Planning for Excusable Delays in Government Contracts During the COVID-19 Outbreak

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Highlights

  • As the coronavirus (COVID-19) outbreak continues to spread throughout the United States, many government contractors are faced with questions about their ability to continue performance on contracts.
  • Given the fast-moving situation, it is important for contractors to take precautionary measures before being impacted by the effects of the virus. Contractors should start by reviewing their contracts or subcontracts for clauses with excusable delay provisions, and considering other clauses of potential relevance including the Suspension of Work, Stop Work and Changes clauses.
  • Contractors should communicate regularly with and give prompt notice to the government or prime contractor regarding the impacts on contract performance that COVID-19 is currently having, or may have, on performance.

As the coronavirus (COVID-19) outbreak continues to spread throughout the United States, many government contractors are faced with unknown questions about continuing performance on contracts. Given the fast-moving situation, it is important for contractors to take precautionary measures before being impacted by the effects of the virus. One such measure contractors can utilize is determining whether their contracts or subcontracts contain clauses with excusable delay provisions, in addition to reviewing other clauses related to suspension or stoppage of work, and Changes clauses. It is also important that contractors take proactive measures once impacted by COVID-19. Contractors should give prompt notice to the government or prime contractor regarding the impacts on contract performance that COVID-19 is currently having, or may have, on performance. It is also important that contractors explain and document any casual connection between COVID-19 caused impacts and their ability to perform. Finally, contractors must make reasonable efforts to mitigate any delays and impact on performance caused by COVID-19 and associated actions such as quarantines.

Precautionary Measures Contractors Should Take Now

The first precautionary measures contractors can take before being impacted by COVID-19 are to develop a proposed plan and review government contracts to identify pertinent contractual clauses.

Develop a Proposed Plan

Contractors should develop a proposed plan including how the contractor anticipates dealing with COVID-19 and then proceeding to provide that plan to the contracting officer (or prime contractor). If the contractor's proposed plan conflicts with contractual obligations, the contractor should seek the contracting officer's consent to a modification to the contract incorporating the necessary change, and where appropriate, a request for equitable adjustment. Negotiation of a plan may be required to tailor the plan to the government's needs. There is no need for contractors to delay – everyone has an interest in continued contract performance.

Review Your Government Contract and Identify Pertinent Contractual Clauses

The Federal Acquisition Regulation (FAR) provides clauses that may provide relief in the event that a contractor's failure to perform is delayed by the impact of COVID-19. Government contracts contain clauses that include provisions for Excusable Delay. In many cases the excusable delay clause will be found within the applicable termination for default clause; FAR Clause 52.249-14, Excusable Delay, may also be found in certain cost-type, labor hour, and time and materials contracts. The clauses provide that that delays may be excusable if the failure to perform "arises from causes beyond the control and without the fault or negligence of the Contractor."

Both clauses include examples of excusable delay events, including:

  • (1) acts of God or of the public enemy,
  • (2) acts of the Government in either its sovereign or contractual capacity,
  • (3) fires,
  • (4) floods,
  • (5) epidemics,
  • (6) quarantine restrictions,
  • (7) strikes,
  • (8) freight embargoes, and
  • (9) unusually severe weather

(emphasis added). Notably, a contractor's performance is not automatically excused by an epidemic or pandemic such as COVID-19. Instead, a contractor will have to establish that the COVID-19 epidemic and surrounding events such as quarantine restrictions caused the contractor's performance delay. As such, it is important to provide notice early to the contracting officer or prime contractor, continue to communicate with updates, and to ensure documentation exists noting any issues and the government's (or prime contractor's) response and direction.

It is also important that contractors understand what excusable delay provisions in their contracts do, the circumstances in which they become relevant, and what relief they do, and don't, provide for contractors. Excusable delay is generally a concept that excuses a contractor's performance failure, where such failure might otherwise present grounds for a termination for default or the imposition of liquidated damages or other contractual remedies for non-performance. These provisions do not necessarily provide for a cost-recovery (but other clauses might, such as the Government Delay clauses). As any prudent contractor knows, getting anywhere near a termination for default process is risky business. Therefore, contractors should take a proactive approach to raise such issues with their contracting officers in a prompt fashion.

Proactive Measures Contractors Should Take When Impacted by COVID-19

Give Prompt Notice

Contractors should remain in consistent contact with their government counterparts regarding the effects the COVID-19 and surrounding events may have on performance. This is not only prudent but a contract requirement. In fact, the commercial contract clause, FAR Clause 52.212-4(f) requires that contractors:

[S]hall notify the Contracting Officer in writing as soon as it is reasonably possible after the commencement of any excusable delay, setting forth the full particulars in connection therewith, shall remedy such occurrence with all reasonable dispatch, and shall promptly give written notice to the Contracting Officer of the cessation of such occurrence.

