Government Contractor Best Practices in Light of Afghanistan Withdrawal (Part 2)

Merle M. DeLancey Jr. and Craig Stetson*

Our Part 1 post addressed contract administration related to changes to or a termination of a contract arising from the government’s withdrawal from Afghanistan. This post focuses on the cost management, documentation, and government audit aspects that contractors should be focused on to prepare for and mitigate downstream and currently unknown risks.

Requesting Payment/Compensation

Responding to a change or termination will likely involve submitting a request for payment or compensation. The label placed on a contractor’s request for payment depends on whether its contract has been terminated or has experienced a “change.” The type of request for payment also can vary depending on the type of contract involved (i.e., cost reimbursement, fixed price, or labor hour).

Continue reading “Government Contractor Best Practices in Light of Afghanistan Withdrawal (Part 2)”

Government Contractor Best Practices in Light of Afghanistan Withdrawal (Part 1)

Merle M. DeLancey Jr. and Craig Stetson*

It is hard to describe the manner in which the United States is withdrawing from Afghanistan. At this point, the safety and security of Americans and those who provided critical assistance to U.S. operations in Afghanistan are at the forefront of everyone’s thoughts. However, contractors in Afghanistan must confront the repercussions of shutting down operations in Afghanistan or dealing with significant changes in contract performance requirements. Translated—this means ensuring fair compensation for terminated or changed contracts.

This blog post focuses on the contract administration aspects that contractors should be thinking of now to prepare for and mitigate downstream and currently unknown risks. Below is a list of issues for contractors supporting operations in Afghanistan to consider.

Continue reading “Government Contractor Best Practices in Light of Afghanistan Withdrawal (Part 1)”

Tips to Maximize Contractor Recoveries for Public Health-Related Claims: Lessons from Pernix Serka and the Ebola Crisis

Justin A. Chiarodo and Stephanie M. Harden

Stephanie Harden's Headshot Photo

Does the mere existence of a deadly epidemic entitle a contractor to monetary relief when it experiences cost increases stemming from that epidemic? Not without Government direction, ruled the Federal Circuit in affirming a decision of the Civilian Board of Contract Appeals (“CBCA”) in Pernix Serka JV.

The facts of Pernix Serka are striking: a contractor repeatedly requests guidance for dealing with a major health crisis, the Government refuses to provide guidance, and the contractor is unable to recoup the additional costs it incurs in order to proceed with performance because the Government provided no guidance.

This timely ruling sheds light on strategies contractors should consider for recouping costs stemming from the COVID-19 pandemic. We provide a roadmap below for navigating these issues in light of Pernix Serka JV.

The 2014 Ebola Crisis

Pernix Serka was in the midst of performing a contract in Sierra Leone when a deadly Ebola outbreak struck the country in 2014. Pernix Serka diligently sought guidance from the Contracting Officer on its State Department (“DOS”) contract, but the Government refused to weigh in on whether it should temporarily shut down its work on the contract. Ultimately, Pernix Serka decided to temporarily withdraw its personnel, which the Government then characterized as Pernix Serka’s “unilateral” decision. When Pernix Serka sought advice on whether and when to resume work, the Government went so far as to say that “DOS will not provide any instructions or directions” regarding whether and when to return to the work site. The contractor ultimately decided to resume performance, but incurred additional costs when it decided to contract for medical facilities and services on the project site.

Continue reading “Tips to Maximize Contractor Recoveries for Public Health-Related Claims: Lessons from Pernix Serka and the Ebola Crisis”

Executive Order Increases the Minimum Wage for Federal Contractors—What Is the Impact?

Scott Arnold

Legal developments aimed at government contractors do not always make headline news in mainstream media, but last week’s Executive Order on Increasing the Minimum Wage for Federal Contractors, April 27, 2021 (“Executive Order”), did get widespread attention, perhaps because it is viewed by some in political circles as the next best thing for an administration that sees substantial congressional hurdles for more broadly applicable minimum wage increase legislation. So you have probably heard about about the Executive Order, but how will it impact government contractors?

What does the Executive Order do?

