There is no question that the Coronavirus COVID-19 pandemic impacts government contractors. The need for government contractors to comply with delivery schedules and other contractual requirements while keeping their employees and others as safe as possible under the circumstances poses some new dilemmas.
M-20-18 Provides Guidance to Federal Government Contractors
Various government entities have issued guidance. Of particular interest to government contractors is M-20-18, the March 20, 2020 Office of Management and Budget (OMB), MEMORADUM TO THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES specifically designed to address government contracting issues.
For the full text of M-20-18, see https://www.whitehouse.gov/wp-content/uploads/2020/03/M-20-18.pdf.
This memorandum “identifies steps to help ensure safety while maintaining continued contract performance in support of agency missions.” M-20-18 has a useful “Frequently Asked Questions” Attachment at the end. When reading M-20-18, government contractors may find it helpful to read the entire document, including the Frequently Asked Questions attachment.
Because M-20-18 is addressed to all agency heads, and therefore applies to a very broad range of contractual situations, its guidance is general and does not address the details. Details are left to the Contracting Officer and the government contractor to handle.
Government Contract Compliance Tips
- Health and safety remain the top priority.
Government contracts must be performed in ways that do not endanger the health and safety of contractor personnel, as well as government personnel, and the public in general.
- Find ways to perform the contract.
Monitoring and Following Center for Disease Control (CDC) Guidance
It did not exist at the time the contract was awarded, and only came into being in response to the coronavirus COVID-19 pandemic.
M-20-18 tells us that contract performance should continue in support of agency missions, wherever possible and consistent with the precautions issued by the Center for Disease Control and Prevention (CDC). Therefore, even in the face of COVID-19, a government contractor’s duty to perform its contract continues.
Government contractors should:
(a) CONTINUE PERFORMANCE: Find ways to continue performance, unless the Contracting Officer has directed the contractor to stop work; and
(b) MONITOR CDC GUIDANCE: Monitor CDC guidance to ensure that continued performance is consistent with CDC the guidance. The internet is flooded with information about COVID-19 from a multiplicity of sources, not all of which agree with each other. This information is constantly updated as more information becomes available. M-20-18 clarifies that CDC is the single most important source of information which all savvy federal government contractors will monitor.
(c) FOLLOW CHANGES TO OTHER FEDERAL, STATE, and LOCAL LAW: Be aware of new federal, state, and local law or regulations that may have arisen relating to COVID-19. Many government contracts specifically state that the contractor has a duty to comply with all applicable laws and regulations. Also, Contracting Officers’ actions, including issuing guidance and direction to contractors, must comply with law and regulation.
When It Is Not Practical to Comply With the Contract, Explore Changing The Contract.
- Maintain communications with the Contracting Officer.
Prior to the onset of COVID-19 most government contracts did not include much, if any, specific information regarding how to perform the contract safely in the event of a widespread pandemic. Most contracts were priced and awarded during a time when COVID-19 was not a known risk, and uncontrolled spread of deadly diseases in general was not a big factor affecting contract performance. If a contractor encounters a situation where continued contract performance is in conflict with health and safety laws or regulations, the contractor should bring this to the attention of the Contracting Officer as soon as possible, and seek direction regarding how to proceed.
- Consider teleworking.
Situations Where Telework is a Good Solution
M-20-18 states that “Agencies are urged to work with their contractors, if they haven’t already, to evaluate and maximize telework for contractor employees, wherever possible.” Telework is presented by M-20-18 as a legitimate approach to addressing situations where contractors are unable to access their federal work sites as a result of:
(a) building closures;
(b) quarantines; or
(c) implementation of social distancing practices.
Situations Where Telework is Not a Practical Solution
M-20-18 does recognize that telework is not always “possible,” and where it is not possible, again, the Contracting Officer and the contractor need to be in communication to establish what is possible under the circumstances.
Protecting Sensitive Data in Workers’ Homes
One major consideration for a move to teleworking can be compliance with a contract’s data security requirements. In a secure government or contractor-provided facility, contractually required security protocols may be well established and relatively easy to implement and monitor.
If workers move from a secure facility to using computers or laptops in their own homes or other locations, this can require a contract modification to be negotiated. The contract modification may call for new procedures to be developed and implemented. The move to teleworking can impact not only contractor personnel, but can also affect subcontractors and the government. Any party affected by the move to telework should have a place at the negotiation table, so that everyone’s needs are addressed up front.
