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.
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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.
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