Are Pandemic-Related Contract Changes Compensable? Two Recent, Instructive Cases

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By Dawn E. Stern and Ryan Carpenter of DLA Piper

As the coronavirus disease 2019 (COVID-19) pandemic continues, US government contractors are asking whether they will ultimately be compensated for increased performance costs associated with responding to the pandemic.  Two recent cases from the Civilian Board of Contract Appeals (CBCA) provide helpful insight and illustrate the importance of obtaining clear direction from the contracting officer in the wake of COVID-19.

PSJV Serka Joint Venture v. Dep’t of State, CBCA No. 5683 (Apr. 22, 2020)

In PSJV Serka Joint Venture v. Dep’t of State, CBCA No. 5683 (Apr. 22, 2020), PSJV Serka Joint Venture (PSJV) was performing a firm-fixed-price construction contract in Sierra Leone for the US Department of State.  The contract included an Excusable Delay clause, which “allowed time, not money, for excusable delays.”  The Excusable Delay clause included several illustrative examples that would fall within its purview, including “epidemics” and “quarantine restrictions.”

During contract performance, the Ebola outbreak spread to Sierra Leone.  Concerned about the health and safety of its personnel, PSJV sought direction from the contracting officer as to whether to suspend performance.  Citing the fact that the US Embassy remained operational, the contracting officer refused to direct PSJV; instead, the contracting officer left it to PSJV to decide how to proceed.  With the situation deteriorating, PSJV elected to stop work and evacuate its personnel.

PSJV eventually returned to the project site and resumed performance, but with additional medical supplies and services to protect its personnel.  PSJV then submitted requests for equitable adjustments for the additional costs.  When the contracting officer denied the claims, PSJV appealed to the CBCA.

On appeal, PSJV argued that the Ebola outbreak constituted a cardinal and/or constructive change to the contract.  The CBCA denied the appeal, reasoning that a firm-fixed-price contract places the risk of increased costs on the contractor, not the government.  In addition, the CBCA explained that the contract’s Excusable Delay clause explicitly stated that PSJV was entitled to “time, not money” for an epidemic response.  Critically, the CBCA further rejected the cardinal and constructive change arguments because the US State Department did not, formally or informally, direct PSJV to take action in response to the outbreak.  Rather, the US State Department placed the burden on PSJV to decide how to proceed. 

Valerie Lewis Janitorial v. Dep’t of Veterans Affairs, CBCA No. 4026 (May 5, 2020)

In Valerie Lewis Janitorial v. Dep’t of Veterans Affairs, CBCA No. 4026 (May 5, 2020), Valerie Lewis Janitorial (VLJ) was performing a firm-fixed-price custodial and aseptic cleaning services contract at a Veteran Affairs (VA) healthcare facility in Northern California.  During contract performance, the facility experienced an outbreak of clostridium difficile (C. diff), a disease that spreads through spores and poses serious health risks to the elderly and those with compromised immune systems.

In response to the outbreak, the VA set new cleaning guidelines, including a time-consuming two-step cleaning process.  The parties executed a contract modification that “formally add[ed] the two-step cleaning process to the Statement of Work,” but the parties did not agree on the amount owed to VLJ for the additional work.

VLJ submitted a certified claim to the contracting officer for the costs associated with the new cleaning process.  The contracting officer denied the claim, reasoning that the VA had learned through “contractor employee interviews” that VLJ had not actually experienced increased costs due to the new process.  VLJ appealed to the CBCA.

On appeal, the CBCA found that “[t]he VA’s direction that VLJ use a two-step process for aseptic cleaning amounts to a constructive change” because it placed more stringent requirements on VLJ than originally required by the contract.  Importantly, the CBCA explained that the contracting officer “directed VLJ to implement the two-step process with specific directions.”  The CBCA rejected the VA’s argument regarding “employee interviews” because the evidence was not supported by affidavits or other testimony.  The CBCA denied the other claims of both VLJ and the VA.  Thus, the CBCA granted VLJ’s appeal, in part.

Key takeaways

As detailed above, both PSJV and VLJ incurred costs responding to outbreaks of disease during performance of their respective contracts, but only VLJ was able to recover its additional costs.  The juxtaposition of these two cases provides helpful guidance to contractors considering how to best position themselves for recovery:

  • Know your contract requirements.The ability to recover costs can be affected by the contract type, the contract’s Excusable Delay clause, and the scope of the contract’s Performance Work Statement.Understanding the current contract requirements, including those related to compliance with laws and the health and safety of contractor and government personnel, should inform any discussions you have with the government about a potential change in requirements.
  • Obtain clear direction.To the extent possible, it is strongly encouraged to obtain specific and written direction from the contracting officer before taking action in response to the pandemic.
  • Document, document, document.Maintaining contemporaneous documentation of all relevant communications with government personnel may help support a claim in the absence of a contract modification or other clear direction from the contracting officer regarding how to proceed.Such documentation includes meeting minutes, internal notes to file and, where necessary, follow-up correspondence with government officials to confirm the contents of a conversation.In addition, as always, it is important to maintain detailed and, if possible, segregated records of any additional costs incurred related to the pandemic response.
  • Force a decision from the government. As PSJVdemonstrates, there are instances where the contracting officer may refuse to provide guidance.In such cases, it is encouraged to follow up and attempt to obtain buy-in from the government.For example, consider sending a letter detailing your planned course of action and, importantly, its necessity for complying with contract requirements.Placing the ball squarely in the government’s court, and seeking clear direction, can potentially improve a contractor’s chances of recovery in a subsequent claim.