Contractors still looking to recover costs associated with the COVID-19 pandemic got a hopeful sign last week. The Armed Services Board of Contract Appeals (ASBCA) determined that the U.S. Air Force (government) must compensate a federal contractor for the additional costs of complying with COVID-19 quarantine requirements. The ASBCA's decision in the Appeals of – Chugash Fed. Solutions, Inc., found that a clause incorporated into the contract put the financial risk of compliance with unexpected health and safety directives "squarely upon the government." In doing so, the ASBCA rejected the government's use of the sovereign acts doctrine to preclude liability. The ASBCA only decided the issue of entitlement and remanded to the parties to determine the amount of compensation. While the decision was based on the specific terms in the contract, it's positive news for those still holding the bag for expenses attributable to the pandemic. 

Dispute Between Federal Contractor and the Air Force

Under a contract awarded in 2012, Chugash Federal Solutions, Inc. (Chugash) and subcontractor Chenega Security Support Solutions (Chenega) provided operations support, security, and maintenance services to three remote military facilities in the Aleutian Islands and the north Pacific Ocean under the command of the Pacific Air Forces Regional Support Center (PRSC). In the month following the World Health Organization's (WHO) March 11, 2020, declaration of a global pandemic, the contracting officer (CO) emailed Chugash several times with direction to follow guidance related to COVID-19 control and prevention. Among that guidance was the requirement that all personnel, including Chugash and Chenega employees, quarantine for 14 days before traveling to PRSC installations. The ASBCA pointed out that there was no dispute over the prudence of government-imposed quarantines to prevent the spread of COVID-19 to remote military outposts with critical missions and limited healthcare facilities. The only question was "who bears its costs under the contract"? 

Key Contract Provisions

In addition to the changes clause found at Federal Acquisition Regulation (FAR) 52.243-4, CHANGES (JUN 2007), the government incorporated via full text DAFFARS 53521.223-9001, HEALTH AND SAFETY ON GOVERNMENT INSTALLATIONS (JUN 1997), into the contract. This clause requires the contractor to adhere to health and safety standards ordered by the contracting officer and provides that "any adjustments resulting from such direction will be in accordance with [c]hanges clause of this contract." In fact, the CO chose to include the full text of DAFFARS 53521.223-9001in correspondence with Chugash issuing COVID-19 directions along with various acknowledging Chugash's right to submit an equitable adjustment. In order to implement this guidance, Chugash incurred approximately $300,000 in quarantine-related costs and submitted timely certified claims to the CO. These claims were denied and Chugash appealed.

Despite the content of the CO's written guidance, the government argued during the appeal that the quarantine directives were outside of the scope of DAFFARS 53521.223-9001 because they applied to everyone traveling to the sites, not just Chugash and Chenega personnel. However, the ASBCA rejected that distinction, finding that although the clause only covered health and safety instructions that were "required in the performance of this contract," nothing limited its scope to provisions specific to the contractor. The ASBCA said that adherence to the quarantine policy met the standard to fall under DAFFARS 53521.223-9001, subjecting quarantine costs to equitable adjustment under the changes clause. 

Sovereign Acts Doctrine

The government argued that it was shielded from liability for the costs of quarantine by the affirmative defense of sovereign acts. The sovereign act doctrine allows the government, when acting as a contracting party, to assert an impossibility defense to claims of non-performance even when a government act causes the impossibility. Under common law, a private party would not be able to claim impossibility if their own actions had rendered performance impossible. However, the ASBCA declined to decide whether issuing a quarantine mandate was a qualifying sovereign act, though suggested it likely was. Other ASBCA decisions have held that COVID-19-related quarantines or base closures were sovereign acts. Here, however, ASBCA disposed of the sovereign acts defense by explaining that the government failed to establish that contractual performance was impossible, a required element of the defense. According to the opinion, "[t]o prevail under the impossibility test, the nonoccurrence of the act in question must have been a basic assumption of the contract, and the government must not have assumed the risk that such an act would occur." Because the contract included DAFFARS 5352.223-9001, which subjected Chugash to government health and safety standards as required in the performance of the contract, the ASBCA found that the occurrence of a quarantine was, in fact, contemplated by the contract. The language providing that "any adjustments resulting from such direction will be in accordance with [c]hanges clause of this contract" put the financial risk of any potential quarantine on the government. Since the impossibility requirement was not met, the sovereign acts defense failed to negate the government's liability even if the quarantine mandate was a sovereign act.  

Bottom Line

This opinion represents a significant victory for contractors seeking reimbursement for certain COVID-19-related costs. Previously, the ASBCA allowed the government to use the sovereign acts doctrine to insulate it from liability for cost increases caused by COVID-19 closures or quarantines without much resistance. With this decision, ASBCA has arguably created a path to pierce the government's blanket sovereign acts protection and allow appropriate recovery. Government contractors should review the facts of your matter with counsel and discover if your path to recovery is possible.

For more information, please contact:

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Alexandra S. Prime, aprime@milchev.com, 202-626-5940

Elissa B. Harwood, eharwood@milchev.com, 202-626-5890

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