Numerous Jurisdictions Have Now Issued COVID-19 Orders Impacting Government Contractors

Pillsbury Winthrop Shaw Pittman LLP

Varied Executive Orders, in increasing numbers, have closed nonessential businesses and services across the country, with a variety of implications for government contractors.

TAKEAWAYS

  • An increasing number of States—now numbering 23, as well as the District of Columbia and many counties and cities, are now subject to Executive Orders restricting activity of non-essential businesses.
  • Government contract activity may be exempt from many of the mandatory closures, but most contractors will be impacted in some manner.
  • Each order may have a different impact on your company’s particular operations and on your rights to schedule relief and cost recovery.

As of March 25, 2020, the governors of 23 states, as well as the mayor of the District of Columbia, have issued executive orders that prohibit activity of non-essential businesses and services as a result of the coronavirus epidemic. Numerous counties and cities have issued orders of this same type. In determining whether a business or service is essential, a majority, but certainly not all, states follow the the Department of Homeland Security’s guidance on Essential Critical Infrastructure Workers, which provides a list of 16 sectors and critical infrastructure workers that are identified as essential. Most notably, this list includes the Defense Industrial Base, the latter of which does not expressly cover contracts with civilian agencies. The full list of the 16 sectors is:

  • Healthcare/Public Health
  • Law Enforcement, Public Safety, First Responders
  • Food and Agriculture
  • Energy
  • Water and Wastewater
  • Transportation and Logistics
  • Public Works
  • Communications and Information Technology
  • Other Community-Based Government Operations and Essential Functions
  • Critical Manufacturing
  • Hazardous Materials
  • Financial Services
  • Chemical
  • Defense Industrial Base
  • Dams
  • Commercial Facilities

A great deal of contracting activity can proceed, though perhaps with some disruption, through telework, but many contract activities require on-site work.

California and Maryland are examples of states with substantial federal contracting activity whose Executive Orders track the DHS guidance. In determining whether a business or service is essential and not subject to closure, California issued a statewide order for all residents to stay home, “except as needed to maintain continuity of operations of the federal critical infrastructure sectors,” as outlined in the DHS guidelines. Maryland’s statewide executive order similarly closes “all businesses, organizations, establishments, and facilities that are not part of the critical infrastructure sectors identified by the U.S. Department of Homeland Security’s” guidelines.

Virginia’s current order mandates closure of nonessential businesses but does not rely on the DHS guidance. Among its provisions pertinent to many government contractors in Virginia is the following: “Although business operations offering professional rather than retail services may remain open, they should utilize teleworking as much as possible. Where telework is not feasible, such business must adhere to social distancing recommendations, enhanced sanitizing practices on common surfaces, and apply the relevant workplace guidance from state and federal authorities.” The District of Columbia’s order contains a definition of essential businesses that does not track the DHS list either and does not mention the Defense Industrial Base. The District’s definition does include “Essential Government Functions,” which includes “services needed to ensure the continuing operation of government agencies and provide for the health, safety, and welfare of the public performed by the District of Columbia or the federal government or their contractors.”

The various restrictions placed upon nonessential businesses and services are likely to impact government contractors in a variety of ways, and they may trigger the need for schedule or financial relief. Even contractors with workforces that can telework may still be affected. As discussed in our first alert on the coronavirus, many government contractors may be unable to access their work sites, or may have subcontractors or vendors that fail to perform or deliver as a result of these restrictions. Adherence to these restrictions, therefore, may result in delays and increased costs for many contractors. As we explained in a subsequent alert, while an Office of Management and Budget (OMB) memorandum advised that FAR’s Excusable Delay clauses entitle contractors to schedule relief but not cost recovery, OMB’s guidance suggests that agencies may compensate contractors “on a case-by-case basis” for increased costs attributable to the disruption caused by the coronavirus, including the impact of Executive Orders.

More state and local orders restricting business activity may be issued by the time you are reading this alert. Please note that each order is different and should be carefully reviewed if you have contract operations in that jurisdiction. Most importantly, communication and coordination with your contracting officer is key, as well as tracking the schedule and cost impact of the virus. Pillsbury’s Government Contracts team will keep you informed about guidance that arises from other Department of Defense and civilian agencies. Please stay safe and let us know if we can help.

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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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