Work taking place in an employee’s home can be more difficult for the contractor to monitor and ensure employee compliance. It can be important for a government contractor to protect itself from liability related to noncompliance with the contract or liability from data breaches by ensuring that telework employees:
(a) are trained in data protection
(b) have appropriate data protection technology correctly installed on their computers and other home office equipment; and
(c) are effectively managed and monitored.
The government contractor and the CO should work together to ensure that effective procedures are in place to protect sensitive data in accordance with contract requirements while the data is present in, or transported into or out of workers’ homes.
At some point it may be possible or desirable to end or reduce teleworking. It could be beneficial to negotiate an exit strategy, or a Plan B, in case problems arise with teleworking, or a return to a traditional workplace or other approach is necessary.
Important Concepts on Teleworking, from M-20-18, FAQ #1
Highlights from FAQ #1, Teleworking, include:
(a) Federal contractors are responsible for managing their workforces, including how telework is used by their employees.
(b) The spirit of OMB guidance seeks to maximize the use of telework
(c) FAR §7.108 instructs agencies not to discourage contractor use of telework when consistent with contractual requirements
(d) This includes modifying contracts that do not currently allow for telework, and
(e) If a contract does not lend itself to telework, agencies should consider being flexible on delivery schedule contract completion dates.
- Strategies for Dealing with Schedule Slippage or Delay From Coronavirus COVID-19
Ask the Contracting Officer for a Contract Extension
If COVID-19 related disruptions are impacting the performance schedule, the contractor may be able to ask the CO for a time extension. M-20-18 calls for agencies to “be flexible in providing extensions to performance dates… if a contractor is unable to perform in a timely manner due to:
(b) social distancing or
(c) other COVID-19 related disruptions.
COVID-19 Schedule Slippage Can Be Categorized as Excusable Delay
(a) Why it matters whether a schedule slippage is excusable delay.
Government contractors can be held liable for delay and schedule slippage, and possibly defaulted or terminated for cause, if the contractor is deemed to have caused the delay. By contrast, if delay is “excusable,” e.g. not the contractor’s fault, then normally the contractor will not be held liable or defaulted for the delay. Instead, for delay that is nobody’s fault (neither the contractor’s nor the government’s fault), the usual solution is a contract modification adding a reasonable amount of time to the delivery schedule. For delay that is government caused, often in addition to a time extension, the contractor can recover costs of delay and/or obtain other relief.
In new situations, such as the COVID-19 pandemic, it might not be clear whether delays can be categorized as “excusable.” It is important to have clear guidance from the government stating that a particular type of delay may be characterized as “excusable.” Clear government guidance reduces or eliminates disputes regarding the threshold question: Is it even possible for a government contractor to present COVID-19 pandemic as a valid basis for an excusable delay argument?
(b) M-20-18 clarifies that COVID-19 pandemic can cause excusable delay.
FAQ #2 “Mitigating the impact of COVID-19 on contractors,” specifically addresses the situation where contract performance is delayed due to quarantine. If quarantine results in a slip in the contract schedule, contracts may be extended or otherwise altered, under the contract terms providing for excusable delay.
The Contractor’s Duty to Mitigate the Effects of Delay
Regardless whether the delay is excusable or not, Contractors have obligations to mitigate the effects of delay. That means contractors are expected to exercise reasonable business judgement in reacting to the delay. They need to reduce costs and prevent other forms of harm resulting from the delay as much as reasonably possible. Schedule adjustments resulting from excusable delay should not negatively impact a contractor’s performance ratings.
Contracting Officers Can Terminate A Contract, and Reprocure From Another Source If There is No Better Solution
Note that granting a time extension for excusable delay is not the only possible approach available to the government. FAQ #2 contemplates that if “other options with the existing contractor aren’t feasible, it may be appropriate [for the government] to re-procure elsewhere.”
FAQ #2 mentions that the CO could terminate the contract for the convenience of the government or through a no-cost settlement, without negatively impacting the contractor’s past performance ratings.
A Cautionary Note:
(a) Too much delay could result in the government terminating the contract, and awarding to another contractor.
(b) If the contractor and the government cannot find a way to continue performance of the contract that meets the governments needs, the contractor could lose the contract. Again, it is very important for the contractor and the government to communicate, in order to reach a mutually workable solution.
