Government Contract Attorneys, SDVOSB Law: Government Contracts Attorneys | Lawyers

A contractor entered into a fixed-price contract with the Center for Disease Control and Prevention (CDC) to conduct on site monitoring of clinical research sites. After a year of performance, the CDC informed the contractor that it has “postponed” contractor site visits due to COVID-19. The CDC subsequently terminated the contract for convenience. As part of its termination for convenience proposal, the contractor sought costs under the FAR’s stop work order provision even though the CDC did not call it a “stop work order” at the time.

The Civilian Board of Contract Appeals (CBCA) awarded the contractor the costs due to the stop work order, stating:

CDC did, in effect, issue a stop work order as a result of the pandemic. An unforeseen pandemic does not shift the risk to the Government for any unexpected costs incurred under a firm, fixed-price contract. Pernix Serka Joint Venture v. Department of State, CBCA 5683, 2020-1 BCA P 37,589 (“It is well-established that ‘a contractor with a fixed price contract assumes the risk of unexpected costs not attributable to the Government.'” (quoting Matrix Business Solutions, Inc. v. Department of Homeland Security, CBCA 3438, 2015-1 BCA P 35,844 (2014))). However, “[i]f 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.” FAR 52.242-15(c) (incorporated by reference in the contract); Exhibit D at 32.

The Board found that the stop work order clause (FAR 52.242-15) provided relief for COVID delays despite the fact that the contractor otherwise assumes the risk of COVID delays under a fixed price contract.

The same logic should apply to an actual or constructive suspension of work due to COVID delays or disruptions. Thus, when the Government issues a stop work or suspension of work order due to COVID related issues, the Government should pay the contractor for the additional costs and time associated with the delay.

Now, this does not mean the contractor is always entitled to additional time and money due to COVID. Far from it. In a fixed price contract, the contractor generally only receives time, but not money, for a delay due to an Act of God such as COVID. To receive money, the contractor must show that the delay was was caused by a Government direction due to COVID such as shutting down access to the job site.

I would also like the opportunity to discuss the various COVID clauses the Government has been asking contractors to add to their contracts. Do not sign a modification adding this to your contract until you have examined whether this will increase the cost and/or time of performance. If yes, you should ask for this before signing the modification.

Appeal of NUES, Inc., CBCA 7165 (December 15, 2021)

The VA issued a task order to Rocjoi Medical Imaging, LLC (“contractor”) to study radiological examination results. The contractor argued the VA failed to request approximately 10,000 studies a year as provided in the task order. The VA said the task order did not guarantee 10,000 studies but was merely a vehicle to obtaining funding for services up to this estimated amount.

The VA’s position is odd since task orders are not used to obtain funding but rather to order services. The indefinite quantity and ordering clauses do treat “orders” as estimates either. Nevertheless, the Board agreed with the VA.

The facts are unique, however. The Board looked at the conduct of the parties before the dispute arose. The Board found that both the VA and the contractor acted as if the 10,000 radiological review services specified in the task order were estimates and for funding purposes only. The VA medical facility had “requested” services on an as-need basis. The contractor invoiced for these services as they were requested. The Board therefore concluded that the task order “cannot be viewed now as a firm order for any radiology services.” The Board denied the contractor’s claim that the VA failed to order 10,000 services under the task order.

https://cbca.gov/files/decisions/2021/CHADWICK_07-23-21_6885__ROCJOI_MEDICAL_IMAGING_LLC.pdf

In Trade West Construction, Inc., ASBCA No. 61068 (October 13, 2020), the government argued that the contractor failed to provide timely notice under the changes clause. It requires the contractor to provide notice to the government within 20 days of incurring additional costs and to submit a request for equitable adjustment within 30 days. Even though the contractor did not this, the Board allowed the contractor to pursue his change order claim anyway.

In government contracts, notice provisions are not strictly adhered to. Instead, the government must show how it was harmed by the lack of notice. Here, the government argued it was stripped of the opportunity to track the contactor’s increased costs caused by the change. The government also argued that, with the passage of time, project documentation gets lost and memories fade. The Armed Services Board of Contract Appeals held that this was not enough to show Government harm due to the contractor’s failure to provide timely notice under the changes clause. The contractor dodged the bullet and was allowed to pursue its claim based on the changes clause.

If you are confronted with a change on the project, always notify the Government in real time. An RFI is a good tool to provide such notification and to request direction on how to proceed. Better yet, insert this RFI activity into your CPM Schedule to track its potential impact on the critical path.

