This was updated March 20 to reflect new information related to the COVID-19 pandemic. 

As matters deepen regarding COVID-19 and the various governmental policy (and other) responses to it, a level of clarity regarding effects on contractors is emerging. Prudent contractor responses -- both immediately, and in anticipation of anticipated developments will become increasingly important, based on the current trajectory of events.

Consequently, several things are best kept in mind concerning real and anticipated cost impacts contractors will likely experience in the performance of government contracts; impacts that very likely will present themselves with little grace, as the federal response to COVID-19 unfolds. This Alert will address only two such areas of cost.  Others will be treated separately when they present themselves.

1.  Delay or Suspension Costs. As previously addressed in our Alert of March 16th, the DOD ban on civilian business travel may impact the performance of contracts, and contractor inputs necessary to performance, negatively. When this occurs, affected contractors may have employees who cannot perform contract work, or performance becomes less efficient. This then, effectively, will become idle time or labor inefficiency attributable to a loss of productivity. To recover costs associated with this time successfully, a federal contractor must establish a legal basis for allowability. To increase the likelihood of cost recovery for this, these costs probably are best collected in an indirect labor account for each affected cost objective (contract), rather than in a direct labor account for many important reasons, depending on the posture of the particular contract affected.

2.  Increased regulatory requirements for paid time off will cause required fringe benefits to increase. Contract price adjustments for existing contracts should be allowable based on the fact this was not priced in the contract and now must be paid by regulation (customer actions). For new contracts, be certain to price the impact of any new requirements for paid time off. Revisit and redo all forward pricing and interim billing rates, looping in the Government audit agencies as necessary with appropriate documentation.

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Effective March 16, 2020, the Department of Defense has banned all domestic travel for personnel and families in response to the COVID-19 situation. Surely other contracting agencies will follow with similar bans. The potential and daunting implications of this travel ban for DOD contractors performing contracts that rely on some degree of travel by government personnel in aid of contract performance is enormous. Therefore, prudent contractors must reflect immediately on their particular situation to assess the ban’s real and potential effects on the performance of their contracts.

In generic terms, only (every situation is somewhat different), contractors should evaluate their performance posture in the following steps, beginning now: 

1. Create an inventory of all contract vehicles currently being performed that may be affected. Remember that often performance will sometimes be conditioned on inspections, government personnel witnessing tests or validations, or approvals, and so forth. Travel by essential government personnel may be involved.
2. For each contract, collect all of the terms and conditions of that specific contract and any modifications. Note dates, because individual clauses sometimes are changed significantly, from version-to-version. The date of the contract, as well as the date of the clauses included (expressly, or by reference), can have great importance.
3. The Government may take the position that the genesis of the entire matter relates to COVID-19 and therefore the only relief would be performance relief (without additional compensation) under the force majeure provision in the contract.
4. There also are other legal doctrines and contract provisions that may be important to whether a contractor is compensated for impacts associated with the travel ban. For example, should the Government take the position that the ban itself is a “Sovereign Act” (which would seem highly likely) there would be no compensation available other than Extraordinary Relief under PL 85-804 and related implementation of that law. The posture of the government will be important to the success of any request under PL 85-804, should that be the best approach for obtaining relief.  
5. Finally, several contract provisions are routinely included (some of which are required by law or regulation) that may provide a level of compensation, although the total relief will vary depending on the vehicle involved. Among those are the Changes Clause (and Changes-like Clauses), the Stop Work and Suspension of Clauses. There are differences in the levels of relief each provides, so where employed, the government’s selection of a particular relief-granting clause is important, where the government determines that some relief is warranted.

Given the dynamic and worldwide nature of this entire situation and the very real and dramatic effects on every aspect of our economy, early attention to these steps are essential to the prevention of greater difficulty as these events develop.