1. “Biodefense Acquisition Authorities, Procedures, and Liability Protections.” Presented by Mark J. Robertson Klitenic Robertson PLLC ABA Public Contract Law Section 2007 American Bar Association Annual Meeting San Francisco, California August 12, 2007 Copyright © Mark J Robertson, 2007

2. 2 PRESENTATION OUTLINE I.Overview II. Project BioShield Background & Authorities III. Process for Acquisition of Medical Countermeasures under Project BioShield IV. Liability Protections for Biodefense Products V. Public Readiness and Emergency Preparedness Act

3. 3 I. Overview President Bush announces Project BioShield in his State of the Union Address on January 28, 2003. HHS Secretary Tommy Thompson and DHS Secretary Tom Ridge jointly transmit the “Project BioShield Act of 2003” to Congress on February 26, 2003. President Bush releases Homeland Security Presidential Directive -10: “Biodefense for the 21 st Century” on April 28, 2004. President Bush signs Project BioShield Act of 2004 (P.L. 108-276) into law on July 21, 2004.

4. 4 Overview (cont.) Progress in developing countermeasures to threat of biological terrorism hampered by, inter alia, potential liability arising from terrorist acts. Following September 11, 2001, insurance coverage for losses arising from terrorist events was very much in question. (See Terrorism Risk Insurance Act of 2002.) Innovative technologies that could prevent, defeat, or respond to terrorist acts were either unavailable or prohibitively expense because of possible tort liability.

5. 5 Overview (cont.) Congress passes and President Bush signs on November 25, 2002 the Homeland Security Act of 2002, P.L. 107-296. Subtitle G of the HSA contains the Support Anti- terrorism by Fostering Effective Technologies Act of 2002 (the “SAFETY Act”). The SAFETY Act is intended to encourage the swift introduction of anti-terrorism technologies into the market by instituting a system of litigation management and risk management.

6. 6 Overview (cont.) The SAFETY Act’s landmark liability protections eliminates or minimizes tort liability for Sellers of “Qualified Anti-Terrorism Technologies” should suits arise following an Act of Terrorism. The SAFETY Act’s significant liability protections viewed as reducing number of instances of the Federal Government will need to indemnify contractors pursuant to Public Law 85-804.

7. 7 Overview (cont.) Project BioShield legislation provides incentives for the development of biological countermeasures. Amendments to the original Project BioShield legislation provide additional protections from potential liability. (See Public Readiness and Emergency Preparedness Act contained in Division C of the 2006 Department of Defense Appropriations Act.)

8. 8 II. Project BioShield Background Project BioShield is intended to accelerate the process of research, development, purchase, and availability of effective countermeasures against agents of bioterror. In Project BioShield, Congress gave the Secretary of the Department of Health and Human Services (“HHS”) enhanced authorities to develop and acquire medical countermeasures. The measure supports the recovery and response pillar of the President’s “Biodefense for the 21st Century,” a comprehensive blueprint for America’s biodefense.

9. 9 Project BioShield Background (cont.) DHS Appropriations Act 2004 (P.L. 108-90) appropriated $5.593 billion for FY2004 - FY2013 to secure medical countermeasures against biological terror attacks. Specifies that $890 million available to be obligated in FY2004 and $3.418 billion available for obligation through FY2008. DOD Appropriations Act of 2006 – “Public Readiness and Emergency Preparedness Act” (P.L. 109-148) amended Project BioShield Act of 2004.

10. 10 Project BioShield Background (cont.) Government’s implementation of Project BioShield has been hampered by delays, operational difficulties, and implementation challenges. Concerns over potential liability have contributed to industry’s reluctance to be actively engaged in developing countermeasures.

11. 11 Project BioShield Authorities Authorizes use of streamlined procedures in awarding grants, contracts and cooperative agreements relating to the research and development of qualified countermeasures. Authorizes use of the “Special Reserve Fund” for the acquisition of medical countermeasures for the Strategic National Stockpile.

12. 12 Project BioShield Authorities (cont.) Authorizes a number of streamlined contracting procedures for the procurement of security countermeasures, including the use of simplified acquisition procedures if the HHS Secretary determines there is a pressing need for a security countermeasure procurement. Also provides for a limited competition process in certain circumstances, as well as the ability to pay premiums in multiple award contracts to vendors based on the priority of the production and delivery of an increment of the security countermeasure.

