How Do Federal Government Contractors Deal With COVID-19 Problems – What is the Impact?

Government contractors, especially small business, should brace themselves for a bumpy ride when it comes to the future of COVID-19 Coronavirus Pandemic Problem. The Center for Disease Control (CDC)  has issued guidance about the pandemic.

The information, however, does not resolve the storm of issues lurking for small businesses and government contractors currently struggling to meet contractual obligations or, in some cases, trying to successfully resolve the issues with contracting agencies. This problem, like the virus, is expected to get worse.

There is no doubt that COVID-19, otherwise referred to simply as “the coronavirus,” cause federal contractors anguish and stress over the new few months. The impact may also continue on for the next couple years. Companies doing business with the government appear to be spending tens of thousands of dollars making the tough adjustment to the difficult constraints of the coronavirus.

Coronavirus Impact on Government Contracting – What Are Expected Problems During Contract Performance?

Many contractors will have critical issues and problems that come up. Some of them will include:

• Keeping essential personnel working on the project when facilities are closed and access is denied to the contractor
• Payment to critical personnel with the expectation from the government for the contractor to bear the cost of keeping critical personnel
• Competing orders between state governments and federal agencies about how they will deal with the virus (serving two masters)
• Finding a way to exercise valid contractual clauses that can provide a win-win for both parties
• Dealing with the expectation for the contractor to perform and bear financial costs and be paid later from the government
• Dealing with cure notices, show cause letter and termination for default decisions

How federal contractors deal with COVID 19 problems will continue to be a major concern. Large businesses and small business alike will continue to be impacted by the coronavirus. Problems stem from employees affected by the virus, and the ability to schedule according to the contract terms, constant demands and changes from the contracting officer. Most important, companies will be wondering if the contracting agency will ever approve requests for equitable adjustments to the contract or claims under the Contract Disputes Act.

What Relief is Available to Contractors?

Given the recency of the COVID-19 virus, this is a question that may government contractors have. There issues that will be presented to companies can include among others:

• Extra costs for adjusting the coronavirus;
• Suspensions of work by the contracting officer;
• Terminations for convenience and default; and
• Responding to cure notices and whether such notices are in fact justified.

Unfortunately, the Federal Acquisition Regulations (FAR) and terms of the contract do not present a clear-cut answer on how to deal with COVID-19 constraints. Companies simply have to figure out the problem and approaches on their own.

To show how confusing and frustrating the entire problem is, the proposed small business loans has a rocky start and initial problems. One thing that can be relevant to how do federal government contractors deal with COVID-29 problems is that neither party could have anticipated this problem for the federal government would not be providing financial relief to small businesses.

Common inquiries from government contractors would include (a) what rights do they have under the contract; (b) whether any force majeure provisions apply to allow for solving immediate problems, and (c) whether the government has, or intends to put together a “best practices” list to give contractors some idea of how to act in such tough times.

• Should the contracting officer push the backlash from the virus on the contractor?
• Although the FAR does anticipate epidemics, can the agency simply require the contractor to performance without compensation for extra costs or allowing for delays?

What Can the Contracting Offices Do Given the Unprecedented Coronavirus? Do Contractors Have Any Recourse or Remedy?

 The first concern that many companies should have is whether the government’s actions keep the contractors’ interests in mind? With that said, FAR 1.601-2, gives the contracting officer limited latitude to make necessary decisions. The question in these difficult times is what actions will he or she take?

The first answer that comes to mind in “No” the contract clauses that a contracting officer might be interested in is what is in the “government’s best interest?

There is no question that the federal government itself is struggling to overcome its own problems with COVID-19. Can you realistically expect that the contracting officer will be balancing the contractor’s interest with the government’s interest? The answer can be debated. Keep the following in mind.

• Despite the fact that the contracting officer has an obligation to act in the government’s best interest, there are still common law contract obligations that still can come in to play.

Under FAR 1.602-2 “Contracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships. In order to perform these responsibilities, contracting officers should be allowed wide latitude to exercise business judgment.”

COVID-19 – Delay or Impact Contract Awards?

Given the wide latitude given to the contracting officer under the FAR, government contractors should not be surprised it the agency delays, cancels /postpones the award of federal projects because of COVID-19.

Would be the likely outcome of a challenge by the contractor? Not a good outcome. The simple fact is that if you file a bid protest that challenges the agency decision to delay or postpone evaluations, contract awards or extend the closing date of bid submission, you will more than likely get an adverse decision.

• Showing that you have a right or that the government acted unreasonable or violated procurement law.
• Contractors have no right to a government contract. This impacts showing that you are prejudiced by the agency decision.

Can The Government Suspend or Stop Work on the Contract?

As stated earlier, the government can act in the best interest of the government. This arguable includes suspension of the contract requirements under FAR 52.242-14 or issuing a stop work order to the contractor under FAR 52.242-15. The deeper question for courts is whether, given the COVID-19 / Coronavirus impact, does the “best interest” standard include ‘throwing the contractor to wolves’ when neither party could anticipate such and impact? Contractors should not be surprised to see government contracting agencies issuing suspensions and stop work orders.

