Is Coronavirus An Excusable Delay?

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The spread of COVID-19 (Coronavirus) remains unclear, but its impacts are already being felt. Supply chains are being disrupted and companies are implementing preventative measures to protect their employees. Many businesses have already suspended non-essential travel, encouraged remote working arrangements, and advised employees to follow the Centers for Disease Control risk-reduction strategies. Given these delays and disruptions, it’s logical to wonder:  Are delays or impacts related to the Coronavirus an excusable delay?

The answer is yes, if you can prove it. Below we outline the standard contract clauses dealing with delays from epidemics and discuss how courts have interpreted those clauses in the past when contractors claimed their delays should be excused due to an epidemic.

Epidemics typically are included as excusable delay events.

Let’s begin by stating two fairly obvious points. First, the Coronavirus is an epidemic. According to the CDC, an epidemic occurs when there is an increase in the number of cases of a disease in an area above the normally expected (or endemic) level. No one disputes that Coronavirus has reached epidemic levels in at least some areas of the world.

Second, regardless of the type of contract you have, it probably includes a clause that lists “epidemics” or “quarantine restrictions” as a recognized example of excusable delay. This is true for the Excusable Delay clause (FAR 52.249-14), the Default clauses for fixed-price contracts (FAR 52.249-8, 52.249-9, and 52.249-10), and for the Commercial Items Terms and Conditions clause (FAR 52.212-4). This makes intuitive sense because the occurrence of epidemics is “beyond the control and without the fault or negligence of the Contractor,” much like the other enumerated excusable delay events:  acts of God, the public enemy, or the Government; fires; floods; unusually severe weather; and freight embargoes.

But confirming the inclusion of epidemics in your contract clause is only the start of the analysis. It is not enough to simply prove the existence of an epidemic or quarantine restrictions. Contractors still have to prove that the epidemic caused their delay and that its impacts could not be avoided with other commercially reasonable measures. Contractors have claimed excusable delay based on epidemics in the past and those cases provide useful insight into what contractors may have to do and show to establish an excusable delay based on the Coronavirus. Three of those cases are outlined below.

Proving the excusable delay.

One of the leading cases on epidemics as excusable delay is Ace Electronics Associates, Inc., ASBCA No. 11496 (Jul. 18, 1967). There, the Government terminated the contractor for default after it failed to timely deliver first article test reports for voltage dividers. The contractor challenged the termination and claimed that its delay was excusable because a flu epidemic had “passed through” its manufacturing plant, causing 30 to 40 percent of its employees to be out sick over several weeks. In its ruling, the Board acknowledged that epidemics are examples of excusable delay but explained that they are not per se excusable events. The connection between the epidemic and the delay still has to be proven:

“Although listed in the Default clause as one of several causes of excusable delay, such enumeration does not make the occurrence of an epidemic an excusable cause per se. Illness occasioned by the onset of a flu epidemic is in general excusable cause for delay provided that it can be shown that performance was in fact delayed by reason of such epidemic. It is incumbent upon [the contractor] to establish not only the existence of an excusable cause for delay but also that such cause actually contributed materially to such delay as well as the actual extent of the delay so caused.

Based on that standard, the Board denied the contractor’s claim.  The contractor had provided no evidence of:  (i) when the flu epidemic occurred; (ii) its precise duration; (iii) what personnel were affected; (iv) when affected personnel were absent; (v) whether their absences in fact caused delay; or (vi) what efforts were made to continue work despite those absences.

A similar problem is discussed in Asa L. Shipman’s Sons, Ltd., GPOBCA No. 06-95 (Aug. 29, 1995). The contractor challenged its termination for default on the ground that its performance was delayed by a flu epidemic in New York City that affected three of its key personnel. Relying on the rationale in Ace Electronics, the Board denied the contractor’s appeal.  Although the contractor had proven the existence of a flu epidemic in New York City during the relevant time period, it had not proven how the flu caused the specific delay or what steps the contractor took to overcome the impact of the flu and continue performance.

Notably, the Board rejected the argument that the contractor’s performance was excused because several of its “key personnel” had the flu. In the Board’s view, when a contract is awarded to a corporate entity, “the illness of a key person within the organization does not excuse the corporation’s failure to perform its obligations, even though the corporation may be a small business.” On this point, the Board pointed to the fact that the contract did not specify any key personnel for contract performance—unlike many services contracts the Government currently uses. The outcome may very well have been different if it had.

A third case considers the impact of an epidemic on a contractor’s supply chain. In Jennie-O Foods, Inc. v. United States, 217 Ct. Cl. 314 (1978), the contractor challenged the Government’s assessment of liquidated damages for failing to make timely delivery of processed turkeys. The contractor claimed that its performance was excused because its principal suppliers had suffered epidemics of cholera and avian influenza in their turkey flocks. The existence of the epidemics was supported by letters from the general managers of each supplier, who were also veterinarians.

Despite this evidence, the board denied the contractor’s appeal (and the Court of Claims affirmed) because the contractor had not shown that it was impractical to obtain the turkeys from other sources. The court explained that the contractor had mistakenly focused all of its attention on proving that “the turkey diseases reached epidemic proportions at its two suppliers’ farms, as if this alone would excuse its nonperformance.” In the court’s view, that was not enough. Rather than simply demonstrating economic hardship, the court expected the contractor to show that it had exhausted all other alternatives and that its performance was commercially impractical (i.e., excessively and unreasonably costly):

“There can be little sympathy for contractors who seek refuge behind the label of commercial senselessness (impracticability) without proof that they have made an effort to obtain performance in an alternative fashion. Thus, when a contractor complains that it is unable to obtain an adequate supply of a particular contractual commodity, it must show that the product was unavailable within the boundaries of a reasonable area in order to have a creditable excuse.

In the court’s view, Jennie-O had not provided sufficient evidence “to suggest that the deprivation of materials was sufficiently widespread to preclude plaintiff from obtaining turkeys elsewhere than from its original suppliers.”

What contractors will need to do to prove the impact of Coronavirus.

While the contractors in these cases failed to meet their burden of proof, the decisions in these cases offer useful guidance for contractors whose workforces and supply chains are affected by Coronavirus. Here are the key takeaways from the cases:

  1. Track your Coronavirus impacts. In order to claim an excusable delay, contractors will need to show when the impacts occurred, how long they lasted, and who was affected.
  2. Establish a causal connection to any delays. In addition to showing that your workforce or your suppliers were impacted by the Coronavirus, contractors will need to be able to show how those impacts impeded their performance. If the Government imposes quarantine restrictions or issues a stop work order, showing this impact will be easy. But if the delay is due to supplier absences or disruptions, contractors will need to show how those absences delayed or prevented their performance.
  3. Document your mitigation efforts. Contractors impacted by the Coronavirus should not simply wait for the impacts to subside. Mitigate the impacts. Consider alternative sources and methods of performance. If using alternate methods makes your performance more expensive (but still commercially reasonable), it may be less risky to proceed with the alternative and seek an adjustment under the contract than to simply not perform and risk a potential default. Also, be sure to contemporaneously inform the contracting officer of the impacts and additional costs being incurred to continue performance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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