Defense industry executives are concerned that ambiguities in President Joe Biden’s vaccine mandate for federal contractors will create financial and legal risks for some 20 percent of America’s businesses.

The danger that thousands of skilled defense contractor employees, in particular, would quit or be fired after the contractor mandate takes effect has received considerable attention on Capitol Hill and beyond. But virtually no public debate has occurred about how a lack of clarity in the government’s guidance could adversely affect businesses that employ several hundred thousand Americans.

Numerous Republican-led state governments are filing lawsuits to block the contractor vaccine mandate. But the issues of concern to the defense industry have nothing to do with whether or not the government should issue such a mandate. 

Instead, the industry’s biggest worries, after the prospect of potentially losing thousands of skilled workers, is how ambiguities in the order have created other forms of uncertainty for their businesses. 

Dan Kelly, a leading attorney who is helping the National Defense Industrial Association sort through the mandate’s implications, said in an interview that the government’s unclear approach to the mandate could spell trouble for businesses on whom the Pentagon and other agencies rely for critical work.

“Contractors remain concerned about the loss of key employees, the lack of clarity on whether and how the contractors will be able to recover costs associated with the disruptions to their business because of the mandate, and their ability to meet delivery requirements of the customers up the federal supply chain,” said Kelly, a partner with the McCarter & English law firm.

More time, not more clarity

The administration is requiring vaccines for more than just federal contractors. In the defense sector, vaccines are also required for Defense Department civilians and uniformed personnel. 

Meanwhile, a broader Occupational Safety and Health Administration rule set to take effect in January will govern coronavirus protections in all U.S. businesses employing over 100 people.

Earlier this week, the administration clarified guidance on the contractors’ mandate, saying they should first counsel vaccine-resisting workers before firing them. 

Biden also extended the deadline for contractor compliance from Dec. 8 to Jan. 18. Contractor employees must have their final vaccine dose by Jan. 4 to meet the deadline.

The announcements of updated and more relaxed enforcement policies were welcome news for the defense industry.

Sen. James M. Inhofe of Oklahoma, the top Republican on the Armed Services Committee, in a statement Thursday, called the updates a “major victory,” though he promised to keep fighting the mandates. 

Key questions unanswered

Although defense contractors were relieved to hear of the administration’s more relaxed approach to the mandate, they are still fretting about how to implement it, even after several meetings with administration officials.

The foremost concern for Kelly and others with ties to the defense industry is what happens when, as a result of a loss of personnel who refuse to be vaccinated, a company is unable to meet cost and schedule requirements in a contract. 

Ordinarily, when changes occur in executing a contract, including those that are out of the contractors’ control, and when those changes cause delays, certain higher costs are allowable under federal and Pentagon acquisition rules.

But costs due to vaccine-related loss of workers are most likely not an allowable category of cost for which a company can get relief. “This is the most common and urgent concern of contractors,” Kelly said. 

Another concern for the companies the government directly hires — so-called prime contractors — is whether they are also responsible for verifying vaccinations at the subcontractors they hire.

The question of which subcontractors must comply is “the greatest ambiguity and uncertainty” about the order, Kelly said.

The government’s guidance on the mandate says service subcontracts valued at $250,000 or more must meet the vaccination requirement. And it says federal prime contractors are encouraged to require all their other subcontractors to meet the same standard. 

The problem that arises is that some prime contractors may enforce the standard on all their subcontractors, collecting medical records at significant cost, while others will not. 

The result, Kelly said, is an uneven playing field among companies.

Prospect of layoffs

Biden predicted in a statement Thursday that the vaccinations would be more broadly accepted than many predict. 

“There have been no ‘mass firings’ and worker shortages because of vaccination requirements,” Biden said. “Despite what some predicted and falsely assert, vaccination requirements have broad public support.”

To be sure, a largely unvaccinated workforce that is more exposed to the virus will also be less productive.

Even so, some companies, including top developers and manufacturers of U.S. weaponry, may lose thousands of workers who refuse vaccines. At Raytheon Technologies, executives estimate that several thousand workers could need to be replaced. At Ingalls Shipbuilding in Mississippi, one of the country’s biggest manufacturers of Navy warships, some 23 percent of the employees have yet to receive even a first shot as of this week, a company site showed.

Nationwide, about 30 percent of American adults are not yet fully vaccinated.

Sen. Tommy Tuberville, R-Ala., a member of the Armed Services Committee, and others highlight the risk to a smaller company of losing even a handful of valued employees. And smaller companies have a harder time navigating the mysteries of a vague order.

Even after the administration made clear that it was not requiring contractors to promptly fire unvaccinated employees, Tuberville told CQ Roll Call via an emailed statement that the mandate “is still a compliance burden on small contractors.”

No reporting requirement

Even if the administration now says that firing a contractor employee who refuses a vaccine need not happen right away and that counseling and cajoling should be the first resort, the prospect of losing even single-digit percentages of a skilled workforce is daunting for defense contractor executives. 

Some of them, fearing such losses, may be tempted to look the other way and not enforce the mandate. That option will be considered by many because there is no requirement that companies report or certify their compliance to the government, Kelly said.

That may change. But as of today, companies are expected to enforce vaccine mandates but not to prove it to the government. 

While this might sound like a relief for contractors, it creates problems for them, Kelly said.

Those companies who do not enforce the mandate for their workers could expose themselves to civil or criminal liability if, for example, a whistleblower employee reported to the government that unvaccinated employees were able to continue working in violation of the mandate, he said.

“The real risk is that, in every single company that I’ve talked to, in the bluest of blue regions of the country and the red regions, without question, there is a remnant of employees who are in the ‘Hell no’ group,” he said. 

Especially to the degree the refusers are critical employees for the company, Kelly said, “the temptation is to sort of look the other way. And why not, because no one’s reviewing us?” Kelly said. “But that poses enormous risk.”

Two sets of rules

Another ambiguity in the order is that, while contractor employees who have religious or medical reasons for not being vaccinated do not have to do so, there are no instructions from the administration as to how companies are supposed to document those exemptions, Kelly said.

Last, the OSHA rule will give large U.S. businesses flexibility in enforcing coronavirus safety measures, but those same rules are not extended to federal contractors.

Specifically, the OSHA rule, but not the contractor mandate, permits employees who do not wish to be vaccinated to instead undergo regular virus testing, Kelly noted. And under the OSHA rule, an employee need only attest to being vaccinated, whereas the government contractors must collect medical records from employees as proof. 

And whereas the OSHA rule does not apply to companies with fewer than 100 employees, there is no small-business exception in the federal contractor rule. 

Some companies must abide by both rules — one for work done for the government and the other for work done for commercial markets.

Ambiguities in the rule may be sorted out in the weeks ahead. But until they are, even executives who support the mandate and want to enforce it may have difficulty decoding it.