 After the award of a contract, a contracting officer has the authority to suspend or stop contract performance at any time for the “convenience of the government,” which gives the government nearly unfettered discretion to suspend, delay, or stop contract work for coronavirus impacts. 

Contractor remedies? If warranted, submitting a claim under the Contract Disputes Act would be a viable approach. Keep in mind how the contracting officer issues the stop work order or suspension notice. Is it in writing? Arguably, it must. You have an obligation to reduce additional costs imposed by such orders. Keep documentation as to what actions you have taken to reduce such costs. Contractors should also keep documentation of any costs for submission contract claims. See also FAR 52.249-14.

While complying with the contracting officer requests, close and frequent communication with the contracting officer should be in place:

Tip:  Do not take direction from the Contracting Office Representative (COR) unless the contracting officer has asked you to do so (in writing)

Tip: Keep documentation of your communications with the contracting officer. Ask specific questions and diligently seek specific answers given the unpredictable implications of COVID-19. Request meetings if possible.

Tip: FAR 52.242-15 allows for damages when there is a work stoppage. You are entitiled to submit a claim for additional costs incurred due to the stoppage once the stoppage is lifted or cancelled if:

1. The stop work order results in an increase in the contractor’s cost allocable to the performance of any part of the contract; and
2. You submit the claims for cost adjustment within 30 days after the end of the stop work period.

Can the Government Issue a Termination for Convenience Resulting from Coronavirus?

Again, like most decisions in federal government contracting, the contracting can terminate all or part of a contract for convenience if in the best interest of the government. It would appear that if properly documented, the government would be able to use COVID-19 as a reason to terminate the contract for convenience.  See also FAR 52.249-2 (Termination for Convenience of the Government (Fixed–Price))

What Can You Do as a Contractor?

Under FAR, contractors have available remedies. By developing a strong termination for convenience settlement proposal. If the contracting officer issues a termination notice and uses COVID-19 as the underlying reason, then a termination for convenience settlement should likewise explain why the claimed compensation or damages related to the termination.

Tip: Following a termination for convenience, you are normally allowed to get the following damages and costs.

1. The costs incurred for performance up until the date of termination, including all initial and preparatory expenses related to that work;
2. Reasonable profit and overhead on those costs;
3. The costs of settling and paying termination settlement proposals for any subcontractors; and
4. Accounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data.

COVID-19 Pandemic and Termination for Default?

Although unlikely, small businesses and large government contractors must not be surprised if the contracting officer somehow issues a termination for default notice under FAR 52.249-10 for failure to diligently pursue the contract (usually after a written order stemming from the COVID-19 virus.

More sophisticated contracting officers may even give an order and then issue a cure notice and show cause, and then move to default the contract.

The central issue seems to be whether the initial order holds water. Government contractors should seek legal advice or look at bringing legal counsel on board to handle the complex issues that may arise.

Can the underlying reason for the default termination be related back to COVID-19?

Terminations for default are covered by (Default (Fixed–Price Construction)), which states that “If the Contractor refuses or fails to prosecute the work or any separable part, with the diligence that will insure its completion within the time specified in this contract including any extension, or fails to complete the work within this time, the Government may, by written notice to the Contractor, terminate the right to proceed with the work (or the separable part of the work) that has been delayed.” Other termination for default provisions are found in FAR 52.249-8 (Default (Fixed-Price Supply and Service)) add FAR 52.249-9 (Fixed-Price Research and Development)).  

If you are faced with a termination for default, cure notice or show cause that stems from the COVID-19 / Caronavirus pandemic. See FAR 52.249-10(b)(1). This is why the need for legal counsel or experienced government contracts attorney is important.

Tip: You must provide the government notice within 10 days of any delays or impacts adversely affecting your performance.  Failure to give such notice may cause forfeiture of your legal rights.

Force Majeure Clause as a Contractor Remedy?

There have already been situations where the contracting officer has requested the contractor to continue performance under the contract. What can you do? FAR 52.249-14 may entitle you to seek remedies against the government since the coronavirus has put an undue strain on contractors. Seeking excusable delays under the force majeure provisions could be a viable consideration.

Tip: Excusable delays would be non-compensable. But see FAR 52.249-8(c).

The bottom line is for companies to also show the causal connection between the COVID-19 pandemic and the costs you see compensation. Does the regulations anticipate and epidemic of the magnitude and duration and with this level of uncertainty. This would be a question for the courts to address when contractors also submit compensable claims to the government as a result of the coronavirus. See e.g. Ace Elecs. Assoc., ASBCA No. 11496, 67-2 BCA ¶ 6456; Crawford Dev. & Mfg. Co., ASBCA No. 17565, 74-2 B.C.A. (CCH) ¶ 10660; Asa L. Shipman’s Sons, Ltd., GPOBCA No. 06-95. 

Can You Abandon the Project?

