By Shiva Hamidinia

July 7, 2020

Construction and many other contractors who cannot telework may be receiving stop-work orders or facing other unique challenges on their government contracts in the face of COVID-19.  Impacts may be exacerbated for personnel working in the field who may not be receiving guidance from the government due to unavailability of their Contracting Officers (CO) or Contracting Officer Representatives (COR).

An Associated General Contractors of America Association’s (AGC) survey found that although the Paycheck Protection Program (PPP) has allowed construction firms to add and retain employees despite cancelation of projects, the loan program “will cover only a limited part of company expenses and is not enough to offset the huge drop in projects.”  ENR recently reported that of 817 AGC members surveyed, sixty-seven percent had at least one project canceled or delayed.  https://www.enr.com/articles/49375-agc-procore-provide-insights-about-loss-of-975000-construction-jobs-northeast-hardest-hit

There are several avenues of relief in the FAR that contractors and subcontractors (if these clauses have been flowed down) can look to for relief:

The Suspension of Work Clause:

The Suspension of Work Clause is a mandatory FAR clauses required for fixed-price construction and architect-engineer contracts.  So, if your construction or architect-engineer contract doesn’t expressly include this clause, it may be read into your contract pursuant to the Christian doctrine (G. L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963)). This clause also may apply to subcontracts that have flowed down or incorporated in full the prime contract requirements.  A contractor may invoke the clause even if the government has not issued a formal “suspension order.”  In cases where a contractor is forced to cease work or interrupt their work as a result of the government’s actions or inactions, that conduct may be treated as a “constructive suspension,” affording the contractor the same rights under the clause.  The four-part test for recovery under the Suspension of Work Clause is:

  • the resulting delay was for an unreasonable period of time;
  • the delay was proximately caused by the government’s actions;
  • the delay resulted in some injury to the contractor; and
  • there is no delay concurrent with the suspension that is the fault of the contractor.

Notice is required for both constructive and directed suspensions.  For directed suspensions, a claim, in a sum certain, must be asserted in writing “as soon as practicable” after the suspension, delay, or interruption, but not later than the date of final payment under the contract.  In the case of a constructive suspension, the notice requirement has a quicker turn-around time.  A contractor must submit its notice in writing of its claim for added costs incurred within 20 days from the date that the work is suspended, delayed, or interrupted for an unreasonable period of time.  Constructive suspensions can only claim damages for suspensions, delays, or interruptions that were prolonged for an “unreasonable period of time.”  The Suspension of Work Clause specifically excludes profit; therefore, profit cannot be claimed as a part of the contractor’s damages.

The Stop-Work Order Clause:

Unlike the Suspension of Work clause, the Stop-Work Order Clause is discretionary and will not be read into a prime contract that does not expressly state it.  The Stop-Work Order Clause also requires written notice of any claim to be submitted to the CO within 30 days of the work stoppage.  The Stop-Work Order clause requires the CO to make an equitable adjustment in the delivery schedule or contract price, or both, if the stop-work order results in an increase in the time or costs of the contractor’s performance the contract.

Profit is not excluded under the Stop-Work Order Clause and can be included as a part of the contractor’s damages.

Changes Clause:

FAR 52.243-1(b) requires the Contracting Officer to make an equitable adjustment in the contract price and modify the contract when a change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under the contract. FAR 52.243-1(c) requires written notice to the CO of entitlement to a price adjustment under this clause within 30 days from the date of receipt of a written/directed order.  The government’s order may come to the contractor formally, through a proposed or unilateral modification to the contract, or informally, through actions or directions that constructively change the contract.  Contractors should make their best effort to document in writing their communications with the CO and furnish notice of a claim to adjust the contract price or time by no later than 30 days from when they learn of the change.

Excusable Delay/Force Majeure Clauses:

FAR 52.249-14(a) excuses a contractor, except for defaults of subcontractors, for failing to perform if the failure “arises from causes beyond the control and without the fault or negligence of the Contractor.”  Included in the clause are specific examples, including “acts of God”; “acts of the Government in either its sovereign or contractual capacity”; “epidemics”; “quarantine restrictions”; and “freight embargoes.”  A contractor cannot be terminated for default if it is failing to meet its performance deliverables or deadlines as a result of excusable delays.  The contractor should notify their CO within 30 days of the need to extend its performance period or deliverable deadlines, or contract price, as a result of excusable delays per the changes clause, FAR 52.243.  FAR 52.212-4(f) also provides similar force majeure exceptions to contract performance deadlines.  A contractor is required to notify their CO in writing “as soon as it is reasonably possible” after the commencement of any excusable delay, detailing the delay and must try to remedy the delay with “all reasonable dispatch.” Once the delay-causing occurrence has ceased, the contractor then must “promptly” give written notice to the contracting officer of the cessation.

Conclusion

Contractors are advised to review their contracts to see which clauses are incorporated and provide prompt notice to their COs of any price or time impacts to their contracts as a result of COVID-19. Only the CO is authorized to make contract modifications. Therefore, changes requested by other government officials should be promptly reported to the CO, with a request for direction in writing.  Contractors should track all supporting costs and documentation of changes.  The best practice is to open new cost accounting codes assigned to track the actual costs incurred as a result of contract modifications.  This will make it easier to later quantify costs to support requests for equitable adjustment or claims.

COs should be encouraged to issue a modification to the contract reflecting the negotiated adjustment in contract price (or new CLIN) to pay the contractor’s employees to remain on standby during COVID-19 restrictions to the worksite.  Invoicing to the government should continue on a regular basis, including invoicing the agreed rates for the “standby” workforce while work is suspended during COVID-19.  Efforts to mitigate losses, including reassigning employees to other projects, where possible, should be documented, filed, and furnished to the CO to support the contractor’s claim.  To the extent that any other relief, including tax relief under the Paycheck Protection Program, overlaps, a Contractor should offset those amounts gained from the total amount claimed from the government.