new federal acquisition regulation creating uncertainty for government contractors

On Sept. 30, 2021, the Federal Acquisition Regulation (FAR) Council issued a memorandum[i] providing direction to federal agencies for the incorporation of a new clause (FAR 52.223-99) related to the federal contractor COVID-19 safety protocol into their solicitations and contracts for construction and services. The clause implements guidance issued by the Safer Federal Workforce (SFW) Task Force pursuant to Executive Order (EO) 14042. This is not news.

The industry has already had a chance to digest the clause and numerous sources have issued a litany of frequently asked questions (FAQs) addressing compliance. What’s clear is that the clause and its implementation brings with it some good news and some less than good news.

Let’s start with the good news first. The clause is brief and to the point. It provides a handful of definitions, related to the geographic coverage of the clause, cites authority behind the clause (EO 14042), briefly states the general compliance requirements and prescribes a flowdown requirement to subcontractors at all tiers above the simplified acquisition threshold.

The less than good news is that the clause is brief and to the point. More specifically, once one has digested the “mandatory compliance with guidance” concept, it becomes evident that the “guidance” itself is published by the task force on a website linked to the clause itself which may be updated by that task force without notice. Essentially, contractors are required to comply with a requirement that is perpetually fluid with no formal modification or remuneration considerations. Putting the basic contracting quandary that this creates aside, the following are some key highlights from the guidance as of this writing.

Compliance requirements

The guidance puts forth three basic elements for compliance:

  1. COVID-19 vaccination of all covered contractor employees, except in limited circumstances where an employee is legally entitled to an accommodation, no later than January 18, 2022
  2. Compliance by individuals, including covered contractor employees and visitors, with the guidance related to masking and physical distancing while in covered contractor workplaces; and
  3. Designation by covered contractors of a person or persons to coordinate COVID-19 workplace safety efforts at covered contractor workplaces.

Key definitions

The “guidance” also has several definitions, two of which are worth highlighting in detail:

Covered contractor employeemeans any full-time or part-time employee of a covered contractor working on or in connection with a covered contract or working at a covered contractor workplace. This includes employees of covered contractors who are not themselves working on or in connection with a covered contract.

The FAQs further clarify “in connection with” a covered contracts as “Employees who perform duties necessary to the performance of the covered contract, but who are not directly engaged in performing the specific work called for by the covered contract, such as human resources, billing, and legal review, perform work in connection with a Federal Government contract.”[ii] This definition would appear to include both “direct” contract employees and “indirect” contract employees.

Covered contractor workplace — means a location controlled by a covered contractor at which any employee of a covered contractor working on or in connection with a covered contract is likely to be present during the period of performance for a covered contract. A covered contractor workplace does not include a covered contractor employee’s residence.

These two definitions are expansive and reach more broadly than employees or a location simply assigned to a federal contract due to the cascading impacts of assessing who is performing or supporting a covered contract, where those employees are assigned or may work from, and the additional company employees at those same sites. For many companies, this creates an either/or scenario where many of their non-federal contractor employees can become impacted by this EO as well, an unstated but purposeful goal of these orders.

Implementation by agencies and exclusions

The FAR council memo specifically lays out exclusions for certain contracts and subcontracts with Indian Tribes under the Indian Self-Determination and Education Assistance Act as well as contracts where performance is outside the United States or outlying areas. While the memo specifically requires inclusion of the clause in construction and services contracts, it “strongly encourages” the clause to be included in contracts under the simplified acquisition threshold (i.e., less than $250,000) as well as contracts to manufacture or procure products. While the EO explicitly states the mandate does not apply to grants, the FAR council did not address the EO’s application to “contract-like instruments” (i.e., cooperative agreements).

Agencies have taken this “encouragement” and amplified the clause’s ambiguities by both taking inconsistent approaches across departments as well as within departments, such as the Department of Defense. Similarly, GSA issued a class deviation to apply the mandate to all Federal Supply Schedule contracts, including those for products.

Bottom line: Contractors and prospective contractors should not assume they will be exempt from the federal contractor mandate simply because they provide products or low dollar volume orders to the US government.

Compliance questions and considerations

These mandates have already led to a number of legal and employee relations challenges. This mandate intersects with employee privacy rights, the proposed OSHA and Medicaid/Medicare vaccination mandate rules and a host of other existing labor laws. Apart from the legal considerations, there are still a number of fundamental compliance questions and considerations that remain unresolved:

Should contractors sign release of claims if presented along with the incorporation of the clause?
  • How can companies reasonably assess the impacts of guidance or requirements not yet published or known?
Are contractors offered relief (i.e., schedule/scope/cost) in conjunction with the compliance considerations and impacts set forth?
  • For example, should contractors bear the burden for retraining or onboarding inefficiencies due to the potential “forced” removal of unvaccinated employees from contract work?
How should contractors account for the costs of compliance with the guidance and FAQs, including designating a person to coordinate workplace safety and associated impacts to facility layouts or other working conditions?
  • What types of costs of compliance are/are not allowable?
  • How should contractors capture and allocate these costs of compliance?
  • Are these direct costs to the contract(s) that contain the clauses? Or indirect costs to be shared across a contractor’s entire business, including non-governmental work?
  • What if costs are, or become, material in the future based on ever evolving guidance?
What processes and controls are necessary to identify and flow these requirements to subcontractors, supply chains and vendors?
  • Is it more cost effective for businesses to mandate compliance for the entirety of their supply chain than attempting to parse which circumstances the clause must be included in?
  • For instances where the clause is a clearly required flow down to a subcontractor, what steps can a contractor take to mitigate impacts to project delivery?
What are the SFW Task Force’s expected disciplinary actions for employees that do not comply with the mandate? The guidance does not require termination, so the Task Force is essentially forcing employers to “be the bad guys” and decide how they comply, along with accepting any risk of contract nonperformance (during a labor shortage) or retaliatory legal actions.
  • Is a company which generates the preponderance of its revenue from contracts with the U.S. government putting itself at risk for audits or enforcement actions if it does not conclude a similar proportion of its employees are covered by the mandate?

While there’s still a lot of unknowns, contractors should still plan to implement many of the best practices Baker Tilly noted at the very beginning of the pandemic, including key elements like documenting everything contemporaneously, and segregating and tracking costs incurred to comply with the clause. Requests for equitable adjustments or claims may be necessary for companies to recover the costs of implementing policies and practices imposed by the clause and responding to ever-changing guidance and FAQs issued by the SFW Task Force.

If you are faced with similar questions or would like support in your efforts to implement business processes to address this mandate, reach out to our government contracting team of experts. Baker Tilly can help you lay the foundations necessary to quantify and support solid future claims to the federal government!

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