The Sovereign Acts Doctrine: Understanding COVID-19 Implications For Your Government Contract

The COVID-19 pandemic has introduced significant uncertainty for government contractors as agencies prepare for substantial disruptions, including the potential closure of military installations.  See e.g., Department of the Army COVID-19 Response Letter; Department of Defense COVID-19 Planning Memo (Mar. 10, 2020).  Given the potential impacts the pandemic may have on ongoing contracting activities, we have identified a few best practices for contractors to bear in mind as the ongoing crisis persists.

1. Get smart on the Sovereign Acts Doctrine. When the government acts as a contracting party, the law applicable to private entities governs the government’s contractual rights and duties.  Contractors doing business with the United States, therefore, can rely on the terms of a government contract to determine the legal remedy for government actions affecting performance.  The law also recognizes, however, that the actions of the United States, in its capacity as the sovereign, can affect a contractor’s performance of a government contract.  In such instances, the United States is absolved from liability for damages resulting from its sovereign acts, so long as those acts are “public and general” and not taken merely to avoid contractual obligations.  This common law defense to breach of contract is known as the Sovereign Acts Doctrine.  For a more detailed analysis of the ins and outs of the Doctrine, we encourage you to read our May 2019 article in Pratt’s Government Contracting Law Report.
2. Get smart on the excusable delay clause in your contract. Your contracts likely contain a FAR clause covering excusable delay.  For fixed-price contracts, that clause is FAR 52.249-8, Default (Fixed Price Supply and Service), which provides that a contractor is not liable for excess costs for a failure to perform a contract arising from causes beyond its control and without its fault or negligence.  For cost-reimbursement contracts, the relevant clause is FAR 52.249-14, Excusable Delays, which similarly absolves contractors for such costs.  Contractors should promptly request schedule extensions to avoid any finding of a failure to perform.  If the government denies such requests for extensions, then contractors should be prepared to either submit a request for an equitable adjustment (REA) once damages are reasonably certain, or file a claim under the Contracts Disputes Act (CDA).
3. Get prepared for an REA or CDA claim. Given the rapid and continued progression of the COVID-19 pandemic, significant disruptions such as those contemplated by the Sovereign Acts Doctrine may soon become inevitable.  Contractors therefore should consider assembling their teams in anticipation of submitting an REA or claim once business operations return to normal.  Developing the underlying facts for an REA or claim is time-consuming, arduous work.  It therefore may be prudent to convene your potential REA/claim team in advance to allow the Company to collect relevant data in real-time for inclusion in the eventual REA or claim.

If you have any questions regarding COVID-19 disruptions to your contracts, please reach out to one of the authors, or your standard MoFo contact.  Stay safe.

Morrison & Foerster has mobilized a team of legal advisors across our firm’s global practices and disciplines to offer you timely legal and business advice as this global health crisis continues to quickly evolve.