As every government contractor is no doubt aware, no business is immune (no pun intended) from the potentially devastating economic impact of the global coronavirus outbreak. As we confront new restrictions, with the possibility of more to come, on both businesses and employees that could last for months, the costs continue to mount.
It is important to recognize and measure the impact addressing this pandemic may have on your government contracts. Additional paid employee leave, temporary closures, supply chain disruptions, etc. could significantly impact contract performance and costs and could be particularly detrimental to small businesses.
The one silver lining for government contractors is that costs resulting from the spread of the coronavirus and the implementation of government recommended and/or mandated restrictions may be recoverable through an equitable adjustment to the contract, or in rare circumstances, through a request for extraordinary relief. The caveat, however, is that this would only be applicable if you can demonstrate that the costs were incurred as a result of the coronavirus or compliance with government restrictions. DCAA questions most costs related to equitable adjustment proposals and claims due to a lack of supporting documentation demonstrating that the cost was incurred and that it was a result of the event upon which the claim or proposal is based. Contractors should know that the burden of proof to substantiate these costs rests solely on the contractor. The key here is to get ahead of the situation and be proactive in collecting and substantiating the cost of impact. After the fact, it may be much more difficult to go back and identify all of the additional costs incurred related to the coronavirus. Accordingly, we recommend you start specifically identifying and segregating these costs now in order to be prepared should an equitable adjustment request become necessary. It is important to recognize and account for increased costs, both direct to the contract and those that are indirect.
It should be noted that filing for an equitable adjustment or a request for extraordinary relief is a complex process, and we advise contractors to consult with experts, whether that be RGCI or their legal team, before engaging in this process. Our friends at Wilmer & Lee coincidentally authored an excellent treatise on the equitable adjustment process as a result of the government shutdown this past December, and it is available at their website at https://wilmerandlee.com/a-contractor-s-guide-to-government-shutdowns. While this article specifically addresses guidance during shutdowns, the guidelines are equally applicable to our current situation.
DoD Pricing or OFPP is likely to issue guidance regarding this situation. RGCI is closely monitoring policy and guidance that impact government contractors, and we will keep you apprised of updates, as those are published.
We encourage everyone to follow the guidelines and recommendations of health officials to limit the spread of (COVID-19) to the extent practical, in hopes that together we can end this pandemic quickly. Obviously, nothing should be more important to any business than the protection and well-being of its employees. We are praying for all of those who have been affected.