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The impact of COVID-19, the ensuing delays and changes in the work, protecting the contractor’s cash flow, and avoiding a default termination are now top of mind for every construction contractor. This article reviews delay principles, changes in the work, default and convenience terminations, illness of key personnel, stop work orders, and other considerations related to claims and defenses arising from COVID-19. Contractors must be alert to the practical aspects of entitlement and recovery under the clauses that come into play.

Working with the government’s procurement team to mitigate problems is a best practice and a valuable skill.

The excuses for late performance listed in the Default Clause are not excuses per se

The existence of an excusable event begins the analysis—the contractor should demonstrate the effect of the event on its performance. The FAR Default clause (52.249-10) is clear in enumerating “epidemics,” “acts of the Government in its sovereign or contractual capacity,” “acts of another Contractor in the performance of a contract with the Government,” and “quarantine restrictions” as causes excusing a contractor’s late performance. The cases, however, are equally clear in holding that these causes are not excusable causes per se. The ASBCA framed the issue in the Appeal of Ace Electronics Associates, Inc. [1] where it reviewed an appeal of a default termination arising from an asserted flu epidemic:

Although listed in the Default clause as one of several causes of excusable delay, such enumeration does not make the occurrence of an epidemic an excusable cause per se. Illness occasioned by the onset of a flu epidemic is in general an excusable cause for delay provided it can be shown that performance was in fact delayed by reason of such epidemic. It is incumbent upon appellant to establish not only the existence of an excusable cause for delay but also that such cause actually contributed materially to such delay as well as the actual extent of the delay so caused.[2]

The burden to prove the basis for the default rests with the government while the burden to demonstrate the excuse rests firmly with the contractor.[3] The boards and courts sometime state the elements of proof in different ways. Put briefly, however, in order to avoid a default termination, the contractor must show that its performance was in fact delayed by the epidemic without its own fault or negligence.[4] For construction contractors the excusable delay is normally addressed by a time impact analysis relying on the critical path schedule method of review. Contractors should not overlook the delays of separate prime contractors furnishing work or materials to incorporate into their work because the government is responsible for their delays.[5]

Sole delay or concurrent delays

Although the elements are phrased in different terms, the non-construction-related BCA decisions sometimes suggest the epidemic or other excuse must be the sole cause of the delay.[6] This rule may be appropriately circumscribed to non-construction contracts. In the context of a construction delay claim, concurrent delays (for our purposes defined as simultaneous delays, one caused by the contractor and one caused by the government) will suffice to entitle the contractor to a non-compensable extension of the contract time and remission of the government’s liquidated damages.[7] And that alone will be enough to overcome the termination for default due to delays in delivery. If there are no concurrent delays the contractor is entitled to a compensable extension of time assuming the contractor’s performance continues.

Entitlement under the Changes clause or the Suspension of Work clause

Sometimes in the context of a delay claim, a question arises as to which FAR clause should serve as the basis for the contractor’s claim for entitlement. Scope of work changes should be addressed by the Changes clause.  If the epidemic, the government’s actions in response to the epidemic, delays of other prime contractors, or a quarantine restriction results in an express or a constructive change in the work, the contractor should base the claim on the Changes clause. In situations where there are scope changes that result in delay, it is well settled that the cost of delays arising from the change are recoverable under the Changes clause and not the Suspension of Work clause. This distinction is important because delay claims arising under the Suspension of Work clause do not allow the contractor to recover its profit while the Changes clause does not preclude recovery of profit.

Waiver of the government’s right to terminate

COVID-19 has created a period of uncertain action. While the uncertainty exists, the government may create a period of forbearance. Under certain fact patterns, this may amount to a waiver of the government’s right to terminate the contractor’s performance.[8] In Ace Electronics,[9] the ASBCA noted, it “appears well settled” that a contract remains in force after the default (breach) until the government elects to terminate it. The analysis depends largely on the contractor’s conduct in “vigorously and actively proceeding with efforts to perform” and when the government’s “conduct and actions of its agents, encourages and induces the contractor to continue with performance and to incur further expense in connection with such performance.”[10] In fact, in Ace Electronics, the Board determined the government’s actions “induced appellant to continue with its preproduction testing program, thus manifested a willingness to permit continued performance, and thereby waived the requirement for their delivery in accordance with the original contract schedule.”[11] In so doing, the Board converted a termination for default into a termination for the convenience of the government.[12]

Illness of key personnel

COVID-19 illness and quarantine restrictions may limit the work of the contractor’s key personnel. However, proving excusable delay due to the illness of key personnel can prove to be a challenge. Merely pointing to the illness of several key employees will not suffice.[13] The guidance from the decisions indicates the contractor must link the key personnel to actual duties others in the organization could not perform—particularly if the contractor is a corporation and not a small business.

