Dealing with Contract Alterations and Modifications Due to COVID-19

There are many questions facing contractors during this time of upheaval from the coronavirus and the impact on the federal government’s role buying from federal contractors. We’ll try to address as many of them as we can through our COVID-19 Contractors’ Toolkit. One of the biggest questions is what can be done if the government modifies a contract, cancels work, or reschedules the performance of work. In that situation, it’s important to understand both the impacts on the prime contractor and any subcontractors.

Here are some steps to take to deal with this type of situation. Depending on the facts at hand, it might make sense to perform these steps in the order listed. In other situations, it may be helpful to reach out first, get the temperature of the government and subcontractors, and then review the prime contract and subcontract.

Review the Prime Contract. One important step is to closely review your contract with the government. This will lay out the circumstances under which the government is entitled to modify the contract.

Some common clauses to look out for include FAR 52.243–1 Changes—Fixed–Price. The version of this clause for services contracts allows a contracting officer to “make changes within the general scope of this contract” for issues such as

  • The description of services to be performed.
  • Time of performance (i.e., hours of the day, days of the week, etc.).
  • Place of performance of the services.

The supplies version of the clause allows similar changes to “[d]rawings, designs, or specifications” for supplies specially manufactured for the government. Other clauses with similar terms include FAR 52.243–2 Changes—Cost–Reimbursement; FAR 52.243–3 Changes—Time-and-Materials or Labor–Hours; and FAR 52.243–4 Changes. Be sure to check the specifics of the clause in the prime contract as each pertain to different types of contracts.

Pay close attention to the notice provisions of these clauses. For instance, the fixed-price changes clause requires a contractor to notify the contractor within 30 days after receipt of the change order from the contracting officer to request an equitable adjustment. But the government can vary this 30-day period per contract.

It’s possible the change to the scope of work might not be covered by these clauses. For instance, consider a contract for assistance setting up events. The government may simply not hold a certain event. Rather than modifying the contract, reality dictates that there is less work for the contractor to do. Taking a close look at the prime contract scope of work can reveal where the government may make these sort of alterations or opt not to request certain services.

One other thing. If you think that the government’s alteration has amounted to a change under the contract’s Changes clause, be sure to provide written notice to the contracting officer as soon as possible. A contractor has a responsibility to notify the government of a change that has not been identified in writing. FAR 43.104(a); FAR 52.243-7(b). Even if the contractor thinks the government has made an unofficial change, the contractor “shall diligently continue performance of this contract to the maximum extent possible.” FAR 52.243-7(c).

Some things to include in a notification to the government of a change are:

  • Date, nature, and circumstances: Who’s involved, any communications
  • Basis of acceleration of scheduled performance
  • Elements to seek adjustment: Line items effected; Adjustments to price, delivery, other; Labor or material added or deleted
  • Delay or disruption caused
  • Estimate of how long government can take to respond without contractor incurring additional costs

Review the Subcontract. Make sure you are familiar with the subcontract terms for whether it will allow modifications. For instance, some subcontracts may allow changes based on whether the government modifies the prime contract. Other subcontracts may include a schedule of performance, scope of work, task order, or similar section that sets out the work the subcontractor will perform under the subcontract. Review those sections to determine if the government’s alteration of performance impacts the work to be performed by the subcontractor.

Next, review the subcontract’s modifications section. What requirements does it contain for modifying the subcontractor’s scope of work? Are there notice requirements? Can the prime contractor unilaterally modify the subcontract or does it need to be done with the agreement of the subcontractor? These are important facts to determine and can vary from subcontract to subcontract.

Reach Out. Make sure lines of communication are open with both the contracting officer and the point of contact with all subcontractors whose work could be affected. Talk with the government early and often to stay informed about what the contracting officer is planning to do. Keep the subcontractor informed so that the subcontractor knows what to expect and how to plan for it.

These are just some of the things to be aware of when it comes to government changes or alterations of prime contracts. Your mileage may vary because it depends on the type of work being performed (e.g. construction contracts may move forward while event planning is curtailed or moved online), as well as the particulars of the prime contract and subcontract.

Regardless of the specifics, reviewing the pertinent agreements and staying in communication with the government and subcontractors is paramount. Please reach out if you have additional questions.