Galaxy

Authored by Jennifer Flickinger and Alex Mikhelson
Aside from focusing on the safety and well-being of their personnel and their businesses amid the COVID-19 response, the government contracting community has also had to deal with digesting the plethora of information and guidance coming out from Congress, the Office of Management and Budget and individual agencies. Much of the guidance has had a similar flavor, recognizing the impact on the greater community and providing the government’s commitment to protecting and working together with its contracting community. NASA’s recent guidance, however, takes a stronger, more defined position. NASA’s definitive stance stems partly from its unique circumstances.

NASA operates from fewer locations than many other agencies. Unfortunately, individuals at several of these locations have been diagnosed with COVID -19. On March 17, NASA leadership elevated all centers and facilities to stage three of NASA's response framework, effectively transitioning all employees and contractors to mandatory telework. Mission-essential personnel continued to be granted access on-site. Subsequently, some facilities further restricted access, moving to stage four and limiting on-site access to protect life and critical infrastructure. In response to the ever evolving situation, NASA’s office of procurement released a memorandum titled “Preserving Readiness of the Space Industrial Base and Mission Operational Readiness due to the Coronavirus (COVID-19) Situation.”

NASA’s memorandum gives clear instructions to both contractors and their government counterparts surrounding denial of access to facilities, teleworking and stop-work orders. Even more importantly, it directs employers to maintain their workforce and readiness to assume full contract performance. Fortunately, NASA recognizes that maintaining readiness comes at a cost.

For on-site contractors, NASA invoked the NASA FAR Supplement (NFS) clause at 1852.242-72. Under the clause, contractors should maintain their workforce so that they can immediately resume operations. However, this clause doesn’t give contractors a blank check. They must still use sound judgment (in the absence of specific contracting officer direction) to minimize unnecessary contract costs and performance impacts. For contractors, this means implementing remote work, redeploying resources where possible, or documenting the reasons why these actions aren’t feasible.

Additionally, NASA instructs its off-site contractors to continue performance. In the event that contract activities cannot continue, the memo instructs contractors to contact their contracting officers, who will treat any stoppage or interruptions consistently with FAR 52.242-15 Stop-Work Order. Again, contractors are still required to mitigate costs while maintaining readiness to assume full performance once the emergency has passed.

NASA recognizes that contractors will incur costs to maintain the readiness of their workforces. As a result, it is establishing advance agreements with contractors to ensure that these costs are treated as allowable contract costs, similar to other safety or weather-related leave. NASA directs contractors to contact their contracting officers should companies face work disruptions. While NASA intends to provisionally pay its contractors for these costs, NASA will require contractors to reconcile provisional payments to actual costs as part of a request for equitable adjustment.

NASA’s memo provides contractors with a clear path forward. Affected contractors should be identifying affected work and initiating discussions with contracting officers. As NASA’s clear preference is to continue work where possible, contractors should explore creative solutions for telework. (e.g., Is it possible to perform later phases of work to allow employees to work remotely?) Where remote work is impossible, redeployment of personnel is the preferred next step. When redeployment is not possible, contractors are entitled to establish a new category of COVID-19 leave in order to compensate and maintain its workforce. Contractors must identify and segregate these costs and ensure that the leave complies with its current policies. Where this type of leave is unaddressed, contractors should amend their policy to cover this special leave.

NASA’s memo demonstrates it’s dedicated to maintaining the financial capability of its contractors and will take action to solidify contractor cash flow. As we’ve stressed in prior communications, contractors must understand the COVID-19 impacts to their businesses and track those costs with some reasonable degree of visibility. Actively communicate with contracting officers regarding your specific situations. Last, but most importantly: document, document, document. Eventually, contractors must submit requests for equitable adjustment (REAs) that support costs incurred and demonstrate the reasonableness of actions taken to mitigate costs in the midst of the crisis.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Colorful buildings in the city
Next up

Market takes a wild ride