Last month
we provided information on the guidance given by the U.S.
Office of Management and Budget ("OMB") as the federal
government (the "Government") prepared for the Government
shutdown (the "Shutdown"). Since that time, the
government did indeed partially shut down and finally after 16
days, reopened. With the Shutdown behind us, what should and can
your nonprofit be doing to recover costs incurred under your
contracts during that time?
Please keep in mind that the following constitutes general guidance
rather than specific advice to the impact of the Shutdown on your
particular contract(s). Your particular situation will depend on
fact-specific circumstances and the language contained in your
contract with the relevant Government agency.
What rights do I have to recover costs due to the Shutdown
if my nonprofit organization was issued a stop-work
order?
Under a stop-work order, you are generally entitled to receive
reasonable costs incurred, however, the type of contract at issue
also may have an impact on what you may be able to recover. Under a
firm fixed price contract, you may have grounds for asserting the
full amount of your contract. However, this determination will
depend upon the specific terms of your contract. At a minimum, you
should be entitled to recover reasonable and necessary costs
incurred due to the unforeseen Shutdown, such as demobilization and
remobilization costs or possible idle labor costs. It is important
to be careful when submitting an invoice to the Government for full
compensation under a firm-fixed price contract because it could be
construed as invoicing the Government for work not actually
performed and, as a result, lead to allegations of fraud. Absent
clear language in the contract, any invoice submitted to the
Government should only reflect the amount of work actually
performed at the fixed unit price. This may require you to submit
an invoice for the proportional amount of the fixed price based
upon the work actually performed, if any. To recoup the difference
between the proportional amount and the contract amount, or other
costs associated with the Shutdown, contractors should submit a
request for an equitable adjustment ("REA") or a claim to
ensure that you are fully compensated and do not underwrite the
Government's Shutdown. Conversely, under a cost-reimbursement
contract, you would be precluded from asserting the full
anticipated amount of the contract and would likely be limited to
only those reasonable costs incurred due to the Shutdown, such as
demobilization and remobilization costs, and possibly idle labor
costs.
What costs are reimbursable as a result of the
Shutdown?
Unmitigable and reasonable costs incurred due to the Shutdown
generally should be reimbursable. In order to recover these costs
because of the Shutdown, contractors must be able to demonstrate
that the cost impact occurred and tie the impact to the Shutdown.
Employees that are prevented from performing work, therefore,
should provide detailed time entries and record their labor costs
in segregated accounts to demonstrate the idle or other labor costs
of the Shutdown. Other cost impacts, such as costs associated with
rescheduling work or deliveries, or increased supplier prices,
should be similarly documented.
How should I invoice the Government for my contract during
the Shutdown?
It is important to be careful when submitting an invoice to the
Government for full compensation under a firm-fixed price contract
because it could be construed as invoicing the Government for work
not actually performed and, as a result, lead to allegations of
fraud. Absent clear language in the contract, any invoice submitted
to the Government should only reflect the amount of work actually
performed at the fixed unit price. This may require you to submit
an invoice for the proportional amount of the fixed price based
upon the work actually performed, if any. To recoup the difference
between the proportional amount and the contract amount, or other
costs associated with the shutdown, contractors should submit an
REA or a claim to ensure that you are fully compensated and do not
underwrite the Government's shutdown.
Similarly, for cost-reimbursement contracts, contractors should
submit an invoice that reflects the costs and markups associated
with the work actually performed. Conversely, however, under a cost
reimbursement contract, a claim to recover the full anticipated
contract value would be difficult given the nature of
cost-reimbursement contract.
What if the Government refuses to pay (in full or in part)
my nonprofit organization for work performed during the
Shutdown?
If the work was funded throughout the period of the Shutdown
(i.e., the contract did not expire or the contractor has
not assumed that an option would be exercised), depending on the
circumstance, the contractor should consider filing an REA or a
claim.
