Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

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Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

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Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

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Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

James Tucker

<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

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Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

J. Alex Ward

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Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

Brad is a partner in Morrison Foerster’s Litigation Department, Managing Partner of the Austin office, and Chair of the firm’s Israel practice. He is the former Co-Chair of the firm’s Global Litigation Practice and the Government Contracts + Public Procurement Practice.

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On March 23, 2021, The House Small Business, Subcommittee on Contracting and Infrastructure held a remote hearing titled:  “The Interaction Between the Paycheck

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All Is Not Forgiven: PPP Forgiveness and Credits

All Is Not Forgiven: PPP Forgiveness and Credits | Government Contracts Insights

Damien C. Specht

Edward Jackson

Alissandra Young McCann

On March 23, 2021, The House Small Business, Subcommittee on Contracting and Infrastructure held a remote hearing titled:  “The Interaction Between the Paycheck Protection Program and Federal Acquisition Regulations:  What It Means for Government Contractors.”  The hearing focused specifically on the interplay between Paycheck Protection Program (PPP) loan forgiveness and Federal Acquisition Regulation (FAR) 31.201-5 “Credits,” and how that interplay impacts federal contractors that perform cost-type contracts.  This meeting highlights an area where contractors have, at best, incomplete guidance.  We will continue tracking these issues as new guidance is issued.FAR 31.201-5 states that:  “The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund.”  This provision applies to: (1) the pricing of negotiated contracts and contract modifications whenever cost analysis is performed, (2)  determining reimbursable costs under cost reimbursement contracts and the cost-reimbursement portion of time-and-materials contracts,<a href="https://govcon.mofo.com/small-business/all-is-not-forgiven-ppp-forgiveness-and-credits/#_ftn1">[1]</a>  and (3) the negotiation of indirect rates.<a href="https://govcon.mofo.com/small-business/all-is-not-forgiven-ppp-forgiveness-and-credits/#_ftn2">[2]</a>Thus, to the extent PPP loan proceeds are used by the contractor to cover direct or indirect costs subject to FAR 31.201-5 (e.g., an allowable cost reimbursed by the Government under a cost reimbursement contract), and the loan is subsequently forgiven, the Government is entitled to a credit.  Specifically, the Department of Defense (DoD) has clarified that, to the extent PPP loan proceeds were used to pay for costs otherwise reimbursed under a government contract, and those PPP loan proceeds were ultimately forgiven, then a credit is necessary pursuant to FAR 31.201-5.On December 20, 2020, the Defense Contract Audit Agency (DCAA) issued guidance to its auditors, as later revised on January 28, 2021, regarding the treatment of the FAR 31.201-5 credit.  As part of that guidance, DCAA instructed the following:<ul><li>The amount of PPP loan forgiven will apply as a credit or cash refund in the same manner the PPP loan proceeds were used by the contractor. If, for example, the PPP loan proceeds were used to pay rent, and rent is included in an indirect cost pool, that cost pool should be credited in the period the PPP loan was forgiven.</li><li>A credit is not required for PPP loan proceeds used for costs allocable to firm-fixed-price (FFP) contracts. For example, no credit is required for forgiven PPP loan proceeds used to pay employees for work performed on commercial contracts or FFP contracts not subject to the FAR cost principles.</li><li>With regard to forward pricing, to the extent costs incurred during calendar years 2020 and 2021 are used as part of the basis of estimate for proposals, auditors need to understand how those incurred costs were affected by the Coronavirus Aid, Relief, and Economic Security (CARES) Act as well as the effect on future estimates.</li></ul>The House Subcommittee noted it had heard from some small businesses advocating for the waiver of the FAR credits clause to forgiven PPP loans.  Understandably, those small businesses complained that application of such a credit is contrary to the intent of the PPP loan to the extent the loan is not truly forgiven if the Government effectively requires repayment of the loan through credits.    Id.This hearing may have been triggered by draft Department of Transportation (DOT) guidance communicated on January 22, 2021. Carlos A. Penin, P.E. President, CAP Engineering, testified at the hearing that this guidance called for a contractor’s overhead rate to be reduced by the amount of PPP loan forgiveness granted to engineering firms.  Mr. Penin further testified that a reduction to the overhead rate would, in turn, reduce future billing rates and, for many engineering firms, cause a net loss greater than the PPP forgiveness.  Robin S. Greenleaf, P.E., speaking on behalf of the American Council of Engineering Companies, echoed Mr. Penin’s concern, explaining that “[t]he audited indirect cost rate is used for a one-year accounting period but is also the rate used for the duration of the a contract, which is often multi-year.”  Ms. Greenleaf noted that DOT work is generally done under multi-year contracts that lock in the billing rate.In response to the concerns raised by the small business contractors, the Subcommittee determined that, “[a]t a minimum, it will be important to ensure consistency in the application of the credits clause across agencies so that it doesn’t result in an improper advantage to the government and contractor’s wellbeing is protected.”  