As most federal contractors know all too well, the United States Government is not always an easy customer. This is particularly true in circumstances where a contractor encounters performance impacts and seeks to recover increased costs and/or endeavors to secure a schedule extension. The Government’s negotiating posture in response to these types of requests is seldom inviting.
Well, as Bob Dylan once said – Times They Are A-Changin’
On March 30, 2020, the Office of the Under Secretary of Defense for Acquisition and Sustainment at the Department of Defense (DoD) released a memorandum focused on management of the “Impacts of the Novel Coronavirus” (Memorandum). The Memorandum acknowledges – as a matter of fact – that (1) “[t]he effects of COVID-19 will affect the cost, schedule, and performance of many DoD contracts,” (2) DoD and its contractors are experiencing impacts “borne across the total force,” (3) “[m]any contractors that ordinarily work side-by-side with the DoD workforce may be unable to access their work site,” and (4) “most contractors are coping with employees who are unavailable for work due to quarantine and state and local requests to restrict movement of their personnel.” In response to this world in disarray, the Memorandum directs DoD components to consider the following “regulatory tools” that can be utilized to “take action” in recognition of these impacts:
- Excusable Delays Clauses – e.g., FAR 52.249-14 and FAR 52.212-4(f) – which provide that a contractor is not in default due to any failure to perform arising from causes beyond the control and without the fault or negligence of the contractor. These clauses function to shield the contractor from liability for performance delays caused by epidemics, quarantine restrictions, and acts of the Government. As the Memorandum makes clear: “[i]n the event of such a delay, the contractor is entitled to an equitable adjustment of the contract schedule.”
- Termination Clauses – e.g., 52.249-8 – which insulate the contractor from liability for excess costs due to performance failures arising from circumstances that cause excusable delay (including epidemics, quarantine restrictions, and acts of the Government).
- Changes Clauses – e.g., FAR 52.243-1 and FAR 52.243-2 – which recognize that a contractor “shall” be entitled to relief where the Government directs changes to contract terms. The Memorandum notes that such changes “may include recognition of COVID-19 impacts on performance” and specifically recognizes that the contractor “may be entitled to an equitable adjustment to the contract price” as a result of such changes.
In addition, the Memorandum references the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which the President signed into law on March 27, 2020. According to the Memorandum, the “[m]ost notable” provision of the CARES Act is Section 3610, Federal Contractor Authority, which permits the Government to modify the terms and conditions of a federal contract to reimburse a contractor for paid leave – including sick leave – that the contractor provides to its employees or subcontractors who could not access work sites or telework, but where the paid leave was necessary to keep such employees “in a ready state.” The Memorandum notes that DoD will provide implementing guidance for Section 3610 “as soon as practicable.” Although the Government often moves at a glacial pace, we expect the guidance to be issued in the coming weeks (as opposed to months) in order to address key contractor questions that are already streaming into the inboxes of contracting officers across the country.
Critical Next Steps
While the Memorandum is certainly welcome news in an environment increasingly defined by generally unwelcome news, the ability of a contractor to recover costs and/or to receive schedule relief hinges on the extent to which the contractor can demonstrate such entitlement. Accordingly, we recommend that contractors confronting the impacts of COVID-19 take the following steps:
- Carefully review all existing impacted contracts to ascertain the operative clauses providing potential relief.
- Meticulously document and maintain written records of all bases for any performance delays.
- Carefully track – to the penny – all excess costs incurred as a result of contract changes directed by the Government.
- Prepare and timely submit requests for equitable adjustments where appropriate.
- Engage with contracting officers regarding any necessary contract modification(s) to secure reimbursement for paid leave provided to employees.
Of course, to the extent that contractors have any questions about the foregoing, we recommend consulting with legal counsel to ensure that all avenues for relief are identified and that recovery is maximized.