I wrote an article in 2022, “The Future Does Not Look Good For COVID-Related REAs.” Well, it looks like things may have changed. On October 2, 2024, the Armed Services Board of Contract Appeals (ASBCA) issued its decision in the Appeals of Chugach Federal Solutions, Inc. ASBCA Nos. 62712, 62713, and 62877. In this case, the Board “rule[d] the government … failed to carry its burden to establish the sovereign acts defense.”
Background of the Case
Chugach Federal Solutions, Inc. (Chugach) and its subcontractor, Chenega Security Support Solutions, LLC (Chenega), were contracted by the Air Force to provide operations and maintenance services at three remote facilities in the Pacific. During contract performance, the World Health Organization declared COVID-19 a global pandemic. In response to the pandemic, the commander of the remote facilities implemented a 14-day quarantine requirement for personnel, including contractor personnel, arriving at the facilities. The contracting officer directed Chugach to comply with the quarantine requirement, citing AFFARS 5352.223-9001, Health and Safety on Government Installations, in the contract. Chugach complied with the quarantine requirement and later filed a timely request for equitable adjustment (REA) under FAR 52.243-4, Changes clause. The contracting officer relied on the sovereign acts defense and denied the REA.
What Changed the Board’s Mind in this Case?
In this case, the Board focused on two main issues:
- The impossibility portion of the sovereign act doctrine (read this article for an explanation of the sovereign act doctrine).
- The requirements and liability established by AFFARS 5352.223-9001, Health and Safety on Government Installations.
Sovereign Act Doctrine
The Board struggled with applying the impossibility portion of the sovereign act doctrine, mainly because the government chose not to support it. The Board stated: “The government’s denial that it bears any burden to establish impossibility, and its failure to advance any argument supporting that component, is reason enough to reject its sovereign acts defense.” The Board goes on to state: “[T]he record does not support finding the government’s restrictions upon Chugach’s access was justified as an impossibility. There is no basis to hold that the non-occurrence of the quarantine was a basic assumption upon which the contract was based, and that the government did not assume the risk of it under the contract’s terms. This is clearly demonstrated by AFFARS 5352.223-9001(b).”
AFFARS 5352.223-9001, Health and Safety on Government Installations
When discussing the AFFARS 5352.223-9001 clause, the Board states: the “clause contemplated that Chugach was subject to directed government health/safety standards as may be required in the performance of the contract. A quarantine imposed for the protection of the health and safety of all personnel performing the installations’ critical mission, including contractors, that restricted contractor access to perform the contract is within the scope of this provision, regardless of whether it additionally restricted non-contract personnel, and is, therefore, an occurrence that was a basic assumption upon which the contract was based. The clause placed the financial risk of such an action squarely upon the government by providing that ‘adjustments resulting from such direction will be in accordance with the Changes clause.’” The Board then states: “Chugach is entitled to the equitable adjustment authorized by AFFARS 5352.223-9001(b).” I find the Board’s statement that “even if the quarantine is a sovereign act, the sovereign acts defense does not shield the government from liability under AFFARS 5352.223-9001” the key to the Board’s conclusion in this case.
The Way I See this New Case
This case opens the door to REAs under FAR 52.243-4, the changes clause, when there are other terms and conditions in the contract requiring compliance with health and safety requirements. I believe such health and safety terms and conditions place a requirement on the contractor to adjust its operations to address changes in the health and safety requirements throughout the performance of the contract and for the government to be financially liable for those changes.
Below are a few examples of other clauses with health and safety requirements:
- FAR 52.225-19, Contractor Personnel in a Designated Operational Area or Supporting a Diplomatic or Consular Mission Outside the United States - In (d)(4), the contractor and its personnel are required to comply with health or safety orders, directives, and instructions. The clause goes on in (p) to bring in the requirements of the Changes clause.
- FAR 52.222-41, Service Contract Labor Standards - In (h), the contractor is required to ensure its employees are not in buildings or surroundings or under working conditions dangerous to the health or safety of the employees.
- DFARS 252.225-7039, Defense Contractors Performing Private Security Functions Outside the United States - In (c)(2)(iii), contractor personnel are required to comply with orders, directives, and instructions relating to health and safety.
- NFS 1852.223-70, Safety and Health Measures and Mishap Reporting - In (c), the contractor is required to take any safety and occupational health measures the contracting officer directs and is entitled to an equitable adjustment.
Can You Still Make a Claim Under the Changes Clause?
Possibly. Here is what I think you need to do:
- Review your contracts impacted by COVID-19 related health and safety directives or instructions for any terms and conditions or referenced FAR/Supplement clauses that require compliance with health and safety-related directives or instructions.
- Review your files (yes, all those emails you have so well organized) for documentation that you timely (i.e., within 30 days per FAR 52.243-4 the changes clause) engaged the contracting officer that the health and safety related directives or instructions increased the cost on your contract. If you were told that the sovereign act doctrine prohibited any claims, you may now have an opportunity to make a claim.
- Discuss your options with your general counsel.
How Can Redstone Help?
Redstone GCI offers comprehensive support for government contractors navigating contract challenges. Our services include a thorough review of contract documents, helping ensure clarity and compliance with regulatory requirements. We can also assist in developing robust proposals to support your requests for equitable adjustments, allowing you to advocate for fair compensation. Our team can draft precise position papers to strengthen your case and provide expert witness support during litigation, helping you present informed, credible insights in court.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant