New guidance, Defense Production Act and other coronavirus challenges vendors should know about

Federal contractors finally are getting some much needed guidance on their part to keep the government running over the next month or two as it deals with the coronavirus pandemic.

The General Services Administration and the Small Business Administration tried to answer some general questions in new contracting-focused fact sheets. The Defense Department said March 17 it will hold daily calls with industry associations to discuss the impact of the virus on industry.

Ellen Lord, undersecretary of Defense for acquisition and sustainment, on Tuesday invited NDIA, Aerospace Industries Association, Professional Services Council, the National Association of Manufacturers and the U.S. Chamber of Commerce to help “ensure the security, reliability and resilience of our defense industrial base and our collective effort to execute the National Defense Strategy,” stated a statement from Lord’s office, which NDIA provided in a press release.

The Office of Management and Budget, which has been silent around contractors in its previous three memos, told agencies March 17 to realign resources, including to “assess professional services and labor contracts to extend telework flexibilities to contract workers wherever feasible.”

Governmentwide guidance needed

“There should be guidance from the Office of Federal Procurement Policy,” said David Berteau, the president and CEO of the Professional Services Council, an industry association. “You don’t want to interfere with the exercise of the procurement system, but you also don’t want thousands of decisions made that are not consistent. I think guidance from OFPP is essential to establish that core consistency and keep the government operating throughout this coronavirus crisis.”

Lord said Jennifer Santos, deputy assistant secretary of defense for industrial policy, will lead the calls, and will include representatives from Industrial Policy, Defense Contracting Management Agency, Defense Logistics Agency and Defense Pricing and Contracting.

“NDIA is working with our membership to determine the evolving impacts of the COVID-19 response on the defense industrial base,” said Hawk Carlisle, NDIA’s president and CEO, in a statement. “As this situation evolves, the assistance and advice to the industrial base must evolve with it.”

Part of the frustration among contractors is how slow that assistance and advice has come from agencies.

GSA released its frequently asked questions on March 13, and SBA released its FAQs on March 11, trying to begin to answer several questions for vendors.

From GSA’s FAQs:

Q: What actions are required for existing contracts?
A: Contracting officers should assess active contracts for potential impacts from disruption resulting from COVID-19.

Contracting officers should take an inventory, noting:

1. which contracts have no potential for impact and can continue business as usual,

2. which contracts have potential for impact but can be performed remotely or virtually,

3. which contracts must be performed onsite and are mission critical or essential, and

4. which contracts must be performed onsite but are not mission critical or essential.

Discuss with contractors any challenges they may be facing or may expect to face due to the ongoing situation. Identify potential alternate sources of supply or substitute products to mitigate disruptions. Communicate with key customers to keep them informed of any issues you have identified and any measures you are taking to mitigate them.

From SBA’s FAQs:

Q: What if I am unable to fulfill the federal government contract awarded to me because of the coronavirus?

A: Your first obligation as a prime contractor on a federal government contract is to complete performance on that contract. If you do not perform at a satisfactory level on a federal government contract, the contracting officer may have to terminate your firm for non-performance. Should your firm be terminated — for convenience or default — on a federal government contract, it is possible you may not receive another federal contract due to documented poor past performance.

Berteau said agencywide guidance is helpful, but the government needs to have a common starting point so there aren’t hundreds of possibly confusing and contradictory contract modifications.

“It is not wise to leave each individual decision up to contracting officers. It just will not be consistent or at the speed we need,” he said. “Contracting officers also need guidance to give them the cover to do what they need to be do.”

Berteau said OFPP could provide sample language that each contract could be modified to allow for telework or other necessary changes.

Read your contract clauses

Bob Tompkins, a partner with Holland & Knight in Washington, D.C., said during the webinar vendors should read their contracts and subcontracts closely to see what clauses around telework or protections against a determination of default by the agency if you can’t meet the contract’s terms and conditions.

Tompkins said there are “excusable delays” to help vendors deal with any threats or real actions taken by agencies to end a contract.

“The first thing you want to do is look at the clauses in your contract that would provide for an excusable delay claim. There is a list of examples, including epidemics and quarantine situations. These are expressly recognized excusable events and partly bolstered now here by the CDC declaring the coronavirus is a pandemic,” he said. “It’s not enough to say ‘it’s an epidemic and I couldn’t get my work done.’ You have to show certain things, a causal link between the “act of God” event and the delay or what is impeding your work. You have to demonstrate the excusable delay was caused by the epidemic or quarantine restrictions.”

Tompkins added the vendor should bring up the challenges they are facing to their contracting officer as soon as possible.

“You have to communicate regularly with your customer and position the excusable delay issue early so you aren’t raising it for the first time in the face of a default determination” he said. “Causation is a key element in invoking this defense. But there also is a requirement that a contractor make a reasonable effort to mitigate the delay in performance.”

Tompkins said it’s not just the relationships with agency customers that matter, but vendors must work with suppliers from all industries.

“It’s really important to take a macro view of all of your different relationships and all of the parties you rely on to execute your work. Certainly, employees are high up on that list, but also give some consideration to your teaming partners, to your banking relationships, to your administrative services providers that you might use to execute on your work and make sure they are capable of helping out,” he said. “Accommodations may need to be asked for, and don’t be surprised if your partners are seeking accommodations from you in some cases.”

Unlike a government shutdown because of a lack of funding or due to a weather emergency, agencies continue to address mission requirements and contractors play a bigger role in those efforts than most outsiders realize.

Berteau and others also pointed out that vendors provide the government with a surge capacity that can come in handy during crises.

Defense Production Act invoked

David Black, a partner with Holland & Knight in McLean, Virginia, said during a March 17 webinar that vendors may see increased demand for certain products or services because of the pandemic.

He said five agencies—the departments of Defense, Energy, Health and Human Services, Homeland Security, including FEMA, and Transportation—have authority under the Defense Production Act of 1950 to issue “rated” orders, which puts the government at the front of the line to purchase specific emergency related products or services.

“This is an opportunity for contractors, but there also are risks to manage and mitigate. There is a lot of legal compliance and there are severe consequences for not complying,” Black said. “A good idea at the outset is if you are a company that has a line of business that may be susceptible to rated orders to designate someone in the contracting department or the legal department to be the point person for these.”

Black said vendors should keep in mind a few basic rules for accepting and fulfilling a rated order. These include:

  • Having a definitive priority rating.
  • Specific delivery date and delivery quantity. It can’t be approximate or estimated.
  • A statement identifying the governing federal regulations.
  • A valid contracting officer’s signature to certify the rated order.

President Donald Trump invoked the Defense Production Act on March 18.

“It can do a lot of good things if we need it. We will have it all completed and signing it in a little while,” the President said at his daily news conference on the federal response to the coronavirus.

This comes after Sen. Bob Menendez (D-N.J.) wrote to Trump on March 17 asking him to invoke the Defense Production Act “to expand national production of needed medical supplies like masks, ventilators and respirators, and to expand hospital capacity to combat the COVID-19 coronavirus.”

Gen. David Goldfein, the chief of staff of the Air Force, said on March 18 that while his service has seen no disruptions in its supply chain, there are concerns about problems in the future.

He said Lord and others are looking at the defense industrial base to ensure the supply chain isn’t impacted yet, but the future is unclear.

“Companies have to figure out how to keep their lines open with their own social distancing and own procedures to be able to protect their workforce,” he said.