At the end of December, China acknowledged the existence of the coronavirus. We don’t know how long it has been around or how many people have actually contracted the virus. We do know the virus has spread at an alarming rate and that people with the virus can now be found in 25 countries around the globe.

This burgeoning health crisis is becoming a supply chain problem. China, a major manufacturing hub for materials, products and components being used around the globe, has been significantly impacted.

Facing the alarmingly fast spread of the virus, China took a number of steps – delaying the return to work of millions following the lunar new year celebration, blockading entire cities where the virus is found to be most prevalent, and transporting those with the virus to isolation camps.

In addition, travel, transportation and shipping services to and from China have been cancelled or restricted. Certain airlines have stopped flying to locations in China. Countries are instituting screening and isolation protocols to prevent those persons with symptoms from entering their countries and further spreading the virus.

The Wall Street Journal reports that as of Monday there are “40,787 confirmed cases . . . according to John’s Hopkins Center for Systems Science and Engineering data . . . an increase of 102% from the 20,198 confirmed cases a week earlier.” Though that rate is lower than the 352% growth rate reported last week, these illnesses, city closures, travel bans, and transportation restrictions have impacted the global supply chain. Workers have been unable to get to their factories to produce materials, products and components. Supplies have been delayed or prevented from transport to their destinations. This has impacted sales, the manufacturing of additional products, and the delivery of services elsewhere. Given the expanding reach of the virus, further impacts to the global supply chain are likely.

What Can A Government Contractor Do Now?

Because of the global nature of the supply chain, these problems are likely to impact the public sector supply chain.

Government contractors must comply with the schedule and performance requirements in their contracts. They may be required to deliver in accordance with an established bill of materials or to use only qualified products. Even where they are delivering commercial or other items or services, they may experience problems or delays in obtaining needed materials, products or components. Contractors should start working now to identify the potential risks and impacts of this global problem.

Consider reviewing your contract terms to determine your rights and requirements under your contracts:

• Are you required to notify your higher tier prime or subcontractor of any risks or delays?
• Can you substitute products or components if items are delayed or unavailable?
• Do you have any rated orders under the Defense Production Act (DPA)? If so, you have an obligation to deliver what is required under the set schedule. You also may have a duty to notify the Government or your higher tier contractor if there are performance and schedule risks.

Consider whether your contract provides terms that may allow you to obtain contractual relief:

• Does the force majeure clause apply to your situation?
• Are these problems or delays excusable?
• Are the increased costs of performance recoverable?
• Is your schedule impacted and can you obtain relief?

These issues may also be applicable to your own supply chain members and further impact your performance.

Consider developing a plan to identify and address these concerns. Being proactive and strategic now may help you to avoid problems down the road.

If you would like to know more about how you might address these and other supply chain risks, contact Susan Warshaw Ebner or your Stinson counsel.