By: Joneis M. Phan, Of Counsel and Sarah K. Bloom, Associate, Watt, Tieder, Hoffar, & Fitzgerald, LLP.
Federal contractors have faced unprecedented challenges performing during the COVID-19 pandemic. Additional costs have included delays and inefficiencies, site closures, quarantines, unavailability of supplies and materials, and full shutdowns of subcontractor operations. For contractors performing under fixed price contracts, the cost impact of COVID-19 was likely severe.
The Federal Acquisition Regulation (“FAR”) recognizes “epidemics” as a force majeure event that may excuse non-performance. Many federal contracts include some version of the Default clause, which prevents the government from terminating a contractor for default due to impacts of force majeure events that are beyond a contractor’s control, such as an epidemic. See, e.g., FAR 52.249-10. See also Pernix Serka Joint Venture v. Dep’t of State, CBCA No. 5683 (Apr. 20. 2020). The Default clause, however, operates as a shield from liability, not a sword authorizing recovery. Contractors are now left wondering whether any avenue exists to recover additional costs incurred after performing in the face of the COVID-19 pandemic.
In response to a likely influx of claims and requests for equitable adjustment due to COVID-19 impacts, the federal government largely took the position that contractors were entitled to extensions of time, but not to additional costs. This article explores the avenues that may be available for contractors to recover costs for performing during a force majeure event that would otherwise be non-compensable.
Examine Your Contracts For Explicit Remedies Related To “Mission Essential” Services
While the FAR does not address “mission essential services,” clauses required by the various agency FAR supplements may explicitly address performance during emergencies or crisis situations.
Contractors furnishing services to the Department of Defense (DoD) may have an explicit remedy. DFARS 252.237-7023, “Continuation of Essential Contractor Services,” was promulgated in response to the 2009 H1N1 influenza pandemic. The clause governs the performance of essential contractor services that support “mission-essential functions” and authorizes contractors to recover costs associated with continuing performance in a pandemic or emergency environment. Mission essential functions are those activities that must be performed under all circumstances to achieve DoD component missions or responsibilities, as determined by the appropriate functional commander or civilian equivalent. Failure to perform or sustain these functions would significantly affect DoD’s ability to provide vital services or exercise authority, direction, and control. See 48 C.F.R. § 252.237-7023.
Contracting Officers must include the Continuation of Essential Contractor Services clause in all solicitations and contracts that are in support of mission-essential functions. See 48 C.F.R.
§ 252.237.7603. In other words, this clause notifies prospective contractors that they will be expected to continue performing during disasters and events which might otherwise justify suspending work. DoD promulgated the clause specifically to ensure continuity of contractor services during the H1N1 pandemic and, therefore, a worldwide pandemic is anticipated by the clause. The clause requires contractors to develop and maintain a Mission-Essential Services Plan, which the government can require the contractor to execute in appropriate circumstances.
Thus, some DoD contracts contain an explicit remedy granting clause authorizing monetary relief for additional costs incurred in performing during an emergency event. Even contractors whose contracts do not contain DFARS 252.237-7023 may, however, be able to support claims for monetary relief.
The Christian Doctrine May Incorporate Remedies By Operation Of Law
As discussed above, the designation of a contract (or a portion thereof) as “mission essential” is generally effectuated by the Contracting Officer’s inclusion of DFARS 252.237-7023 in the solicitation or contract at issue. During the COVID-19 pandemic, however, the DoD’s expectation that contractors continue performing appeared to extend beyond contracts that were explicitly designated as “mission essential.”
On March 5, 2020, DoD issued a memo to all Services reminding them to incorporate DFARS 252.237-7023 into their contracts for mission essential services. In its memo, DoD recognized that “Today’s changing environment has increased the need for continuity of operations . . . . Threats to continuity of operations include natural disasters, severe/inclement weather, pandemic, and a variety of other crisis situations.”
Less than a month later, on March 20, 2020, the DoD identified the Defense Industrial Base (“DIB”) as part of the “Essential Critical Infrastructure Workforce.” The memorandum asserted that the mission essential workforce included “individuals who support the essential products and services required to meet national security commitments to the Federal Government and the U.S. Military [including] aerospace; mechanical and software engineers; manufacturing/production workers; IT support; security staff; security personnel; intelligence support, aircraft and weapon systems mechanics and maintainers; suppliers of medical supplies and pharmaceuticals, and critical transportation.” (Emphasis added). The “mission essential” designation purportedly applied to “personnel working for companies, and their subcontractors, who perform under contract to the Department of Defense providing materials and services to the Department of Defense and government-owned/ contractor-operated and government-owned/government-operated facilities.” Upon issuing that designation, the DoD stated that contractors performing such services had a “special responsibility to maintain [their] normal work schedule[s]” in the face of the pandemic.
DoD’s broad definition of “mission essential” services may have swept in contractors and contracts that did not contain the mission essential DFARS clause. Nevertheless, an argument may exist that DFARS 252.237-7023 applies to such contracts by operation of law under the Christian doctrine.
Contracting Officers are required to include the Continuation of Essential Services clause (48 C.F.R. § 252.237-7023) in all solicitations and contracts that are in support of mission-essential functions. See 48 C.F.R. § 237.7603. Thus, the government’s conversion and treatment of previously non-essential contracts as now “essential,” may have triggered an obligation to incorporate DFARS 252.237-7023 into the contract as a mandatory clause.