Under Section 3610 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Contracting Officers now have the authority to reimburse contractors and their subs for paid leave given to their employees during a suspension of work due to virus concerns.  To qualify, a three (3) prong test must be met:

1. The employees of the prime contractor or subcontractor cannot perform work due to a facility closure or other restriction;
2. They cannot telework because their job duties cannot be performed remotely; and
3. The employees are kept at a “ready state.”

Payments to are not to exceed 40 hours per week per employee at the “minimum applicable contract billing rates.”  Section 3610 is also subject to availability of funds under the “CARES Act or any other Act.” So, if you are faced with a suspension of work and need to keep your employees in a “ready state,” ask your Contracting Officer for relief under the CARES Act.

Coronavirus Aid, Relief, and Economic Security Act (CARES ACT”)

9 SEC. 3610. FEDERAL CONTRACTOR AUTHORITY
Notwithstanding any other provision of law, and subject to the availability of  appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020.

Such authority shall apply only to a contractor  whose employees or subcontractors cannot perform work on a site that has been  approved by the Federal Government, including a federally-owned or leased facility or site, due to facility closures or other restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for COVID–19: Provided, That the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant to division G of Public Law 116–127 and any applicable credits a contractor is allowed under this Act.

Construction contractors are increasingly concerned about the financial impact of the Coronavirus. This could delay a project for months. And time is money. Let’s discuss whether a contractor is entitled to compensation due to a Coronavirus related delay.

The typical federal construction contract does not include a standalone “force majeure” clause, identifying an epidemic as an excusable delay.  Instead, the contract includes a termination for default provision, which states the contract cannot be terminated for delay if caused by, among other things, epidemics:

The delay in completing the work arises from causes other than normal weather 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 causes other than normal weather beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers.

(FAR 52.249-10)  Thus, it is clear the Government cannot terminate a contract for default because of delays due to the Coronavirus. You probably figured that. But what if your contract is not terminated?  Can you still get additional costs for Coronavirus related delays?

The Government would likely use the Suspension of Work clause (FAR 52.242-14) to suspend a project due to the Coronavirus. This clause allows the Government to suspend work at its convenience for a “reasonable period” and without payment to the contractor. What is reasonable depends on the circumstances of each case. Appeals of Commer. Contrs. Equip., Inc., 2003-2 B.C.A. (CCH) P32,381 (A.S.B.C.A. September 17, 2003) Thus, while the Government may suspend a project due to the Coronavirus, it must act reasonably. This leaves the door open for potential compensation. I can envision situations where the Government is unable or unwilling to allow the contractor to resume performance within a reasonable time after the suspension is issued, or where the Government prevents a contractor from mitigating its delay damages during the suspension.

Now, if the Government does not suspend the project, and you are delayed because of the Coronavirus, you would be entitled to time but not money.  This is because the virus is beyond the Government’s and contractor’s control.  So, each party bears the risk of loss associated with this unforeseen delay. It is important, however, to notify the Government that you are being delayed due to the epidemic.

Since you may be able to recover delay damages if the Government acts unreasonably when suspending the project due to the virus, it is important to keep accurate records of the delay and associated costs. Let’s hope this virus passes quickly.

The Department of Veterans Affairs (“VA”) issued an SDVOSB set-aside procurement for oxygen tank services. Warrior Service Company, LLC (“Warrior”) was the apparent awardee. However, the Contracting Officer deemed Warrior non-responsible because it “has never performed home oxygen delivery services and does not have the necessary experienced, qualified personnel, equipment and capital to be able to perform the required service.”

The SBA Office of Hearings and Appeals (“SBA OHA”) evaluated the Contracting Officer’s position under the Ostensible Subcontract Rule:

The “ostensible subcontractor” rule provides that when a subcontractor is actually performing the primary and vital requirements of the contract, or when the prime contractor is unusually reliant upon the subcontractor, the two firms are affiliated for purposes of the procurement at issue. 13 C.F.R. § 121.103(h)(4). The rule “asks, in essence, whether a large subcontractor is performing or managing the contract in lieu of a small business [prime] contractor.” Size Appeal of Colamette Constr. Co., SBA No. SIZ-5151, at 7 (2010). To ascertain whether the relationship between a prime contractor and a subcontractor violates the ostensible subcontractor rule, an area office must examine all aspects of the relationship, including the terms of the proposal and any agreements between the firms

In short, the Ostensible Subcontractor rule is violated when a prime contractor will have no meaningful role in performing the contract’s primary and vital requirements.  SBA OHA found that Warrior’s proposal violated this rule.

