The U.S. Department of Defense has issued a critical memorandum on how contractor requests for additional contract payments in response to the COVID-19 crisis should be handled. The memorandum, issued on March 30, 2020 by Kim Herrington, Acting Principal Director, Defense Pricing and Contracting, noted that further guidance is expected.
Mr. Herrington’s memorandum discussed other possible grounds of contractor relief, such as stop-work orders. Most critically, his memorandum suggested that contracting officials, when considering contractor requests for compensation for additional costs (“requests for equitable adjustments”), should take into account the reimbursement for contractors contemplated by Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, discussed here, which President Trump signed into law on March 27, 2020.
Under Section 3610 of the CARES Act, agencies may in their discretion use any “funds made available to the agency” by Congress to modify any contract or other agreement to reimburse contractors for workers’ lost time up to September 30, if the contractor provides leave to its employees or subcontractors “to protect the life and safety of Government and contractor personnel.”
The Defense Department memorandum stated, in relevant part:
When reviewing requests for equitable adjustment, contracting officers are to take into account, among other factors, whether the requested costs would be allowable, allocable and reasonable to protect the health and safety of contract employees as part of the performance of the contract. Equitable adjustments to the contract or reliance on an excusable delay should not negatively affect contractor performance ratings.
In response to this national emergency, on March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES). Most notable within the act is Section 3610, Federal Contractor Authority, which provides discretion for the agency to modify the terms and conditions of the contract to reimburse paid leave where contractor employees could not access work sites or telework but actions were needed to keep such employees in a ready state (Attachment 1). Section 3610 is included for information only. DPC [Defense Pricing & Contracting] will provide implementing guidance for this section as soon as practicable.
The Office of Management and Budget, and many senior procurement officials of the Military Departments and Agencies have promulgated guidance similar to that in this memo regarding management of contract performance impacts due to COVID-19, many of which are available at https://www.acq.osd.mil/dpap/pacc/cc/COVID-19.html. They share the common theme that contracting officers are trusted and empowered to make the difficult decisions on appropriate adjustment to each contract. Both during and after the COVID-19 emergency, contracting officers must work closely with our industry partners to ensure continuity of operations and mission effectiveness, while protecting the continuing vitality of the DIB [Defense Industrial Base] that is so critical to our national security. Please ensure widest distribution of this guidance.
Editor’s note: These and other developments in COVID-19 contracting will be discussed in a free international webinar on Thursday, April 2, at 9 am ET.