The Subcommittee apparently recognized that guidance to reduce a contractor’s overhead rate for the amount of PPP loan forgiveness, and to apply those reduced rates over the life of a multi-year contract was contrary to the FAR 31.205-1 requirement that the “applicable portion” of a credit relating to any allowable cost should be credited to the Government.On March 24, 2021, the day following the House hearing, the DOT Federal Highway Administration (FHWA) <a href="https://www.fhwa.dot.gov/coronavirus/docs/HCF%20Info%20Memo_Treatment%20of%20PPP%20Funds%20for%20AE%20Consultants_3-24-21.pdf">issued a memorandum</a> regarding the “Treatment of Paycheck Protection Program Funds for Architectural and Engineering Consultants Guidance.”  The memorandum recognizes that PPP loan proceeds were intended to “allow businesses to maintain payroll costs, keep employees from loss of work during the coronavirus disease 2019 (COVID-19) pandemic, and cover necessary overhead to continue business operations.”    The memorandum goes on to state, however, that the PPP “was not enacted to provide an economic windfall to the employer (e.g., where costs are reimbursed by the Federal government under a federally funded contract and the PPP loan is also forgiven by the SBA).”  Id.  Therefore, neither the DOT nor DOD guidance waived the credits provision.The memorandum applies to architectural and engineering services provided under Federal-aid or Federal Lands Highway (FLH) program funded contracts where the consultant seeks partial or complete PPP loan forgiveness.  The guidance recognizes that those contracts include a provision prohibiting unauthorized donations to a project.  Thus, the DOT guidance requires consultants to seek reimbursement from the agency for direct project costs and provides that a consultant cannot use PPP loan proceeds to pay direct project costs even if the costs are not billed to the federally funded project.  The DOT guidance follows:<ul><li>Architectural and engineering (A&E) consultants cannot use PPP loan proceeds to pay for the direct costs on a Federal-aid or FLH-funded contract.</li><li>A&E consultants cannot bill direct costs and use PPP loan proceeds to fund the compensation costs of direct labor and other direct costs dedicated to federally funded contracts. This practice results in an improper payment for billing the Federal government twice.  A consultant may use the PPP loan as a working capital loan to pay the direct costs of a contract, but must submit a timely claim for reimbursement to the contracting agency, and complete the proper and necessary adjustments to their accounting records once the reimbursement is received.</li><li>PPP loan proceeds cannot be used to pay the direct project costs even if those costs are not billed to the federally funded contract. This action has the effect of a donation to the project, which was not authorized and conflicts with the terms and conditions of the contract.  A&E consultants should continue to allocate and invoice both direct and indirect costs in accordance with contract terms.</li><li>A&E consultants may use PPP loan proceeds to pay indirect costs, but an adjustment to the indirect cost rate is required in accordance with [FAR 31.201-5].</li><li>A&E consultants must adjust their indirect cost rates for PPP funds forgiven to provide the corresponding credit to the Federal government. All credits to indirect costs should be reflected in the subsequent adjusted indirect cost rate.  If an A&E consultant can apply the appropriate indirect cost credit on existing contracts, the contracting agency may allow consultant to do so.</li><li>All applicable credits (or loan recoveries) are to be applied based on an equitable allocation to all benefitting cost objectives in accordance with [FAR 31.201-4]. The indirect cost rate credit should only be applied until the credit is recovered fully.  If adjustments to an A&E consultant’s indirect cost rate has no bearing on the award or contract type (e.g., firm fixed price or lump sum contract), adjustment to that contract would not be required.</li></ul>Id. at 2.The DOT FHWA guidance permits the consultant to use PPP loan proceeds as a working capital loan to pay the direct costs of a contract but the consultant must submit a timely claim to the agency for reimbursement of the direct costs and, upon receiving reimbursement from the agency, complete necessary adjustments to the accounting records.  The consultant does not have the option of using the PPP loan proceeds to pay direct costs and not seek reimbursement from the agency.The DOT FHWA guidance requires consultants to adjust their indirect cost rates to the extent forgiven PPP loan proceeds were used to pay indirect costs.  The guidance does not, however, require the use of the reduced indirect rates for the entirety of a multi-year contract in that it states that the reduced indirect cost rate should only be applied until the credit is fully recovered.  Thus, consultants may be required to effectively repay the PPP loan through reduced indirect rates but they will not be required to repay the Government more than the PPP loan amount.This hearing and the DOT FHWA guidance, which appears to have triggered it are unlikely to be the last word on this topic as Congress balances the requirements of the FAR credits provision with the desire to provide government contractors the same benefit from PPP forgiveness as their commercial counterparts.  We will continue to monitor guidance in this area.<a href="https://govcon.mofo.com/small-business/all-is-not-forgiven-ppp-forgiveness-and-credits/#_ftnref1">[1]</a> FAR 31.201-5 does not apply to time-and-materials contracts when the material is invoiced on a basis other than cost.<a href="https://govcon.mofo.com/small-business/all-is-not-forgiven-ppp-forgiveness-and-credits/#_ftnref2">[2]</a> FAR 31.103(a), (b)(1), (b)(2).

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