Our current circumstances are evolving daily with different service sectors closing on a state by state basis in a response to the COVID-19 pandemic. The Department of Defense (DoD) has stopped movement for domestic travel, and the statistics related to the virus are becoming all too familiar.
Government contractors are in a unique situation in that they support so many of the essential global services of the U.S., which denies them the option of working from home or self-isolating like so much of the country. Instead, many contractors must find ways to keep working and supporting their missions and programs.
To respond to some of the uncertainties facing contractors at the moment, the federal government released two important Memorandums on Friday, March 20, 2020. The first, titled Memorandum for Defense Industrial Base, Subject: Defense Industrial Base Essential Critical Infrastructure Workforce, was issued by the Under Secretary of Defense for Acquisition and Sustainment. This Memorandum declared that most contractors supporting the DoD programs are considered essential and should “maintain normal work schedules.” This is not surprising given that the majority of the DoD’s workload is directly related to U.S. national security, but none the less, is reassuring to hear.
This Memorandum also included an attachment that described what are considered critical and essential workers according to the Cybersecurity and Infrastructure Security Agency (CISA). The list of “Essential Critical Infrastructure Workers” that should continue working during the COVID-19 pandemic was developed after consulting with other federal agencies and the private sector. In addition to healthcare workers, this list includes industries, sectors and services such as chemicals, financial services, communications, public works, transportation, water, energy, food and law enforcement.
The second was titled Memorandum to the Heads of Executive Departments and Agencies, Subject: Managing Federal Contract Performance Issues Associated with the Novel Coronavirus (COVID-19), issued by the Deputy Director for Management at the Office of Management and Budget. This Memorandum urges contractors affected by the pandemic to make use of the flexibilities available to them in performing their work, including maximizing telework when possible, and most importantly, encourages acquisition officials to exercise their acquisition authority and “feel fully empowered to use the acquisition flexibilities, as needed, consistent with good business judgement in response to this national emergency.” Contracting officers have a significant amount of flexibility to authorize contract changes to make contracts work in the current situation. Contracting officers have used their authority to make contract changes in prior disruptions, such as prolonged government shutdowns and regional natural disasters. Common examples include remote work or maintaining workforces unable to access government sites in a readiness state but may also include creative solutions such as government provided transportation or logistics support if commercial carriers are unavailable.
How is the COVID-19 Pandemic affecting government contractors?
While being deemed essential workers, some contractors are struggling with unanticipated costs associated with the pandemic including providing telework equipment to allow their employees to work from home, maintaining healthy and safe workplaces, an increased need for IT resources and loss of labor. In some instances, supply chain and travel disruptions are impacting and delaying contract performance.
Affirmative relief to cover costs due to necessary business performances adjustments may be available to contractors. The relief available to contractors will differ depending on contract pricing and terms. Under cost-type contracts, reimbursement is allowed, but under fixed-priced contracts, reimbursements will be more complicated.
Defensive relief would fall under an excusable delay clause and should be used in the event that contractors cannot perform either due to state orders or employees are unable to perform. Contractors should look at their excusable delay clauses to see if they fit in any of the reasons for delay in case the government asserts that you have defaulted on a contract. Defensive relief would also cover contractors in the event that the government terminates contracts for convenience and would put you as a contractor in the best position to respond to these potential events.
Many of the questions and concerns contractors have at the moment are, unfortunately, very fact-dependent. Like many businesses right now, there is a great deal of uncertainty of how to go forward and the additional stress of compliance requirements remaining including Broad Agency Announcement (BAA) / Trade Agreements Act (TAA), cybersecurity requirements, and labor charging under the False Claims Act.
What should contractors be doing now?
- Determine your status as an essential worker: Discuss your status with your contracting officer (CO) to avoid implications of not meeting federal contract commitments, despite having a state-wide stay-at-home mandate. Contractors could consider providing letters to their employees stating that the employee is part of a critical operation for the government.
- Safeguard proper compensation: If your business is engaging in potentially hazardous work or is forced to perform hazardous work under the Defense Production Act (DPA), make sure you are properly indemnified for the work your company is doing by checking to see if you are eligible for P.L 85-804 indemnification.
- Communicate with your CO: The best response to rising concerns is to be proactive and communicate early. Strong communication is always important for contractors, but now the need for coordination with contracting officers is even higher.
- Reviewing your contract terms: Look for Excusable Delays clauses FAR 52.249-14 and FAR 52.212-4(f) for relief from excusable delays for commercial items as defense for any delays you may experience as a result of COVID-19. Changes in clauses could entitle you to additional compensation if the government changes your contract, with or without reference to the pandemic. Contractors should be examining other clauses, such as Suspension of Work or Stop Work, Termination, Continuation of Essential Services, Defense Priority and Allocation Requirements, and Special H clauses.
- Confirm your continued performance with the government: Discuss work arrangements and mutually agreeable adjustments. If you believe you may not be able to meet a federal commitment, consider requesting a waiver for compliance.
- Document all communications, actions and costs: Maintain clear records that show increased costs are being incurred in response to COVID-19 and the government’s response as such. This may be difficult to show when addressing labor loss and an increase use of paid sick leave. The “gold standard” for these reports would be a direct written direction from your CO stating that the costs being incurred are directly related to COVID-19 and will increase your likelihood of receiving equitable adjustment to recover these incurred costs. Be sure to identify how you have been impacted by COVID-19 directly and to separately capture all associated costs. Having the costs ready to submit so you are able to recover quickly will be significantly important.
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