With the coronavirus disrupting business in parts of Asia and with increasing impacts in the United States, it is important that government contractors are prepared for the potential issues that may result if the virus spreads across the United States and across other countries where U.S. government contracts are performed. In addition to being proactive and mindful of health and safety, contractors should be prepared to assert their rights to any cost or schedule impacts that may result if the coronavirus impacts contract performance.
Create a Disaster Preparedness Plan
By now you have already heard reports on how businesses have been impacted by the virus. Companies have had to find ways to conduct business while there are supply chain disruptions and many of its employees are quarantined or have limited access to worksites. Although the virus is not yet widespread in the United States, many businesses have already taken precautionary measures such as canceling all non-essential travel and conference attendance.
Contractors should plan in advance for potential impacts. Because the choices a government contractor makes when responding to the impact of the virus can have contractual consequences, contractors should consider asking the Government how it intends to address contractor operations as part of implementing emergency preparedness plans. These plans generally exist on an agency-specific basis and, if there are gaps in the plans, contractors may wish to address particular preparedness needs with their cognizant contracting officer. The below questions are provided to help contractors approach the subject with the Government. Contractors should be sure to memorialize any direction that results from a discussion with the Government.
- What is the Government’s contingency plan to keep the work underway should Government personnel be unable to work or report to work?
- Whether the Government will authorize remote work arrangements, where possible, for contractor personnel should the virus become prevalent in the location of performance? If working remotely is not possible, how the Government intends to handle contract performance if it is not safe for contractor personnel to perform on-site?
- How the Government intends to communicate emergency information to contractors and subcontractors?
- Whether the Government would consider a phased approach to restarting performance after a suspension of work or stop work notice is lifted if the contractor’s personnel must still be quarantined due to the disease?
Prepare for Performance Interruptions
The coronavirus may impact government contractors in a number of ways. For example, supplies sourced from countries impacted by the virus may be delayed or orders may be canceled. Additionally, the Government or suppliers in affected areas may close offices, which may inhibit contract performance. Government contractors must be prepared for the possibility that their performance may be interrupted. The below clauses may be utilized to help manage impacts due to the virus.
- Excusable Delays. Most government contracts will include FAR 52.249-14 or FAR 52.212-4(f) (for commercial contracts) or an equivalent clause, which excuses a contractor’s (or subcontractor’s) failure to perform for causes that are without the contractor’s (or subcontractor’s) fault or negligence for reasons such as acts of God or the Government or epidemics, etc. If your contract does not include this clause you should consult the contracting officer to determine how such delays should be handled. For delays due to the virus, Government contractors should immediately notify the contracting officer explaining the facts and circumstances surrounding the excusable delay and seeking an extension of the delivery schedule or period of performance. If the Government does not respond or rejects such request, contractors should file a claim to preserve the excusable delay as a defense against a termination for default.
- Suspension of Work or Stop Work. To prevent the spread of the virus, the Government may suspend or stop performance. FAR 52.242-14 – Suspension of Work and FAR 52.242-15 – Stop-Work Order provides the contractor’s rights and obligations with respect to these orders. If you receive (or have received) any such order under your contract:
- Promptly comply with the directions contained in the order.
- Issue suspension or stop work notices to subcontractors or suppliers immediately (and without delay).
- Direct subcontractors or suppliers to issue similar notices to lower-tier subcontractors or suppliers and to maintain a record of any cost or schedule impacts.
- Make reasonable efforts to mitigate the costs of the delays in performance.
- Maintain a record of the:
- cost of complying with the order,
- continuing excess costs (including any disruption or acceleration costs, etc.), and
- delay impacts from the cessation of work.
- Seek an equitable adjustment for any cost or schedule impacts that result from a suspension or stop work notice.
- If the Government has not provided an official notice but has provided direction that prevents performance whether due to insufficient access to the work site or due to the inability to proceed due to Government workers being unavailable, contractors should immediately notify the Government of the impact of such direction and follow the steps provided herein.
- Changes. The Government may make changes to the contract as a result of the impact of the virus. For example, the Government may direct contractors to take certain actions as a result of the virus’ impact on the supply chain. Government contractors should examine their contracts to determine which changes clause applies to the contract, e.g., FAR 52.243-1 through -4 or FAR 52.212-4(c) (which requires bilateral agreement for any change to a commercial contract) and heed the notice deadline (typically 30 days for non-commercial contracts) for notifying the Government of any cost or schedule impacts that result from the change. Government contractors should separately track and document any impact due to the change. Government contractors should also notify the Government within the timeframe specified for notice provided in the applicable changes clause for any constructive changes, e.g., acceleration, disruption, etc., and should make sure that any cost and schedule impacts resulting from the constructive change is separately tracked and properly documented (including subcontractor costs).
Prepare for Labor and Employment Impacts
In addition to the contractual issues that government contractors should consider, there is a wide array of labor and employment issues that contractors should consider. We have reported on many of the potential issues here. In addition to the issues we’ve previously reported, government contractors should consider the following.
- Consider how to handle compensation for hourly non-exempt employees and salaried employees in the event a suspension of work or stop-work order is issued on the contract. Government contractors must ensure that they are ready and able to perform once the suspension/stop-work is lifted.
- If a collective bargaining agreement (CBA) applies, consult the agreement to determine what obligations may arise. For example, the CBA may require notice, paid leave, or recall requirements.
- Consider whether an idling workforce triggers federal and state Worker Adjustment and Retraining Notification (WARN) Acts, which generally apply to layoffs of 50 or more employees (be sure to consult the applicable statute).
- Consider what the financial impact may be if a substantial number of employees use paid-time-off, sick, or vacation pay for a period of time.
- Consider what to do if employees use up their leave and are unwilling to stay home if they are sick to avoid taking leave without pay.
- Additional policies and programs to accommodate employee concerns should be clearly communicated to the employees and applied without any possibility that such programs or policies can be perceived as discriminatory or harassing.
- Consider how to handle employees that are in positions that would not allow telework, e.g., essential personnel or personnel working on classified contracts.
- Consider how to handle employees that might otherwise work but for the need to care for sick family members or children if school is cancelled for an extended period of time.
- Consider ways to keep workspaces sanitized. For example, hire a cleaning service to sanitize workstations and areas that people generally touch (e.g., doors, elevator buttons, etc.) each evening; post hand sanitizer dispensers in key areas (e.g., near elevators, bathrooms, doors); keep face tissues around the office.
- If you have employees working abroad, local laws generally apply and many governments have published guidance or directives on issues such as how employees should be paid during mandatory or voluntary quarantine period, how vacation days and sick leave should apply, if employers must report suspected cases to the government. The rules do vary widely from country to country, and if government guidance does not exist, local company policies (for example, telecommuting, vacation and leaves) should be followed.
- Company programs that help reduce the spread of the virus may also help mitigate potential claims for work-related injury in certain countries. Data privacy may be an issue if employers decide to implement temperature or health checks.
While it is our hope that the virus will remain contained and that business will go on as usual, no government contractor should be without a preparedness plan. The above article addresses many of the issues that government contractors should consider. Additional coronavirus considerations (e.g., insurance coverage and applicability of force majeure provisions) and updates may be found here.