13. 13 Project BioShield Authorities (cont.) Permits the HHS Secretary to authorize the introduction into interstate commerce of a drug, device, or biological product intended for use in an actual or potential emergency, even if the product is not FDA- approved, cleared, or licensed; or is approved, cleared, or licensed for a different use. The HHS Secretary has delegated this authority to the Commissioner of the Food and Drug Administration but the FDA Commissioner may invoke this authority only following a declaration of emergency by the HHS Secretary.

14. 14 III. Process for Acquisition of Medical Countermeasures under Project BioShield Release of the funds from the Special Reserve Fund (“SRF”) is subject to interagency and presidential approval. The DHS Secretary, in consultation with the HHS Secretary and heads of other federal agencies as appropriate, must determine that there is a material threat.

15. 15 Process for Acquisition of Medical Countermeasures under Project BioShield (cont.) DHS prepares a “Material Threat Assessment” as to whether a biological threat is present or foreseen. The Material Threat Assessment triggers the process for developing a statutorily required “Material Threat Determination” or “MTD” that is jointly issued by both the DHS Secretary and HHS Secretary. A MTD identifies a viable threat and recommends that countermeasures should be pursued.

16. 16 Process for Acquisition of Medical Countermeasures under Project BioShield (cont.) An interagency Weapons of Mass Destruction- Medical Countermeasures Group sits to determine the types of medical countermeasures that are necessary to meet the MTD threats. HHS Secretary must then determine that a security countermeasure is necessary to address that threat in order to protect the public health. HHS Secretary also determines whether a given medical countermeasure is appropriate and available for Project BioShield acquisition.

17. 17 Process for Acquisition of Medical Countermeasures under Project BioShield (cont.) DHS and HHS Secretaries must jointly recommend to the President use of the SRF to acquire countermeasures. The President’s authority to approve the use of the SRF has been delegated to the Director of the Office of Management and Budget (“OMB”). Project BioShield is subject to the Federal Acquisition Regulation and the HHS Acquisition Regulation, and HHS awards contracts utilizing the SRF following a full and open competition, unless the HHS Secretary determines that this requirement would impair the mission of the Project BioShield program.

18. 18 * Figure 1 - Project BioShield Annual Report to Congress July 2004 through July 2006.

19. 19 IV. Liability Protections for Biodefense Products SAFETY Act enacted as part of the Homeland Security Act of 2002, Public Law 107-296 (Title VIII, Subtitle G, Sections 861-865). SAFETY Act is intended to remove barriers to development and deployment of technologies that counter terrorist threats and to facilitate the development and deployment of anti-terrorism technologies by creating systems of “risk management” and “litigation management.”

20. 20 Liability Protections for Biodefense Products SAFETY Act NPRM published July 11, 2003. SAFETY Act Interim Final Rule published October 16, 2003. DHS awarded first Designations and Certifications June 2004 SAFETY Act Final Rule published June 8, 2006 (6 CFR Part 25).

21. 21 Liability Protections for Biodefense Products Two categories of liability protections are available to sellers of anti-terrorism technologies: Designation as a “Qualified Anti-Terrorism Technology” or “QATT”. Certification of a QATT as an “Approved Product for Homeland Security” and for establishing presumption of the applicability of the “Government Contractor Defense.”

22. 22 Liability Protections for Biodefense Products Benefits of SAFETY Act Designation: 1. Exclusive Federal cause of action and exclusive jurisdiction in Federal court for claims arising out of deployment of QATTs in defense against, response to, or recovery from an act of terrorism.

23. 23 Liability Protections for Biodefense Products Benefits of SAFETY Act Designation: 2. Limitation on the liability of the Seller to a specified amount of required liability insurance coverage. Seller will not be required to obtain any more liability insurance coverage than is reasonably available “at prices and terms that will not unreasonably distort the sales price” of the QATT.

24. 24 Liability Protections for Biodefense Products Benefits of SAFETY Act Designation: 3. Prohibition on joint and several liability for noneconomic damages. Seller can only be liable for that percentage of noneconomic damages proportionate to their responsibility for the harm.

