COVID-19 (a.k.a. the Coronavirus) is upon us and it looks like it is here to stay, at least for the foreseeable future. In January, the Department of Health and Human Services declared the Coronavirus outbreak to constitute a Public Health Emergency, and on March 13, 2020, President Trump declared it a National Emergency. The President noted that the spread of the virus “threatens to strain our Nation’s healthcare systems.” As medical needs surge coupled with increases in state and city shutdowns to combat and contain the virus, a drain on government resources is almost certain. As such, in the wake of the Coronavirus outbreak, many companies are looking for ways to help, and some are willing to do so at no cost through free goods and services to the United States Government in hopes of alleviating such strain. Many companies, however, fear that such gifts might be prohibited under federal gift rules and the Antideficiency Act (an Act originating in the 1880s that, in some cases, prevents the Government from accepting voluntary services). This article explores how companies can provide free goods and services to the Government within the strictures of applicable statutes and regulations.
Tackling the Antideficiency Act
The Antideficiency Act poses a challenge to companies seeking to donate to the Government. Enacted in 1884, the Antidefiency Act, codified at 31 U.S.C. § 1341 et seq., prevents the Government from incurring obligations or expending federal funds in advance or in excess of amounts available from appropriations. In the same vein, the Act also prohibits officers and employees of the Government from accepting “voluntary services or employ[ing] personal services exceeding those authorized by law except for emergencies involving the safety of human life or the protection of property.” 31 U.S.C. § 1342. The purpose of this prohibition is to ensure that no person, company and/or contractor can make a claim for compensation that will exceed an agency’s available funds for a year. Department of the Treasury—Acceptance of Voluntary Services, B-324214 at 2 (Jan. 27, 2014). Due to this prohibition, some Government agencies will not accept donations.
However, the voluntary services prohibition of the Antidefiency Act is not without its exceptions. Indeed, three exist that may help companies overcome the prohibition: (1) gratuitous services extended via written agreement; (2) voluntary services authorized by law; and (3) voluntary services during emergencies.
- Gratuitous Services
Companies can offer gratuitous services and goods to the Government by written contract. Agencies can accept free services and goods offered to the Government from a person or company who specifically agrees, in writing, to waive all expectation of payment and future pay claims against the Government. Such services are considered “gratuitous” and do not violate the Antideficiency Act because they eliminate any risk or obligation for financial liability on the Government’s part. See, e.g., GAO, Food and Drug Administration: Response to Heparin Contamination Helped Protect Public Health; Controls That Were Needed for Working With External Entities Were Recently Added, GAO-11-95 (Washington, D.C.: Oct. 2010) (“GAO FDA Study”) at 28-29; Army’s Authority to Accept Servs. From the Am. Assoc. of Retired Persons/Nat’l Retired Teachers Assoc., B-204326 (July 26, 1982).
Companies should heed a few caveats, though:
- Agencies cannot accept gratuitous services through verbal agreements; they must be in writing. See Department of the Treasury, B-324214 at 4 (finding the Department of Treasury violated the Antideficiency Act when it accepted unpaid services from four individuals performing “substantive official business” based only on the individuals’ oral waivers of payments);
- Agencies cannot accept gratuitous services if the individual offering to waive compensation is entitled to a statutory rate of pay. See Recess Appointment of Sam Fox, B-309301 (Jun. 8, 2007) (noting that because individuals with salaries specified in statute can always bring a future claim against the Government even when they waive such salaries in advance, the voluntary services prohibition disallows any such arrangements); and
- Agencies cannot accept gratuitous services that federal employees normally would perform, unless a statute authorizes such services. See Community Work Experience Program — State Gen. Assistance Recipients at Fed. Work Sites, B-211079.2 (Jan. 2, 1987) (finding that without statutory authorization, state participants could not offer up free services for a program normally performed by a sponsoring agency with its own personnel and appropriated funds because acceptance of such free services would augment the agency’s appropriation impermissibly).
- Voluntary Services Authorized By Law
Several statutes allow the Government to accept certain voluntary services. Companies can refer to these statutes as guides as to what and where to donate. A few examples include:
- 10 U.S.C. 1588 allows military departments and the armed forced to accept voluntary services for medical/health-care related services and family support activities (e.g., child development and youth services programs, library and education programs, religious programs, etc.);
- 10 U.S.C. § 2602 allows the President to accept assistance from the American Red Cross, a non-profit organization that shelters, feeds and provides emotional support to victims of disasters; and
- 42 U.S.C. 238 allows the Secretary of Health and Human Services to accept unconditional gifts for the benefit of the Public Health Service or for the carrying out of any of its functions.
