Federal Government Contractors Must Evaluate Their Contractual Rights Related to COVID-19 Impacts

04.16.2020

The coronavirus (COVID-19) epidemic has not—at this time—resulted in a federal government shutdown. To the contrary, on March 22, 2020, the Department of Defense's (DoD) acquisition arm has urged industry firms to maintain their normal work schedules.[1] Moreover, employees of federal government contractors have generally been identified as “essential personnel” by state governments, following Department of Homeland Security guidance on who is deemed part of the essential critical infrastructure workforce.[2]

Despite the federal government being open for business, government contractors are already feeling the impact of COVID-19. For example, employees may not have ready access to necessary facilities or be able to travel due to illness or government mandates. Additionally, many contractors are beginning to face supply chain issues. These challenges may worsen over time, and contractors should act now to understand their contractual rights.

Certain FAR Clauses Might Help Impacted Government Contractors

An analysis of a contractor’s rights begins with the contract itself. Standard clauses under the Federal Acquisition Regulations (FAR) include language that can protect the contractor. The various default clauses in the FAR excuse delays arising from unforeseeable causes beyond the control and without the fault or negligence of the contractor. Generally, the contractor must notify the contracting officer in writing and within ten days of the causes of any such delay (FAR 52.249-8(c) (clause for fixed-price supply); FAR 52.249-9(b) (clause for fixed price research and development contracts); FAR 52.249-10(b) (clause for fixed price construction)).

The FAR’s excusable delays clause can protect the contractor from liability for default where the default was through no fault of their own and beyond their control (FAR 52.249-14). The FAR and the Defense FAR Supplement (DFARS) include “epidemics” or “quarantine restrictions” in their examples of excusable delays.

To utilize these clauses, contractors must prove that the epidemic or the restrictions actually caused the delays and/or excessive costs. These clauses typically authorize an extension of time for performance, but not cost relief.

What If the Government Suspends Work or Changes a Contract?

If the government suspends or changes work under a contract, additional FAR clauses might protect the contractor. These include:

Stop-Work Order Clause (FAR 52.242-15);
Suspension of Work Clause (FAR 52.242-14);
Government Delay of Work Clause (FAR 52.242-17).

These clauses require the contracting officer to adjust a delivery schedule or price where the adjustment is caused by a stop work order or delay order issued by the contracting officer, or where those delays or price adjustments resulted from the contracting officer’s failure to act.

The Changes clauses in FAR 52.243-1 through 4 also may address disruptions or changed contract performance. These clauses require an equitable adjustment if a contracting officer’s changes to a contract increase the contractor’s costs or time required for performance.

Sometimes, a contractual change might occur if a federal or state government authority other than the contracting officer prevents performance (for example, a state restriction prevents timely delivery of necessary materials). A contractor should advise its contracting officer and seek ratification and/or amendment to its contract if there are COVID-19-based changes or disruptions, even if these impacts are not caused by the contracting officer.

Finally, government contractors should consider that Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) authorizes a contracting officer, in certain circumstances, to modify the terms and conditions of an existing federal contract to reimburse paid leave, including sick leave, that a contractor provides to employees due to an employee’s inability to work as a result of the COVID-19 public health emergency. The DoD issued on April 8, 2020, a Memorandum and a new Deviation (DFARS 231.205-79) to use as a framework for implementation of Section 3610.[3] The DoD issued implementation guidance for Section 3610 on April 9, 2020.[4]

Communication, Documentation, and Mitigation Are Key

There are several takeaways a government contractor should consider:

Know your contracts and your subcontracts. If subcontractors are performing on your federal contracts, what relief do they (and you) have in light of the COVID-19 outbreak? Be aware of your, and your subcontractors’, rights under these contracts.
Communicate actively with your contracting officers and project managers. Inform them of the pandemic-related challenges you are facing. In general, you must inform your contracting officer of any delays, and the reasons for those delays, within ten days from the beginning of the delay. Be proactive in offering solutions.
Document in writing any direction you receive that delays, suspends, stops, impacts, or changes your work. If there is a phone call, send a confirming email describing what was discussed. Remember that contracting officers acting within the authority of their warrant are the persons with authority to create, modify, or terminate contracts (FAR 1.602). Contractors receiving direction from individuals or entities other than the contracting officer should verify those instructions with the officer.
Track and document the additional costs created because of government-caused or COVID-19-caused impacts. These steps will help substantiate equitable adjustment claims, will maintain a paper trail as time passes (or when contracting officers change), and can substantiate costs in the event of a later audit or investigation.
Mitigate damages by lowering costs where they can be reduced. This is so whether a contract is terminated outright or if there is an interim stoppage or suspension of work.

If you have any questions related to this alert, please do not hesitate to contact any member of the Government Contracting group or your regular Smith Anderson lawyer. Please visit and bookmark our firm’s Coronavirus (COVID-19) Business Resource Center, which is regularly updated with useful materials and resources related to COVID-19. This tool has been made available to ensure that our clients and the broader business community stay informed on key issues that may impact their operations and to navigate the related business and legal issues during these challenging times.

[1] Memorandum from the Department of Defense regarding Defense Industrial Base Essential Critical Infrastructure Workforce (March 20, 2020), available at https://media.defense.gov/2020/Mar/22/2002268024/-1/-1/1/DEFENSE-INDUSTRIAL-BASE-ESSENTIAL-CRITICAL-INFRASTRUCTURE-WORKFORCE-MEMO.PDF

[2] Cybersecurity and Infrastructure Security Agency, Memorandum on Identification of Essential Critical Infrastructure Workers During COVID-19 Response (2020), available at https://www.cisa.gov/publication/guidance-essential-critical-infrastructure-workforce; see also FAR 252.237-7023 (defining, among other things, essential contractor services). For example, paragraph 2 of North Carolina’s Statewide Stay at Home Order dated March 27, 2020 permits federal critical infrastructure businesses as defined by CISA to continue operations. See https://www.ncdhhs.gov/news/press-releases/governor-cooper-announces-statewide-stay-home-order-until-april-29.

[3] Class Deviation 2020-O0013 – CARES Act Section 3610 Implementation, dated April 8, 2020, available at https://www.acq.osd.mil/dpap/policy/policyvault/Class_Deviation_2020-O0013.pdf.

[4] Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act, dated April 9, 2020, available at https://www.acq.osd.mil/dpap/policy/policyvault/Implementation_Guidance_CARES_3610_DPC.pdf.