The National Defense Authorization Act of 2023 includes a short but interesting provision reminding the Department of Defense (DoD) that the unilateral insertion of a new clause in a DoD contract is a change that may entitle a contractor to compensation. Section 805 of the recently signed legislation amends 10 U.S.C. 3862, “Requests for equitable adjustment or other relief,” inserting the following provision and making conforming amendments:
(c) Treatment of Certain Clauses Implementing Executive Orders.– The unilateral insertion of a covered clause into an existing Department of Defense contract, order, or other transaction by a contracting officer shall be treated as a change directed by the contracting officer pursuant to, and subject to, the Changes clause of the underlying contract, order, or other transaction.
The legislation also requires that the Secretary of Defense revise the Defense Federal Acquisition Regulation Supplement (DFARS) and policy guidance applicable to other transaction agreements (OTAs) to implement these requirements no later than 120 days after enactment.
This provision reflects concern from the House Armed Services Committee regarding a lack of uniformity regarding the implementation of requirements imposed by Executive Orders, which the president “routinely issues.” It seems likely that this provision was included because of confusion regarding the contract provisions issued in response to Executive Order 14042, which required that a new contract provision be included in government contracts mandating compliance with COVID-19 safety guidelines, including a mandatory vaccination requirement.
In October 2021, DoD issued a class deviation requiring that the new contract provision, DFARS 252.223-7999, Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors, be inserted in the following solicitations, contracts, task orders, and delivery orders for services, including construction, performed in whole or in part in the U.S. or its outlying areas:
(1) Solicitations issued after October 15, 2021, for contracts, task orders, and delivery orders expected to exceed the simplified acquisition threshold (SAT).
(2) Contracts, task orders, and delivery orders awarded on or after November 14, 2021, resulting from solicitations issued before October 15, 2021, that exceed the SAT.
(3) Extensions and renewals issued on or after October 15, 2021, of contracts, task orders and delivery orders that exceed the SAT.
(4) All options exercised on or after October 15, 2021, on contracts, task orders and delivery orders that exceed the SAT.
(5) Existing ID/IQ contracts anticipated to have orders that exceed the SAT and that have an ordering period that extends beyond October 15, 2021.
The deviation also provided that contracting officers could include the contract provision in solicitations, contracts, task orders, and delivery orders that fell outside of these requirements.
Contracting officers at DoD immediately began imposing the new contract provisions in the enumerated agreements as well as in others, in some cases asking that contractors sign bilateral modifications and in others simply imposing the COVID-19 provision unilaterally. When contractors responded that the imposition of the vaccine mandate would have significant costs and other impacts on the contract, contracting officers were often skeptical. Some contracting officers repeated the administration’s claims that vaccinated employees would not get sick or spread COVID-19; therefore, the savings from the vaccination mandate would likely offset any costs related to attrition or administration or the new contract clause. To the extent that there was any confusion on the part of DoD or the contracting community regarding increased costs resulting from the unilateral imposition of that provision being recoverable, this legislation should put that to rest.
Also, as directed, contracting officers included the new vaccine provision in pre-priced option awards exercised unilaterally by the government. While some contractors may have accepted this revision, the inclusion of the new provision in a pre-priced option meant the option exercise was invalid. Even if the reason for the change is a presidential order, an option exercise that is not in strict accord with the terms of the contract is a counteroffer, and a contractor can either agree to or reject that counter offer. If a contracting officer disagrees that the option exercise is invalid, a contractor must continue performance but can do so under protest to preserve its right to dispute the improper option exercise and seek to recover its actual costs of performance and reasonable profit.
The new addition to 10 U.S.C. 3862 is a helpful reminder that whether it originates from a contracting officer or the president, the unilateral insertion by the government of a new provision into a government contract or an OTA may entitle a contractor to an equitable adjustment. If you have any questions about equitable adjustments, please contact Richard Arnholt at firstname.lastname@example.org or 202-827-2971.