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Coronavirus’s Impact on Federal Contractors

Energy companies often find themselves in business with the federal government—selling natural gas and electricity to federal facilities, providing energy savings services, supplying jet fuel, furnishing renewable power, and privatizing federally-owned energy facilities, among other activities. Coronavirus’s impact on federal contractors and their ability to perform their contracts is inevitable. In the coming days and weeks, a federal agency may curtail access to its facilities and thus, impede a contractor’s ability to perform. Or a federal contractor might experience supply chain delays due to the effects of the virus. Or sickness or quarantines could diminish a contractor’s own workforce, rendering it unable to meet deadlines. While there are innumerable scenarios that the Coronavirus threat is likely to generate that will affect federal contractors, two features of these contracts may be of critical importance to energy industry companies.

Like many commercial contracts, federal government contracts often contain provisions that excuse performance in emergency situations that are outside the control of the contractor, such as the Coronavirus. The Federal Acquisition Regulation (“FAR”), found at 48 C.F.R. Parts 1-52, is applicable to nearly every federal purchase of goods or services with appropriated funds. The FAR contains several clauses that excuse performance delays due to events such as epidemics and quarantines. See, e.g., FAR FAR 52.212-4(f); 52.249-14(a);. Other FAR provisions protect contractors from default terminations for failure to perform if the default is beyond the control of the contractor. See, e.g., FAR 52.249-14 and FAR 52.249-8 and -9. Whether a particular FAR clause is included in a federal contract depends on a number of factors, including the type of contract (fixed price versus cost reimbursement) and what the government is purchasing (e.g., commercial items). Contractors engaged with any federal government agency and facing potential impacts from the Coronavirus threat will want to carefully review each contract to determine whether these or other clauses offering relief are in their contracts, and meticulously follow the requirements of any relevant clause.

Unlike commercial contracts, and unique to the government contracting arena, is the potential application of the Defense Priorities and Allocations System (“DPAS”) regulation (15 C.F.R. Part 700) and FAR 52.211-15, the Defense Priority and Allocation Requirements clause to a contract. Often overlooked, a government contract can be identified as subject to DPAS requirements when an innocuous block at the top of the federal standard contract form cover sheet provides “This Contract Is A Rated Order Under DPAS (15 CFR 7900)” and identifies the applicable DPAS rating. Contracts subject to DPAS requirements—which are most often issued by Department of Defense (“DoD”) entities—can have a major impact on contractors. The purpose of the DPAS requirements is to ensure that DoD’s most critical needs are prioritized as necessary to meet required delivery dates. See 15 C.F.R. § 700.3. A company that holds a government contract that is identified as DPAS-rated must assign priority to that contract before fulfilling the requirements of other contracts. The basic consequences of this are twofold: first, the government can require prioritization of performance of its contract to the detriment of the contractor’s other customers; and second, because a contractor with a DPAS-rated contract must serve the government as a priority customer, the contractor may experience resulting performance difficulties on its subordinated contracts. Thus, energy industry companies who hold both federal contracts and commercial contracts must be aware if they are performing DPAS-rated contracts, comply with the related clauses and regulations, and proactively manage any potential resulting delays that may result on their commercial contracts.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.