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OMB Guidance Urges Flexibility in Management of Government Contracts During Pandemic - Practical Tips for Contractors

The COVID-19 epidemic is creating uncertainties for contractors performing government contracts due to, among other things, changes in facility access, new health rules, and an evolving situation.  In apparent response to industry concerns, the Office of Management and Budget ("OMB") issued Memorandum M-20-18, “Managing Federal Contract Performance Issues Associated with the Novel Coronavirus (Covid-19)” dated March 20, 2020.  OMB states that the purpose of the memorandum is to identify steps to help ensure contractor health and safety while maintaining continued contract performance in support of agency missions consistent with precautions issued by the Centers for Disease Control and Prevention (CDC).

OMB advises agencies to:

  • Work with contractors to maximize telework for contractor employees;
  • Exercise flexibility in providing extensions to performance dates;
  • Consider whether to keep skilled professionals or key personnel in a mobile ready state;
  • Consider whether contracts that possess capabilities such as security, logistics, or other functions may be retooled for pandemic response within the scope of the contract;
  • Leverage special emergency procurement authorities including increases to the micro-purchase and simplified acquisition thresholds.

OMB also encourages agencies to use "special emergency procurement authorities"  authorized by the President's emergency declaration, which include "increases to the micro-purchase threshold, the simplified acquisition threshold, and the threshold for using simplified procedures for certain commercial items, all of which are designed to reduce friction for contractors, especially small businesses, and the government and enable more rapid response to the many pressing demands agencies face."

OMB’s memorandum contains a list of Frequently Asked Questions (FAQs).  OMB advises the agencies that contracts provide for excusable delays and encourages contracting officers to discuss performance issues with their contractors.  If continued performance is not feasible on a delayed basis and agencies need to reprocure, OMB advises that agencies should exercise termination for convenience with no negative impact on contractor performance ratings.  OMB states: “Agencies are encouraged to be as flexible as possible in finding solutions.” 

OMB also advises that “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.”  OMB cites to FAR 31.201-3 and states the standard of cost reasonableness as: “what a prudent person would do under the circumstances prevailing at the time the decision was made to incur the cost.”  OMB notes that relevant facts regarding cost reasonableness include whether contractor actions are consistent with CDC guidance and whether the contractor discussed appropriate actions with the contracting officer.

Contractors should consider the OMB guidance against your particular situation and contract.  Changes in facility access could prevent contractor employees fromvperforming work if the work requires access to a secure facility, for example.  In that case, the OMB guidance contemplates keeping those employees mobilized if they are "national security professionals and skilled scientists who can assist in the response."  The OMB guidance also permits agencies to repurpose "contracts that possess capabilities for addressing impending requirements such as security, logistics, or other function" for pandemic response.  The guidance is clearly intended to encourage agencies to be flexible during the national emergency and promote adherence to CDC guidance. 

Practical Tips for Contractors

From a practical perspective, what should a contractor do?  We suggest that contractors consider the following practical steps:

  1. Keep your employees safe. Follow the directions issued by the Centers for Disease Control and Prevention.
  1. Communicate with your contracting officer frequently concerning performance issues relating to coronavirus, and the manner in which the company intends to address those issues.
  1. Recall that your contracts contain excusable delay provisions that include epidemics as a reason for an excusable delay in contract performance. If delayed in performance, notify the contracting officer to inform him/her of the circumstances concerning the delay.  Cite to the OMB Guidance for support if requesting an enlargement to the delivery schedule.
  1. Do not assume that increased costs of performance due to coronavirus are unallowable. Increased costs resulting from contractor actions to address the coronavirus environment may very well be reasonable and allowable costs.  For example, labor idled by the current environment may be allowable.  Extraordinary leave, depending on the circumstances, may be allowable.  The cost of cleaning work areas may also be allowable.
  1. Do not assume that increased costs of performance due to coronavirus must be accounted for as indirect costs. Whether such costs are direct or indirect requires an analysis of the costs and their relationship to contracts. 
  1. For incrementally funded contracts, track your costs incurred and anticipated to be incurred against funding in accordance with the Limitation of Cost and Limitation of Funds clauses, FAR 52.232-20, -22. Indirect rates will likely increase and expend funding at an accelerated pace.
  1. Document the company’s decision-making process so that, when the inevitable audits arise, the company can demonstrate the reasonableness of its actions and the allowability of its costs.

Smith Pachter McWhorter is continuing to monitor developments arising from the national emergency and will provide additional information as warranted. 

If you have any questions, please contact:

Stephen D. Knight

Edmund M. Amorosi 

Michael T. Gwinn