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.
In sealed bidding under FAR Part 14, competition is on the basis of price, after meeting the requirements of responsiveness and responsibility. Awards, however, should not be determined solely on the basis of which contractor is willing to take the greatest risk during this time of uncertainty. Even in negotiated procurements under FAR Part 15, price is an important evaluation factor that may end up being the discriminator in a source selection. The inability to apply sound business judgment when estimating costs reduces procurement to a guessing game where the contractor runs a real risk of getting hurt. It means, unfortunately, that the best, and certainly the safest, decision may be to not bid at all.
Since federal contracts allow only for a non-compensable time extension when a delay is caused by something like an epidemic, bidding on a project that is likely to incur an unpredictable delay is extremely hazardous. For that reason, we are recommending that contractors request that the dates for the submission of bids and proposals be postponed. Some agencies are already taking appropriate action on their own, but federal agencies are in a difficult position if the project is essential to the national defense or welfare. There is also the very real need to keep businesses alive to avoid a catastrophic economic collapse.
The conundrum that results from all of this requires a new approach to federal contracting. Instead of treating unforeseeable delay resulting from the coronavirus epidemic as an excusable, non-compensable, delay, the government should agree to make these delays compensable by a revision to the FAR. (Existing contracts should be modified to include the new clause, as well). If solicitations include a clause making this clear, contractors will continue to bid. While we understand that the theory behind excusable causes of delay is that neither the government nor the contractor is at fault, the problem is that this is a novel situation not anticipated by the FAR. The risk of economic harm to contractors is too great and is not balanced by a countervailing government risk. At a time when the government is considering multi-billion dollar bailouts for industries like the airlines and hotels, it makes sense to compensate contractors for the cost of coronavirus delays to avoid a future need to bailout the construction and manufacturing industries of our country. Can there be any doubt that the only issue for the government is whether it wants to pay contractors now or pay them later? (Although a new or modified FAR clause often takes considerable time, it can be accomplished very quickly if Congress wants it done).
If the government fails to unilaterally postpone bid dates or refuses to grant contractor requests that bid and proposal dates be postponed, contractors should consider filing a pre-bid protest. The argument would be that it is impossible to submit a competitive bid at a time of such uncertainty and that the risk being imposed on contractors is too great. Under these circumstances, the government will not be selecting the most qualified contractor but, instead, will award contracts to those willing to undertake unreasonable risks. Such procurements will not serve the needs of the government or the taxpayer. Hopefully, the crisis will end soon, and we will all go back to work. In the meantime, unless the government relaxes the non-compensable aspect of FAR 52.249-14, Excusable Delay, contractors must do everything possible to delay the submission of bids and proposals until a time when risk can reasonably be measured. The 1984 Excusable Delay clause is not the answer.
If you have any concerns about the impact of the coronavirus pandemic on your business, please contact the Cohen Seglias Government Contracting Group. We stand ready to counsel you during this difficult time.