After the Shutdown Ends: Getting Back on Track
While the Government shutdown is still in full effect, it will end someday soon, and Federal Government contractors must be on the lookout for certain issues that may come up when the Government asks them to start or re-start performing their work.
Although this general guidance is intended to give you some idea as to a contractors’ rights vis-a-vis the Government, because your rights and obligations following the Government shutdown will vary depending on a number of factors, including (1) the agencies with whom you do business, (2) the type of contract you have, (3) which clauses appear in your contracts, and (4) the type of services or supplies being provided, this is not intended to substitute for individual legal guidance. However, while those contractors supporting Civilian agencies under T&M, L-H, cost-reimbursement, or incrementally/installment funded vehicles may be feeling more of an impact, this guidance is equally relevant to contractors who have fully-funded fixed price contracts to the extent that their performance has been adversely affected because they cannot perform work as originally scheduled or as planned due to the partial closure of the Government.
Also, this email only covers your rights under existing contracts. If you are working without a contract due to a delayed option exercise or have exceeded your Limitation of Funds/Limitation of Cost thresholds and are awaiting some formal Government action to put additional funding in place, recognize that you are working at risk and you may not be able to recover anything. The law only recognizes your rights as a contractor once the contract has been awarded and/or after an option has been exercised, and while Congress bailed out contractors who continued to work during the last Government shutdown in the mid-1990s, I would not count on it happening this time.
Having said that, the most important thing to remember is that, while the Government may try to force you to bear the brunt of any impacts from the shutdown and insist that you pick up performance from where things left off on September 30, 2013, potentially there are four sets of clauses in your contracts that would require the Government to provide you with additional time and/or additional money, to the extent that the schedule has been delayed and/or to the extent that you have been forced to incur costs (whether they are direct or indirect) associated with the shutdown. This is true, regardless of whether you were directed to stop work or whether, as a result of the absence of Government personnel, you were unable to perform certain tasks under your contracts (e.g., Q/A personnel, contracting personnel).
First, under the standard “Default” and Excusable Delay clauses (e.g., FAR 52.212-4(f), 52.249-8, 52.249-9, 52.249-10 and 52.249-14), to the extent that the Government shutdown has caused a slippage in your schedule, you have a right to a schedule extension for every day of delay caused by the shutdown. Caution must be exercised because the notice requirements imposed on contractors differ from clause to clause, but, in general, the Government must give contractors an extension in your performance schedules – regardless of whether the delay was caused by the Government acting in its sovereign capacity or in its contractual capacity. The Government does not have the right to refuse such a request. As such, if Government officials threaten default unless you immediately begin performance or complete performance by the due date in the original schedule, remember that you have certain rights under this group of clauses. The principal points you must be prepared to show in any request for an extension are (1) that the schedule delay was primarily caused by some action or inaction on the part of the Government and not based on some other intervening action, and (2) that the number of days being requested is directly related to those actions. If your delays are the result of anything other than a Government-caused event, or if you have concurrent delays, you may have to conduct a detailed analysis of the schedule slippage to establish whether the Government or some other event was the principle cause for that day’s delay.
Second, under the standard “Stop Work” or “Suspension” clauses (FAR 52.242-14, 52.242-15, 52.242-17), you are entitled to both an extension of time and also monetary relief for any delays or disruptions caused by actions of the Government acting in its contractual capacity. Additional costs could arise from a delay in several ways, including (1) idle employee/cadre costs, (2) the costs of locating an alternative place of performance if you have been barred from a Government facility during the shutdown, (3) expedited material delivery costs, (4) higher costs of materials/supplies that you were delayed in ordering due to the shutdown, (5) re-sequencing of work to address schedule impacts, and (6) even other delays which ripple from this stoppage such as seasonal construction efforts, ship availabilities, cross-contractual impact where you are being affected by another contractor’s efforts (e.g., labor stacking), etc. Whether you received a formal Stop Work order, or whether your performance is being negatively impacted because of the absence of those government personnel needed to perform your obligations, these clauses provide you with relief, and in some cases, your ability to recover may be limited to no more than 20 days before you notify the Government of a delay in work. However, procedurally, if you follow the notice requirements and submit a timely claim or REA, you may be able to defray those costs directly attributable to the Government shutdown and also obtain schedule relief. The only limitation is that some of these clauses do not allow you to recover additional profit, but they would allow you to recover both direct and indirect costs (including, in some cases, Eichleay damages in the case of construction contracts for unabsorbed overhead).
Third, under the “Changes” clauses (FAR 52.243-1 through 52.243-7), you have a right to schedule relief and/or recovery of additional costs, plus profit, to the extent that the Government issues some direction that impacts schedules/performance costs and that direction constitutes either an express or constructive change to the contract. Unlike the delay or disruption clauses referenced above, profit is recoverable in addition to additional direct and indirect costs. The “Changes” clause could come into play one of two ways – (1) some action or inaction on the part of an authorized Government official that changes your existing obligations and requires more time/money to complete, or (2) a “constructive acceleration,” in which the Government refuses to afford you schedule relief under the “Default” or “Excusable Delays” provisions discussed above and insists that you complete the project by the original due date. Again, specific notice provisions in the clauses must be strictly followed in order to avail yourself of these clauses’ protections.
Finally, to the extent that you may not be paid in a timely manner, remember that you may also be entitled to Prompt Payment Act interest under FAR Subpart 32.9. This section of the FAR, and its implementing clauses, gives prime contractors the right to be paid automatic interest on invoices that are not paid by the due date established in the contract (and in the case of construction contracts, progress payment requests). If this interest is not paid within 40 days after receipt of a proper invoice and/or the due date for payment (whichever is later), the Government must also pay an additional prompt payment interest penalty equaling the value of the interest due up to $5,000. No action should be required on your part to be entitled to interest, but to get the penalty, you will have to submit a demand under FAR 32.907.
Ultimately your rights and obligations will vary, depending on the facts surrounding each request for schedule relief or REA, but the foregoing are some of the most important rights that you may have against the U.S. Government that you, as contractors, should not overlook.
Above all, if you receive some sort of “no cost” bilateral modification or similar modification asking you to give up your rights to obtain further relief resulting from this shutdown, think very carefully before you sign it. Execution of a bilateral modification could extinguish your rights to further schedule or cost relief under any of the foregoing clauses. While the Government always has the right to unilaterally establish a new schedule or make other changes within the scope of the Changes clause, nothing in the FAR would require your assent if you believe that you are entitled to other rights under the law.