[T]he employment of sufficient qualified personnel to perform a contract, and to provide adequate supervision, is the contractor’s responsibility. . . . [W]hile the unforeseen loss of an indispensable employee through illness, resignation, or disappearance does not relieve a contractor from the responsibility of carrying on its contract, under appropriate circumstances such loss may provide the basis for an appropriate extension of time for performance.[14]

The contractor should be prepared to point to facts indicating the ill or quarantined personnel were key to its performance, including, should it exist, contract language identifying those personnel as “Key Personnel.” Contractors should be fully prepared to explain the key employee’s role in performing the contract, why others could not immediately step in to fulfill the open role, and should link the period of absence to actual delays of performance. Even if there are others in the organization that can fulfill the role of the ill key person, contractors should not overlook a claim for the replacement’s reasonable ramp-up or learning curve period which may serve to excuse a portion of the delay or result in reimbursable costs if the contractor seeks the adjustment under the Changes clause.

The Prevention Doctrine and mitigation

“A party may not use the non-performance of a condition precedent when that party is responsible for the non-performance of the condition.”[15] Contractors should be proactive in mitigating delays and implementing mitigation measures such as insisting that subcontractors protect sources of supply or arrange for alternative sources of supply not subject to shipping or manufacturing problems arising from quarantine restrictions or acts of the government precluding delivery.[16]

Finally, consider the situation where a contractor or subcontractor delayed purchasing materials (and now they are unavailable), contractors or subcontractors who waited too long to apply for trade permits (if applicable to the government contract), or delayed in preparing RFIs or submittals for review and submission before the workplace was shutdown (precluding or delaying review). Some delay experts may assign delay to the contractor in failing to take timely action prior to the onset of the epidemic. These potential sequential or concurrent causes of delay should be vetted, analyzed and assigned appropriately.

Economic hardship may not translate to commercial impracticability or an excuse

In the context of a termination for default, contractors asserting a defense based on commercial impracticability due to the increased costs of alternative sources of supply may be faced with a high burden of proof. In Jennie-O Foods, Inc.,[17] the claims court held that diseases reaching epidemic proportions at two of Jennie-O’s supplier farms, resulting in the lack of supply, did not excuse Jennie-O’s default.

The commercial impracticability standard can be easily abused; thus this court has not applied it with frequency or enthusiasm. It is not invoked merely because costs have become more expensive than originally contemplated.[18]

In order to rely on this excuse, the contractor may have to demonstrate that it exhausted all alternative sources of supply.[19] A key factor is demonstrating “that all means of performance are commercially senseless.”[20] This is not a light undertaking. That said, the Jennie-O Court seized on language in Mitchell Canneries[21] to describe a more practical approach:

Thus, when a contractor complains that it is unable to obtain an adequate supply of a particular contractual commodity, it must show that the product was unavailable within the boundaries of a reasonable area in order to have a creditable excuse.[22]

In addition, BCAs have identified other tests to demonstrate commercial impracticability, such as, when the costs of an item is “so great that buyers could not be found who would be willing to pay a price consisting of such costs plus a reasonable profit.”[23]

Actions and time frames under the clauses in play with COVID-19

In light of the COVID-19 epidemic and its impact on the prosecution of the work, the Contracting Officer has several options:

  • Order a change in the scope of the work affected by quarantine or shipping restrictions to substitute readily available materials and products in order to proceed in light of the epidemic
  • Terminate all or part of the contract for the convenience of the government
  • Issue a stop work order
  • Declare a default and terminate the contractor’s right to proceed with all or a separable part of the work

This section addresses key time frames, actions and considerations arising from those actions.

