March 25, 2020 – The coronavirus creates unique challenges for companies doing business with the government. Some pressing issues and questions include: (1) what to do if your company cannot continue performance of a government contract; (2) which clauses are important and should be reviewed in your contract; (3) how the Defense Production Act works and why it is important; and (4) the status of small business loans.

Stay At Home Order

On Sunday, March 22, 2020, Dr. Amy Acton, Director of the Ohio Department of Health, issued a “Director’s Stay at Home Order” for the purpose of reducing the spread of COVID-19 in the state of Ohio. The order took effect Monday, March 23, 2020, at 11:59 p.m. ET and will continue until April 6, 2020 at 11:59 p.m. ET, unless it is extended before then. Ohioans must stay home or at their residence, subject to certain exceptions. These exceptions are for health and safety, to procure necessary supplies and services, for outdoor activities, to take care of others, and for certain types of work considered “Essential Business and Operations,” including “Minimum Basic Operations.” The definition of Essential Business and Operations is broad and provides for the following:

• Stores that sell groceries and medicine;
• Food, beverage, and licensed marijuana production and agriculture;
• Organizations that provide charitable and social services;
• Religious entities;
• Media;
• First Amendment protected speech;
• Gas stations and businesses needed for transportation;
• Financial and insurance institutions;
• Hardware and supply stores;
• Critical trades;
• Mail, post, shipping logistics, delivery, and pick-up services;
• Educational institutions;
• Laundry services;
• Restaurants for consumption off-premises;
• Supplies to work from home;
• Supplies for essential businesses and operations;
• Transportation;
• Home-based care and services;
• Residential facilities and shelters;
• Professional services;
• Manufacture, distribution, and supply chain for critical products and industries;
• Critical labor union functions;
• Hotels and motels; and
• Funeral services.

However, non-essential businesses and operations are required to cease all activities within the state of Ohio, provided that they may continue to conduct Minimum Basic Operations. The term Minimum Basic Operations means:

• Activities to maintain the value of the business’ inventory, preserve the condition of the business’ physical plant and equipment, ensure security, process payroll, and employee benefits or related functions; and
• Activities to facilitate employees of the business being able to continue to work remotely from their residences.

As a government contractor, you may find that while you provide essential services, you cannot perform because of significant interruptions in global supply chains, a decrease of available employees, etc. One source of relief to consider is a force majeure clause that is likely in your contract. A force majeure clause allows a party to suspend or terminate performance of a contractual duty due to extreme circumstances beyond the control of either party. You should review the contract to find the exact terms and conditions provided.

Generally, federal government contracts will include Federal Acquisition Regulation (FAR) 52.249-14 for excusable delay, which includes, among other things, acts of God, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather. One can also seek relief through other possible remedies such as the common law doctrines of impossibility and impracticability. Whether these doctrines apply will depend on the terms of a particular contract.

Another option for relief includes possibly having insurance coverage. You will want to closely review these and other options for relief and effectively communicate with the contracting officer. Otherwise, under a government contract, not performing will generally be considered a default that could have significant ramifications.

Defense Production Act

On March 19, 2020, President Trump invoked a wartime law that makes the federal government the top priority for receiving medical equipment and supplies. The Defense Production Act (“DPA”) codified at 50 U.S.C. § 4501 et seq., and its implementing regulations, the Defense Priorities and Allocation System (“DPAS”), codified at 15 C.F.R. § 700 et seq., give the U.S. government the authority to “jump the line” and force contractors to prioritize sales of goods to the government before selling to consumers or other private purchasers.

Federal contractors should review any new and active government orders for DPAS ratings. DPAS-rated orders typically include a field indicating the level of DPAS rating, which is either “DX” or “DO.” DX-rated orders must be provided over DO-rated orders, and DO-rated orders must be prioritized over non-DPAS-rated orders.

With a few narrow exceptions, government contractors must accept, prioritize, and perform DPAS-rated contracts and orders. If you are in receipt of such an order, pay attention as you must respond within a set amount of time to the issuing government agency.

Small Business Loans

One of the largest conundrums is how to help small businesses stay in business during this pandemic. Congress has yet to pass a rescue package that could include $350 billion in loans for small businesses that would convert into grants if the small business retains most of their workforce for a set period of time. If you are a small business, you can apply for low interest disaster loans from the Small Business Administration (SBA).

As of March 23, 2020, all states were approved for coronavirus disaster loans. The SBA will work directly with state governors to provide targeted, low-interest loans to small businesses and nonprofits that have been severely impacted by COVID-19. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. Government contractors should be aware, however, that the SBA is experiencing high volume and the application process can take up to 21 days.

Recommendations

1. Review your government contracts to determine the types of relief that are included for pandemics and natural disasters.
2. Review your contract to determine if DPAS applies.
3. Devise a plan to comply with state/federal law.
4. Keep track of any costs incurred in excess of the contract for compliance during this time.
5. Communicate with the contracting officer to provide clear communication of your company’s capabilities and any accommodations that it might need.
6. Submit requests for equitable adjustment as soon as possible to the contracting officer.
7. Make sure your sick leave policies are up to date and reinforce key messages to your employees, such as staying home when they are sick or have any COVID-19 symptoms.
8. Be prepared to change business plans if needed to maintain critical operations.