By Robert Nichols, David Bodenheimer, and Andrew Victor of Nichols Liu
Nichols Liu – The Federal Government’s response to COVID-19 will depend on contractors receiving awards to combat the virus. Accepting these work scopes will heighten the risk that contractor employees will be exposed to coronavirus, which spreads quickly and appears to have a higher lethality rate than the normal flu. The potential liability to contractors from tort suits, by employees and others, cannot be estimated. Fortunately, the U.S. Government has a legal tool available to indemnify contractors that are willing to accept this important mission of defeating this deadly pathogen.
Public Law 85-804 authorizes the Executive Branch to hold harmless and indemnify contractors for claims, losses, and damages related to unusually hazardous risks encountered under government contracts. This does not cover routine performance interruptions, but rather protects contractors from losses resulting from the specified, unusually hazardous activity on the government’s behalf. Essentially, P.L. 85-804 can fill a gap in insurance coverage by providing indemnification where the activity is otherwise uninsurable or underinsurable.
For P.L. 85-804 to apply for COVID-19 contractors (and presumably NGOs with grants and cooperative agreements), the contracting agencies and departments must have specific authorization from the President to commit to indemnification. Certain agencies have standing authorization. Others will need to obtain it via a new Executive Order. Our lawyers wrote a White Paper for USAID in 2014 that assisted in that agency receiving P.L. 85-804 authority for contractors battling Ebola.
Additionally, contractors typically must seek P.L. 85-804 coverage by following the procedures in FAR Subpart 50.1. This involves identifying in advance the risks and the inadequacy of available insurance coverage. As P.L. 85-804 is written broadly, however, we suggest that the government skip or waive the regulatory steps due to the urgency of the COVID-19 crisis.
The President can issue an Executive Order identifying this situation as a national emergency requiring agencies to act in the national defense, providing blanket authorization for use of P.L. 85-804 coverage to any Federal agency involved in fighting the coronavirus, and stating that contractors need only demonstrate (after the fact) that they used best efforts to obtain insurance. This would allow agencies to enter into hazardous contracts applying P.L. 85-804 protections more quickly. Such a decision is not just sound public policy, but also a prudent cost-saving measure to avoid excessive insurance costs that may otherwise be billed to the Federal Government under a contract.