Under the Christian Doctrine, mandatory clauses are read into government contracts by operation of law even when they are omitted from the contract. See G.L. Christian & Assocs. v. United States, 312 F.2d 418 (Ct. Cl.), cert. denied, 375 U.S. 954 (1963); see also Appeal of Transcontinental Cleaning Co., NASA BCA No. 1075-9, 78-1 BCA ¶ 13081(Where agency regulation mandated incorporation of Price Adjustment Clause, Christian doctrine applied and the contractor was entitled to reimbursement for increased costs); K-Con v. Secretary of Army, 908 F.3d 719 (Fed. Cir. 2019) (Christian doctrine applied to incorporate mandatory bond requirements into a contract; the contractor was responsible for costs of obtaining a bond).
No Court has analyzed whether the Continuation of Essential Services Clause is the type of clause that “express[es] a significant or deeply ingrained strand of public procurement policy” to which the Christian doctrine is applied. See Gen. Eng’g & Mach. Works v. O’Keefe, 991 F.2d 775, 779 (Fed. Cir. 1993) (Christian doctrine not applicable to all mandatory clauses). Several recent events, however – such as the 2009 H1N1 epidemic, the Ebola epidemic, and several lapses in federal agency appropriations – have brought the issue of mission-essential contractor services to the forefront.
Moreover, the Christian doctrine has been applied to clauses that appear far less significant. See id. (noting that the Christian doctrine has been applied to clauses requiring exhaustion of administrative remedies, implementing Buy American Act, and outlining pre-award negotiating procedures). Neither the Armed Services Board of Contract Appeals nor the Court of Federal Claims has addressed the clause in this context. Nevertheless, an argument could exist that the government’s designation of construction contracts as essential, combined with the regulatory and statutory mechanisms for establishing continuity of essential services in the event of a government shutdown, are significant enough to justify the application of the Christian doctrine.
Relief May Be Available Under A Constructive Change Theory
Even if the Government is reluctant to recognize DFARS 252.237-7023 as part of a Contract under the Christian doctrine, relief may be available under a theory of constructive change. As set forth above, Contracting Officers are required to include the Continuation of Essential Services clause in all solicitations and contracts that support mission-essential functions. See 48 C.F.R. § 237.7603. Treating a contract as one for mission-essential functions when the contract does not contain that clause may be viewed as a constructive change to the Contract.
By re-designating a Contract as “mission essential,” the government required continued performance in the face of a crisis that may otherwise have excused non-performance. This change to the Contract’s allocation of risk may justify the recovery of additional costs. Moreover, the costs of developing and implementing an Essential Contractor Services Plan, as required by the clause, may be allowable under the FAR. See DCAA Selected Areas of Costs Guidebook: FAR 31.205 Cost Principles, Chapter 13, Continuation of Essential Contractor Services (indicating that plan preparation, maintenance, and execution costs are allowable under FAR Part 31).
Contractors who were treated as “mission essential” despite the government’s failure to include DFARS 252.237-7023, or a similar clause, should consider opening a discussion with the government about the impacts of that treatment and should explore the government’s appetite for recognizing a change to the contract.
Moving Forward: Drafting Or Revisiting Your Mission Essential Services Plan
DFARS 252.237-7023 requires contractors to prepare a Mission Essential Services Plan, which explains how the contractor will continue performing during a crisis event. Even if a contract does not contain the mission essential clause, the government has demanded continued performance during a pandemic. Contractors preparing to bid on new solicitations should, therefore, devote some attention to preparing a Mission Essential Services Plan. Where the solicitation does contain the DFARS clause, contractors should devote substantial attention to their plan.
An effective Mission Essential Contractor Services Plan must provide clear and concise details for the agency to reasonably evaluate and accept the plan. In fact, agencies have downgraded proposals that fail to address the issues listed above in sufficient detail, and such decisions have been upheld in bid protests before the Government Accountability Office. See InnovaSystems Int’l, LLC, B- 417215, B- 417215.2, B- 417215.3, 2019 CPD ¶ 159 (April 3, 2019). Thus, going forward, agencies may devote more attention to the content of proposed Mission Essential Services Plans in evaluating proposals for future contracts.
Prospective contractors should carefully review solicitations for all requirements related to the Mission Essential Services Plan, and address any specific concerns identified by the agency in detail. At a minimum, such plans must address: (1) challenges associated with maintaining essential contractor services during an extended event, such as a pandemic that occurs in repeated waves; (2) the time lapse associated with the initiation of the acquisition of essential personnel and resources and their actual availability on site; (3) the components, processes, and requirements for the identification, training, and preparedness of personnel who can work from home; (4) any established alert and notification procedures for mobilizing identified “essential contractor service” personnel; and (5) the approach for communicating expectations to contractor employees regarding their roles and responsibilities during a crisis. DFARS 252.237-7024(b).
The plan should also address essential services that cannot be fully provided despite best efforts, costs for preparing the plan, and the costs for keeping the plan in place. Finally, the plan must consider and identify the procedures to maintain the continuity of services “for up to 30 days or until normal operations can be resumed.” DFARS 252.237-7023(b)(1).
Conclusion
Contractors seeking to understand how a force majeure event may impact their construction project should seek the advice of counsel. If you have questions on any matters related to drafting or enforcing an existing Mission Essential Services Plan, project delay, project suspension, or contractual rights to suspend or terminate, please contact Watt, Tieder, Hoffar & Fitzgerald LLP for assistance.
Watt Tieder is one of the largest construction boutique law firms in the United States, with a diverse and experienced team of attorneys representing many of the world’s leading corporations, developers and contractors on both domestic and international projects. We represent more than half of the Top 30 Engineering News Record contractors and most of the nation’s top sureties. With offices in six cities in the United States, the firm is a dynamic, mid-size boutique that provides knowledgeable and practical legal representation to the construction, surety, government contracts and bankruptcy industries world-wide.
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