Government contractors are seeing the dramatic impact of the novel coronavirus on government operations. From the review of contracts to the fulfillment of customer expectations, this pandemic is creating a very fluid situation within the federal government that significantly affects how contractors can work. A recent webinar addressed areas of consideration important to government contractors in this rapidly changing climate.
How does the OMB Memo impact contractors?
The Office of Management and Budget released a memo (OMB Memo) to all department and agency heads, containing guidance on dealing with both government and contractor workforces while conforming with Centers for Disease Control (CDC) guidance. The OMB Memo also addresses whether government contracts that pose capabilities for addressing security, logistics, or other functions should be rewritten to address a need for COVID-related work versus the work a contractor was initially hired to do. Agencies have been asked to remain flexible with contractors on deliverables, understanding that this situation will cause "excusable delays" in work. An issue contractors might face is the termination of a contract for convenience, which preserves a contractor's rating, versus termination for default, which would adversely impact that contractor. If termination for convenience happens, maintaining strong and accurate records will be crucial to recovering costs. Requests for equitable adjustments are being made on a case-by-case basis.
What are the effects of teleworking on the scope of issued contracts?
The federal government took the lead in mandating telework for its employees, but that is posing a challenge for contractors who work on government sites. With government employees working remotely, some contractors are having difficulty connecting with their customers. Compounding this, there are inconsistencies about when government agencies might re-open. In examining telework options, contractors will need to consider which contracts are suitable for telework and determine if the contract actually permits it. Teleworking requires information technology and cybersecurity infrastructures to be in place and secure. If this will cause a delay – as with any other type of delay – notifying the contracting officer in writing will fall under the "excusable delays" provision. The government might also change the scope or terms of a contract; as with any changes, tracking added costs and increased levels of effort will be required.
Contractors should always remain focused on documenting all efforts, changes, costs, and communications. Withstanding audits and challenges will depend on record-keeping done now. If contract changes are made, contractors should consider the following:
- What are the new obligations outlined, and when are they due?
- Am I being asked to do something different in a new version of a contract?
- Does the government representative contracting for this work have the authority to do so?
- How will payment occur?
Pay particular attention to clauses that can adjust the scope of work: constructive change, suspension of work, government delay of work, and stop-work order.
When problems arise, contractors can work to protect themselves by following some recommended best practices. All notice given to anyone in the government should be done in writing and should address what the problem is, when it occurred, and how it's being addressed. Keeping contemporaneous records of events is critical to maintaining strong, defensible records. Additionally, segregating and tracking costs should be part of the record-keeping process. Areas impacted by changes in work contracts include direct labor, materials and subcontractors, and indirect costs. In preparing any claims related to these and other areas, well-written, organized claims supported by evidence in the form of contemporaneous records and supporting documentation for decisions will be most impactful. Additionally, management should make efforts to guide employee behavior. Offering clear instructions to employees on contractor best practices will help in times of crisis.
What other business considerations are impacting the government contracting industry?
Insurance may cover some losses related to the impact of the coronavirus. Business interruption, commercial general liability, environmental, employment, and cyber policies, among others, may provide areas of coverage. Policies are typically individually negotiated, so a thorough audit of your policies with your broker will determine what coverage is available. Timely written notices to all insurers and complete documentation will help in mitigating losses. It is worth noting that broker communications are not privileged in the event of an audit or lawsuit, but insurance counsel communications are.
Event cancellation decisions – whether hosting or attending – remain case by case, with nearly all events facing cancellation due to mandate or to avoid the perception of irresponsibility during the coronavirus pandemic. In hosting events, cancellation of contracts may result in termination fees; each contract for an event is negotiated individually and should be examined. The inclusion of force majeure clauses will completely excuse a contract in the event of a "superior force," but these are narrow in scope and rely on state law for interpretation.
Employment best practices are directly impacted by the Families First Coronavirus Relief (Families First) Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The new paid leave requirement in the Families First Act covers certain public and private employees in companies with a head count of less than 500. Small businesses with fewer than 50 employees may qualify for an exemption if compliance would jeopardize the viability of the business as a going concern. The Families First Act establishes emergency paid sick leave and paid family leave, which are provided in addition to leave balances an employee has already accrued. The federal government reimburses companies for this leave through tax credits. The CARES Act offers federal contractor relief for facility closures and allows for modification of contracts and reimbursement of sick leave. In the event of layoffs, the Worker Adjustment and Retraining Notification (WARN) Act requires employers to provide 60 days' notice to employees; however, there is an unforeseen business circumstance exemption that likely is applicable to the coronavirus pandemic.
Consistent, accurate, and transparent communications will ultimately provide the most effective way for contractors to withstand the challenges brought about by COVID-19. Ensuring that the right messages are being sent to the right audiences will help protect contractors, as will understanding how privileged communications will come into play.
A recording of the webinar and additional resources related to the COVID-19 pandemic are available here.