As the COVID-19 pandemic disrupts daily operations of businesses across the United States, federal and state prime contractors and subcontractors should consider how the pandemic affects their contracts. With each passing day, federal and state agencies are issuing new guidance to help advise contractors on how to respond to the challenges the pandemic poses. This update focuses on the implications of COVID-19 with respect to contract terms found in most federal and state contracts, and highlights some recent guidelines with respect to the federal contractor workforce.
Continuation of Performance of Prime Contracts and Subcontracts
Unless directed in writing by a Contracting Officer, contractors must continue to perform under their prime contracts. Similarly, unless directed in writing by a prime contractor or higher-level subcontractor, subcontractors generally must continue performance of subcontracts.
Delays in Performance of Contracts
If your performance under a prime contract or subcontract is delayed because of COVID-19, you may be able to get an extension of time in which to perform. A recently released Office of Management and Budget memorandum allows Contracting Officers to extend deadlines to contractors under the circumstances. It is important to communicate early and often with your Contracting Officer or prime contract point of contact.
In addition, a contractor’s late performance may be excused under FAR 52.249-14, Excusable Delays, or FAR 52.212-4(f), Excusable Delays for causes beyond the control of the contractor. Both clauses expressly include “epidemics” and “acts of the Government” (such as Executive Orders closing all non-essential businesses) as excusable causes of delay. While the Excusable Delays clauses provide some relief, a contractor still has a duty to mitigate the delay by identifying alternative methods of contract performance, such as telework or alternative sources of supply. Both clauses require that the contractor notify the Contracting Officer in writing as soon as it is reasonably possible after the start of the excusable delay. The notice should set forth, in detail, the reasons behind the delay and set forth suggested remedies. As an example, if a project involves classified information, telework will not be possible.
If your performance during COVID-19 results in additional costs, a contractor may be able to seek additional funding to cover its increased costs of performance. Equitable adjustments must be well documented with respect to increased costs and demonstrate both the contractor’s entitlement to additional payments and the reasonableness of the amounts requested.
Critical infrastructure is broadly defined by the USA Patriot Act of 2001, 42 U.S.C. 5195c(e), as "any systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters.” Some recently enacted state shelter-in-place and closure laws allow companies that are part of the nation’s critical infrastructure to continue in operation. Guidance on the Essential Critical Infrastructure Workforce may be found here.
Suspension of Work
The federal government and state governments are allowed to suspend the performance of prime contracts by issuance of a Stop Work Order or similar directive. Similarly, most prime contractors can suspend the performance of subcontracts. A suspension of work is not a termination for convenience. It is expected that work will resume at a later date but requires the contractor to take all reasonable steps to minimize the incurrence of costs allocable to the contract during the term of the work stoppage.
If a contractor receives a written notice suspending work, the contractor must immediately (or by the date set forth in the notice) stop all work under the contract. In addition, a prime contractor must immediate notify its subcontractors in writing to also stop work.
A contractor is entitled to payment for work performed through the suspension date. In addition, a contractor may be entitled to an equitable adjustment for costs incurred winding down work. A contractor must carefully document and account for any extra costs claimed.
Once a contractor has received a suspension of work notice, it cannot perform additional work and expect payment for it. If a Contracting Officer asks or sends an email asking the contractor to perform additional work, the contractor is advised to request a formal writing or contract modification directing the contractor to perform the additional work. As always, be sure the directive is issued by the contracting personnel actually authorized to make such a directive.
Increase in Simplified Acquisition Thresholds
The government has also taken action to make new acquisitions a little bit easier by increasing the simplified procurement thresholds under Federal Acquisition Regulation (FAR) Part 13. Specifically,
- The micro-purchase threshold is raised from $10,000 to $20,000 for domestic purchases and to $30,000 for purchases outside the U.S.;
- The simplified acquisition threshold is raised from $250,000 to $750,000 for domestic purchases and $1.5 million for purchases outside the U.S.; and
- Agencies may use simplified acquisition procedures up to $13 million for purchases of commercial item buys.
If you have any questions about this legal update or any other Government Contracts-related issue, please reach out to the authors of this update or your MMM attorney.