Many companies who work with government agencies are concerned this week as several news outlets have run stories about contract and grant “freezes” at the Environmental Protection Agency and potentially at other agencies.  The new administration has provided few details about the freezes, their objectives, the programs affected, or whether there are more to come.  But, in the case of the EPA, it appears to be a temporary agency-wide suspension of new contract and grant awards.  It remains uncertain whether (or how many) other agencies may follow suit.  While broad-brush freezes might not last long, now is a good time to consider your business and how you can manage through freezes and disruptions of various types that might impact contractors.

Even in the absence of details, there are common-sense steps that potentially affected contractors and awardees can consider to prepare for any freezes, and to protect themselves should a freeze impact their business.  We highlight some of the important steps below, and many will be familiar to contractors impacted by Sequester-era budgets.

1)  Customer outreach:  Concerned contractors and awardees should consider identifying and reaching out to their agency points of contact and asking about the status of current and future contracts, awards, and funding actions.  This is particularly true where, as now, there are few details about the nature of its freeze.

2)  Catalogue contracts and grants:  Freezes have the potential to delay funding of existing agreements, forcing contractors to halt operations or perform at risk.  To the extent a list of contracts and grant awards that might be impacted by this type of freeze is not readily available, companies should consider creating one.  If one exists, companies should consider updating it.  The list should include source of funds (appropriations, non-appropriated funds, grants, etc.) so that any differences in the applicability of freeze terms can be readily assessed.  Period of performance and option exercise dates should also be listed so that, should a freeze apply to options or to new awards, the date where the freeze would be felt is readily available.  Though perhaps intuitively obvious, projected revenue should also be listed, so the financial impact of any freeze is also close at hand.  Less obvious, however, is that companies may wish to highlight the applicable changes and terminations clauses to identify contractor responsibilities (if any) and opportunities presented by this contractual language.

3)  Monitor contract and grant scope:  Should a freeze prevent issuance of new awards, it is possible that the government will seek to add tasks to existing contracts and awards.  These steps can give rise to Changes Clause notifications and efforts to recoup payment for additional costs and/or tasks.  Be sure that directions to change the scope of work are clearly and timely documented, and that your compensation is agreed or at last clearly reserved as a right.

4)  Monitor human resources impacts:  In the event that any freeze lasts for more than a short duration and a company or business unit is impacted dramatically enough to consider job actions, Worker Adjustment and Retraining Notification Act (WARN Act) notifications and other labor and employment law considerations may become relevant.  Companies may wish to consider these impacts as part of freeze planning.

5)  Review subcontracts and subawards:  Disputes and litigation between prime- and subcontractors, or awardees and sub-awardees are possible second-order effects of freezes.  Companies may wish to catalogue and review subcontract and subaward documents to understand the rights and obligations on both sides of the agreement to prepare for potential disputes.

Crowell & Moring attorneys will be monitoring the situation closely, and will provide updates as more information becomes available.  Please contact us if we can assist with any of the steps identified above.