Changes in the work

Under the standard Changes clauses, the government is allowed wide latitude and a substantial amount of discretion to order additive or deductive changes. Because of COVID-19-related problems, the government could change the design to use products or materials not subject to any restrictions or affected by quarantine actions to include: changes “[i]n the specifications,” changes “[i]n the manner or method of performance,” changes [i]n Government-furnished property or services,” or “[d]irecting acceleration in the performance of the work.”[24] If the order comes as an express “written order designated or indicated to be a change order” the contractor should notify the government in writing of any cost or schedule impact within thirty days of receipt of the order. With the exception of the signature certifying a CDA Claim, email notice will suffice.[25]

If the change is implemented in the nature of a “clarification” in the form of a written or oral “direction, instruction, interpretation, or determination” not identified as a Change Order, the government’s mindset may be that it is simply clarifying the existing obligations of the contractor and not implementing a change in the scope. These types of constructive changes are addressed under 52.243-4(b), and in such cases, the contractor should write back to the Contracting Officer promptly indicating that the “clarification” (order) amounts to a change order under the clause. The contractor has the same thirty-day period to perfect its right to an equitable adjustment, measured from the time it writes to the Contracting Officer converting the clarification into a change order.[26] With respect to constructive changes, there is a twenty-day look back period purporting to limit the contractor’s right to recover costs to the twenty-days immediately prior to the notice of the right to an equitable adjustment.[27] The twenty-day look back period does not apply to constructive change claims based on defective specifications.

Stop Work Order

“[T]he Contracting Officer may, at any time, by written order to the Contractor, require the Contractor to stop all, or any part, of the work called for by this contract for a period of 90 days after the order is delivered to the Contractor, and for any further period to which the parties may agree.”[28] In such cases and upon receipt of the order, the contractor is required to comply with its terms and take all reasonable steps to mitigate costs allocable to the work covered by the order during the period of the work stoppage.

Before the expiration of the ninety-day period, or within any extension agreed by the contractor, the Contracting Officer is required to lift the stop work order or terminate the contract for convenience or default.[29]

Assuming the government cancels the stop work order and the contractor resumes the work, the government is obligated to make an equitable adjustment in the time for delivery in the contract price.[30] Time extension claims should be addressed by an analysis of the critical path of the construction activities. If only noncritical parts of the work are subject to the partial stop work order, it may not give rise to a time extension for the prime contractor but it may give rise to a claim for extended performance costs of a subcontractor. The contractor should segregate costs associated with the stop work order, to include, demobilization and make-safe work, mitigation expenses, and remobilization costs.

The contractor must assert its right to the equitable adjustment within 30 days after the end of the work stoppage unless the Contracting Officer decides to act on a subsequent submission. This triggers the Contracting Officer’s obligation to review the issue and make an adjustment in the contract time and cost of performance.[31] If the stop work order is not canceled and the work is terminated for the convenience of the government, the contractor is entitled to reasonable costs resulting from the stop work order in its termination settlement proposal.[32] In addition, if the stop work order is not canceled and the work is terminated for default, the contractor is still entitled to an equitable adjustment for reasonable costs resulting from the stop work order.[33]

Suspension of Work

The Contracting Officer may “order the Contractor, in writing, to suspend, delay, or interrupt all or any part of the work of the contract for a period of time that the Contracting Officer determines appropriate for the convenience of the Government.”[34] Constructive suspension occurs when the Contracting Officer does not issue such an order affirmatively suspending the work, but some other action or failure to act by the Contracting Officer results in a suspension, delay or interruption for an unreasonable period.  In such cases, the contractor is entitled to an increase in the cost of performance of the contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption.

When its work is suspended, the contractor should give notice promptly because subpart (c) of the clause purports to limit the recovery of costs incurred more than 20 days before the contractor notifies the Contracting Officer of the act or failure to act causing the suspension (delay).[35]

Termination for Convenience of the Government.

If the Contracting Officer determines that termination of the contract is in the government’s interest, the government may terminate the contract for its own convenience through delivery of a written “Notice of Termination” describing the extent of the termination and the effective date.[36] This sets up a whole host of actions including terminating subcontracts; settling outstanding liabilities and subcontractor termination settlement proposals; delivering completed work items and parts; and if the termination is partial, completing performance of the work that has not been terminated.[37] Afterward, the contractor submits its final termination settlement proposal, which must be submitted within one year unless extended by the Contracting Officer.[38]

