COVID-19 Disruptions and Work Stoppages: A Q&A for Federal Contractors

Justin A. Chiarodo and Stephanie M. Harden

Coronavirus COVID-19 is rapidly disrupting the performance of federal government contracts across all sectors, leaving contractors and subcontractors with more questions than answers on how to structure their operations. In the following Q&A, we address some of the top issues contractors are currently facing.

      1. The Government has closed my work site, precluding my employees from performing their work. If I continue to pay the employees, can I recover those costs?

If your employees cannot perform their work because the work site is closed (and telework is not an option due to the nature of the work), this may be construed as an actual or constructive stop work order. As with a government shutdown, contractors facing this scenario may be entitled to an equitable adjustment to account for idle employee time because they are expected to be ready to perform as soon as the Government reopens facilities.

A March 20 Memorandum from Office of Management and Budget Deputy Director for Management Margaret Weichert (“Weichert Memorandum”) confirms that equitable adjustments may be appropriate if the requested costs are reasonable. Specifically, the Weichert Memorandum advises that such requests “should be considered on a case-by-case basis” and that agencies may consider such factors as “whether it is beneficial to keep skilled professionals or key personnel in a mobile ready state for activities the agency deems critical to national security or other high priorities (e.g., national security professionals, skilled scientists).”

Key considerations and proactive steps include:

        • Is there any productive work employees can do—via telework, at another location, or on another program—to mitigate the cost of “idle” time?
        • Are there any circumstances undercutting the notion that it would be more efficient to retain current employees than to risk having to recruit new employees?
        • Keep in mind that contractors who wish to recover the cost of idle employee pay must pay their employees during the work stoppage (rather than merely reserving the right to do so), and should segregate and track those costs. See Raytheon STX Corp. v. Dep’t of Commerce, 00-1 BCA ¶ 30632, G.S.B.C.A. No. 14296-COM (1999).
        • If the Contracting Officer has not yet issued a formal stop work order, the contractor should proactively reach out to the Contracting Officer and communicate (in writing) that it considers the work site closure as a constructive stop work order and will ultimately seek an equitable adjustment for idle employee time. The Weichert Memorandum advises that such discussions with the Government bolster the reasonableness of costs a contractor may later seek to recover through an equitable adjustment.
        • Contractors should also ensure they comply with any notice provisions, such as the 30-day notice provision in FAR 52.242-15 (Stop-Work Order), which requires a contractor to provide notice of any contract price adjustment it will seek within 30 days of resuming work.
      1. The Government is mandating that only some of my employees on a contract report to work (e.g., 50 percent). If I continue to pay all employees on the contract, can I recover those costs?

Many contractors are being asked to alternate their staffing, such that only 50 percent of the workforce is on site at one time. As with a site closure, contractors can pursue an equitable adjustment in this scenario. Here, contractors have a strong justification for keeping idle employees on the payroll, given that those employees will be required to perform work periodically. However, requesting an equitable adjustment does not assure payment, and the timeframe for payment, if any, is not certain. Also, any reimbursement will be cost based, not based on contract pricing. Nevertheless, to the extent that the contractor can reasonably mitigate its losses, or document that such mitigation was explored but ultimately infeasible, that may help bolster a future claim for costs.

      1. What are the implications of voluntarily closing my own facilities to prevent the spread of COVID-19 and mitigate risk to my employees?

Many government contracts include an excusable delay clause (e.g., FAR 52.249-14), which excuses a failure to perform where the circumstances are beyond the contractor’s control and the failure is not due to the contractor’s fault or negligence. Both “epidemics” and “quarantine restrictions” are specifically identified in FAR 52.249-14 as proper bases for excusing the contractor’s delay and avoiding termination for default. While the term “epidemic” is not defined, and there is no clear guidance for when an “epidemic” rises to the level that a voluntary work stoppage is appropriate, contractors can look to Centers for Disease Control and Prevention guidance, as well as state and local guidance, to assess what would be prudent. If interested in closing facilities, the best practice would be for contractors to consult with their Contracting Officers before unilaterally making this decision and seek clarification on the impacts and consequences of the decision.

The Weichert Memorandum confirms that COVID-19 may lead to excusable delays and encourages contractors to reach out to Contracting Officers to discuss available options, such as teleworking or re-procuring the services from another source. Note: Contractors that receive “rated orders” under the Defense Production Act must accept those orders unless special circumstances apply, and thus, should seek further guidance about any anticipated facility closures.

      1. What should I do if I cannot meet contract requirements because my employees are unable or unwilling to work due to COVID-19?

Even if a contractor does not officially close its facilities, it may, as a practical matter, be unable to fulfill its contract if its employees are unable or unwilling to come to work due to COVID-19. Here, too, the excusable delay clause should apply. Contractors should maintain documentation of employee absences related to COVID-19 and should promptly advise the Government of any delays or other performance difficulties.

When navigating these and other disruptions caused by COVID-19, contractors should always carefully review their contract’s terms, maintain detailed documentation, and communicate with the Government early and often about the challenges they are facing. Additionally, important developments for contractors are available at: www.acquisition.gov/coronavirus.

As COVID-19 issues permeate virtually all aspects of commerce nationally and internationally, we stand ready to help. Blank Rome’s Coronavirus (“COVID-19”) Task Force includes interdisciplinary resources across every business sector from insurance recovery to HR.