Contractor Claims in a COVID-19 World

Our new COVID-19 (COVID) world brings special risks and unanticipated cost in the performance of federal contracts, particularly for those contractors holding fixed price contracts. Below we suggest various ways through which a contractor can mitigate some of these challenges.

YOUR RIGHTS UNDER YOUR CONTRACT AND THE LAW

If COVID impacts the timeliness of your performance, you should be entitled to additional time to perform your contract. It is likely that COVID will be considered an “excusable delay” under your contract and the law. The amount of time to which you will be entitled however will depend on the extent to which COVID impacts your delivery schedule. A “Request for Equitable Adjustment “(REA) should be timely filed with the Contracting Officer (CO) when all the relevant facts are known, showing the connection between COVID and your performance delay.  If the REA is denied in whole or in part, you can convert the REA into a claim by submitting a claim to the CO under the Disputes clause of the contract per the Contract Disputes Act, 41 U.S.C. 7101.

Generally, the government is not obligated to compensate a contractor for increased costs to perform the contract work caused by unforeseeable “force majeure” events, such as COVID, absent a statute, contract clause, or regulation that provides for such relief. Some possible avenues of relief under these three categories are set out below.

If you are an eligible small business, you may apply through SBA for funds made available under the new CARES Act, Section 1102, to support payroll costs impacted by COVID. The Act also provides “economic injury disaster loans” and limited “grants” through the SBA, as well as limited debt relief on pre-existing SBA loans. The CARES Act, Section 3610, also authorizes your contracting agency to modify your contract to reimburse costs of “paid leave” for employees unable to work due to government facility closures or other access restrictions. The government may also look with favor upon a request for reimbursement of unanticipated PPE cost that is necessary to keep both contractor and federal employees safe.  You will have a better chance of recovering these costs if you keep the CO in the loop early in the conversation, rather than submitting a “bill” after the fact.

You should always keep track of any changes to the scope of the contract work ordered by the CO; generally, such orders will be compensable (increased costs plus profit) under the Changes clause of your contract. FAR 52.243-1, -2, -3. In such a case, you should submit a REA to the CO providing prompt notice of the change and its impact. Keep records of all increased costs. (Note that under a commercial items contract, the CO may not unilaterally order a change to the contract; all changes to terms and conditions must be by written agreement of the parties, FAR 52.212-4(c).)

If you are working under a contract that includes a “Value Engineering” clause, FAR 52.248-1, -2, -3, consider proposing a Value Engineering change to the government. If the government accepts your proposal, the result may be remarkably profitable. See FAR 48.1. To the extent that COVID causes you to miss your delivery schedule or interim milestones, you should make sure that your “Contractor Performance Evaluation” takes this into account. See FAR 42.15. For this purpose, it is wise to keep records of all COVID impacts and to provide your CO with regular notice of the same.

Performance in the COVID environment will have its challenges for federal contractors. A prudent contractor will use the tools available under its contract, the regulations and the law to help mitigate these risks to the extent possible.