The Executive Order will increase the hourly minimum wage for workers working on or in connection with federal government contracts to $15.00, effective January 30, 2022. This will be a substantial increase from the current minimum wage of $10.95 applicable to most federal contracts pursuant Executive Order 13658. (EO 13658 originally set a federal contractor minimum wage of $10.10, effective January 1, 2015, when it was issued by President Obama in early 2014. That minimum wage has since increased annually.)

How will the increase be implemented?

The Secretary of Labor is to issue implementing regulations by November 24, 2021, and the Federal Acquisition Regulatory Council is to amend the FAR to provide the new minimum wage provisions in federal procurement solicitations, contracts, and contract-like instruments within 60 days after issuance of the Labor Department’s implementing regulations.

Continue reading “Executive Order Increases the Minimum Wage for Federal Contractors—What Is the Impact?”

Paycheck Protection Program Audits Are Upon Us—Borrowers Prepare!

Merle M. DeLancey Jr., Craig Stetson*, and Jennifer A. Short

In our last post on this topic, we touched on how the acceptance, use, and forgiveness of Paycheck Protection Program (“PPP”) loans can be viewed in the context of a Defense Contract Audit Agency (“DCAA”) audit. This post focuses on audits and investigations involving PPP loans. Close scrutiny of PPP loans is not a prediction; it is reality. The Small Business Administration (“SBA”) has announced it will audit all PPP loans in excess of two million dollars following a lender’s submission of a borrower’s loan forgiveness application, and it reserves the right to “spot check” any PPP loan of a lesser amount at its discretion. The Department of Justice has already charged multiple individuals with PPP fraud. And this is just the beginning of what many think will be a tidal wave of enforcement activity involving PPP loans.

Overview of the PPP

The PPP is the largest relief measure for small businesses under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The government has made available nearly one trillion dollars in PPP relief funds through four separate funding measures ($349 billion via the CARES Act; $310 billion via the PPP and Health Care Enhancement Act; $284 billion via the Consolidated Appropriations Act of 2021; and $7.25 billion via American Rescue Plan Act of 2021).

The PPP makes available guaranteed SBA loans to small business that meet certain eligibility requirements. In addition, PPP loans can be forgiven fully if used properly to cover specified business expenses such as payroll, rent, utilities, mortgage interest, and other limited uses. As of April 11, 2021, the SBA had approved more than 9.5 million loans totaling more than $755 billion using more than 5,400 lenders.

Continue reading “Paycheck Protection Program Audits Are Upon Us—Borrowers Prepare!”

COVID-Related Audits and the DCAA’s New Audit Direction

Merle M. DeLancey Jr. and Craig Stetson*

This is the third in a series of posts regarding what we believe will be an onslaught of government investigations and audits of COVID relief funds and contracting. Previously, we identified likely categories of programs, contracts, and companies the government might investigate or audit. Below, we discuss the Defense Contract Audit Agency’s (“DCAA”) current direction, interests, and initiatives related to contractors’ receipt of COVID relief funds and the impact an uncertain business environment may have on government contract pricing and costing forecasts.

COVID Relief Funds

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) funding opportunities come with unique government contract compliance requirements and financial reporting obligations. The funding is not “free” and may result in financial consequences to unwary contractors. DCAA knows this and will be conducting audits to test contractors’ compliance with unique relief fund requirements. Contractors unaware of these accounting and reporting requirements risk DCAA questioning or denying costs.

In January 2021, DCAA issued an audit alert to its regional offices pertaining to COVID relief legislation and regulation.[1] The audit alert includes frequently asked questions and answers (“FAQs”) concerning contractors’ request or receipt of COVID relief funding. Originally released last summer, the FAQs have been revised and expanded several times. The FAQs telegraph DCAA’s position on various instances where COVID relief funding intersects with or impacts government contract cost accounting and compliance.

Continue reading “COVID-Related Audits and the DCAA’s New Audit Direction”

The Likely Targets of COVID-Related Audits and Investigations

Merle M. DeLancey Jr. and Craig Stetson*

This is the second in a series of posts regarding what we believe will be an onslaught of government investigations and audits of COVID relief funds and contracting. Previously, we identified the government offices that will be conducting the investigations and performing the audits. Below, we identify three categories of programs, contracts, and companies we believe are more likely to be investigated or audited.

