With much of the country’s nonessential operations shut down as a result of the COVID-19 pandemic, many government contractors are wondering if or how their federal contracts will be affected. The government may close certain facilities, preventing contractors from performing on their contracts, while other businesses may have trouble performing in accordance with their contracts due to restrictions related to the pandemic.
The recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides agencies with the ability to provide certain forms of relief to contractors who are not able to perform due to facility closures or other restrictions. In addition, the Office of Management and Budget (“OMB”) and Department of Defense (“DOD”) have issued guidance to agencies on how to manage contracts affected by the pandemic.
Paid Leave Reimbursement for Facility Closures (Section 3610 of the CARES Act)
Section 3610 of the CARES Act states that a federal agency can use federal funds that are made available to it by the Act or any other federal act to modify the terms and conditions of contracts with government contractors to reimburse them for paid leave they provide to keep their employees or subcontractors in a ready state, including to protect the life and safety of government and contractor personnel. The provision applies to contractors whose employees or subcontractors are unable to perform work on federally approved sites due to facility closures and other restrictions, and who cannot telework because their job duties cannot be performed remotely. Contractors can be reimbursed for the paid leave at the minimum contract billing rates not to exceed an average of 40 hours per week up to September 30, 2020.
Thus, contractors whose approved work sites have been closed due to the pandemic and who are unable to work from home may seek modification of their contracts to include a provision to reimburse them for paid leave – including sick leave – they paid their employees and subcontractors to keep them in a ready state. Likewise, contractors whose employees are unable to perform work at approved work sites due to “other restrictions” aside from facility closures can seek to have their contracts modified so that they can be reimbursed for the paid leave provided to their employees. While Section 3610 does not explain what “other restrictions” are applicable, it could include state or local quarantine orders that prevent employees from accessing the work site.
The maximum reimbursement contractors can receive under Section 3610 will be reduced by the tax credits they receive for paid sick and family and medical leave under the Families First Coronavirus Response Act and any other credits contractors are allowed under the CARES Act.
It is important to note that agencies are not required to modify contracts to provide this reimbursement for paid leave, but rather have the discretion to do so, and therefore the reimbursement is not automatic. Companies that seek this type of relief should contact the contracting officer (“CO”) to determine whether their contracts can be modified.
OMB and DOD Guidance
Teleworking and Contract Delays
Even if contractors are not eligible for the relief provided under Section 3610 of the CARES Act they may be able to obtain some flexibility from their federal customers with respect to meeting their contractual obligations. The OMB issued a memorandum to the heads of executive department and agencies on how to ensure contractors are safe while maintaining contract performance, when it can be done consistent with Centers for Disease Control and Prevention (“CDC”) precautions. The memorandum advises agencies to work with their contractors to maximize telework opportunities where possible.
Agencies also are encouraged to be flexible in providing extensions on contract performance when telework isn’t possible or contractors can’t perform on time due to quarantining, social distancing, or other interruptions related to COVID-19. Agencies are advised that these types of extensions should not have a negative impact on contractors’ performance ratings. In addition, if agencies have to re-procure because a time extension is not feasible, the termination should be for the convenience of the government and should not negatively affect the contractor’s ratings.
The DOD also issued a memorandum regarding how defense contracts should be managed in light of the pandemic. As with the OMB memorandum, it recognizes that contractors may not be able to reach their work sites and may incur performance delays. It notes that FAR clauses such as FAR 52.212-4 and 52.249-14, as well as various termination clauses, excuse performance delays that are not the contractor’s fault.
Requests for Equitable Adjustment
The OMB memorandum states that in considering requests for equitable adjustments based on costs incurred to protect employees, agencies are to consider 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,” and can take into account whether the actions were consistent with CDC guidance. It is also significant to note that OMB’s guidance states that agencies can consider whether the contractor contacted the CO or contracting officer representative (“COR”) to discuss what actions would be appropriate, so it would be prudent for companies to openly communicate with the CO and COR about any changes they intend to make in contract performance to protect employees.
The DOD memorandum notes that in addition to equitable adjustments to their contracts’ schedule for such excusable delays, contractors also may be entitled to equitable adjustments in contract price under clauses such as FAR 52.243-1 and 52.243-2 if the CO directs changes in contract performance, “which may include recognition of COVID-19 impacts on performance under that contract.” As with the OMB memorandum, the DOD memorandum advises that when considering requests for equitable adjustment COs should take into account “among other factors, whether the requested costs would be allowable, allocable and reasonable to protect the health and safety of contract employees as part of the performance of the contract.” In addition, equitable adjustments and excusable delays should not negatively affect contractors’ performance ratings.
Lastly, the OMB memorandum states that agencies are encouraged to use the special emergency procurement flexibilities under FAR § 18.202 including increases to the micro-purchase and simplified acquisition thresholds and the threshold for using simplified procedures for certain commercial items, so that agencies can respond quickly to demands that they face as a result of the coronavirus. Those thresholds were authorized in connection with President Trump’s declaration of a nationwide emergency under Section 501(b) of the Stafford Disaster Relief and Emergency Assistance Act.
While Section 3610 of the CARES Act is intended to allow agencies to provide monetary relief to companies who are unable to perform their contractual duties due to facility closures and other restrictions, it remains to be seen how agencies will interpret and apply the Section. Contractors may be able to take some solace in the knowledge that both the OMB and DOD have indicated that agencies are not to penalize contractors for delays caused by the pandemic and may grant equitable adjustments in contract price resulting from costs incurred to protect the health and safety of contract employees. We will see in the coming months how agencies adjust their contracts in response to the COVID-19 pandemic.