- Voluntary Services During Emergencies
The voluntary services prohibition of the Antideficiency Act has one more exception that is built right into the statutory provision – the emergency exception. The emergency exception notes that an agency can accept voluntary services involving “imminent” danger to safety of human life or the protection of property. 31 U.S.C. § 1342. Given President Trump’s declaration that the Coronavirus is a National Emergency that certainly threatens human life, agencies may consider this exception in accepting donations of goods and services from companies. However, while the emergency exception provides a legal basis for agencies to accept voluntary services, it may not protect them from future claims for compensation. As a result, many agencies are likely still hesitant to accept donations of goods and services without a written agreement denoting that such donations are gratuitous.
A 2008 Government Accountability Office study of the Food and Drug Administration (FDA) is particularly illustrative. GAO-11-95. In response to the contaminated heparin crisis, the FDA hired several scientists to combat this health scare. Id. at 28. However, the FDA hired the scientists without any written waiver of payment in place. Id. at 29. Indeed, the FDA claimed it was authorized to accept the scientists’ “voluntary services” without such a waiver because the heparin crisis constituted an imminent emergency to human life. Id. Nevertheless, without actually assessing the emergency nature of the crisis, the GAO noted that the FDA had a duty to address the issue of no payment with the scientists and needed to obtain agreements from them that they were waiving all claims to payments for their services. Id. at 30-32. Because the FDA had not done so, the GAO found the FDA unnecessary risked exposing the agency’s funds to excessive financial liability. Id.
Consequently, companies seeking to gift goods or services to the Government during these trying times should assess whether their donations fall within the aforementioned exceptions to the Antideficiency Act. Better yet, companies always should consider drafting an agreement with the Government to authorize the gifts as permissible gratuitous services.
Corporate Gifts During the Coronavirus Outbreak
Many larger companies are eager to donate goods and services in the wake of the Coronavirus outbreak. For example, in late February, FedEx sent 202 pallets of goods to China, which was struggling to contain the spread of the Coronavirus. Shipments included more than 2.7 million masks and 440,000 gloves. On March 18, 2020, JPMorgan Chase announced a $50 million commitment to provide food, health care, and other services in the United States, Europe, and China. On March 20, 2020, Southern California Gas Company announced it would donate $1 million to nonprofit organizations throughout its service area to support the region’s workforce, feed the hungry, and provide bill assistance to customers most affected by the Coronavirus.
While many companies are partnering with non-profit organizations and relief funds, companies giving goods and services such as testing labs, phone and internet service, technology, medical supplies, and manufacturing capacity also may wish to donate directly to the Government. Indeed, the current administration has signaled its readiness to facilitate such corporate gifts. On March 18, 2020, for example, the Federal Communications Commission (“FCC”) temporarily waived rules in its Rural Health Care and E-Rate programs to help promote better access to broadband for telehealth and distance learning during the Coronavirus pandemic. More recently, the Federal Emergency Management Agency updated its website to encourage more corporate and personal giving, and to provide more definitive guidance regarding donations of Personal Protective Equipment, medical services, and other necessary goods and services.
If you or your company is considering giving free goods or services to help the Government in its efforts to combat the Coronavirus, keep in mind the following prudent steps:
- Determine whether the goods and services to be donated to the Government fall within one of the three exceptions to the Antideficiency Act: (1) gratuitous services, (2) voluntary services authorized by law, or (3) voluntary services during emergencies;
- Consider drafting an agreement with the Government to authorize any gifts as permissible gratuitous services;
- Verify that the donated goods and services are not (1) services that are entitled to statutory pay or (2) services that federal employees normally perform that have no statutory provision authorizing such services to be performed gratuitously; and
- Seek advice from legal counsel before making any donation to ensure appropriate measures are followed.
As you are aware, things are changing quickly and there is no clear-cut authority or bright line rules in this area. Our blog does not reflect an unequivocal statement of the law, but instead represents our best understanding of where things currently stand. Further, this blog does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the COVID-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay and other issues.
For more legal insights visit our Coronavirus (COVID-19) page.
*This alert is provided for information purposes only and does not constitute legal advice and is not intended to form an attorney client relationship. Please contact your Sheppard Mullin attorney contact for additional information.*