In COVID-19 times, one of the ongoing challenges for contractors is how to obtain upward equitable adjustments for increased operating costs due to the crisis. These costs could include more janitorial services, reconfiguring and/or refurnishing workspaces, changing processes and/or systems, overcoming supply chain fluctuations, enabling more remote work, compartmentalizing work groups, implementing shift work, allotting administrative time for health checks, giving more transportation and parking benefits, providing Personal Protective Equipment (“PPE”), adding headcount made necessary by changes, as well as recouping the costs for any lost efficiencies due to the foregoing. This blog examines paths to a Request for Equitable Adjustment (“REA”) that may be available for government contractors.
The problem is that the main equitable adjustment clause, the FAR Changes Clause, only permits adjustments based on an express or constructive change made by the Contracting Officer (“CO”). It goes without saying that the COVID-19 pandemic was not an express or constructive change ordered by a CO. Further, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Section 3610, strengthens a contractor’s ability to recover idle labor costs. However, generally, COs and contractors would prefer to better protect the workforce and keep people working, as opposed to shutting down a contaminated workspace and sending employees home. Furthermore, a contractor claiming a force majeure, including a severe act of nature, as an excusable delay is not keeping the contract on schedule, and an excusable delay does not redress increased costs.
Potential REA Paths
- Failure to Cooperate: In some situations, an REA may be warranted premised on the CO failing the CO’s contractual duty to cooperate. Specifically, as part of a contractor’s performance, most contractors must observe the amended Occupational Safety and Health Act of 1970, which requires an employer to give each worker “employment and a place of employment, which are free from recognized hazards that are causing or are likely to cause death or serious physical harm.” 29 U.S.C. § 654(a)(1). So, even though the CO did not order the pandemic, if the CO insists on continued performance without safety improvements, that action may constitute inadequate cooperation with the contractor’s performance. Hence, COVID-19 arguably foists upon the CO an imperative to order safety improvements to performance, or deal with a failure to cooperate REA for not ordering or agreeing to improvements. Either way, the contractor’s increased costs arguably should be covered.
- Bilateral Mistake: If the contract was formed after the onset of the pandemic, an REA may be available based on a bilateral mistake; particularly, if despite the outbreak of COVID-19, the parties form a contract that does not adequately contemplate enhanced safety measures for the employees. This action would appear to be a shared mistake that materially impacts performance. However, key to a bilateral mistake REA, the contractor cannot recover if it contractually assumed risk for the issue. For example, if the contract says that the contractor shall, at its own expense, provide all PPE to the employees, the contractor likely will not be able to recover increased PPE costs premised on a mutual mistake. Yet, the example does not necessarily preclude the contractor from recovering other costs. Accordingly, a bilateral mistake REA will highly depend on the specific costs being sought.
- Commercial Impracticability: “Commercial impracticability” is a common law term that applies when an unexpected event, not contemplated by the allocation of risk in the contract, causes the cost of performing to so dramatically increase that it renders the effort commercially senseless. Although commercial impracticability is often used to get out of a contract, Boards of Contract Appeals have, on occasion, applied it as a basis for an REA. Therefore, if because of COVID-19, the cost of lawful (read: safe) performance becomes commercially senseless, instead of the government issuing a convenience or no-cost termination (in which case the government likely will not be able to find a cost effective replacement), an REA could be the optimal solution.
- Non-FAR Clauses: Read the non-FAR clauses in the contract. The FAR clauses (typically at Section I if the contract follows the Uniform Contract Format) are often not the only remedy-granting clauses in the contract. Particular focus should be given to Sections C, F, and H. For example, Operations & Maintenance contracts often contain a Section C provision which permits an REA due to “a change in law or regulation” that increases the cost of performance. So, depending on the state or locality that the contractor is operating in, if a governor or other authority imposes increased safety measures on businesses continuing to operate, that could trigger the aforementioned C clause. In fact, most federal buildings and facilities do not sit in a federal enclave where state or local legal requirements for operating as a business might be nullified. This is just one example of where a C, F, or H clause grants a remedy that can be used to keep the workforce safe.
In COVID-19 times, paying a little more is probably the “new normal”. The government is not excluded from this economic reality. And, if a Contracting Officer balks at granting an REA for increased costs to keep the contractor’s workforce safe, it beats the alternative. If people start getting sick and sent home, or a workspace becomes contaminated forcing everyone to be sent home, the Contracting Officer will receive CARES Act Section 3610 claims for idle labor costs, which likely will be more expensive than paying for safety improvements. Also, consider lost productivity and performance delays, which could later turn into another REA based on accelerated performance. Therefore, paying a little more to keep people safe is not just the right thing to do, it is good fiscal policy.