Industry May Find Relief for Coronavirus Delays

By Susan Cassidy, Evan R. Sherwood and Michael Wagner

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The global spread of the COVID-19 virus may put many federal contractors at risk of missing contractual deadlines. In a growing number of cases, supply chains may become cut off, work spaces may be closed or employees may need to stay home — all of which could impact a contractor’s ability to perform in a timely manner.

When confronting challenges caused by the coronavirus, vendors should know that their contracts may contain clauses that would excuse these delays and entitle them to an equitable adjustment of the contract price. Understanding when these clauses apply and how to pursue adjustments can make all the difference for contractors facing delays and disruptions caused by the coronavirus.

Contractors first should understand that a number of standard FAR clauses, such as FAR 52.249-14 (cost reimbursement and time and material contracts), FAR 52.249-8 (fixed price supply and service contracts) and FAR 52.212-4 (commercial contracts), may give rise to a schedule adjustment in the event that performance is disrupted by concerns regarding the spread of COVID-19.

All of these clauses share a common thread — a contractor should not be in default because of a failure to perform the contract if the failure arises from causes beyond the control and without the fault or negligence of the contractor.

Among the examples of causes beyond a contractor’s control cited in the clauses include “epidemics” and “quarantine restrictions.” These exceptions appear to contemplate situations like the spread of the COVID-19 virus, which has been declared a public health emergency by U.S. authorities, and which has resulted in quarantine restrictions around the world.

If the failure to perform is caused by the default of a subcontractor and the cause of the default is beyond the control of both the contractor and subcontractor, contractors may be excused from liability for excess costs under FAR 52.249-14 and FAR 52.249-8 and -9. This excuse, however, may not apply under non-commercial contracts if the subcontracted supplies or services were obtainable from other sources in sufficient time for the contractor to meet the required delivery schedule.

Under FAR 52.249-14, contractors also may not be entitled to relief if the contracting officer ordered the contractor to purchase the supplies from another source and the contractor unreasonably failed to comply with that order. The commercial item clause does not address excess costs specifically but it does add a notice obligation.

Key here is that these provisions do not entitle the contractor to compensation. Non-compensable delays are when the contractor is entitled to a time extension, but there is no entitlement to any additional monetary compensation. The theory is that neither the contractor nor the federal government has control over the non-compensable delay.

Therefore, both parties assume their own additional costs. The contractor absorbs its delay costs for being out on the project longer and the federal government absorbs its costs by granting a time extension to the contractor and extending the contract.

To obtain protection under the excusable delay provisions, contractors should carefully consider the circumstances of each case, provide notice as required, and take reasonable steps to perform, and rigorously document events and impacts.

In addition to the excusable delay provisions, other standard FAR clauses also may provide for protection. For example, a contractor may request both a schedule adjustment and compensation for costs associated with performance delays if the contracting officer, in his or her discretion, issues a stop-work order, pursuant to FAR 52.242-15.

To pursue a schedule and compensation adjustment in this circumstances, the contractor would need to assert its right to an adjustment to the contract price within 30 days “after the end of the period of work stoppage.”

But even if the contracting officer does not issue a stop-work order, contractors facing coronavirus-related delays and disruptions could pursue an adjustment to the contract price under other clauses. Most notable here is the standard FAR changes clauses: FAR 52.243-1 (fixed price), FAR 52.243-2 (cost reimbursement), FAR 52.243-3 (T&M), or FAR 52.243-4 (construction). The clause permits an adjustment to contract price when the government changes the work to be performed under the contract, either through formal orders or through other conduct — so-called “constructive changes.”

Consider a situation in which the government imposes quarantine restrictions in response to COVID-19 and these restrictions interfere with the ability of a contractor or subcontractor to perform their work under a contract. Depending on the particular facts and circumstances of the case, such restrictions may constitute a constructive change that, if appropriately presented and supported, may entitle a contractor to a contract price adjustment — particularly where the contractor could establish that any increased costs were the result of some act or omission of the government — i.e., imposing quarantine restrictions — in conjunction with the force majeure event. See, e.g., Appeal of Maint. Engineers, ASBCA No. 23131, 81-2 BCA (Apr. 17, 1981).

Of course, any claim for a schedule or price adjustment will depend significantly on a case’s particular facts and circumstances. However, where contractors find their performance delayed or disrupted by restrictions related to COVID-19, they should understand the potential recovery options available.

Susan Cassidy and Michael Wagner are partners and Evan Sherwood is an associate at Covington and Burling LLP.

Topics: Defense Department

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