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