to provide testimony to the Board and Board personnel and (b) furnish requested information or assistance to the Board, or an authorized Board designee. If information is unreasonably refused or not provided, the Board is required to immediately report the circumstances to the congressional committees of jurisdiction, including the Committees on Appropriations of the Senate and House of Representatives.
Board Website
The Board is required to maintain www.recovery.gov, a user-friendly website intended to foster accountability and transparency in the use of covered funds. The Act indicates that www.recovery.gov will provide essential information relating to the Act, such as audit findings, grant and contract information, data on contracts awarded, means for public feedback, and a plan from each federal agency for using funds, among other information.
Recovery Independent Advisory Panel
By establishing the Recovery Independent Advisory Panel, the Act creates a third layer of bureaucracy to monitor covered funds. The panel is composed of five members appointed by the President. The President is directed to appoint members to the Panel on the basis of expertise in economics, public finance, contracting, accounting, or any other relevant field. The Panel is required to make recommendations to the Board on actions the Board could take to prevent fraud, waste, and abuse relating to covered funds.
General Provisions
Preference for Shovel-ready Projects and Description of Prohibited Projects
Recipients using covered funds for infrastructure investments are required to give preference to activities that can be started and completed expeditiously. Recipients are directed to set a goal of using at least 50 percent of the funds for activities that can be initiated before June 17, 2009. Recipients must also use covered funds in a manner that maximizes job creation and economic benefit. None of the covered funds may be used by any state or local government, or any private entity, for casinos or other gambling establishments, aquariums, zoos, golf courses, or swimming pools.
Buy American
Under the Act, all of the iron, steel, and manufactured goods used in public building or public work projects must be produced in the United States. That rule does not apply if the applicable head of the federal department or agency finds that (a) applying the rule would be inconsistent with the public interest; (b) iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or (c) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent. If the head of a federal department or agency determines that it is necessary to waive the "Buy American" rule based on an exception listed above, the head of that department or agency is required to publish in the Federal Register a detailed justification of the waiver.
Prevailing Wage
Contractors and subcontractors on projects funded directly by, or assisted in whole or in part by, the Federal Government under the Act must pay their laborers and mechanics wages at rates not less than those prevailing on projects of a character similar in the locality as determined by the Secretary of Labor.
Environmental reviews
Under the National Environmental Policy Act ("NEPA"), a federal law since 1969, all federal agencies must assess the possible adverse environmental impact resulting from any "major action" undertaken by such agency. NEPA is the act pursuant to which, federal agencies must sometimes issue environmental impact statements as conditions to significant public works and other projects.
Project developers may regard the NEPA process, especially where an environmental impact statement is involved, as a bureaucratic interference that increases costs and causes delays. The drafters of the Act were certainly cognizant of NEPA's potential impact on the use of covered funds. The Act includes certain Congressional findings that appear to reaffirm the commitment to NEPA. At the same time, the Act directs agencies to find the most expeditious means of complying with NEPA. This is yet another mysterious mandate that requires further agency interpretation.
Stimulus Client Alert Introduction
Section 1. Energy and Resource Conservation and Climate Change
Section 2. Changes to the Federal Internal Revenue Code
Section 3. Information Technology in the Healthcare Sector and other Miscellaneous Programs
