With the recent and rapid spread of COVID-19 in the United States, it is only a matter of time before government contractors experience contract-performance delays — whether ordered by the government or not — that inevitably will have a significant financial impact. Accordingly, federal contractors should prepare now for COVID-19-related contract delays and be prepared to establish that such delays are compensable as well as excusable.
I. Compensable Delays
“A contractor’s ability to recover increased costs resulting from delays will depend upon the cause of the delay, the nature of its impact on the contractor, and the contractual provisions dealing with compensation for delays.” John Cibinic, Jr., et al., Administration of Government Contracts, Ch. 6, II. Compensable Delays (5th ed. 2006). Broadly speaking, there are two types of compensable delays: government-ordered suspensions and constructive suspensions.
A. Government-ordered suspensions
Government-ordered suspensions are generally covered by the following standard Federal Acquisition Regulation (FAR) clauses: FAR 52.242-14 (Suspension of Work) and FAR 52.242-15 (Stop-Work Order).
FAR 52.242-14 (Suspension of Work) states:
(a) The Contracting Officer may order the Contractor, in writing, to suspend, delay, or interrupt all or any part of the work of this contract for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.
(b) If the performance of all or any part of the work is, for an unreasonable period of time, suspended, delayed, or interrupted (1) by an act of the Contracting Officer in the administration of this contract, or (2) by the Contracting Officer’s failure to act within the time specified in this contract (or within a reasonable time if not specified), an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified in writing accordingly. However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent that performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an equitable adjustment is provided for or excluded under any other term or condition of this contract.
(c) A claim under this clause shall not be allowed (1) for any costs incurred more than 20 days before the Contractor shall have notified the Contracting Officer in writing of the act or failure to act involved (but this requirement shall not apply as to a claim resulting from a suspension order), and (2) unless the claim, in an amount stated, is asserted in writing as soon as practicable after the termination of the suspension, delay, or interruption, but not later than the date of final payment under the contract. (emphasis added)
FAR 52.242-15 (Stop-Work Order), in turn, states:
(a) The 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. The order shall be specifically identified as a stop-work order issued under this clause. Upon receipt of the order, the Contractor shall immediately comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. Within a period of 90 days after a stop-work order is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed, the Contracting Officer shall either—
(1) Cancel the stop-work order; or
(2) Terminate the work covered by the order as provided in the Default, or the Termination for Convenience of the Government, clause of this contract.
(b) If a stop-work order issued under this clause is canceled or the period of the order or any extension thereof expires, the Contractor shall resume work. The Contracting Officer shall make an equitable adjustment in the delivery schedule or contract price, or both, and the contract shall be modified, in writing, accordingly, if—
(1) The stop-work order results in an increase in the time required for, or in the Contractor’s cost properly allocable to, the performance of any part of this contract; and
(2) The Contractor asserts its right to the adjustment within 30 days after the end of the period of work stoppage; provided, that, if the Contracting Officer decides the facts justify the action, the Contracting Officer may receive and act upon a proposal submitted at any time before final payment under this contract.
(c) If a stop-work order is not canceled and the work covered by the order is terminated for the convenience of the Government, the Contracting Officer shall allow reasonable costs resulting from the stop-work order in arriving at the termination settlement.
(d) If a stop-work order is not canceled and the work covered by the order is terminated for default, the Contracting Officer shall allow, by equitable adjustment or otherwise, reasonable costs resulting from the stop-work order. (emphasis added)
Accordingly, federal contractors should be ready to timely assert requests for equitable adjustments (REAs) and demonstrate the reasonable cost impact on the contractor (ideally using actual cost data) resulting from any COVID-19-related, government-ordered suspension or delay.
B. Constructive suspensions
“Constructive suspensions occur when work is stopped absent an express order by the contracting officer and the government is found to be responsible for the work stoppage.” John Cibinic, Jr., et al., Administration of Government Contracts, Ch. 6, II. Compensable Delays (5th ed. 2006). When a contractor’s performance is effectively suspended, but the government does not formally direct suspension of performance, “the law considers that done which ought to have been done” and characterizes the suspension to be a “constructive suspension.” Merritt-Chapman & Scott Corp. v. United States, 429 F.2d 431, 443 (Ct. Cl. 1970).
The requirements for a constructive suspension claim are similar to those required for a government-directed suspension and are often stated as a four-part test: “(1) contract performance was delayed; (2) the government directly caused the delay; (3) the delay was for an unreasonable period of time; and (4) the delay injured the contractor in the form of additional expense or loss.” W.M. Schlosser, Inc. v. United States, 50 Fed. Cl. 147, 152 (2002) (citation omitted).
Thus, contractors who have been constructively suspended should be ready to timely assert a constructive suspension claim and demonstrate these four elements. Contractors should also be diligently documenting the actual cost impact resulting from any constructive suspension.
II. Excusable Delays
Whereas the focus of “compensable” delays is on compensating the contractor for the cost impact resulting from the delay, the focus of an “excusable” delay “is to protect the contractor from sanctions for late performance.” John Cibinic, Jr., et al., Administration of Government Contracts, Ch. 6, I. Excusable Delays (5th ed. 2006). Whether or not a delay is “excusable” usually depends on the language of the contract provision at issue. Several FAR provisions address excusable delays relating to quarantine restrictions or epidemics that may apply to COVID-19-related delays on federal contracts.
For example, excusable delays in fixed-price construction contracts are addressed in FAR 52.249-10 (Default (Fixed-Price Construction)), which states, in relevant part:
(a) The Contractor’s right to proceed shall not be terminated nor the Contractor charged with damages under this clause, if—
(1) The delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (i) acts of God or of the public enemy, (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, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers; and
(2) The Contractor, within 10 days from the beginning of any delay (unless extended by the Contracting Officer), notifies the Contracting Officer in writing of the causes of delay. The Contracting Officer shall ascertain the facts and the extent of delay. If, in the judgment of the Contracting Officer, the findings of fact warrant such action, the time for completing the work shall be extended. The findings of the Contracting Officer shall be final and conclusive on the parties, but subject to appeal under the Disputes clause. (emphasis added)
Excusable delays in fixed-price supply and service contracts, in turn, are addressed in FAR 52.249-8 (Default (Fixed-Price Supply and Service)), which states, in relevant part:
(b) Except for defaults of subcontractors at any tier, the Contractor shall not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather. In each instance the failure to perform must be beyond the control and without the fault or negligence of the Contractor.
(c) If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Contractor and subcontractor, and without the fault or negligence of either, the Contractor shall not be liable for any excess costs for failure to perform, unless the subcontracted supplies or services were obtainable from other sources in sufficient time for the Contractor to meet the required delivery schedule. (emphasis added)
Further, for commercial contracts covered by FAR Part 12, FAR 52.212-4 contains a similar listing of “excusable delays” (see FAR 52.212-4(f) listing “epidemics” and “quarantine restrictions” as possible excuses for delays).
Accordingly, contractors who have experienced delays because of COVID-19-related events and occurrences should also be prepared to timely demonstrate that such delays were, in fact, caused by a recognized excuse. Indeed, failure to do so could result in harsh sanctions, including but not limited to being terminated for default.
III. Key Takeaways
Government contractors need to be preparing now to demonstrate compensable and/or excusable delays resulting from COVID-19-related occurrences and events. Failure to prepare now could result in significant negative financial and other impacts to federal contractors.