Our nation is in a state of emergency due to the global COVID-19 pandemic. Department of Defense (DoD) contracting officers and acquisition officials have been empowered with significant flexibility in order to enable rapid responses to serious needs and maintain critical infrastructure wherever possible. It is important for defense contractors to understand how to make proper use of these flexibilities in order to minimize the impacts on contract performance and ensure that allowances are granted for impacts beyond their control. Planning, communication, and documentation throughout the process are key factors to maintaining performance and reducing financial risk.
Best Practices to Successfully Navigate COVID-19
- Become well-versed in the guidance.
- Be proactive.
- Communicate with your contracting officer (CO).
- Identify and track costs.
- Consider impacts to pending and future contracts.
Official Guidance
March 13 – Presidential Proclamation
- Guidance: The president issued a “Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak.” As a result of this, in accordance with FAR 18.202, various acquisition thresholds have been raised for supporting response efforts to COVID-19, including micropurchasing, simplified acquisitions, and using simplified procedures for certain commercial items.
- Consideration: Contractors with products or services that are vital to response efforts may see an increase in agency spending as a result of the increased flexibility.
March 20 – OMB M20-18
- Guidance: The Office of Management and Budget (OMB) issued Memorandum No. M-20-18, “Managing Federal Contract Performance Issues Associated with the Novel Coronavirus (COVID-19),” which recognizes the safety of the contracting community as the top priority while seeking to grant reasonable flexibilities necessary to maintain continued performance in support of agency missions. Its three main areas of focus are teleworking, contract extensions, and the use of special emergency procurement authorities.
- Consideration: Contractors should expect to work with agencies to maximize teleworking wherever possible, which may require seeking modifications to contracts that currently do not allow it. In cases in which delivery does not lend itself to teleworking, contractors should expect flexibility on completion dates without penalty. It is likely that agencies will seek to treat COVID-19 delays as “no-cost” impacts. Agencies will consider Requests for Equitable Adjustments (REAs) on a case-by-case basis, give consideration to whether additional costs incurred are reasonable according to FAR §31.201-3, and if it is beneficial to keep skilled professionals or key personnel in a mobile-ready state.
March 20 – Memorandum for Defense Industrial Base
- Guidance: Undersecretary of Defense for Acquisition and Sustainment Ellen Lord issued a “Memorandum for Defense Industrial Base ” stating that the Department of Homeland Security had identified it as a critical infrastructure sector. Companies supporting essential contracts are expected to maintain their normal work schedules. The statement included an attached advisory list that identifies workers who conduct a range of operations and services that are essential to continued critical-infrastructure viability.
- Consideration: Contractors should determine which of their contracts and employees are considered essential and how essential work should continue to be performed.
March 27 – CARES Act
- Guidance: The president signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law, which will provide tax relief for both individuals and businesses in response to the COVID-19 pandemic. Federal agencies are given the authority, but are not required, to modify terms and conditions of contracts and other agreements to reimburse contractors whose employees and subcontractors are unable to work on federally approved work sites, including federally owned facilities. This must be due to facility closures or restrictions as a result of the public-health emergency declared January 31, 2020, and if the employees or subcontractors are unable to telework because their job duties prohibit them from working remotely. This is for the period beginning January 31, 2020, through September 30, 2020.
- Consideration: Given the uncertainty in the ability to seek relief under this act, contractors should pursue all alternative avenues of recovery in order to minimize the risk of unsuccessful recovery through the CARES Act.
April 17 – Memorandum to the Heads of Executive Departments and Agencies
- Guidance: Acting Deputy Director for Management Michael Rigas issued a memo to the heads of executive departments and agencies providing guiding principles to help determine the appropriate role of Section 3610 of the CARES Act in supporting the needs of their contractors and subcontractors. These guidelines are intended to support rationally based decisions that reflect the best interest of the government in any given situation, fully supported by contractor records that are subject to oversight, and safeguard the taxpayers funding these efforts. Agencies should expect contractors to use a multifaceted approach to address the disruptions of COVID-19, as called for by M-20-18, seeking opportunities for teleworking or other virtual-workplace strategies, scheduling extensions, option exercises, and contract extensions that may alleviate the need for paid leave.
