Legal update on coronavirus impact

Government contractors find themselves stuck between the proverbial rock and a hard place as agencies are slow to issue guidance to allow more worker flexibility in the face of the COVID-19 pandemic.

As COVID-19 keeps spreading and government agencies continue to provide flexibility to its own workforce, and since my last commentary, government contractor anxiety over its own employees and potential contractual and legal risk continues.

While agencies are issuing more directives, albeit seemingly at a snail’s pace, allowing its employees to telecommute and providing for other work-related flexibilities, there is little in the way of solid directives aimed at government contractors both with respect to teleworking and potential performance issues or resulting costs.

Let’s not forget that the government counts on contractors to perform mission-critical tasks and ensure the continuity of government operations.

We were encouraged when the OMB issued its March 20 memo which encouraged agencies to (1) permit contractor employee telework arrangements and issue contract modifications to permit teleworking; (2) be flexible in managing government contracts if telework is not an option causing inability to meet – or timely meet - contractual obligations and deliverables, and to provide for equitable adjustments for excusable delays or costs incurred in meeting CDC-recommended safety measures; and (3) utilize the emergency procurement authorities at their disposal due to the President's issuance of an emergency declaration.

But the OMB guidance is not binding on any agency, and no procuring agency has yet (to my knowledge) provided much in the way of actual directives to calm contractor fears that its business, profitability and/or continuity of performance may suffer because of the virus.

The challenge is especially acute with contractor employees having security clearances under contracts with the intelligence community. On Saturday the Intelligence and National Security Alliance (INSA) issued a letter to ODNI and others asking that agencies issuing “shelter in place” orders reimburse contractors for associated cost increases to include requirements that employees be “on call” or subject to directed shifts, adjust contract performance requirements as needed, modify contracts to allow for contractor employee teleworking and adjust contract ceiling amounts. So far, I haven’t seen any agencies (within or beyond the IC) biting.

In addition to the OMB guidance, I have seen the following:

  • On March 20 the DOD issued guidance to contracting officers to provide maximum telework flexibility for contractors but “without mission degradation.” – whatever that means. As stated above, there is no assurance that associated costs increases will be reimbursed if performance suffers from the telework arrangements.
  • The DOD issued two additional directives or “class deviations.” The first issued on March 17 provides that contracting officers are not required to execute a Justification for approval of Section 8(a) sole source awards valued at $100 million or less (up from $22 million). The second issued on March 20 directs agencies to increase progress payments to contractors performing contracts with progress payment clauses –(DFARS 232.501-1/FAR 52.232-16) from 80 percent of total value to 90 percent for large business concerns and from 85 percent to 95 percent for small businesses. These are good moves as they pertain to DOD contracts but there have been no similar directives from other civilian agencies
  • In addition, the Department of Homeland Security said it will ease up on the Employee Eligibility Verification (Form I-9) requirement. But not so with contractor employees. I understand that some contractors are attempting to on-board newly hired personnel although some are not and that process itself on a remote basis is not without its challenges, especially for “key personnel” positions.
  • Social Security Administration has expanded employee teleworking nationwide. Employees at SSA’s Washington, D.C., headquarters and other regional operations offices are also teleworking, even though the agency has closed its field offices. Again, the directive does not apply to government site contractor personnel.

And, although some agencies are huddling together to find ways to fill in some of the cyber gaps in their telework guidance, contractors risk contract breaches (which may lead to cure notices and default terminations) if their systems are not fully cyber compliant due to their own employee telework arrangements.

So here’s the rock and the hard place: contractor employees may not be able to telework if by doing so their company risks a ground for default termination because their system requirements were not compliant, but the employee may not be able to perform at the government site because the agency is restricting access due to COVID-19.

Another reason that government contractors are getting more anxious in an already anxious business.

Understandably, agencies will be reluctant to issue a general statement assuring COVID-related cost reimbursements as they may bind the agency to most or all cost or price adjustments, some of which may or may not be justified.

If I were a government lawyer I would likely advise the same. But at the very least the agencies should heed OMB’s March 20 memo in allowing contractor personnel to telework to the extent possible. The government should also assure the contracting community that cost or price adjustments will be reviewed fairly and with consideration that the COVID-19 virus is a legitimate ground for an excusable delay or contract change, again tracking the OMB guidance. Right now, there are no assurances of any of this.

In the meantime, consider the following:

  • Ask your contracting officer to provide written direction and guidance regarding telework arrangements. Keep communicating with the CO as additional COVID-related costs are incurred.
  • Continue to keep track of all COVID-related cost increases. The focus here is on increases in direct costs. I would record all costs and err on the side of over including. Not all such costs may be allowable under FAR Part 31, but that would be a decision for another day. If you can, consult with an experienced and FAR-savvy cost accounting professional to assist in this effort.
  • For indirect or home office costs, create a “suspense” account; that is a separate charge number for personnel to charge COVID-related time so that the time keeping is fully documented on a contemporaneous basis. Going back to reconstruct that time will most always risk a disallowance.
  • If you receive a COVID-related Stop-Work Order: First, make sure it is issued by the warranted contracting officer. Second, immediately start documenting any resulting costs increases as well as efforts to reduce (in legalese “mitigate”) such additional costs. And remember there is a notice deadline for any equitable adjustment request. Third, if the order is a result of untimely performance then push the contracting officer to cancel the order using the FAR Excusable Delays Clause. Note that if the order is cancelled you need to be prepared to promptly resume work.
  • See other tips depending on the government’s action -- or inaction -- in my last commentary.

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