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INSIGHT: How Federal Contractors Can Prepare for Coronavirus Disruptions

March 23, 2020, 8:01 AM

Government contractors can face challenges when unscheduled interruptions of contract performance occur. Covid-19 could cause an increase in contractors’ costs of performance, and/or may create difficulty for contractors to perform in a timely manner, putting many contractors at risk of missing contractual deadlines.

Challenges such as supply chain disruptions, workspace and government facility closures, or employees needing to stay home could all impact a contractor’s performance. The inability to perform contractual requirements or meet deadlines may also cause reputational harm to government contractors, which could make it difficult for companies to do business with the government in the future.

Potential disputes may be avoided or mitigated through early and continuous contractor diligence, and through prompt disclosure and discussion of issues with both agency contracting officers and subcontractors.

Below are a few areas where contractors can proactively mitigate potential business and legal risks.

Review Contracts for Excusable Delay Provisions

When confronting challenges caused by Covid-19, contractors should check whether their contracts or subcontracts contain clauses that would excuse delays, such as FAR 52.249-14 (cost reimbursement and time and materials contracts), FAR 52.249-8 (fixed price supply and service contracts), and FAR 52.212-4 (commercial contracts).

The excusable delay protections within these clauses may help protect contractors from being terminated for default for failing to meet schedules, and/or from incurring excess costs arising from causes beyond their control, as these clauses specifically identify “epidemics” and “quarantine restrictions” as examples of excusable delays.

However, to take advantage of the protections of such excusable delay provisions, contractors must advise their contracting officers of the specific facts causing any delays, while being prepared to work out a new performance schedule.

Of course, contractors should diligently document and keep records of any delay and potential impacts as soon as they become aware of them.

The Contract’s Changes Clause May Provide Relief

In addition to excusable delay provisions, other FAR clauses may protect contractors when the government, directly or indirectly, changes the time or place of performance and delivery, the method of shipment, and/or other contractual specifications related to performance.

For example, the FAR’s standard changes clauses, FAR 52.243-1 and FAR 52.243-2, provide contractors the ability to obtain an equitable adjustment for increased or changed work. The government may cause such changes in response to Covid‑19 and related performance disruptions, whether by issuing a change order or via a constructive change (that is, when the government’s action or inaction constitutes a modification of the contract without a formal order).

Examples may include directing a source of supply, schedule changes, changing the location or manner of performance of services, mandatory travel restrictions, or actions affecting the timely availability of materials for a construction project.

Accordingly, contractors should assess their rights regarding additional costs associated with changed performance, whether by a direct or a constructive change, by providing timely notice to the contracting officer(s) at issue.

In Most Cases, Continued Performance Will Be Required

When an excusable delay occurs, unless the government decides to terminate the contract for its convenience, the contractor will be required to resume contract performance once the cause for the excusable delay has ended or is removed.

Also, even when a change to the contract occurs and a contractor has a claim for increased costs, contract performance must continue while the claim is pending, including complying with any decision of the government’s contracting officer.

Keep in mind that some contracts may be designated as a “rated order” under the Defense Priority and Allocation System, which will require contractors to prioritize their contract performance over other contracts.

Its important for contractors to capture and document the increased costs associated with the new or changed work, while also communicating with the cognizant contracting officer as to why the new work constitutes a “change” and its potential impact on contract performance.

Contractors should also specifically review a contract’s changes clause for the required timeframe by which the contractor must assert their right to any such adjustment. And when documenting such changes, contractors would be well advised to immediately begin to segregate the costs related to the changed work.

Of course, contractors also have a duty to mitigate their increased costs, and when they fail to do so they may not be entitled to recover those that reasonably could have been avoided or reduced.

Performance of Mission-Essential Services Plans

Defense contractors may be called upon to begin implementing their contracts’ mission-essential services plans, which are required to facilitate functions in extended crisis situations, including pandemics.

Common examples include services that support vital systems, such as ships leased, owned or operated to support military missions, associated base and installation support activities, and similar services provided under the Security Assistance Program to foreign military sales customers.

Mission essential services plans identify provisions for acquiring essential personnel and resources to support continued operations for 30 days, or until normal operations are resumed. Additionally, in the event continued performance of such services is directed, the contractor will have 90 days to notify its contracting officer of any increase or decrease in costs, and to request an equitable adjustment addressing price, schedule and/or delivery.

If a contractor anticipates not being able to perform any of the services identified in its mission-essential services plans, then the relevant contracting officer or other designated representative must be notified as expeditiously as possible.

Accordingly, contractors should look at their contracts to identify any services that have been designated as mission essential, and review their plans and operations to ensure that the required essential services can be provided.

And if directed to activate their mission-essential services plan, contractors should also ensure that any subcontractor performing essential services is likewise directed to activate its mission essential services plan. Contractors should also segregate any costs associated with their performance once a plan is activated to support a request for equitable adjustment.

Liability for Excess Costs

If the contractor’s failure to perform is caused by the default of a subcontractor, and the cause of the default is beyond the control of both the contractor and subcontractor, the contractor may be excused from liability for excess costs of reprocurement under FAR 52.249-14, 52.249-8 and 52.249-9.

However, this excuse may not be available to a contractor providing non-commercial items if the subcontracted supplies or services were obtainable from other sources in sufficient time for the contractor to meet the contract’s required delivery schedule (see FAR 52.249-14(b), FAR 52.249-8(d) and FAR 52.249-9(d)).

Additionally, if the contracting officer orders a contractor to purchase supplies from another source and the contractor unreasonably fails to comply with that order, then the contractor may not be entitled to relief (FAR 52.249-14(b)). Finally, it is important to note that while FAR 52.212-4 (the applicable clause for commercial items) does not explicitly address excess costs, it does have a notice obligation with respect to excusable delays.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Tom Mason leads Thompson Hine’s Government Contracts practice group. He focuses his practice on all aspects of government contracts law and litigation, including dealing with grants and co-operative agreements, the management of major government systems and programs, and the resolution of related claims and disputes.

Ray McCann is senior counsel in Thompson Hine’s Government Contracts and Construction groups. He has broad and deep experience in federal government, international and commercial contract and software licensing law, including drafting, negotiating and managing government and defense, international and commercial contracts and subcontracts, software licenses, and teaming and other agreements.

Mona Adabi is an associate in Thompson Hine’s Government Contracts and Privacy & Cybersecurity groups. She focuses her practice on all aspects of government contracts law and litigation, as well as dealing with grants and co-operative agreements.

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