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By Seth Locke, Alexander Canizares, Paul Korol

Defense contractors’ costs resulting from the COVID-19 crisis are projected to be in the “lower end” of the “double-digit of billions of dollars,” according to Ellen Lord, Undersecretary of Defense for Acquisition and Sustainment, who testified before Congress on June 10, 2020.

Ms. Lord told the House Armed Services Committee that COVID-19–related costs facing the defense industrial base include paid leave costs as well as costs related to stop work orders, purchases of personal protective equipment, cleaning and sterilization, and scheduling delays.

Ms. Lord said that, without additional appropriations from Congress, the Department of Defense (DoD) will likely be unable to meet the costs of reimbursing contractors for paid leave under section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

By Alexander Canizares and Richard Oehler

Businesses that receive government funding under the nearly $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) should be mindful of the heightened risks of government investigations of fraud, waste, and abuse, for several reasons.

  • With the increased spending comes oversight. The CARES Act creates a new special inspector general for pandemic recovery within the U.S. Department of the Treasury to investigate misconduct, and provides resources towards identifying fraudulent activity related to the CARES Act programs.
  • Businesses are under pressure to apply for funds under the CARES Act, including government-backed loans under the $350 billion Paycheck Protection Program (PPP).
  • Borrowers applying for PPP loans are required to certify their eligibility for loans and make other representations that, if not properly substantiated, can expose them to allegations of fraud and potentially lead to damages and penalties.
  • Some businesses applying for PPP loans may not have previously dealt with the Small Business Administration (SBA) and may be unfamiliar with SBA’s affiliation rules, which are complicated and may make some entities backed by venture capital or private equity funds ineligible.

This update provides an overview of these enforcement risks and discusses the importance of diligence and documentation to mitigate these risks.

Authored by Alexander Canizares, Paul Korol, and Richard Oehler

The Department of Defense (DoD) has identified a way to speed the procurement of supplies and services to combat the coronavirus (COVID-19): Designate them as commercial items under the Federal Acquisition Regulation (FAR).

On March 30, 2020, the Defense Contract Management Agency (DCMA) issued a class Commercial Item Determination (CID) designating the following supplies and services as meeting the definition of “commercial item” to the extent they are procured in response to COVID-19:

  • Efforts associated with R&D or procurement of FDA-approved vaccines and antiviral medications that inoculate against or treat COVID-19. These are deemed “commercial” because they are being “developed by private institutions for the use and procurement by private entities (Hospitals).”
  • Efforts associated with establishing and setting up temporary booths, testing stations, or hospitals. This includes procurement of temporary tents or booths, and the services associated with manning such stations, but does not include procurement of real property.
  • Emergency medical supplies, such as personal protective equipment and ventilators, and services for COVID-19 relief efforts.
  • Facility-related services, such as efforts to “mothball” a building for long-term or permanent closure, or deep cleaning and remediation services.

Authored by Alexander Canizares, Paul Korol, Richard Oehler

On March 27, 2020, President Trump issued a third Executive Order (EO) invoking his authority under the Defense Production Act of 1950 (DPA) to respond to the coronavirus (COVID-19) crisis. In this third EO, President Trump has delegated additional powers to the Secretaries of Health and Human Services (HHS) and Department of Homeland Security (DHS) to offer direct loans and loan guarantees to businesses, to prevent hoarding of designated materials, and to incentivize domestic production of certain essential goods.

The EO supplements prior EOs issued on March 18 and 23, respectively, which gave the Secretary of HHS certain powers under the DPA to prioritize and allocate orders for, and outlaw hoarding of, health and medical resources needed to respond to COVID-19.

Authored by Alexander Canizares

Defense contracting is among the areas addressed in the 883-page Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (H.R. 748), which was passed by the Senate on March 25, 2020.

The $2 trillion bill provides spending in a wide range of areas intended to help businesses and people affected by the coronavirus (COVID-19) crisis. The bill now moves to the House for consideration.

Contractors can now find OMB- and agency-specific information and guidance related to the coronavirus (COVID-19) on a single government website: https://www.acquisition.gov/coronavirus.

The website has links to recent government guidance and memoranda, including the OMB’s March 20, 2020 memorandum to agencies concerning contract performance issues and emergency acquisition procedures related to the COVID-19 outbreak. The…

With the escalating economic turmoil created by the COVID-19 epidemic, companies are scrutinizing the force majeure provisions in their commercial agreements.  Some companies are seeking to determine whether they can rely on such provisions to avoid or delay their performance obligations under such agreements; other companies are concerned that their business partners may invoke such …

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On March 20, 2020, the Office of Management and Budget (OMB) issued guidance to executive departments and agencies regarding federal government contract performance issues associated with COVID-19. In this update, we summarize OMB’s guidance and provide recommendations for contractors whose contracts may be affected by the COVID-19 pandemic. Read More

On March 18, the president issued an executive order invoking the Defense Production Act. The order designates certain “health and medical resources” as scarce and critical materials essential to the national defense, and grants the Secretary of Health and Human Services significant power over their distribution and allocation in the civilian market. Under the order, …

In the wake of coronavirus (COVID-19), you may find yourself in a contractual relationship with a counterparty that asserts it cannot perform or you may be unable to perform your own contractual obligations. These situations make force majeure clauses, doctrines of impossibility and frustration, and material adverse change clauses of utmost importance. In this update …