In an attempt to mitigate the unfolding COVID-19 public health emergency, state and local governments have started issuing “lockdown” or “stay-at-home” orders. Generally, the state lockdown orders have directed that all businesses utilize telecommuting or work-from-home procedures to the maximum extent practicable. Where telework is impractical, some states are only permitting essential businesses to remain open. Companies with operations in these jurisdictions must understand the scope of applicable restrictions and whether their operations are essential and should continue during the lockdown. The orders have generally included lists of specific categories of businesses deemed essential (e.g., healthcare, telecommunications, public safety and security, sanitation, logistics, financial, grocery stores, and national defense, among others). Many, but not all, of the states have specifically carved out businesses in the defense industrial base and/or “federal critical infrastructure sectors” as defined by the Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (CISA). Some states have also established application procedures to be designated as essential for other entities not otherwise covered.
These restrictions may delay or even prevent government contractors from fulfilling their contractual obligations unless they are deemed essential or are authorized for remote work, a circumstance that the Office of Management and Budget (OMB) has begun to address.
On Fri., March 20, 2020, OMB issued a memorandum to the heads of executive departments and agencies to address the management of federal contract performance issues associated with COVID-19. The memo urges agencies to be flexible in allowing contractors to telework and asks agencies to allow extensions for those contracts that cannot support flexible work arrangements. The memo also reminds agencies of the emergency procurement authorities that are available under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), including increasing the micro-purchase and simplified acquisition thresholds to allow for quicker procurements. Finally, the memo includes responses to “Frequently Asked Questions” about teleworking, mitigating the impact of COVID-19 on contractors, contractor requests for equitable adjustment (REAs), increasing flexibility in procurement activities, and tracking contract spending related to COVID-19.
The OMB memo also highlights a number of contract clauses which may provide an excuse for nonperformance and encourages agencies to consider granting REAs if the costs are allowable and reasonable. Importantly for certain service contractors, the memo suggests that agencies should consider REAs for idle labor costs when “it is beneficial to keep skilled professionals or key personnel in a mobile ready state for activities the agency deems critical to national security or other high priorities (e.g., national security professionals, skilled scientists).” OMB’s memo provides helpful guidance for contracting officers and federal contractors; contractors may want to share the memo with their contracting officers when they are seeking guidance about how the COVID-19 crisis will impact their contracts.
In addition to discussing the OMB memo with their contracting officers, government contractors should also be proactive in preparing to continue operations under lockdown conditions. Contractors should immediately begin evaluating all of their operations across the United States to determine whether they are considered essential. Where they have operations in a state that has issued a lockdown order that does not clearly cover those operations, contractors should follow instructions to apply for essential status immediately. If they have operations in a state that has not yet issued a lockdown order, they should assume that one will be issued and be prepared to apply for essential status, if necessary.
In addition, contractors should communicate with their contracting officers regarding telework where practicable even if not currently permitted under the contract. If contractor employees are unable to telework, contractors should seek specific written direction from their contracting officers stating that their work and employees are exempted from the applicable lockdown restrictions, even if the business is explicitly covered.
Although the new “lockdown” or “stay-at-home” orders place significant restrictions on or mandate the closure of non-essential businesses, the new guidance out of OMB should be encouraging to government contractors for many reasons. First, the widespread guidance should help standardize agencies’ responses to performance issues arising out of COVID-19. Second, the memo makes clear that the burden of the impacts of COVID-19 should not fall on the contractor. Third, by taking advantage of flexible work arrangements, government contractors can continue to perform and potentially mitigate the need for future requests for extensions or REAs.
For more information on how to protect your interests during these uncertain times, contact OFP’s Corporate Group.