April 9, 2020 - Coronavirus

Guidance Issued for CARES Act Relief For Contractors

FCAIn an earlier post concerning contractor relief under the CARES Act, we noted Section 3610 as one of the provisions most likely to benefit government contractors directly because it allowed for agencies to modify contracts to reimburse contractors for costs associated with paid leave (including sick leave) that were incurred to keep employees in a ready state when they were unable to work at a government approved facility.  At the time, however, many questions remained concerning what constituted a government-approved facility and how often agencies would use their discretion to modify contracts for purposes of the reimbursement.

In recent guidance (including a deviation issued by the Department of Defense), the DOD and the Office of the Director of National Intelligence attempted to answer some of these questions.

DOD Guidance and Deviation

The DOD Memorandum, issued on April 8, 2020, issues a new Deviation DFARS 231.205-79 CARES Act Section 3610 – Implementation, that Contracting Officers are authorized to use as a framework for implementation of section 3610.  The DOD memo introduces the clause and provides guidance concerning its use.  Notably, the memo acknowledges that many DOD contractors “are struggling to maintain a mission-ready workforce due to work site closures, personnel quarantines, and state and local restrictions on movement related to the COVID-19 pandemic that cannot be resolved through remote work” and encourages the DOD to support affected contractors through the acquisition tools available, including Section 3610.  The memo cautions, however, that contracting officers must also be good stewards of taxpayer funds and must ensure that contractors do not receive duplicate payments from compensation from other CARES Act provisions or other COVID-19 relief scenarios, including tax credits, as well as reimbursement under 3610.  In this regard, the memo states that small businesses receiving relief under the Paycheck Protection Program to pay its employees should not also seek reimbursement for the same costs under Section 3610.  Thus, according to the DOD memo, Contracting Officers should “secure representations from contractors regarding any other relief claimed or received stemming from COVID-19, including an affirmation that the contractor has not or will not pursue reimbursement for the same costs accounted for under their request, to support their requests for reimbursement under section 3610.”

The Deviation is a new cost principle making the reimbursement of the costs of leave allowable costs so long as the contracting officer “has established in writing” that the contractor has been affected by the pandemic and its employees cannot work at a government-approved facility and are unable to telework.  With respect to government approved facilities, the principle appears to provide much needed clarification, defining the term to include not only government‑owned or leased facilities but also “Contractor‑owned or contractor-leased facility[ies]” approved by the federal government for contract performance.

The cost principle makes the costs of paid leave (including sick leave) allowable at the contract rates up to 40 hours per week and states that they may be direct charges so long as they were incurred to keep contractor employees and subcontractor employees in a ready state.  Costs will be allowable for paid leave taken during the period of the public health emergency declaration on January 31, 2020, through September 30, 2020.  Notably, this is different from the position ODNI takes in its guidance.

To have the costs be allowable, contractors must segregate and identify the costs in their records by “any reasonable method as long as the results provide a sufficient audit trail.”  Contractors are also warned that costs of leave that would be incurred without regard to the existence of COVID-19 remain subject to all the other applicable cost principles.

The deviation also provides a bit more clarification about what “other restrictions” might affect a government-approved facility and allow for reimbursement.  According to the provision, the covered paid leave is for employees who are unable to perform work at the government‑approved site to which they have been assigned “because such facilities have been closed or made practically inaccessible or inoperable, or other restrictions prevent performance of work at the facility or site as a result of the COVID-19 national emergency.  The deviation further explains that a facility is “deemed inaccessible . . . to the extent travel to the facility is prohibited or made impracticable by applicable Federal, State, or local law, including temporary orders having the effect of law.”

Finally, as described in the DOD memo, the costs made allowable by the section are “reduced by the amount the contractor is eligible to receive under any other Federal payment, allowance, or tax or other credit allowed by law that is specifically identifiable with the public health emergency.”  This includes not only the tax credits at Division G of the Families First Coronavirus Response Act, but also the Paycheck Protection Program and any future stimulus credits that may be available.

ODNI Guidance

Like the DOD, the ODNI guidance issued on April 3, 2020, “strongly encourages IC Agencies to make full use of the flexibility provided by [the CARES] Act and other existing contracting tools to enable the maximum number of contract personnel to convert to staying at home in a ‘ready state’ . . .”  ODNI also states that it has reduced its acquisition and procurement staffing to manage response to the pandemic, “will not be requesting normal activities in those areas during the crisis,” and will support decisions, as permitted, “to slip acquisition and development milestones” as necessary to limit staffing.

With respect to implementation of Section 3610, the ODNI Guidance differs only slightly from the DOD guidance.  Most notably, the ODNI memo does not include specific contract language to be included in any contract modifications.  In addition, unlike the DOD, the ODNI guidance states specifically notes that the effective date of the CARES Act was March 27, 2020, and states that if a contractor has COVID related costs “dating back to the declaration of the national emergency on 31 January 2020, the contractor may submit a request for equitable adjustment (REA) for changes or other conditions that may entitle the contractor to an REA.”  Thus, without further guidance, it appears that the ODNI intends the reimbursement to cover only those costs incurred between March 27, 2020, and September 30, 2002.

Like the DOD, the ODNI guidance also states that contractors “shall be reimbursed not to exceed an average of 40 hours per week per employee” and provides that Contracting Officers “should consider reimbursement for costs associated with the COVID-19 without requesting consideration.”  In addition, the ODNI notes that the Act applies only to employees unable to work because they were restricted by the pandemic from working at a government‑approved site where they were assigned.  The ODNI guidance does not, unfortunately, provide its interpretation of what a government-approved site means.

Finally, like the DOD, the guidance states that contractor invoices should segregate and specifically identify the time and expenditures billed under this authority to allow for future review and analysis of COVID-19 related expenditures.  Contractors must also identify if they are receiving tax credits under Division G of the FFCRA or any applicable credits under the CARES Act, as any reimbursements will be reduced by these amounts.