(c) Obviously, the contractor should not agree to implement solutions that the government wants, but the contractor cannot perform. Making promises that cannot be kept is not a recipe for success. If the contract must be terminated, it is better for the contractor if it is terminated for the government’s convenience, rather than the contractor being terminated for default / failure to perform.
- Keeping skilled professionals or key personnel (specialized personnel) on board.
Where contract performance is interrupted, it can be challenging to retain qualified people to perform the contract. Work with the Contracting Officer to determine whether the government will support a contractor’s efforts to keep skilled professional or key personnel “in a mobile ready state for activities the agency deems critical to national security or other high priorities.”
The Government Decides Whether it is Beneficial to Retain Specialized Personnel
M-20-18 places the burden on the government to consider whether it is “beneficial” to retain this type of contractor personnel. If a contractor senses that personnel may be lost whose skills are not easy to replace, the contractor should approach the Contracting Officer and request guidance regarding whether the contractor should take extra steps to retain these personnel resources. This is especially true in contracts where national security may be compromised without these personnel resources.
Key Personnel and Other Clauses May Already Be In the Contract
In many cases, the government contract may already include clauses describing the process the contractor should follow in the event that key personnel or other skilled labor become unavailable to perform the contract.
- The government may retool contracts for pandemic response.
M-20-18 calls for agencies to consider whether contracts may be retooled for pandemic response. Not every contract will be appropriate for re-tooling. The retooling must be consistent with the scope of the contract. Also the contract must possess the capabilities to address the impending pandemic response. If the Contracting Officer directs the contractor to perform pandemic response duties, the contractor should confirm that
(a) the contractor has the capability to perform as directed; and
(b) the CO’s direction is within the scope of the contract.
The COVID-19 Pandemic Emergency Determination, and Other Government Guidance
- Be aware of special emergency procurement authorities, and other government actions in response to the COVID-19.
The Coronavirus Disease 2019 (COVID-19) pandemic Emergency Determination
On March 13, 2020, President Trump issued an Emergency Determination regarding COVID-19. See https://www.whitehouse.gov/briefings-statements/letter-president-donald-j-trump-emergency-determination-stafford-act/
It states, “I have determined that the ongoing Coronavirus Disease 2019 (COVID-19) pandemic is of sufficient severity and magnitude to warrant an emergency determination under section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the “Stafford Act”).
Center for Disease Control (CDC) Actions Could Affect Government Contractors
It further provides that “…the Federal Government, through the…CDC, has authority to take the necessary steps “to prevent the introduction, transmission, or spread of communicable diseases…” Some of the measures taken, which might impact government contractor performance, include:
(a) travel restrictions,
(b) border closures, and
(c) restrictions on the ability of foreign nationals to enter the United States.
Other Relief, Including Tax and SAM Registration Deadline Extensions
Other measures described in the March 13, 2020 Emergency Determination will not directly impact most government contractors’ performance. Instead, they may involve other aspects of a government contractor’s business. For example, relief from tax deadlines may be helpful to an affected government contractor’s accounting team. FAQ #7 of M-20-18 explains that current registrants in the System for Award Management (SAM) with active registration expiring before May 17, 2020 may have a one-time extension of 60 days to re-register.
Disaster Relief and Small Business Administration (SBA) Loan Assistance
Some forms of available relief are not specifically mentioned in the March 13, 2020 Emergency Determination may also be available. For example, certain small businesses may be eligible for relief in the form of low-interest loans from the Small Business Administration. Eligibility for the SBA loan assistance is restricted to businesses in specified locations, who have exhausted their other sources of credit, and meet other requirements. For more details on SBA Disaster Assistance in Response to the Cornonavirus, see https://www.sba.gov/disaster-assistance/coronavirus-covid-19
Federal Emergency Management Agency (FEMA) and the Stafford Act
The Federal Emergency Management Agency (FEMA) “may provide, as appropriate, assistance pursuant to section 502 and 503 of the Stafford Act for emergency protective measures not authorized under other Federal statutes.” The March 13, 2020 Emergency Declaration authorizes FEMA Administrator Gaynor to direct other government agencies in providing Stafford Act assistance.
