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.
Robert (Bob) Eldridge is a Director with Redstone Government Consulting Inc. He provides Government Contract Consulting services to our Government contractors primarily related to compliance with Federal Acquisition Regulations and Cost Accounting Standards, equitable adjustment claims, and business systems. Prior to joining Redstone Government Consulting, Bob served in a number of capacities with DCAA for over 32 years. Upon his retirement, Bob was a Regional Audit Manager with DCAA.
Bob began his DCAA career in 1981 as an auditor-trainee with the Pratt & Whitney Resident Office in West Palm Beach, Florida. Bob served two three year tours at the Defense Contract Audit Institute teaching multiple contract audit courses including “Auditing Internal Controls”, “Technical Management of Audits”, and “Advanced Cost Accounting Standards” and writing Agency courses on Cost Accounting Standards and Equitable Adjustment Claims. He returned to the Eastern Region in 1999, holding various audit positions before ultimately becoming a Regional Audit Manager in February 2007. As Chief of the Eastern Region Quality Assurance Division, Bob was heavily involved in developing DCAA guidance related to auditor consideration of internal controls and risk assessment preparation. In 2012, Bob was assigned to the U.S. Senate Committee for Homeland Security and Governmental Affairs, serving as a subject matter expert on a wide range of federal contract and grant matters for Senator Susan Collins. During Bob’s tenure with DCAA, he had overall management responsibility for audits performed by over 200 employees. He was directly involved in conducting or managing a wide variety of compliance audits, including: forward pricing proposals, incurred cost submissions, business system internal controls, Cost Accounting Standards, claims, and defective pricing. Bob was also directly involved in complex quantitative methods applications, particularly regression analysis and improvement curve applications.
Bob currently specializes in assisting clients with more complex DCAA audit issues related to business system internal controls and Disclosure Statements and with developing and maintaining government compliant accounting and estimating systems. Bob also provides expert advice on compliance with FAR cost principles and Cost Accounting Standards and assists with the more complex forward pricing proposals and equitable adjustment claims.