How Federal Contractors Can Prepare for Coronavirus Disruptions
Date: March 16, 2020
Government contractors often face challenges when there are unscheduled interruptions of contract performance, whether the cause is weather-related, a government shutdown, or a pandemic like the novel coronavirus disease, COVID-19. 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. 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 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 its 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, changing the location or manner of performance of services, or actions affecting the timely availability of materials for a construction project.
As stated earlier, it is important for contractors to capture and document the increased cost associated with the new or changed work, while also communicating with the 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 its 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.
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 contractors providing non-commercial items if the subcontracted supplies or services were obtainable from other sources in sufficient time for the contractor to meet the 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)). Additionally, 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 delay.
The spread of COVID-19 has created and will continue to create unique challenges for companies doing business with the government. As always, contractors should review their existing contracts and must be proactive in monitoring and addressing disruptions. The best practices for contractors are always to document, document and document, and to communicate to their contracting officers any disruptions, changes or potential delays that could impact contract performance, and to immediately begin to segregate the costs related to the new or changed work.
Thompson Hine will continue to monitor the emerging impacts of COVID-19 and will provide updates as they arise. Our Government Contracts team is on standby to help contractors and suppliers identify issues and evaluate their rights. Please see also our previous client updates, The Coronavirus Threatens U.S. Company Supply Chains – Practical Tips and Contract Considerations to Manage Risk and Novel COVID-19 Virus, Commercial Contracts and Force Majeure.
FOR MORE INFORMATION
For more information, please contact:
Francis E. (Chip) Purcell, Jr.
Joseph R. Berger
We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our COVID?19 Task Force web page for additional information and resources.
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