The Coronavirus Aid, Relief, and Economic Surety (CARES) Act was enacted on March 27 to provide relief from the effects of the COVID-19 pandemic. Section 3610 of the CARES Act authorizes agencies to reimburse federal contractors for leave provided to employees who cannot work as a result of the COVID-19 public health emergency. As we explained in a previous blog post, there are many questions as to how Section 3610 will be implemented. Those questions are being answered on a rolling basis as agencies continue to release information. Since our last post, the Department of Defense (DOD) issued a class deviation as well as a FAQ document.
As the economic crisis caused by COVID-19 evolves and worsens, there are many novel questions that government contractors and government agencies face. Certain FAR clauses that limit a contractor’s right to recover damages need to be revisited, including the clause entitled “Default (Fixed-Price Construction)” found at FAR 52.249-10. Under this clause, delay resulting from an Act of God, such as an epidemic, is excusable, but it is also non-compensable. This holds out the very real possibility of significant financial harm to construction contractors and seems to run counter to the government’s objective of preserving companies so that there will be an economic recovery once the crisis is over.
Currently, Department of Defense agencies are making every effort to treat projects as essential to the national defense and contractors are permitted, and in some cases directed, to continue performance. Since the government wants projects to continue, and government contractors want to keep working, there appears to be a commonality of interest. Contractor employees, however, are increasingly concerned about their personal health and safety and, in some cases, are refusing to report for work. This is compounded by the Permits and Responsibilities clause (FAR 52.236.7), which requires contractors to comply with “State, and municipal laws, codes, and regulations applicable to the performance of the work.” Accordingly, even though the federal government requires work to continue, state and local governments may be requiring people to maintain social distancing and stay at home. Even if exemptions are granted for government contractors working on essential projects, that does not lessen the legitimate concern of workers who are fearful of health risks. Continue Reading Delays Resulting From Coronavirus May Be Both Excusable and Compensable
The coronavirus crisis has made life difficult for Americans on both a personal and work-related level. While concern about personal health is paramount, the health of the economy cannot be ignored. The recently enacted stimulus package brings vital short-term relief, but the long-term health of the economy will be driven by how quickly people can get back to work.
The construction industry has, in some cases, been exempted from “stay at home” rules because construction projects are frequently regarded as essential activities. That being said, many state and local projects are being delayed as reported by the Associated General Contractors of America (AGC) as shown on its excellent interactive map. In federal construction, however, the government seems to be doing its best to keep projects moving, although that could become impossible if the pandemic worsens. Continue Reading Virtual Counsel for Federal Construction Contractors Impacted by the Coronavirus Pandemic
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), in Section 3610, offers discretionary relief to federal contractors whose employees cannot perform work on a site that has been approved by the federal government during the COVID-19 public health emergency. The following is provided:
Section 3610. Federal Contractor Authority
Notwithstanding any other provision of law, and subject to the availability of appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020. Such authority shall apply only to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the Federal Government, including a federally-owned or leased facility or site, due to facility closures or other restrictions, and who can not telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for COVID–19: Provided, That the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant to division G of Public Law 116–127 and any applicable credits a contractor is allowed under this Act. Continue Reading The CARES Act Provides Potential Reimbursement for Paid Leave on Federal Projects
The coronavirus epidemic has disrupted our world in ways we could not have imagined a few weeks ago. In the midst of the crisis, the federal government is trying to do everything possible to keep businesses afloat, and that includes the continuation of current federal projects. We recently published a blog post addressing steps contractors should consider in order to protect their rights under contracts they are currently performing, but there is also a question about whether contractors should bid new projects. That is the focus of this article.
Almost all federal construction and supply contracts are solicited on a firm fixed-price basis. This type of contract is designed to provide the greatest opportunity for reward, coupled with the attendant risk of bidding incorrectly and incurring additional costs. The cost estimates that contractors must prepare before submitting a bid or proposal require a reasonable degree of foreseeability and certainty in the marketplace. In times of significant inflation or a shortage of resources as occurred during the energy crisis of the 1970s, it is difficult to predict the cost of materials for the life of a project. What we now face is far more disruptive. We are in the midst of a pandemic that is making it impossible to predict the availability, at any price, of labor, equipment, and materials in the weeks and months ahead. Predicting prices under those circumstances has nothing to do with sound business judgment – it requires a crystal ball. Continue Reading Bidding Federal Work During the Coronavirus Crisis
We are navigating in uncharted waters when it comes to the effect of coronavirus on federal contracting. There have been economic crises before—The Great Depression of 1929-1939, the oil crises of 1973 and 1979, Black Monday in 1987, the subprime mortgage crisis of 2007-2010, the ongoing European sovereign debt crisis, among many others. Even as far back as AD 33, there was a financial panic that was the result of the mass issuance of unsecured loans by Roman banking houses. What these economic disasters all have in common is that not one of them was the result of a virus outbreak. On the contrary, they all resulted from economic chaos brought about by poor financial policy, over-spending, and greed.
