By David Robbins, Partner, Crowell & Moring, LLP. Leader in Government Contracts and False Claims Act practices.
In this unprecedented time of global pandemic, government contractors, and industries supporting them have spent substantial effort understanding contract terms like force majeure, excusable delay, changes, and Defense Production Act rated orders. The surety industry is also rapidly learning these terms and clauses and how they apply to Miller Act bonds issued for federal construction contracts.
The Miller Act: The Miller Act, 40 U.S.C. § 3131, and applicable FAR Council regulations, requires construction companies performing contracts of more than $150,000 for the construction, alteration, or repair of any public building or public work of the federal government, to provide:
- A performance bond for the protection of the government for completion of the work, and
- A payment bond for the protection of persons supplying labor and material in carrying out the work.
Surety industry members are rightly concerned that the impact of the COVID-19 virus, and the associated economic slowdown, may cause losses associated with these bonds.
Relief from Contractual Provisions: As this article is drafted, federal, state, and local government agencies are rolling out policy statements and guidance on a nearly daily basis that offer some form of relief to government contractors and subcontractors, including construction contractors. But these provisions are not always self-effecting: contractors may need to act to secure certain types of delay, relief from contract terms, and other necessary contractual changes.
Notably, however, many agency guidance documents concerning COVID-19 related delays are refusing to consider otherwise applicable changes (that is, covering certain increased costs) that may take a significant financial toll on a contractor’s bottom line and potentially affect their ability to stay in business. It is too early to tell if normal operation of the government contracts related claims process will reimburse contractors for these additional costs, but case law exists to support these arguments.
What Sureties Need to Know: This uncertain situation leaves sureties wondering how to verify whether a contractor’s delay is acceptable to the government or a risk of loss. Here is what surety industry participants might want to request, and prepare the principals to provide:
- Contracting Officer acknowledgement of and agreement to change/delay.
- Only the Contracting Officer (CO) has authority to change contract terms. A writing from the CO agreeing to delay/changes is the best form of proof a principal can hold. Sureties should ask for this evidence first.
- Letter/email memorializing verbal discussion with the CO.
- COs may not have time to send letters to every affected contractor and might rely on verbal communications. Best practice dictates that contractors memorialize the discussion in writing back to the CO, either in the form of a contemporaneous letter or an email. This can be persuasive evidence a surety may become comfortable with.
- Contractual modification incorporating new department/agency guidance.
- Contract modifications may insert deviations from contracting regulations that contain certain types of relief for contractors impacted by COVID-19. While authoritative, the regulatory language can be general and may not be precisely tailored to the contractor’s situation. Sureties may rely on the regulatory language but may need to seek government contracts legal guidance to understand its applicability.
- Timely written notice from the contractor to the CO of the need for changes.
- Some types of contract modifications require timely notice (generally within 20 - 30 days) to invoke. While COs have the discretion to accept late requests, they are not required to do so. As time goes on, and especially after this initial crisis fades, timely communications and evidence thereof is likely to take on increased importance.
In times like these, corporate focus is on crisis management, mitigation, and survival. Recordkeeping is not always a top priority, but it should be. Comfort for surety industry participants issuing Miller Act bonds is likely to be found in properly kept contract files.
David B. Robbins is a partner in Crowell & Moring’s Washington, DC office and has extensive experience with False Claims Act litigation and investigations, including in the surety industry related to the construction of government buildings. Robbins ran the U.S. Air Force’s global Procurement Fraud Remedies Office and served, among other roles, as Deputy General Counsel (Contractor Responsibility). Robbins has a broad-based practice, and he is also the principal author and editor of the forthcoming American Bar Association peer-reviewed book entitled The Procurement Fraud Guidebook: The System, Stakeholders, and Response Strategies. He can be reached at firstname.lastname@example.org or 202.624.2627.