Programs/Contracts

The first group of companies ripe for audits are those accepting COVID relief funding and contractors performing large COVID-specific contracts, as well as contractors performing traditional government contracts that entail certain COVID-related twists impacting performance.

Companies accepting COVID relief funds are likely at the top of auditors’ lists for several reasons. First, because of the magnitude of funds at issue. Second, due to the complex and ambiguous eligibility, use, and reporting requirements. For example, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and supplemental legislation appropriated funds to reimburse eligible healthcare providers for healthcare-related expenses or lost revenues attributable to COVID. Receipt of funds was easy. Most recipients’ funds were automatically deposited into their bank accounts. But healthcare provider recipients have not yet been required to file reports attesting to the proper utilization of the relief funds. Relief funds recipients in other non-healthcare industries may also be affected. Certain monies received under the CARES Act also involve ongoing and downstream reporting requirements by companies regarding statutory limitations on compensation paid to certain employees and the receipt of a variety of potential tax credits. Thus, recipients’ use of funds has not been tested, and it is unlikely that all usage has been in compliance with the ambiguous requirements and multiple rounds of agency guidance and interpretations.

Continue reading “The Likely Targets of COVID-Related Audits and Investigations”

KBR Subcontractor’s “Delay” Costs Rejected as Unreasonable by Federal Circuit, No Remand to Cure Defects

Stephanie M. Harden

Stephanie Harden's Headshot PhotoIn a September 1, 2020, ruling, the Federal Circuit addressed the reasonableness of subcontractor costs stemming from a government-caused delay under KBR’s LOGCAP contract in Iraq. This decision is important for contractors across all industries given the expected flood of COVID-19-related claims involving government-caused delays and/or idle time. The decision provides new guidance on what contractors must show to demonstrate the reasonableness of subcontractor costs.

The case involved a KBR subcontract to First Kuwaiti Co. of Kuwait (“First Kuwaiti”) to transport trailers into Iraq. The dissent (Judge Newman) explains the operational significance of expeditiously delivering these trailers: soldiers were sleeping in “abandoned schools, . . . tents, vehicles, the ground, or any other place soldiers could put a sleeping bag.” The Army tasked KBR with delivering more than 18,000 trailers to multiple locations in Iraq by Christmas 2003, a deadline which was important for both morale and tactical reasons. KBR, in turn, subcontracted to First Kuwaiti. Continue reading “KBR Subcontractor’s “Delay” Costs Rejected as Unreasonable by Federal Circuit, No Remand to Cure Defects”

Government Reliance on Waiver Argument to Keep Price Adjustment Windfall Fails

Scott Arnold

Last week, the U.S. Court of Appeals for the Federal Circuit articulated limits to the government’s ability to rely on the waiver doctrine to enforce Federal Acquisition Regulation (“FAR”) provisions of questionable legality, and, in so doing, cast doubt on the government’s “heads we win, tails you lose” approach to measuring the cost impact of simultaneous changes to a contractor’s cost accounting practices.

In The Boeing Company v. United States, 2019-2148 (Aug. 10, 2020), the Federal Circuit rejected the government’s argument that Boeing’s claim—which was based on an apparent conflict between (1) a statutory provision limiting the costs the government may recover for cost accounting practice changes to the aggregate increased cost to the government, and (2) a FAR provision under which the government’s recovery considers only the changes that increase costs to the government, and disregards changes that decrease costs to the government—was waived because Boeing did not raise the issue prior to contract award. Continue reading “Government Reliance on Waiver Argument to Keep Price Adjustment Windfall Fails”

Recovering COVID-19 Costs Where Section 3610 of the CARES Act Does Not Apply

Stephanie M. Harden

Stephanie Harden's Headshot PhotoThe financial relief offered to contractors under Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is limited to contractors who: 1) cannot perform work at their approved sites due to site closures, and 2) cannot telework. For contractors that do not meet these two conditions, the traditional Request for Equitable Adjustment (“REA”) and claims processes are still available and may permit recovery of some cost increases due to COVID-19.

