Top Ten Things Government Contractors Should Know Regarding The Coronavirus (As Of April 2, 2020)

Morrison & Foerster LLP - Government Contracts Insights

Morrison & Foerster LLP - Government Contracts Insights

  1. Contractors who are unable to perform or complete work under a contract as a result of the pandemic should be able to get schedule relief and avoid termination as a result of the FAR’s excusable delay provisions. These provisions also provide protection where a subcontractor has failed to deliver so long as the prime contractor is not directed to get the goods or services from another available source.
  2. Recovery of costs associated with delay may be more difficult. Costs should be recoverable where the government issues a stop work order, requires a change to the contract, constructively accelerates the contract, or causes the delay.
  3. However, where delay is merely a result of facility closures, the closure in response to the pandemic may be considered a sovereign act. In that case, the contractor may not be entitled to recovery of costs absent additional facts, such as a customer order to perform despite the closure.
  4. Section 3610 of the CARES Act may help contractors recover costs of keeping personnel who cannot perform due to facility closures in a “ready state,” but questions remain, including the discretionary nature of the language (reimbursement is up to the contracting officer) and what constitutes a government approved facility.
  5. Most defense contractors have, so far, been considered essential government services for purposes of state and local shelter-in-place orders. These restrictions may change or may be dependent on specific contracts, however, so contractors are advised to reach out to their programs for guidance. Non-defense contractors may not be considered essential unless their government customer makes that determination.
  6. The Defense Production Act alone will not shield contractors from local shutdown orders as a result of federal preemption law, but it may serve as evidence that the work being done is essential, which may persuade state and local officials.
  7. Use of the Defense Production Act may require contractors, especially those with both government and commercial business, to prioritize federal government orders for supplies and services over any other orders, even if such orders were placed prior to the government order.
  8. The Defense Production Act also extends to subcontractors and may be used by prime contractors to ensure production of goods or services that are in limited supply.
  9. Government guidance memos suggest the government is doing what it can to increase cash flow to contractors, including increasing the percentage paid to contractors for progress payments, accelerating contract awards where possible, and using undefinitized contract actions if necessary to allow work to begin even where details are not finalized.
  10. Early and transparent discussions with contracting officers concerning the effects the pandemic and government actions or inactions are having on contract performance are of paramount importance. In addition, contractors should document internally any such effects as well as the costs and delays associated with any effects.

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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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