The Pentagon’s chief pricing official has issued new guidance to acquisition program managers on how to assess the costs and impacts of the COVID-19 outbreak on defense contractors, noting that additional funding has not yet been appropriated by Congress to reimburse companies for pandemic-related hardships or delays.
Kim Herrington, the acting principal director of defense pricing and contracting, signed a memo July 2 directing program managers to use their best judgement in the face of uncertainty and “historic and unprecedented challenges.”
“DOD contractors may have already incurred, and will likely continue to incur, delays and costs associated with their response to the COVID-19 pandemic,” he writes. “However, to date, no funds have been appropriated specifically for reimbursement of these costs.”
Herrington notes that Section 3610 of the Coronavirus Aid, Relief and Economic Security Act is intended to allow federal agencies to reimburse contractors that cannot work but are staying in a "ready state" if they have experienced facility closures or have employees unable to telework.
After the July 4 recess ends later this month, Congress is expected to continue negotiations over how to cover contractors’ pandemic-related claims amid debates over the size and cost of another COVID-19 relief package.
Meanwhile, Herrington writes “the costs that would be associated with such COVID-19 related, government-directed change modifications may be above and beyond current available funding.”
To that end, contracting officers may not make any contract modifications that result in an increase to the contract price “until and unless the department receives additional appropriations,” he writes.
Herrington notes contractors may be facing other costs unrelated to remaining in a “ready state.”
“Contractors may face further unplanned costs due to COVID-19, such as those related to providing [personal protective equipment] to employees, additional cleaning of work areas, changes to work spaces to accommodate social distancing, and delays in delivering and/or receiving purchased materials,” he writes. “Where allowable and allocable, these costs may be recovered on cost-reimbursement and incentive contracts.”
Contractors may also be eligible to receive relief from contract delivery requirements on account of COVID-19, but “there is no statutory, regulatory, or contractual entitlement to an adjustment to contract price for schedule delays that are attributable to excusable delays,” Herrington writes.
The Pentagon faces additional challenges, he writes, with contractors under fixed-price contracts, who must generally bear the risk of any cost increases, including those due to COVID-19.
But contracting officers are “granted discretion, subject to the availability of funds,” to modify contracts “to reflect changes to the government’s needs” resulting from COVID-19.
However, “any resulting changes in contract price must be substantiated by the contractor and determined by the contracting officer to be required to perform the contract as modified, and must be driven exclusively by the change(s) directed by the government,” Herrington writes.
Contracting offers are advised to be “mindful that they are stewards of the public funds.”
“They must only execute contract actions that result in fair and reasonable prices for the supplies or services provided and are determined to be in the best interests of the government,” Herrington writes.
President Trump last week said he would support another coronavirus stimulus bill, but wants it to include work requirements, setting the stage for a potential fight with Democrats over unemployment benefits.
Last month, Pentagon acquisition chief Ellen Lord said DOD needs supplemental funds in the “low double-digit billions” to reimburse defense contractors for pandemic-related costs.
Lawmakers, however, disagree over whether DOD needs supplemental funding or could find internal savings to pay for the reimbursements.
Lord told the House Armed Services Committee on June 10 that just one of DOD's major primes claims to have incurred in excess of $1.5 billion in costs related to Section 3610, along with an additional $1 billion or more in other COVID-19-related adjustments.
"The department does not have the funding to cover these costs," she told the committee.
But House Armed Services Committee Chairman Adam Smith (D-WA) late last month said DOD should not get supplemental funding in the next stimulus package.
"I believe they can meet those requirements within the budget we've given them and we don't need to give them any more money," he said.