By Robert Nichols and Adrian Wigston of Nichols Liu LLP and Mary Karen Wills of Berkeley Research Group

April 27, 2020

COVID-19 crisis is a “once in a lifetime” event that is having an enormous impact on USAID’s implementing partners (IPs).  This article describes how USAID’s Office of Acquisition and Assistance (OAA) can – and should – revise or remove ceilings on Negotiated Indirect Cost Rate Agreements (NICRAs) to ensure continuity of IP operations to support the agency’s mission.  These concepts apply equally for contracts, grants, and cooperative agreements.

Many IPs are seeing their direct billings decrease because of COVID-19 disruptions.  At the same time, their indirect costs are increasing due to workforce readiness issues, cost tracking initiatives, the need for additional oversight, monitoring, compliance with regulations, submission of REAs, etc.  The result is a dramatic increase in indirect rates.

USAID is paying COVID-19 costs for most cost-type awards.  However, those awards that contain rate ceilings leave much of these costs unpaid, risking the readiness of the IPs.  Certainly these events and costs were unforeseen and unforeseeable when the parties agreed to ceilings.

Fortunately, OAA can look to existing law, regulation, and guidance for support in relieving IPs from ceilings that will impede their ability to continue performing contracts – for the good of USAID’s mission.  Here are five such authorities on point.

  1. On March 20, 2020, the Office of Management and Budget (OMB) issued a memorandum to the heads of executive departments and agencies advising them to be “flexible” in dealing with contracting issues associated with COVID-19.  The memo included this Q&A:

How should agencies address requests for equitable adjustment associated with costs related to safety measures taken by contractors to protect their employees from COVID-19[?]

Requests for equitable adjustment should be considered on a case-by-case basis in accordance with existing agency practices, taking into account, among other factors, whether the requested costs would be allowable and reasonable to protect the health and safety of contract employees as part of the performance of the contract.  The standard for what is “reasonable,” according to FAR § 31.201-3, is what a prudent person would do under the circumstances prevailing at the time the decision was made to incur the cost . . . .

  1. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted by Congress and signed by the President on March 27, 2020.  Section 3610 of the CARES Act authorizes Government agencies to provide equitable adjustments to fixed-price contracts to compensate the contractor for maintaining a “ready” workforce.  This provision applies “without consideration,” so the contractor does not need to concede something of value in exchange for the reimbursement.
  2. On April 8, 2020, the Department of Defense (DoD) released a class deviation implementing Section 3610 of the CARES Act.  DoD emphasized the importance that its contractor workforces kept intact so they can be activated once the pandemic sufficiently passes.  DoD underscored this point: “[i]t is imperative that we support affected contractors, using the acquisition tools available to us, to ensure that, together, we remain a healthy, resilient, and responsive total force.”  In response to frequently asked questions (FAQ) to the class deviation, DOD defined this “ready state”  as a contractor’s ability to mobilize and resume performance in a timely manner.
  3. On April 24, 2020, USAID issued COVID-19 Implementing Partner Guidance Frequently Asked Questions.  One of the questions noted that COVID-19 is likely to disrupt contract performance unless ceiling rates are adjusted to deal with the new reality of COVID-19.  USAID responded, “[g]iven that ceiling rates are established on a case-by-case basis, any adjustments to such ceiling rates will also have to be made on a case-by-case basis by the CO/AO. USAID has established a [email protected] email box where partners can send NICRA-related questions and requests for adjustments to provisional rates within any ceilings.”
  4. Finally, while these first four authorities relate specifically to COVID-19, providing relief from contract provisions due to changed circumstances is hardly new.  FAR 15.407-3 allows Contracting Officers to revise forward pricing agreements such as ceilings when a changed condition invalidates the basis for the agreement.

These directives and guidance provide more than enough support for OAA to lift indirect rate ceilings for IPs due to impacts from COVID-19.  And there is support that such relief should apply “without consideration,” so contractors and NGOs do not need to concede something of value in exchange for the cap relief.  On this basis, we recommend that contractors and NGOs begin submitting requests for equitable adjustments to remove or revise indirect rate caps in their Federal awards.