Takeaways

Federal procurement agencies seem inclined to work with government contractors equitably rather than strictly invoke clauses that might insulate them from liability.
Several recently released memoranda and guidance papers discuss the federal government’s approach to dealing with contract performance issues related to COVID-19. The Pentagon’s recent announcement that the Department of Defense will increase its progress payments under applicable contracts acknowledges the current impacts on contractors.
Careful cost tracking and memorialization of schedule delays remains of paramount importance.

On Friday, March 20, the Office of Management and Budget (OMB) released a memorandum to the heads of buying agencies that recommends how they should resolve federal contract performance issues impacted by COVID-19. OMB noted that government contractors “may currently be unable to access their Federal work sites as a result of building closures, quarantines or implementation of social distancing practices.” As a result, OMB urged agencies “to work with their contractors, if they haven't already, to evaluate and maximize telework for contractor employees, wherever possible.” See Federal Acquisition Regulation (FAR) 7.108 (“[A]n agency shall generally not discourage a contractor from allowing its employees to telecommute in the performance of Government contracts.”). OMB stressed that agencies “should be flexible in providing extensions to performance dates if telework or other flexible work solutions . . . are not possible.” OMB urged federal agencies to “be as flexible as possible in finding solutions.”

The memorandum also addressed “frequently asked questions” for managing contractor performance anomalies during the pandemic. OMB noted that the FAR’s Excusable Delay clauses entitle contractors to schedule relief but not cost recovery, as we discussed last week. OMB nonetheless urged that agencies take a more equitable approach when presented with requests for both schedule and cost relief. According to OMB, Requests for Equitable Adjustment (REAs) “should be considered on a case-by-case basis in accordance with existing agency practices, taking into account, among other factors, whether the requested costs would be allowable and reasonable to protect the health and safety of contract employees as part of the performance of the contract.” OMB cited the standards for determining cost reasonableness under FAR Part 31 as guides for agencies to evaluate REAs that seek cost relief caused by COVID-19.

Later Friday, the Pentagon announced that Department of Defense agencies immediately will move to increase progress payments to contractors performing contracts with FAR progress payment clauses.

The Department of the Air Force issued its own memorandum discussing mission essential activities exempt from shutdown during the COVID-19 pandemic. The Air Force noted that the Department of Homeland Security’s guidance on critical infrastructure sectors “considers our Defense Industrial Base part of the nation’s critical infrastructure.” The Air Force concluded that “activities performed on Air Force and Space Force contracts may be considered mission essential and necessary for continuation as part of our nation’s critical infrastructure.”

Further, Under Secretary of Defense for Acquisition and Sustainment Ellen M. Lord issued guidance addressing the Defense Industrial Base and noting that contractors “aligned with the essential critical infrastructure workforce definition are expected to maintain their normal work schedules.” Ms. Lord’s memorandum recognized that contracts or subcontracts to support, among other things, development or productions of weapons systems, fielding or sustainment of software systems, and training or equipping military forces are considered critical infrastructure endeavors that, notwithstanding cost and schedule growth, must remain open and supported.

The aforementioned Air Force and DoD memoranda notwithstanding, given the proliferation of “stay-at-home” orders issued by many states, we recommend that contractors carefully document their schedule impacts and cost growth. Also, when seeking schedule or cost relief through REAs, contractors should cite to FAR 31.201-3, which recognizes that compliance with state law and regulation serves as a factor in determining cost reasonableness. Read together, these memoranda indicate that federal procurement agencies intend to work equitably with government contractors rather than strictly invoke clauses that might typically allow for schedule relief only. 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.

Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm's capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 resources page