Federal Acquisition Regulation (FAR) Flexibilities, Including Increased Micropurchase and Simplified Acquisition Thresholds
The March 13, 2020 Emergency Determination and other measures directly addressing the COVID-19 are new. However, disaster relief and force majeure are not new to federal contracting law and regulations. For example, see Federal Acquisition Regulation (FAR) Subpart 26.2 – Major Disaster or Emergency Assistance Activities, https://www.acquisition.gov/content/subpart-262-major-disaster-or-emergency-assistance-activities
FAQ #8 mentions FAR §18.202, and the disaster-response increases to various acquisition thresholds. The flexibilities applicable to Micropurchases or Simplified acquisitions apply to purchases up to the threshold amount, as follows:
Domestic purchases: $20,000
Purchases outside U.S.: $30,000
Simplified Acquisition Threshold
Domestic purchases: $750,000
Purchases outside U.S.: $1,500,000
Commercial Item Purchases: $13,000,000.
Government agencies are expected to use good business judgement, and are not required to use the acquisition flexibilities.
Requests for Equitable Adjustment and Contract Disputes Act Claims
- The Request for Equitable Adjustment (REA) process may be used to recover COVID-19 costs.
FAQ #3 presents the REA process as an appropriate way for government contractors to recover increased costs related to complying with new health and safety requirements related to COVID-19. This includes costs associated with government-caused performance disruptions, such as building closures.
As always, the government will consider REAs on a case-by basis. The government will consider whether the costs are reasonable and allowable under FAR. Part of the government’s “reasonableness” analysis will most likely include whether the contractor:
(a) acted consistently with CDC guidance and
(b) reached out to the CO or the CO representative to discuss appropriate actions.
Not mentioned in M-20-18 is the Contract Disputes Act (CDA), which provides well established processes for federal government contractors to recover costs or obtain other relief by submitting CDA-compliant claims to the government. CDA claims must be submitted to the Contracting Officer within six years of the date that the contractor knew or should have known of the basis for the claim.
The M-20-18 Guidance on Social Distancing
- Social Distancing
No discussion of COVID-19 is complete without some mention of social distancing. FAQ #4 and #5 both address social distancing. FAQ #4 discusses whether work, such as repairs to public buildings which have been closed to the public, should continue despite the building closure. FAQ #5 addresses industry days and other acquisition-related activities typically performed face-to-face.
In both FAQs, these issues are to be addressed on a case-by-case basis, there is no one size fits all solution. CDC recommendations are to be followed. Virtual and online solutions should be considered. FAQ #5 and FAQ #6 provide some web links with information on conducting these activities using various types of technologies instead of face-to-face meetings.
Set Asides and Government Disaster Relief Spending
- COVID-19 disaster relief contracting set-asides, and tracking of spending.
FAQ #10 notes that unlike most disasters, the Coronavirus COVID-19 pandemic is declared to be nationwide. There is no specific locally affected area. This presents an unresolved dilemma for Contracting Officers who want to issue solicitations for disaster relief efforts. It is unclear which firms would be eligible for acquisition preferences and/or set-asides for local firms in a “local” disaster area that is declared to be nationwide. FAQ #10 of M-20-18 simply states that “This issue will continue to be reviewed.”
FAQ #11 and #12 address tracking of agencies’ COVID-19 related contract spending and documentation. The General Services Administration (GSA) has a tracking system for COVID-19 reporting purposes. Contracting officials are encouraged to use the keywords “COVID-19” or “Coronavirus” in solicitation and other contract documents.
A Short Summary
The Coronavirus COVID-19 pandemic has changed the way both the government and its contractors do business. The CDC and other government entities are issuing new guidance which contractors must now follow while performing their contracts. Communication between the government Contracting Officer and the contractor is of utmost importance in ensuring the successful transition to a world where employees and others must be protected from the impact of a highly infectious, incurable, and deadly disease.
M-20-18, the March 20, 2020 Office of Management and Budget (OMB), MEMORADUM TO THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES, is a rich source of guidance. It is helpful for both government procurement officials and contractors in providing a general roadmap for how to navigate some of the new challenges in government contracting presented by the coronavirus COVID-19 pandemic.
Fortunately, there is relief available to government contractors who must change their approaches to address the realities of this new world. The relief comes in many forms, including some of the old traditional remedies: REAs, contract extensions for excusable delays, government policies encouraging telework, SBA relief loans, and more. Your government contracts attorney can provide valuable assistance in unsnarling the legal requirements relating to the cornonavirus COVID-19 pandemic.
For a free and confidential consultation with a government contracts attorney, call Watson & Associates, LLC on 1-800-601-5518 or 720-941-7200.