Government Contracts Monitor

Is There Relief For Government Contractors in Japan?

March 25, 2011

By: Lindsay Simmons

In the wake of the earthquake, tsunami, and nuclear reactor crisis in Japan – and the resulting power and food shortages, water contamination, and voluntary evacuations at certain U.S. bases – many federal government contractors providing goods and services on military bases there must assess the direct and indirect impact of these catastrophes on their contracts.  Will they be asked to leave the U.S. military base where they are performing their contract?  Will their performance be delayed as a result of power outages, contamination or other impacts from the tsunami?  Will the U.S. government prevent them from performing or decide to change or terminate their contract?

The term "force majeure" does not appear in the Federal Acquisition Regulation (FAR).  However, force majeure is generally covered in a number of "excusable delay" clauses such as, e.g., FAR Clauses 52.212-4, 52.249-8, and 52.249-14.  In a situation involving unusually severe weather, the excusable delay clause is one of the most important FAR clauses.  It prevents a contractor from being held in default for its failure to perform.

But a contractor is not entitled to relief simply because an excusable delay has occurred.  A contractor must also be prepared to demonstrate that it: (i) did not control or contribute to the event; (ii) could not overcome the effects of the event; and (iii) was delayed in performing its contract as a result of the event.

Federal contracts typically provide for non-compensable time extensions for excusable delays arising from events such as unusually severe weather or Acts of God.  See, e.g., FAR Subpart 42.13 Suspension of Work, Stop-Work Orders, and Government Delay of Work; The Rice Co., AGBCA No. 2003-188-1, 2005-2 BCA Sec. 32,005 (2005)(delayed delivery of supplies was excusable because of hurricane).  However, excusable delay is just that – an excuse a contractor can use to escape liability to the government for failing to meet the time commitments of its contract.  It does not provide a contractor with compensation for the increased costs due to the lost time or otherwise.  In order to recover these costs a contractor may have to look beyond the excusable delay defense. 

For example, natural disasters such as those that recently befell Japan may make continued performance impossible or commercially impracticable.  In such situations, the government may wholly or partially terminate the contract for its convenience, entitling the contractor to its costs to date, plus a reasonable profit on the work performed, and the costs to wind down the contract.  This outcome could result from a direct, written termination notice from the contracting officer, or its cause could be more subtle: a constructive termination based on actions by the government alone or in combination with events or conditions in the affected areas of Japan.

Such a natural disaster may also cause the government to make changes in a contractor’s work, entitling the contractor to an equitable adjustment in the contract price and schedule.  Again, a contracting officer could issue a Change Order, or the change could be “constructive” in nature, requiring the contractor to notify the contracting officer.

Some contractors may even be eligible for extraordinary contractual relief under Public Law No. 85-804, a statute that gives executive agencies the authority to modify existing contracts to facilitate the national defense.  50 U.S.C. Sec. 1431-1434; see also FAR Part 50.1. 

Whatever the situation – damage to contractor property, delay in performance, impossibility of performance, changed conditions, evacuation – a contractor must, at a minimum, carefully examine the specific provisions of its contract, follow the written instructions of its contracting officer, and, where appropriate, put the contracting officer on notice of changed circumstances, to make certain its rights are understood and preserved.  In the end, contractors are responsible for pursuing appropriate contractual relief for the effects of a disaster on their work.

 

Lindsay Simmons is responsible for the content in this article.