As one would expect, government contractors are critical to the U.S. government’s response to the novel coronavirus disease (COVID-19). Below, BakerHostetler’s Government Contracts team describes recent trends and concerns it is seeing affecting government contractors in support of the U.S. government’s response to the COVID-19 pandemic. These issues include federal agencies requiring companies to produce and prioritize products for federal use, agencies issuing informal change orders, how contractors can use force majeure-like clauses and the unavailability of government worksites or personnel. BakerHostetler provides high-level considerations below for federal contractors whose operations are or may be affected by COVID-19.
Mandatory Prioritized Contracts – the Defense Priority Allocation System
It may come as a surprise to some that the federal government may require some contractors to accept certain contracts and orders supporting the government’s COVID-19 response and to allocate materials, services and facilities in such a manner as to prioritize the contract or order over other contracts and orders. The government’s authority to do so derives from the Defense Production Act (DPA) and its implementing regulations, the Defense Priorities Allocations System (DPAS). While traditional defense contractors may be familiar with this requirement, traditional commercial companies – especially those in the life sciences arena – are finding that the government is increasing its issuance of rated orders in their respective business sectors. This is not surprising given that civilian agencies, such as the Federal Emergency Management Agency (FEMA), have authority to and are currently exercising their authority under DPAS. Besides the Department of Homeland Security, under which FEMA sits, the Department of Defense and the Department of Energy also have authority to issue DPAS-rated orders.
Federal contractors are encouraged to review any new and active government orders for DPAS ratings. DPAS-rated orders typically include a field indicating the level of the DPAS rating, which is either “DX” or “DO” followed by a program symbol such as “A1” or “C9.” DX-rated orders must be prioritized over DO-rated orders, and DO-rated orders must be prioritized over non-DPAS-rated orders. DPAS-rated orders also include the clause located at FAR 52.211-15.
We stress that, unless a few narrow exceptions apply, government contractors must accept, prioritize and perform DPAS-rated contracts and orders. Any company that is in receipt of a DPAS-rated order should pay close attention to its requirements and respond timely (within 10 or 15 days for DX- and DO-rated orders, respectively) and in an appropriate manner to the issuing agency.
Informal Government Change Orders
Federal contractors should be aware that the government may in some cases direct unilateral changes to an existing contract under the contract’s changes clause (e.g., FAR 52.243-1, FAR 52.243-2 or FAR 52.243-3) to address the coronavirus pandemic. For example, directing an increase in cleaning services and protocols at the worksite could fall under this clause. Such changes are typically permissible, provided they are within the general scope of the contract.
More importantly, federal contractors must recognize that the fast-paced evolving nature of the coronavirus’ impact may cause the government to informally direct change orders without expressly invoking the contract’s changes clause. However, contract changes require a “written order” from the contracting officer. In such circumstances, contractors should make their best effort to obtain written, express change orders from the contracting officer as soon as reasonably possible. Moreover, contractors should be sure to document all communications with government representatives during this period to assist capturing any changes directed, which will support a subsequent request for equitable adjustment.
Applicability of Force Majeure-like Clauses
In this time of uncertainty, another issue that arises out of the circumstances is the applicability of excusable delay clauses, such as force majeure clauses in government contracts. Federal contractors facing performance interruptions caused by the coronavirus may have recourse for an excusable delay under several force majeure-like FAR clauses. For example, FAR 52.249-14(a) and FAR 52.212-4(f) cover excusable delays. FAR 52.249-14(a) excuses a contractor, except for defaults of subcontractors, for failing to perform if the failure “arises from causes beyond the control and without the fault or negligence of the Contractor.” Examples of particular relevance include “acts of God”; “acts of the Government in either its sovereign or contractual capacity”; “epidemics”; “quarantine restrictions”; and “freight embargoes.” If the failure to perform is caused by a subcontractor, and the cause is beyond the control of both the contractor and the subcontractor, without fault or negligence by either, then the contractor will not typically be held to be in default.
Likewise, FAR 52.212-4(f) provides nearly identical force majeure-like exceptions. However, the contractor must notify the contracting officer in writing “as soon as it is reasonably possible” after the commencement of any excusable delay, setting forth the full details in connection with the delay and remedy the delay with “all reasonable dispatch.” Once the delay-causing occurrence has ceased, the contractor then must “promptly” give written notice to the contracting officer of the cessation.
Regardless of which force majeure-like clauses are contained in the contract, federal contractors should stay in frequent communication with their contracting officer to advise them of any impacts from the coronavirus on performance and to develop a plan to address them. Also understand that the government may still terminate the contract if one of the force majeure-like exceptions apply. However, the termination should be for convenience rather than for default. In addition, even if force majeure-like clauses do not apply, government contractors may be able to rely on common law doctrines dictating that circumstances made it impracticable or impossible for the contractor to fully perform its obligations under the respective contract(s).
Unavailability of Government Worksite or Personnel
Many contractors are facing limited or no access to the worksite or to personnel. Federal contractors may face a closure to the government worksite or unavailability of government employees as a result of government-implemented measures to combat the coronavirus. In the event that remote work options cannot satisfy contract performance, contractors may be able to seek wind-down and startup costs if performance is impossible due to the unavailability of government worksites or personnel. Careful consideration of how the contractor should respond – in communication with the government – is important.
Recommendations and Conclusion
In light of the aforementioned concerns, contractors should take the following steps to mitigate any performance issues.
- Review all new and active government contracts and orders to determine whether these contracts and orders are DPAS-rated and/or contain clauses such as, but not limited to, the changes clause, a force majeure-like clause, and the mission-essential services clause.
- Devise a plan to meet contractual obligations, taking into account health and safety concerns as well as potential supply chain disruptions.
- Document all steps taken to ensure government contracts performance.
- Request written orders for any changes directed by the government.
- Capture all costs associated with any changes.
- Capture wind-down and start-up costs associated with projects under separate accounting codes.
- In the event of performance delay or impossibility, contact the contracting officer(s) and seek to obtain an extension as soon as possible.
- Submit requests for equitable adjustments for any increased costs of performance as soon as possible.
As COVID-19 continues to affect all facets of life, federal government contractors will continue to serve as integral parts of the government’s COVID-19 response.