Navigating the Business Risks Associated with the Federal Contractor Vaccine Mandate
This content is presented by Fox Rothschild LLP
President Biden recently issued Executive Order No. 14042 requiring covered federal contractors ensure that their employees are fully vaccinated against COVID‑19 unless an employee otherwise requests, and receives an accommodation for sincerely held religious beliefs or a medical condition that justify them not being vaccinated.
Substantive guidance has been issued by the federal government to implement the provisions of the Executive Order. Specifically, on September 24, 2021, the federal Safer Federal Workforce Task Force issued guidance to implement the Executive Order and continues to update its guidance regularly on these processes. On September 30, 2021, the FAR Council issued a memorandum allowing federal agencies to issue class deviations to implement the Executive Order and the pending FAR 52.223-99, Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors, to memorialize the vaccine mandate. Further on September 30 and October 1, 2021, the General Services Administration (GSA) and the Department of Defense (DoD) issued class deviations formally implementing the vaccine mandate.
In general, there are two primary business risks associated with the new federal vaccine mandate: (1) the increased cost or extended performance time associated with complying with the mandate; and (2) potential future civil False Claims Act liability in the event that contractors and subcontractors have not made good faith efforts to comply. The first risk is currently affecting contractor implementation of the mandate as we speak, and the second risk under the False Claims Act will surely follow in the future.
Reserving Contractor Rights to Additional Cost and/or Time to Implement the Mandate
The stated objective of the federal vaccine mandate is to “promote economy and efficiency in federal contracting” through decreased worker absences and hence reduced labor costs, among Federal contractors and subcontractors. However, the mandate will surely cause additional cost and time impacts on many federal contracts as the mandate will adversely affect the ability of contractors to perform as planned before the mandate was implemented due contractor (or subcontractor) employees failing to comply with the mandate, employees quitting as a result of the mandate, employees seeking accommodations that make them less effective at performing their duties, and/or contractors and subcontractors being unable to hire employees in an ever tighter job market. All of these outcomes will increase administrative and overhead costs for contractors as it is yet one more federal requirement for contractors and subcontractors to have to deal with to ensure compliance with applicable regulations. In sum, the mere existence of the mandate will increase costs and the likelihood of performance delay for contractors, subcontractors, and suppliers on federal projects across the board.
The class deviations issued by GSA and DoD require that the respective agencies issue bilateral modifications (requiring the consent of both the prime contractor and the agency) to incorporate the vaccine mandate (through the incorporation of FAR 52.223-99 or DFARS 252.223-7999 into the prime contract). Therefore, contractors must be wary of signing any modification issued by the government that does not address the contractor’s ability to recover additional costs or time as a result of the implementation of the mandate. Contractors that do sign modifications run the risk of waiving their potential rights to increased costs or time, if any, and must either price the modification as a change to the contract or reserve their right to submit for increased costs and time in the future before signing any modification.
Future False Claims Act Liability for Failing to Comply with the Mandate
While neither the Executive Order nor the Taskforce Guidance contain any direct penalty for failing to comply with the federal vaccine mandate, experience has taught us that federal contractors are required to certify compliance with all contract requirements, including the vaccine mandate, every time they submit an application for payment. Therefore, it is simply a matter of time before qui tam (False Claims Act) whistleblowers, the various Offices of Inspector General, or the U.S. Department of Justice begin alleging that contractors have violated the False Claims Act by submitting and certifying to payment applications when they clearly knew they were not compliant with the vaccine mandate and failed to make good faith efforts to comply. While the Taskforce’s response to Frequently Asked Questions makes clear that prime contractors may reasonably assume that their subcontractors are in compliance, prime contractors are obligated to exercise due diligence with their subcontractors to ensure compliance and cannot do so if they have credible evidence to the contrary. “Credible evidence” is a term pulled straight out of the FAR’s ethics and compliance contract clause, FAR 52.203-13 Contractor Code of Business Ethics and Conduct and requires a contractor to make a mandatory disclosure of a violation of, among other things, the civil False Claims Act.
Therefore, federal contractors subject to the federal vaccine mandate must take the mandate seriously, exercise good faith efforts to comply, and think carefully before signing any modification related to the mandate to avoid giving away their rights to additional cost and time resulting from the implementation of the mandate.
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