25. 25 Liability Protections for Biodefense Products Benefits of SAFETY Act Designation: 4. Complete bar on punitive damages and prejudgment interest.

26. 26 Liability Protections for Biodefense Products Benefits of SAFETY Act Designation: 5. Reduction of plaintiff’s recovery by amounts that plaintiff received from “collateral sources,” such as insurance benefits or other government benefits.

27. 27 Liability Protections for Biodefense Products Benefits of SAFETY Act Certification: 1. Rebuttable presumption that the Seller is entitled to the “Government Contractor Defense”. 2. Placement on “Approved Product List for Homeland Security”. 3. Issuance of certificate of conformance to the Seller.

28. 28 Liability Protections for Biodefense Products Technologies that qualify for SAFETY Act protections include: Products Equipment Services (including support services) Devices Information technologies. While expansively defined, technology must be “designed, developed, modified, or procured for the specific purpose of preventing, detecting, identifying, or deterring acts of terrorism or limiting the harm such acts might otherwise cause.”

29. 29 Liability Protections for Biodefense Products Multiple biodefense products and services have received SAFETY Act protections. For example: i. an anthrax vaccine, ii. a smallpox exposure treatment, iii. a chemical nerve agent exposure treatment, iv. a biological weapons agent identification system, v. an infectious disease identification system, and vi. a bio-aerosol sensor for the detection of aerosolized biological particles have each received either SAFETY Act Certification or Designation.

30. 30 Liability Protections for Biodefense Products To date, DHS has extended SAFETY Act protections to over 150 anti-terrorism products or services. A significant number of biodefense products, including vaccines, post-exposure therapies, biodetection and diagnostic equipment, have received SAFETY Act Certification or Designation.

31. 31 Liability Protections for Biodefense Products SAFETY Act & Public Law 84-804 - Congress observed that the SAFETY Act’s liability protections would reduce the number of instances where it was appropriate or necessary for the Federal government to indemnify contractors pursuant to Public Law 85-804. In the SAFETY Act Final Rule, DHS noted that there are circumstances, however, in which both SAFETY Act coverage and indemnification are warranted underscoring a statement by Rep. Armey that in some situations the SAFETY Act protections will ‘‘complement other government risk-sharing measures that some contractors can use such as P.L. 85–804”).

32. 32 Liability Protections for Biodefense Products Recognizing close relationship of SAFETY Act and P.L. 85-804 authority, the President, in Section 73 of E.O. 13286, amended the procedure for exercising indemnification authority to provide that no department shall exercise such authority with respect to any matter that could be designated a “Qualified Anti-Terrorism Technology,” unless: (i) the Secretary of DHS has advised whether the use of the authority provided would be appropriate, and (ii) the Director of OMB has approved the exercise of the authority.

33. 33 Liability Protections for Biodefense Products The amended procedure includes an exception for the Department of Defense where the Secretary of Defense has determined that indemnification is ‘‘necessary for the timely and effective conduct of United States military or intelligence activities.’’

34. 34 Liability Protections for Biodefense Products The impact of the amendments contained in E.O. 13286 is clear. Outside of the DOD context, OMB and DHS will coordinate ahead of the exercise of the authority to indemnify for any matter that may be recognized as a Qualified Anti-Terrorism Technology. There have been limited instances where both SAFETY Act and P.L. 85-805 indemnification have been provided to government contractors. Given the complexities of biodefense, this is an area where SAFETY Act and indemnification will continue to be utilized as complementary risk management measures.

35. 35 V. Public Readiness and Emergency Preparedness Act The Public Readiness and Emergency Preparedness Act (Pub. L. 109-148) provides immunity from liability arising from the administration and use of covered countermeasures to manufacturers, distributors, program planners and qualified persons involved in the administration and use of a covered countermeasure, as specified in a declaration by the Secretary of HHS. (See section 319F-3 of the Public Health Service Act (42 U.S.C. §247d-6d)). An exception to this immunity applies for willful misconduct by the covered persons.

36. Questions / Further Information: Mark J. Robertson Klitenic Robertson PLLC 1615 L Street, NW - Suite 1350 Washington, D.C. 20036 202-828-8461 mrobertson@krsec.com www.klitenicrobertson.com Copyright © Mark J. Robertson, 2007