Below we provide a brief refresher of key considerations for contractors considering COVID-related REAs or claims. Of course, the particular facts and terms of each contract will ultimately determine whether cost increases are recoverable.

What Types of Costs May Be Recovered?

Costs stemming from COVID-19 may be recoverable under several Federal Acquisition Regulation (“FAR”) clauses:

  • The Changes Clause (g., FAR 52.243-1): A wide array of costs may fall under the Changes clause, such as costs stemming from government direction to alter or stagger work hours, provide additional personnel, use more costly procedures, use procedures requiring additional training for personnel, provide personal protective equipment, or perform additional cleanings. A recent Department of Defense Memorandum is instructive as to how such costs are likely to be viewed, advising that contracting officers should consider whether such costs are “reasonable to protect the health and safety of contract employees as part of the performance of the contract.”
  • The Stop Work Order Clause (FAR 52.242-15): Costs stemming from the government’s direction to stop work will generally be recoverable under this clause. As discussed in our previous blog post, this may include the cost of “idle time” where employees are unable to access work sites, potentially providing some relief to contractors who are not covered by Section 3610 of the­ CARES­­ Act. Arguably, this clause should cover situations in which employees cannot work due to government-required quarantine procedures or government-caused delays, even if the work site is technically open—though this remains an open issue.
  • The Government Delay of Work Clause (FAR 52.242-17): Where the government causes a delay, the costs stemming from such a delay, such as increased material costs, may be recoverable under this clause.

Notably, while the Excusable Delays clause (e.g., FAR 52.249-14) excuses a contractor’s failure to perform for reasons including “epidemics” and “quarantine restrictions,” this clause does not provide financial relief, but rather, provides a basis for excusing what might otherwise give rise to a termination for default.

What Is the Difference between an Equitable Adjustment and a Claim?

A claim is a formal written demand subject to the detailed procedures set forth in the Contract Disputes Act (“CDA”). Once a claim is made, the Contracting Officer must issue a final decision within 60 days (or, for claims over $100,000, provide a firm date by which a final decision will be issued), which may be appealed to the Boards of Contract Appeals or the Court of Federal Claims. Claims must include a “sum certain”—i.e., the amount of damages being claimed—and claims of $100,000 or more must be certified by the contractor as current and accurate.

An REA is generally considered less adversarial than a claim and is not subject to a formal disputes process. There is no set timeline for resolution of an REA; however, if an REA is not resolved satisfactorily, it can be converted into a claim.

In the context of COVID-related costs, there are advantages and disadvantages of both options.  The less formal REA process provides agencies more leeway as they work to coordinate internally on how to address costs relating to COVID-19, which may ultimately be to the benefit of contractors. However, the claims process puts the government “on the clock” and, thus, may result in a faster response. Note that contractors are entitled to interest that accrues while a claim is pending, but not while an REA is pending. As for legal costs, they are allowable when incurred to support an REA, but are unallowable when incurred in support of a claim.

Timing Considerations

Whether a contractor ultimately submits a request for equitable adjustment or claim, it must notify its Contracting Officer of the delay, disruption, or right to an adjustment, with different deadlines depending upon which clause applies. For example:

  • FAR 52.242-15 (Stop Work Order Clause) requires contractors to assert their right to an adjustment within 30 days after the end of the period of work stoppage;
  • FAR 52.242-17 (Government Delay of Work) requires contractors to notify the Contracting Officer within 20 days of the act or failure to act giving rise to the delay; the contractor must also assert the amount of the claim in writing as soon as practicable after the termination of the delay or interruption, but not later than the day of final payment under the contract; and,
  • FAR 52.243-1 (Changes) requires the contractor to assert its right to an adjustment within 30 days from the date of receipt of a written change order. There is an exception “if the Contracting Officer decides that the facts justify it,” where the request is made before final payment of the contract.

Claims are also subject to a six-year statute of limitations.

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.