The current pandemic is affecting our lives and the lives of everyone in the world in ways that we did not and could not predict. There is no doubt that life will return to normal one day, but we do not know when. We also do not yet know how severe the impact will be on our economy. The federal government is discussing the payment of hundreds of billions of dollars in bailouts for businesses and direct payments to American citizens. This is happening in what is just the first week of what almost amounts to a national quarantine that is effectively requiring almost everyone to stay at home and practice “social distancing.” The President recently stated that this situation could last until July or August. If this is the case, it will have a crippling effect on the personal health of many people and the economic health of almost everyone.
The FAR Addresses Delays Resulting from Epidemics
Against this dire backdrop, the issue of how this will affect federal contracting seems rather mundane. Nevertheless, in the hope that this crisis will pass sooner rather than later, contractors need to be aware of their contractual obligations and the risks they face. One thing is certain, federal contracts do not contain clauses that anticipate a crisis of this magnitude. The most likely effect of the crisis is that contract performance will be delayed. The concept of excusable delay is recognized in the Federal Acquisition Regulation and FAR 52.249-14, “Excusable Delays,” which provides the following:
(a) Except for defaults of subcontractors at any tier, the Contractor shall not be in default because of any failure to perform this contract under its terms if the failure arises from causes beyond the control and without the fault or negligence of the Contractor. Examples of these causes are (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather. In each instance, the failure to perform must be beyond the control and without the fault or negligence of the Contractor. Default includes failure to make progress in the work so as to endanger performance.
While the clause specifically lists “epidemics” as an excusable cause of delay, it simply means that a contractor will be given a time extension. It does not, however, provide compensation for the cost of maintaining a workforce, the cost of materials and equipment that will not be used, or the ongoing home and field overhead expenses. The contractor, while not at risk for default, is at risk for the cost of the resulting delay. (It should be noted that it is highly unlikely that the government would threaten to terminate a contractor impacted by the virus for default, and, in fact, the language quoted above from the Excusable Delay provision in the FAR is repeated in the Termination for Default clause at FAR 52.249-10). As a result, while FAR 52.249-14 does provide some relief for delayed projects, that relief is likely to be insufficient and will leave contractors searching for alternative theories of recovery. Continue Reading A Government Contractor’s Roadmap for Navigating the Coronavirus Pandemic
On January 30, 2020, the Department of Defense (DOD) released Version 1.0 of its Cybersecurity Maturity Model Certification (CMMC). Under the CMMC program, every contractor who works for the DOD, including subcontractors, will need to be certified at one of five levels. All DOD solicitations will specify which certification level is required for the contract, and contractors who do not have that certification will be ineligible for the contract. In order to obtain the certification, contractors will undergo an assessment by an independent third-party organization. Continue Reading New Cybersecurity Requirements Will Impact All DOD Contractors and Their Subcontractors
In a recent opinion issued by the United States Court of Federal Claims, Meridian Engineering Company vs. The United States, a case argued by our firm, the Court ruled that a contract modification containing a release did not prevent the contractor from recovering further damages. The dispute involved a contract between Meridian and the U.S. Army Corps of Engineers for a flood-control project in Nogales, AZ. After entering into the contract, the Contracting Officer issued two contract modifications that compensated Meridian for government-caused delays related to an access ramp and surveys. As a result of the underlying delays, Meridian’s work was pushed into the yearly rainy season in southern Arizona, referred to as the “monsoon” season, and completion of the critical channel invert work was impacted by numerous flood events. Had it not been for the earlier access ramp and survey delays, the work would have been completed before the onset of the “monsoon” season.
My partner Tim Furin and I attended the FY2020 DOD & Federal Agency Program Briefings this week on March 12 in Herndon, Virginia. The Briefings are part of the Society of American Military Engineers (SAME) Capital Week. The program provides SAME members a chance to hear about the projected upcoming fiscal year’s engineering, construction, and environmental programs from contracting representatives, and Senior Executive Service leaders from the engineering components of the military services and select federal agencies. Representatives from the United States Army Corps of Engineers (USACE), Army, Navy, Air Force, General Services Administration (GSA), Departments of State and Energy, as well as the U.S. Customs and Border Protection and U.S. Forest Service all made presentations. The presentations are available on SAME’s Capital Week website.
For federal construction contractors, payment and performance bond obligations in construction contracts with the federal government that exceed $150,000 should, typically, come as no surprise. However, what requirements should contractors expect from a contract that is ambiguous as to whether it is a construction contract, yet calls for construction-related services, but lacks explicit bonding requirement terms? Can bonding requirements be “read-in” to the contract? When should contractors raise such questions? This past November, the Federal Circuit addressed those questions in K-Con, Inc. v. Secretary of the Army, 908 F.3d 719 (Fed. Cir. 2018). This decision provides instrumental lessons contractors should keep in mind before submitting offers for projects that include construction-related services. Continue Reading No Bonding Requirements? Think Again, Instructs the Federal Circuit