Scott Stermer on Thursday, December 07, 2000 - 07:36 am:
Good Morning All:
I would like to describe a situation my agency faces in
contracting out for a form of
services. I work for the Federal Bureau of Prisons (FBOP) in the
Privatized Corrections Contracting Section.
Currently, we contract out various federal offenders to private
industry. We use a performance-based contract. These
correctional facilities (prisons) are contractor owned and
operated. We house approximately 7,500 inmates in these types of
facilities. One of the many problems faced in these contracts is
the possibility of contractor bankruptcy.
I don't want to get into the different types of bankruptcy, I
would like to focus on the contractor actually closing his
doors. The contract contains language that in a time of
emergency the government may come in operate the facility, we
believe due to public safety concerns this will take care of the
immediate problem. However, the long term problem remains of
housing these inmates. There are several internal ways of
solving it, however, I was wondering if any of you might have
some contractual way with dealing with this. We have discussed
running a separate lease, a facility buy-out clause, etc.
Do you all have any thoughts?
John Ford on
Friday, December 08, 2000 - 11:28 am:
Scott, while you are seeking a contracting solution to your
potential problem, bankruptcy is an area where you need sound
legal advice. I know DoJ has a lot of smart bankruptcy lawyers.
I suggest you run some of your ideas by them for their take on
them. They can point out any pitfalls and landmines that may be
hidden in your possible solutions. I would not want to go on
this journey alone.
carol elliott on
Friday, December 08, 2000 - 02:02 pm:
In addition to the Government having the right to buy the
facility, I would try to structure an option for the Government
to designate a third party to purchase the facility. This could
include making sure the financing allows this third party to
assume the mortgage on the facility.
I assume that's what you really want. The ability to hire
another firm to come in and run the prison.
I also assume that if the business has gone bankrupt, they have
also defaulted on the contract. If you structure this clause
properly, the Government could accept the capital vested in
these facilities in lieu of whatever is owed by the contractor
under the termination for default.
John's right, you need to work closely with a lawyer that is
familiar with bankruptcy. No contract clause will help if the
law requires the facilities to be used to pay off other
Scott Stermer on Monday, December 11, 2000 - 07:12 am:
Thanks...all. The FBOP is part of DOJ, and they have come to
us and asked our advise.