Best Practices of Government Contractors in Light of the Withdrawal from Afghanistan (Part 1)
It is difficult to describe the manner in which the United States is withdrawing from Afghanistan. At this point, the safety and security of Americans and those who provided essential assistance to US operations in Afghanistan are at the forefront of everyone’s thoughts. However, contractors in Afghanistan face the repercussions of halting operations in Afghanistan or facing significant changes in contract performance requirements. Translated – this means ensuring fair compensation for terminated or amended contracts.
This blog post focuses on aspects of contract administration that entrepreneurs should be thinking about now to prepare for and mitigate downstream and currently unknown risks. Below is a list of questions that contractors supporting operations in Afghanistan should consider.
One potential scenario is termination for convenience (full or partial) of the contract. The government has wide discretion to unilaterally terminate contracts or may, prior to formal termination for convenience, order a contractor to suspend or temporarily stop work. Termination for convenience is governed by FAR 52.249-2 (flat rate) or FAR 52.249-6 (reimbursement of costs). The situations of suspension and stoppage of work are governed respectively by FAR 52.242-14 and 52.242-15.
Whatever mechanism is used, entrepreneurs forced to temporarily or permanently stop performance will face immediate challenges and unforeseen responsibilities. Below are the key actions entrepreneurs should take in response.
- Stop the job as instructed. Inform affected employees and instruct them on how to capture time as the settlement process evolves.
- Inform all subcontractors and suppliers and ask them to do the same.
- Establish cost accounting charge numbers to accumulate applicable costs. Initiate cost mitigation efforts and retain related documentation of efforts to do the same for future demonstration to government.
- Identify situations and root causes giving rise to unforeseen costs due to government actions, for example, increased site and personnel security, transportation, evacuation, employee severance packages, etc.
- Protect and preserve to the extent possible all equipment and property owned by the contractor and the government. Identify alternatives for disposing or abandoning the property on site depending on the logistics and circumstances at the site.
Contractors made redundant or ordered to stop work may have the right to request applicable financial relief in accordance with the FAR clauses referenced above. These government actions, simply due to the circumstances surrounding the current and developing environment in Afghanistan, are likely to result in various unforeseen and extraordinary situations having a direct impact on the ability of contractors to effectively manage and / or settle their existing contracts and to collect outstanding debt. costs incurred as a result of these government actions.
Entrepreneurs should be proactive and now consider the possibility of ending or stopping work situations; what may be the potential implications; and the actions to be taken to address or mitigate the associated compliance, performance and cost risks.
Some affected contracts may not be terminated but will continue under changed circumstances. For example, some contractual requirements may include continued performance at a distance, outside of Afghanistan, or a contract involving the management of government-owned property in Afghanistan may be transferred to services securing such property in another country and / or transporting the equipment to the United States or other location. Contractors should determine whether the above would imply a compensable change under any of the modification clauses of FAR 52.243 or DFAR 252.217-7003.
Given the rapidly and constantly changing environment in Afghanistan, contractors are unlikely to receive a change order reflecting the unilateral modification of the contractual requirements of a contracting officer. It is more likely that a contractor will need to notify their contracting officer in a timely manner of a constructive change to their contract performance requirements. Constructive change occurs when the action or omission of a contracting officer has the same effect as a formal change order.
Whether it is a change or a constructive change, unless it is prolonged, a contractor must assert his right to a cost or price adjustment within 30 days receipt of a change order or other notice from its contracting officer. Despite the change, unlike in the business world, an entrepreneur must continue to perform.
In addition, entrepreneurs must:
- Confirm that the direction of the change comes from its contracting officer. Only contracting officers have a mandate and can change the terms of a government contract.
- Be aware of the funding issues, i.e. the cost of the change will not result in the cost of performance exceeding the applicable FAR or DFAR fund limitation clause.
- Familiarize yourself with what constitutes a change. Changes to performance requirements are relatively easy to identify but schedule changes (that is to say, delay, interruption, expedited delivery) and unpredictable constructive changes, such as increased delivery costs because supply lines are limited or a different mode of transport is required, are more subtle. If in doubt as to whether a change has taken place, a contractor must assert his rights for a contract adjustment within 30 days. Such a claim can always be withdrawn, but failure to meet the deadline could be fatal to recovery.