With or without this contractual requirement, contractors should remain in regular communication with their contracting officers, informing them of the various issues that arise as they arise to develop a mutually beneficial solution together. Given the uncontrollable ever-changing circumstances of COVID-19, contracting officers should be more than willing to work with contractors to devise an amenable path forward rather than terminate an entire contract and then start the procurement process all over again.

Explain and Document the Causal Connection to Illness-Caused Absences

Contractors must be able to establish and prove a causal link between COVID-19 and the contractor's inability to perform. It is not enough to simply prove an epidemic or quarantine existed. Instead, contractors must demonstrate that COVID-19 impacted the contractor's performance. The Boards of Contract Appeals have addressed this issue in several cases over the years.

In Ace Electronic Associates, Inc., the Armed Services Board of Contract Appeals (ASBCA) denied the contractor's default termination appeal after holding that the contractor had not demonstrated an excusable delay. ASBCA No. 11781, 67-2 BCA ¶ 6,456. The contractor had claimed a flu epidemic caused a 30 percent to 40 percent rate of absenteeism over several weeks, which had resulted in delays to its contract performance. Id. In reviewing the claim, the ASBCA acknowledged that:

Illness occasioned by the onset of a flu epidemic is in general an excusable cause for delay provided it can be shown that performance was in fact delayed by reason of such epidemic. It is incumbent upon appellant 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. . . . [but while] the unforeseen loss of an indispensable employee through illness, resignation, or disappearance does not relieve a contractor from the responsibility of carrying on its contract, under appropriate circumstances such loss may provide the basis for an appropriate extension of time for performance.

Id. (emphasis added). Ultimately, the ASBCA found that the contractor did now show what personnel were affected, whether such absences actually caused a delay, and what efforts, if any, were made during the absences to keep work going. Id.; see also, e.g., Crawford Dev. and Mfg. Co., ASBCA No. 17565, 74-2 BCA ¶ 10,660 (denying excusable delay based on claim that absence of several key employees due to occurrence of flu epidemic in surrounding community because not enough employees were absent and only for short periods of time.). In denying the contractor's claim, the ASBCA reasoned that:

Appellant has presented no evidence to show when the flu epidemic occurred or its precise duration, what personnel were affected and the periods during which they were absent for that reason, whether such absences in fact caused delay in its preproduction testing program and if so the extent of such delay, and what efforts were made during such absences by the use of overtime or other measures to keep the work going. Since appellant has submitted no factual details in support of its contention that [performance] . . . was delayed by such flu epidemic, relief on that basis must be denied for failure of proof.
Id.

This ASBCA decision provides just one example where excusable delay claims were denied based on lack of evidence of the delays caused. It is important that in dealing with COVID-19, contractors document impacts as specifically as possible, including things such as: 1) when the pandemic occurred, 2) how long the pandemic occurred, 3) what personnel were specifically affected, 4) the periods of time the specific personnel were affected, 5) whether the affected personnel's absence in fact caused delay in performance and if so to what extent, and 6) what efforts were made by use of overtime and other available means to keep performance going. See Id.

Make Reasonable Efforts to Mitigate

Contractors must also make all reasonable efforts to mitigate the impact of COVID-19 on its performance of its contractual obligations. Even if a contractor demonstrates that COVID-19 caused the delay in performance, the Boards of Contract Appeals and the U.S. Court of Federal Claims (COFC) have been unwilling to find an excusable delay if the contractor cannot demonstrate it made reasonable efforts to mitigate the impact of the delay. For example, in Jennie-O Foods, Inc., 580 F.2d 400, 408 (Ct. Cl. 1978), the contractor challenged the government's assessment of liquidated damages by claiming its performance was excused because its principal suppliers suffered epidemics in their turkey flocks. Id. The COFC affirmed the U.S. Department of Agriculture Board of Contract Appeal's denial of the appeal because the contractor did not show it was impractical to obtain the turkeys from other sources. Id.

Based on the above case law, contractors should start planning and preparing for all possible disruptions COVID-19 may cause to performance and identify any reasonable alternative solutions. For instance, contractors should start reviewing telework policies in the event federal government or commercial buildings are shut down, review their contracts to determine whether teleworking would be permitted and whether doing so would require a modification to the contract. Additionally, in the event employees or subcontractors are unable to provide supplies or services, contractors should consider seeking out other sources capable of providing the requisite supplies or services. Contractors should regularly report mitigation plans and efforts and solicit comments from their respective contracting officer to ensure that any mitigation efforts are in compliance with requirements and contractual restrictions or provisions.

Conclusion and Key Takeaways

In the face of the unknown, contractors should ready themselves for any potential issues by taking precautionary and proactive measures. These measures include reviewing contracts to determine rights and responsibilities, staying in regular communication with government counterparts and providing prompt notice as soon as an issue occurs, adequately documenting and tracking any COVID-19-related performance issues, and identifying alternative sources of supplies or services to mitigate any COVID-19-related performance delays.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis.

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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