 The immediate answer is No. However, develop consistent communication to the contracting officer is highly suggested. Companies who may already have bad experiences with the contract before COVID-19 should not use the virus as an excuse to get out of the contract. This could spark the government to heighten the pressure for you to continue performance.

Companies must continue to act in good faith and continue to perform the contract. Submit claims and requests for equitable adjustments to the contracting officer. Highlighting the emergency and serious impact to your company is highly important.

Can Government Contractors take Advantage of Force Majeure Clauses?

Taking the time to allocate the resources and get to the bottom of these questions can potentially save you tens of thousands of dollars in litigation when the government denies your claim. The government contracting agency, in its own defense, will certainly make the argument that the contractor is required to perform and government’s hands are tied (though lack of funds or availability of resources) and cannot perform.

What is a Force Majeure Clause?

In federal government contracts, like other types, force majeure clauses serve the purpose of allowing either the contractor or the government to be excused for performance under the contractor.

To successfully use a force majeure clausein a federal government contract, the circumstances complained of must be beyond the government and the contractor’s control when they arise. The circumstances must also lead to a reasonable conclusion that it would be impossible or impractical for either to perform.

Force majeure events typically enumerated in contracts include:

1. Acts of God, such as earthquakes and other severe acts of nature or floods, fires, hurricanes, or explosions;
2. The clause also includes war, acts of terrorism, and epidemics;
3. Acts of governmental authorities such as expropriation, condemnation, and changes in laws and regulations;
4. Employment strikes and labor disputes

Tip: Simply claiming that COVID-19 creates an economic hardship will not by itself save the day.

Find Our More About the Application of Force Majeure Clauses With COVID-19

Balancing the Situation From the Contractor’s Perspective

Be aware that facts drive each case’s outcome. One cannot simply say that the coronavirus (COVID-19) make it impossible to perform the contract.

• You must be able to articulate facts and circumstances that are also supported in order to stand a chance of prevailing and resolving upcoming problems.
• The COVID-19 virus is new territory for everyone. Therefore, contractors can expect push back from the government when requests for equitable adjustments start to flow.

Tip: Never act solely based on the direction of a contracting officer representative (COR).

Tip: The only person that can bind the federal government contractually is the contracting officer.

Does SBA Relief Loans Really Solve the COVID-19 Coronavirus Pandemic Problem?

The answer to this question has yet to be determined. The funds have yet to be disbursed. Many companies are not too fond of applying for more loans to combat a problem that they do not believe they are responsible.

Many companies believe that the COVID-19 Coronavirus Pandemic is solely the problem of the federal and state governments. Given that the government entities have a difficult time dealing with the national virus impact(s), then the next question is how small businesses and larger DOD contractors can be expected to perform on a contract when the government itself cannot control the underlying problem.

Are Contractors Required to Put Employees at Risk of Exposure to COVID-19 When Supplies Are Virtually Impossible to Acquire?

In the regular commercial world, personal protective equipment is impossible to acquire. Stores and other commercial sources do not have the PPE equipment to safely keep their employees performing on federal contracts. What are the contractors supposed to do?

The inability to balance the safety and health of employees during the COVID-19 Coronavirus Pandemic problem has created a national problem. Indeed, the federal government has a problem getting PPE to health providers on a national level. The impossibility of small business government contractors to acquire the necessary PPE equipment or to be able to develop plans that convince the contracting officer the company can still perform would be impractical.

Can You Submit Government Contract Claims to Resolve Your Problems Resulting from COVID-19

Federal contractor should dig into the Federal Acquisition Clauses that directly relate to how the COVID-19 Coronavirus Pandemic impacts performance of the contract.

The virus pandemic was not anticipated by any of the contracting parties.

• Who should take the brunt of impact?
• Should the contractor have to resolve the problems that surface during performance?
• Should the agency seek funding to help balance the serious impact?

These are all questions that will come to fruition soon. Some contractors may have already prepared claims against the government for COVID-19 related issues. There could be serious push back from the contracting officer. How do you justify the payment of request for equitable adjustment in a situation such as the Coronavirus Pandemic Problem?

Many contracting officers are modifying the contract to exclude certain clauses where supposedly the contractor can now Contractors should proactively determine the contract clauses that may excuse delayed performance and, in some cases, allow for the recovery of additional costs.

Focus on Communicating with the Contracting Officer

At the end of the day, both the contracting agency and the contractor have a difficult task ahead. Until state and federal governments have a grasp on the current COVID-19 Coronavirus Pandemic disaster, small businesses and government contractors will also not have the magic answers.

Both parties should come to the table and discuss the issues. However, the discussion cannot be one-sided. Instead, there should be a balance on the matters and difficulties before both parties.

• Without such an approach, contractors can expect potential push back from the agency with actions such as cure notices, show cause letters or even termination for default.
• Contractors should brace themselves for a bumpy ride with COVID-19 given the unknowns and impossibility to advance with such unknowns.

Call Our Government Contract Lawyers for Immediate Help

For immediate help combating the problems in government contracting regarding COVID-19, call Watson & Associates, LLC’s federal procurement lawyers at 1-866-601-5518.