Default

When the Contracting Officer believes the contractor has refused or failed to prosecute the work or any separable part “with the diligence that will ensure its completion within the time specified in [the] contract” as it may be extended, or if the contractor failed to complete the work within the time required by the contract the government may terminate the contract for default.[39] That said, the Contracting Officer shall not terminate the contract nor charge the contractor with damages, when the contractor’s delay is excused. Thus, the Contracting Officer may not terminate the contract if the delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor” including . . . “(ii) acts of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, . . . (vi) epidemics, [and] (vii) quarantine restrictions . . . .”[40] Remember that the government is responsible for the impact of COVID-19 on separate prime contractors.[41]

When a delay occurs, it is important that the contractor notifies the Contracting Officer in writing of the cause of the delay “within 10 days from the beginning of any delay (unless extended by the Contracting Officer).”[42] The Contracting Officer then makes findings of fact to determine whether a time extension is warranted.[43] Those findings of fact are “final and conclusive on the parties, but subject to appeal under the Disputes clause.”[44] If the Contracting Officer’s determination of default was in error, the termination for default is converted to a termination for convenience of the government.[45]

While seemingly straightforward, implementing the appropriate claims and defenses requires careful thought and analysis.

 

[1] Appeal of Ace Electronics Associates, Inc., 67-2 BCA P 6456 (1967) ASBCA Nos. 11781 and 11496.

[2] Id.

[3]Id.; In the Matter of the Appeal of Asa L. Shipman’s Sons, LTD, GPOBCA No. 06-95 (1995), 1995 WL 818784; Appeal of Crawford Electric, 74-2 BCA P 10660, ASBCA No 17565, 1974 WL 1972; Appeal of the Tommy Noblis Center, Inc. 89-3 BCA P 22112 (1989), GSA Nos. 9420-TD, 8988-TD;  Appeal of Emco Metal Mfg. Corp., 60-1 BCA P 2502 (1960), ASBCA No. 4983, 1960 WL 387.

[4] Appeal of Ace Electronics Associates, Inc., 67-2 BCA P 6456 (1967) ASBCA Nos. 11781 and 11496 (“It is incumbent upon appellant to establish not only the existence of an excusable cause for delay but also that such cause actually contributed materially to such delay as well as the actual extent of the delay so caused.”); In the Matter of the Appeal of ASA L. Shipman’s Sons, LTD.  GPOBCA No. 06-95 (1995), 1995 WL 818784. (. . . “the contractor’s burden of proof is four-fold: (1) to prove affirmatively that the delay was caused by or arose out of a situation which was beyond the contractor’s control and that it was not at fault or negligent; (2) to show that performance would have been timely but for the occurrence of the event which is claimed to excuse the delay; (3) to show that it took every reasonable precaution to avoid foreseeable causes for delay and to minimize their effect; and (4) to establish a precise period of time that performance was delayed by the causes alleged.”); Appeal of Crawford Electric, 74-2 BCA P 10660, ASBCA No 17565, 1974 WL 1972 (“ It was incumbent upon the appellant to establish not only the existence of this excusable cause of delay but also that it actually contributed materially to the performance delay.”).

[5] 52.249-10 (b)(1)(iii).

[6] Asa Shipman, supra, (“to show that performance would have been timely but for the occurrence of the event which is claimed to excuse the delay;” and “The essence of the ‘Ace Electronics’ test is the requirement that a defaulted contractor prove that an epidemic was the sole cause, not merely a contributing cause, of the performance delay” citing John Cibinic, Jr. & Ralph C. Nash, Jr., Administration of Government Contracts 3d ed., (The George Washington University, 1995), p. 567).

[7] Morganti National, Inc. v. U.S., 49 Fed. Cl. 110 (2001), aff’d, 36 Fed. Appx.  452 (Fed, Cir. 2002).

[8] Appeal of Ace Electronics Associates, Inc., 67-2 BCA P 6456 (1967) ASBCA Nos. 11781 and 11496.

[9] Id.

[10] Id. p. 7.

[11] Id., p. 8.

[12] Appeal of Bootz Manufacturing Company, Inc. 76-1 BCA P 11799, 1976 WL 2061.

(“The ACO, although failing to issue a formal modification, did allow the appellant to continue performance on the basis of a new and extended delivery schedule. The entire matter [of default] became moot upon the appellant’s completion of performance, apparently within the period of the informal extension.”)

[13] Appeal of Crawford Electric, 74-2 BCA P 10660, ASBCA No 17565, 1974 WL 1972; Appeal of Emco Metal Mfg. Corp., 60-1 BCA P 2502 (1960), ASBCA No. 4983, 1960 WL 387.