What if the Government rejects my invoice and stipulates to
partial payment due to the Shutdown? For instance, what if my
employees were available and ready to work, but could not access
Government premises to perform services under a fixed-price
contract? If I paid those employees who did not actually work, can
I charge the Government for that payment?
Under a stop-work order, you would likely be precluded from
asserting the full amount of the contract, however, you would be
able to assert reasonable costs incurred due to the Shutdown, such
as demobilization and remobilization costs, and possibly idle labor
costs.
If you did not receive a stop-work order and your employees were
ready and available to work under the firm-fixed price contract,
there may be an argument, dependent upon the specific terms of each
contract, that the contractor is the beneficiary of these
circumstances and therefore the total price due under the contract
should not be reduced simply because of the Government shutdown.
Firm-fixed price contracts are designed to place risk on the
contractor for cost overruns, but contractors are entitled to
benefit when costs are less than anticipated. Alternatively, the
Government could assert its defense as a sovereign, releasing it of
liability. Thus, the most conservative course of action, because of
concerns over fraud (e.g., possibly misrepresenting that
you performed work when you did not during the Shutdown), would be
to submit an invoice for the proportional amount of the fixed price
based upon the work actually performed, followed by an REA or a
claim for the difference, as well as any additional costs incurred
as a result of the Shutdown.
Is it different if this situation occurs under a
cost-reimbursement contract?
The situation is no different if a stop-work order has been issued.
However, if a stop-work order has not been issued, the situation
differs greatly because, by the terms of the contract, the
contractor is only entitled to those reasonable costs incurred. As
a result, the contractor would only be able to seek those costs
incurred after taking steps to mitigate such costs.
Are there other theories of recovery if I did not receive a
stop-work order?
Yes. FAR 52.242-17, the Government Delay of Work clause, entitles
contractors to an adjustment to their contract for
Government-caused delays. However, for a contractor to assert delay
claims, the contractor must file its claim within 20 days of when
the delay costs were incurred, or "as soon as practicable
after the termination of the delay or interruption." Given
this language, if a contractor is not subject to a stop-work order,
thereby foreclosing its right to "stop-work order" costs,
the contractor may seek to assert an adjustment under the theory
that the Government Shutdown resulted in additional costs due to
the delay of work. To do so, the contractor would need to file its
claim within 20 days of when the costs were incurred (e.g., the
Shutdown took place on October 1, therefore a claim to recover all
costs would need to be filed by October 21), or as soon as
practicable following the delay (i.e., the Shutdown). Even
if you cannot immediately quantify your claim, it is important that
you promptly notify the contracting officer in writing that the
Shutdown delayed or interfered with your work, the delay increased
your cost or will have an impact on your schedule, and that you
will be submitting a claim when the costs are fully
quantified.
Additionally, the FAR's Changes clause (FAR 52.243-1,
Changes—Fixed Price, 52.243-2, Changes—Cost
Reimbursement, 52.243-3, Changes—Time-and-Materials or
Labor-Hours, 52.243-4, Changes) allows contracting officers to make
changes to a contract, by written order, at any time. Although it
is unlikely your contracting officer characterized an order to
suspend work (or other Shutdown-related orders) as a
"change" to the contract schedule, such a significant
interruption arguably constitutes a change to the contract. If you
want to preserve your right to any claim on the basis that the
Shutdown was a "change" (in addition to a claim under the
stop-work order or Government Delay clause), assuming one of the
above-cited changes clauses was contained in your contract, you
must assert your right to an adjustment (such as an increase in the
price or a revision to the performance schedule) within 30 days of
the receipt of a written change order. If you did not receive an
explicit "change order," the 30-day clock likely begins
as soon as you received written direction relating to the Shutdown,
or possibly the start of the Shutdown itself.
Given that an order may have been issued prior to the Shutdown,
contractors' time for requesting an adjustment to the contract
is likely accruing and the 30-day deadline approaching. Again, due
to the potentially truncated timeline under your contract's
Changes clause, you may need to quickly consider whether you will
be seeking recovery under this FAR provision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.