- Consideration: Contractors should ensure that they can clearly document how they have pursued a multifaceted approach before seeking relief through Section 3610 and that reimbursements received through other mechanisms are not duplicated in seeking reimbursement.
Best Practices for Government Contractors
Become well-versed in the guidance
- Due to the abundance of guidance available which can sometimes be contradictory it is important to read and understand the guidance thoroughly and carefully. It will also be important to keep clear documentation of how specifically applied.
- Consider the mechanisms and flexibility that is provided to you and the government to navigate the issues of teleworking, timing delays, and the circumstances that would warrant seeking cost relief (e.g., submitting an REA).
Be proactive
- Preemptively establish an approach and ensure that critical personnel understand the importance of a well-developed company response.
- Determine whether contracts can rely on increased teleworking to maintain uninterrupted performance, or whether they anticipate experiencing excusable timing delays.
- If companies anticipate excusable timing delays, they should consider any relevant FAR clauses, in addition to guidance issued in relation to COVID-19. Excusable timing delays should not impact performance ratings on a contract.
- Understand and identify factors that would support the submission of REAs to receive compensation for increased costs associated with COVID-19 response measures. Government agencies will consider REAs on a case-by-case basis, taking into account whether the requested costs would be allowable and reasonable.
FAR §31.201-3 states “reasonable” is defined as what a prudent person would do under the circumstances prevailing at the time the decision was made to incur the cost. Actions consistent with CDC guidelines and federal or state orders fall under this definition. If, however, you are taking precautions that are not in accordance with CDC guidelines, you may not be able to claim costs are reasonable.
Communicate with your contracting officer
- Communicating early and often with your CO is always important, but even more important as we all navigate the unique challenges faced in responding to the spread of COVID-19.
- All flexibilities granted under guidance issued are evaluated on a case-by-case basis. The sooner you have a mutual understanding with your CO of the flexibilities that are needed and allowable for your contract, the less risk you incur of negative impacts.
- Ensure that all communications are clear and well documented, ideally in the form of written communication from your CO. This will ensure a timelier approval and payment process.
Identify and track costs
- Establish a method and process for tracking relevant cost data and related supporting justification for COVID-19-related costs and any timing delays.
- Be sure you can support – with clear documentation – how you have been impacted by COVID-19:
- Track unanticipated costs incurred to provide teleworking equipment to allow employees to work from home and increased IT resources to support teleworking.
- Set up charge codes for tracking allowable direct and indirect costs throughout your company.
- Ensure that personnel responsible for tracking these costs understand how they should be tracked and what documentation should be collected as support.
- Anticipate that costs will be questioned; consideration should be given as to whether credits or reimbursements have been pursued through the proper avenues and within an appropriate timeframe.
- Act in good faith and go the extra mile.
Consider pending and future contracts
- If a contract-award decision is pending, now is the time to consider the potential impact of COVID-19 on future performance.
- Communicate with agencies about anticipated issues and how to address them, such as ensuring that teleworking is allowed.
- Modify the contract to address significant issues before the final award.
- Think strategically about the COVID-19 pandemic when bidding on new work.
- Leverage your experience with your existing contracts and conversations with COs to incorporate into bids all known contingencies that might affect performance.
- Understand that the government will not assume responsibility for performance delays related to COVID-19 on newly awarded work when contractors should have considered the current environment in preparing their bids.
Responding to the challenges presented by COVID-19 requires a multifaceted and thorough approach. Government agencies have been granted flexibilities in responding as necessary but are also charged with being good stewards of taxpayer funds. Contractors who adapt quickly and responsibly will maximize their ability to perform on existing contracts, receive relief through the proper channels for impacts beyond their control, and will emerge with improved processes and capabilities to operate in an environment where the new normal is still unknown.