[14] Ace Electronics, supra, p. 7 (citing Lewis Construction Co., ASBCA No. 216 (1950), 4 CCF 61004; McCall Coal Co., Inc., ASBCA No. 1212 (1954); Alert Products, Inc., ASBCA No. 5620, 59-2 BCA 2422; Lome Electronics, Inc., ASBCA Nos. 8642 and 8707, 63 BCA 3833; SKG Corp., NASA BCA so, 64, 64 BCA 4303; Space Age Metals Technology, ASBCA Nos. 10255 and 10536, 65-2 BCA 5164).

[15] Appeal of General Injectables & Vaccines, Inc. 06-2 BCA P 33401 (2006) ASBCA No. 54930, Citing District of Columbia v. Camden Iron Works, 181 U.S. 452 (1901).

[16] Id. In General Injectables, GI retained subcontractor Chiron to deliver a flu vaccine. The contract specified Chiron as the manufacturer. Chiron’s vaccine became contaminated by bacteria and was not able to be imported to the United States. Because Chiron caused the condition (lack of importability), there was no excuse and the Contractor was responsible for the Subcontractor’s failure (Upheld, General Injectables & Vaccines, Inc., 519 f3d 1360). Rehearing denied, 527 F.3d 1375 (citing Hutton Contracting Co. v. City of Coffeyville, 487 F.3d 772, 779 (10th Cir.2007) (“The most reasonable interpretation of ‘fault of [Hutton]’ in the force-majeure clause is ‘fault of Hutton and those to whom it delegates its responsibilities under the contract.’ ”); In re Mary Rogers Manley d/b/a Mary Rogers Real Estate, HUDBCA No. 76–27, 78–2 B.C.A. (CCH) ¶ 13,519, at 66248, 1978 WL 2465 (Oct. 25, 1978) (“The principle is well established that the prime contractor is responsible for unexcused failures of performance by its subcontractors.”); In re Pelton Water Wheel Co., IBCA 16, 1955 WL 29 (Oct. 12, 1955) (“Delays of a subcontractor do not excuse the prime contractor from performing on time unless the subcontractor’s difficulty itself results from an excusable cause under the contract.”).

[17] Jennie-O Foods, Inc. v. U.S., 217 Ct.Cl. 314 (1978).

[18] Jennie-O Foods, Inc. v. U.S., 217 Ct.Cl. 314 (1978) citing Natus Corp. v. United States, supra, 371 F.2d at 458, 178 Ct.Cl. at 13; Anthony P. Miller, Inc. v. United States, 161 Ct.Cl. 455, cert. denied, 375 U.S. 879, 84 S.Ct. 149, 11 L.Ed.2d 111 (1963). See also Whitlock Corp. v. United States, 159 F.Supp. 602, 606, 141 Ct.Cl. 758, 763, cert. denied, 358 U.S. 815, 79 S.Ct. 23, 3 L.Ed.2d 58 (1958); Edwards v. United States, 80 Ct.Cl. 118, 131 (1934).

[19] Jennie-O, supra, p. 329.

[20] Id.

[21] Mitchell Canneries v. United States, 77 F.Supp. 498, 111 Ct.Cl. 228 (1948).

[22] Jennie-O, supra, pp. 328-29 (citing Mitchel Canneries).

[23] See also, Appeal of Brazier Lumber Co., 76-2 BCA P 12207 (1976).

[24] 52.243-4 (a).

[25] FAR 2.101; Appeal of NileCo General Contracting LLC, 17-1 BCA P 36862, ASBCA No. 60912, 2017 Westlaw 4678507.

[26] 52.243(e).

[27] 52.243(d).

[28] 52.242-15(a).

[29] 52.242-15 (a)(1) and (2).

[30] 52.242-15 (b)(1)-(3).

[31] 52.242-15(b)(2).

[32] 52.242-15(c).

[33] 52.242-15(d).

[34] 52.242-14(a).

[35] 52.242-14(c).

[36] 52.249-2(a).

[37] 52.249-2((b)(1)-(9).

[38] 52.249(e).

[39] 52.249-10(a).

[40] 52.249-10(b)(1).

[41] 52.249-10(b)(1)(iii) (“acts of another Contractor in the performance of a contract with the Government”).

[42] 52.249-10(b)(2).

[43] Id.

[44] Id.

[45] 52.249-10(c).