Warrior’s proposal indicated that the prime contractor would rely on a single subcontractor to provide equipment, facilities, vehicles, and financial assistance.  Warrior would only manage the contract.   SBA OHA found  this violated the ostensible subcontractor rule:

OHA has long held that a prime contractor cannot comply with the ostensible subcontractor rule merely by supervising a subcontractor in its performance of the work. E.g., Size Appeal of Jacob’s Eye, Inc., SBA No. SIZ-5955, at 12 (2018); Size Appeal of Hamilton Alliance, Inc., SBA No. SIZ-5698, at 9 (2015); Size Appeal of Shoreline Servs., Inc., SBA No. SIZ-5466, at 10 (2013). Accordingly, based on Appellant’s proposal of August 2, 2018, the Area Office did not err in concluding that Appellant did not comply with the ostensible subcontractor rule, because [Subcontractor] would be performing all, or nearly all, of the primary and vital contract requirements.

During the size protest, Warrior tried explaining how it would meet the limitation on subcontracting requirement, but the SBA OHA would not consider such  information because the size protest must be based on the proposal that was submitted, not additional information raised during the protest.

On November 13, 2019, the Civilian Board of Contract Appeals provided precedence on how to address concurrent delay in AMEC FOSTER WHEELER ENVIRONMENT & INFRASTRUCTURE, INC. v. DEPARTMENT OF THE INTERIOR. This is welcome news . . .there has been little precedence on how to evaluate concurrent delay.

The Board began with the proposition that “only delay of activities on a project’s critical path results in overall delay.” The Board then considered an “as-built critical path” to determine the extent the government and contractor delayed the project.

The government’s expert found that all government-caused delay was offset by concurrent contractor-caused delay. Specifically, the government expert maintained that delays to the shower room were “near critical” to the actual critical path delay caused by Modification #1.  The Board rejected this approach:

We reject the agency’s contention that all of the agency-caused delay was offset by concurrent, contractor-caused
delay. We recognize that “the exact definition of concurrent delay is not readily apparent from its use in contract
law.” George Sollitt Construction Co. v. United States, 64 Fed. Cl. 229, 238 n.8 (2005). We do not doubt that the
agency’s expert relied on one possible definition in opining that “near-critical” work in the shower room was
“concurrent” with the modification 1 work until April 2014 and would have delayed the project if modification 1
had not. The problem we see with that approach is that the alternative delay did not materialize. To analyze delay
claims in a manageable fashion, we focus on the fact that “only construction work on the critical path ha[s] an
impact upon the time in which the project [i]s completed.” Mega Construction Co. v. United States, 29 Fed. Cl. 396,
425 (1993), quoted in Affiliated Western, 2017-1 BCA at 179,403. The parties agree that the shower room repairs
were not critical after August 2012. That work thus did not result in delay. We limit our analysis to the critical path
delay that happened.

Based on the above, the Board will recognize concurrent delay only if it also impacted the critical path. This limits when concurrent delay can be raised. Since from a technical standpoint, in order for two (2) activities to drive the critical path at the same time (and hence concurrent according to the Board), they both must have precisely the same amount of “days of negative float” during a particular CPM update period.

The Board’s approach also rejects delay analyses that ignore what actually happened.  If a contractor maintains an accurate CPM throughout the project, that will suffice.  But oftentimes, we do not have the luxury of regular and reliable CPM updates. This is where the experts play a role. They must forensically demonstrate what actually delayed the project through an as-built CPM analysis.  While this can be painstaking, this is what the Board prefers.

The Board also provided guidance on how to price general conditions.  General conditions are “direct costs” of performing the work that are time sensitive. Examples include onsite supervision, rental equipment, trailers, fencing and other costs that continue to mount each day a project is delayed.  For these costs, the Board held that the contractor must add up the general conditions for the entire job and compute an average daily rate.  Then, this average daily rate can be multiplied by the days of delay:

Claimants can recover extended general conditions costs when compensable delay causes them to remain on a project longer than planned. The general conditions costs caused by the delay are the company’s average daily rate for the entire job multiplied by the days of delay.

The above approach means that the contractor must either wait until the job is complete before submitting a claim for general conditions, or estimate what the total general conditions will be at the end of the project.

If you are considering submitting a delay claim against the government, please call our office for a complimentary consultation.