Lewis Roca Blog

On March 30, 2020, the Office of the Under Secretary of Defense issued a memorandum to procurement officials throughout the Department of Defense on managing the effects of the COVID-19 virus on defense contracts. This memorandum is authored by Kim Herrington, the Acting Principal Director, Defense Pricing and Contracting. Although the memorandum lacks detail, it should be viewed as an encouraging sign from the DoD that it recognizes its contractors are impacted by the virus and that they are entitled to seek relief.

Recognizing Need for Relief
The memorandum begins by acknowledging that the challenges the DoD faces in response to the virus are historic and borne across the total force, including military, civilian, and Defense Industrial Base. It recites that the DoD must work hand-in-hand with these communities to recover from the pandemic and maintain mission readiness. The virus affects the cost, schedule, and performance of many DoD contracts. Contractors that ordinarily work side-by-side with the DoD workforce have often been unable to access their work sites, and most contractors have coped with employees who are unavailable for work due to quarantine and state and local requests to restrict movement of their personnel.

The DoD commits itself to do its utmost to ensure that both the Department and the vital industrial base that supports the DoD remain healthy for the duration of this emergency and emerge as strong as ever from the challenges of the pandemic. Fortunately, the Under Secretary observes, the DoD has the regulatory tools to take action to address these impacts.

Tools for Relief
The memorandum proceeds to note that DoD contracts contain clauses that address performance delays, including FAR 52.249-14 for excusable delays; various “Termination” clauses; and FAR 52.212-4 for commercial contract terms. Each of these clauses provides that a contractor will not be in default for failure to perform the contract if the failure is beyond the control and without the fault or negligence of the contractor. In the event of such delay, the contractor is entitled to an equitable adjustment of the contract schedule. Where the contracting officer directs changes in the terms of contract performance, which may include recognition of COVID-19 impacts on performance under the contract, the contractor may also be entitled to an equitable adjustment to the contract price using the standard FAR changes clauses, such as 52.243-1 or 52.243-2.

The Under Secretary emphasizes however, that requests for equitable adjustment must be considered on a caseby-case basis. Each contract’s particular circumstances must be considered, including impacts of the virus, applicable law, and any relief that may be authorized in response to this national emergency. When reviewing requests for equitable
adjustment, contracting officers are instructed to take into account, among other factors, whether the requested costs would be allowable, allocable, and reasonable to protect the health and safety of contract employees as part of the performance of the contract. Equitable adjustments to the contract or reliance on an excusable delay should not negatively affect contractor performance ratings.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES). Most notable within the Act, the memorandum states, is Section 3610, Federal Contractor Authority, which provides discretion for the agency to modify the terms and conditions of the contract to reimburse paid leave where contractor employees could not access work sites or telework but actions were needed to keep such employees in a ready state. Defense Pricing and Contracting will provide implementing guidance for this section.

The memorandum concludes by observing that the Office of Management and Budget, and many senior procurement officials of the military departments and agencies have promulgated similar guidance regarding management of contract performance impacts of the virus. Much of this material is available at www.acq.osd.mil/dpap/pacc/cc/COVID-19.html. They share the common theme that contracting officers are trusted and empowered to make the difficult decisions on appropriate adjustments to each contract. Both during and after the COVID-19 emergency, contracting officers are expected to work closely with the
DoD’s industry partners to ensure continuity of operations and mission effectiveness, while protecting the continuing vitality of the Defense Industrial Base that is so critical to the country’s national security.

Obtaining Relief
As the memorandum makes clear, contractors affected by COVID-19 should prepare to seek relief. This process includes assessing the cost and performance impact of the virus, documenting that impact, identifying the contract provisions and legal authority supporting remedies, putting together requests for equitable adjustment and, if necessary, termination for convenience proposals. In the spirit of the memorandum, contracting officers should be expected to work with contractors to mitigate the consequences of this unprecedented challenge.

Please contact Ross Crown at RCrown@lewisroca.com, or your Lewis Roca Rothgerber Christie attorney for assistance at any time.

This material has been prepared by Lewis Roca Rothgerber Christie LLP for informational purposes only and is not legal advice. Specific issues dealing with COVID-19 are fluid and this alert is intended to provide information as it is currently available. Readers should not act upon any information without seeking professional legal advice. Any communication you may have with a Lewis Roca Rothgerber Christie LLP attorney, through this announcement or otherwise, should not be understood by you to be attorney-client communication unless and until you and the firm agree to enter into an attorney-client relationship.