Government Contractors Beware: COVID-19 is not an Automatic Excusable Delay
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. In the United States, positive cases rose at an alarming rate and hospitals met or exceeded capacity. The economy plummeted as various industries shut down, causing nationwide delays and shortages. For government contractors, health and safety requirements as well as supply chain issues and worker shortages contributed to delays for delivery dates and contract completion. In many cases, contractors’ costs increased by hundreds of thousands of dollars. Many government contractors are left wondering if they will recover any of these additional costs.
As year three of the pandemic approaches, contractors are asking whether pandemic-caused delays are excusable on contracts entered during the pandemic?
Orsa Technologies, LLC, v. Department of Veterans Affairs, a recent decision from the Civilian Board of Contract Appeals (the Board), sheds light on this question and the fact COVID-19 is not an automatic excusable delay.
The decision provides some best practices for companies contracting with the government during the pandemic. These include:
- Scrutinize the solicitation and statement of work to ensure that you have the capabilities to perform as the contract requires;
- Consider conducting market research to determine whether your access to materials and products will be inhibited;
- If you have concerns about the availability of materials or health and safety requirements that may slow performance, raise them to the procurement officials before bidding. If you do not receive a satisfactory answer, reconsider whether you want to place a bid;
- If you are a general contractor, make sure that your subcontractors and suppliers can provide the work or materials needed to timely complete the contract; and
- If the contract contains an excusable delay clause, remember that you need to show that the delay is unforeseeable and that you were impacted.
On January 6, 2021, the U.S. Department of Veterans Affairs (VA) issued a request for quotation (RFQ) for the procurement of nitrile gloves for hospital staff in response to increased usage caused by COVID-19. The RFQ required: (1) that potential suppliers have brand name nitrile gloves in stock so that they would not need to be manufactured, (2) to deliver these gloves within forty-five (45) days of contract award, and (3) if the supplier was not the original equipment manufacturer, it had to provide evidence that the supplier was an authorized distributer of the manufacturer’s products.
In its response to the RFQ, Orsa Technologies, LLC (Orsa) confirmed that it could provide 50,000,000 Supérieur Brand Nitrile Textured Exam Gloves within 45 days of contract award and that it was an authorized reseller of the Supérieur brand gloves. Having met the requirements of the RFQ, on January 22, 2021, the VA awarded the contract to Orsa.
In February of 2021, Orsa lost its authorized reseller status for the Supérieur brand and began looking for other ways to deliver the 50,000,000 gloves to the VA. Although Orsa lined up alternative suppliers, a shortage of shipping containers and general delays worldwide made getting the gloves to the United States exceedingly difficult, and Orsa was not able to deliver the gloves by the contractual March 8, 2021 deadline. The contracting officer terminated the contract for cause on March 9, 2021, citing Orsa’s failure to deliver the gloves on time.
On appeal, Orsa challenged the termination arguing that the March 8, 2021 deadline should have been pushed back due to excusable delay. Orsa asserted that the nitrile glove market was significantly impacted by COVID-19. The entire glove market supply chain was affected by pandemic related factory and manufacturer shutdowns. Prices soared and Orsa argued that the fallout from COVID-19 created a “perfect storm” that was “unforeseeable, excusable and prevented [Orsa] from delivering the gloves by the contract delivery date.”
The Board disagreed for two reasons. First, the contract required that Orsa have the gloves in stock so the Board reasoned that Orsa should not have needed to coordinate delivery with other suppliers. Second, “the majority of the difficulties about which Orsa complains occurred or began before Orsa submitted a quote for and was awarded the contract at issue here.” The Board found that the “perfect storm” was already in play when Orsa accepted the contract. The excusable delay provision in the contract does not cover events that are foreseeable.
The Board also found that Orsa had notice of the adverse impacts to the glove market and, therefore, the delays were foreseeable. In such circumstances, Orsa could not use the pandemic as excusable delay because Orsa, in responding to the VA’s RFQ, assumed the risk of delivery delays and supply chain issues during an ongoing pandemic. Indeed, these issues are the reasons for which the VA required that any potential supplier have these gloves already on hand.
The Board pointed out that even if Orsa did not know about the specific impacts to the glove market, “[t]he mere existence of a pandemic does not mean that we simply assume, without evidence, that the pandemic actually affected the contractor’s ability to perform.” A contractor cannot just allege that it was delayed without providing specific evidence of impact. Orsa provided no evidence that the pandemic was the reason it could not supply the gloves. In fact, the Board found that the root of the problem was Orsa losing its authorized reseller status and having to find another supplier.
In sum, COVID-19 is not an automatic excusable delay. Contractors who enter contracts with the government cannot simply state that pandemic delays are excusable. Excusable delay provisions only cover unforeseeable events and circumstances. While the pandemic is ongoing, supply-chain issues, worker shortages, and general delays are all foreseeable. Contractors should therefore scrutinize the solicitation and statement of work to ensure they have the capabilities to perform as the contract requires. Conduct market research to determine whether access to materials and products will be inhibited. Raise any concerns about availability of materials and health and safety requirements to the procurement officials before bidding. To succeed with an excusable delay claim, you need to show that the delay is unforeseeable and that you were impacted.