The latest updates and analysis from Morrison Foerster
March 27, 2020 - Coronavirus

Contractor Relief Unclear Under the CARES Act

Updated Coronavirus (COVID-19) Guidelines For Employers

On Wednesday, the Senate passed a $2 trillion relief package – the Coronavirus Aid, Relief, and Economic Security or CARES Act – intended to relieve some of the worst economic effects of the coronavirus pandemic.  In addition to sweeping relief measures for individuals and state and local governments, the bill provides significant measures for businesses of all sizes, including $350 billion in loans for small businesses and $500 billion in loans for other industries, including major financial assistance for the airline industry.  Contractors are expected to benefit from many of these programs, including the $17 billion set aside for loans or loan guarantees – with strings attached, such as restrictions on stock repurchases and executive compensation – to “businesses critical to maintaining national security.”  As a whole, though, the Act makes little direct mention of federal contractors.

One provision, however, does speak directly to contractors:  Section 3610, Federal Contractor Authority, authorizes agencies, in limited circumstances, to reimburse contractors that continue to pay employees who are unable to work due to coronavirus.  The Act provides that agencies may use monies appropriated under the CARES Act, or any other appropriation, to modify the terms of any contract, or other agreement, to reimburse contractors for any paid leave (including sick leave) the contractor provides to keep its employees or subcontractors in a ready state.  Reimbursement is to be made at the minimum applicable contract billing rates at 40 hours per week.  The provision applies only to a contractor whose employees or subcontractors “cannot perform work on a site that has been approved by the Federal Government, including a federally-owned or leased facility or site,” due to site closures or other restrictions, and who cannot telework.  The maximum amount of reimbursement shall be reduced by any tax credits or other credit provided under the CARES Act or the Families First Coronavirus Response Act.

Despite seeming to provide much-needed relief to contractors struggling with local shutdown orders and the health and safety needs of employees, the Act leaves significant uncertainty as to its implementation.  Notably, the relief provision is not mandatory and merely allows individual contracting agencies to modify contracts after the fact to provide reimbursement, leaving contractors who opt to provide paid leave uncertain as to whether they will be able to recoup costs, unless those costs are already compensable under an REA.  It is also unclear what is meant by “approved” work sites and whether this will be limited to Government-run sites or whether it also includes “approved” classified contractor sites.

Due to these and other ambiguities in the bill language, and absent additional clarity, contractors should be hesitant to rely exclusively on this provision in determining how to proceed in the coming weeks.  Instead, until further guidance is provided, contractors should continue as they normally would in a constructive change or compensable delay situation: notify the agency of the effect of the change and potential delays, document the effects of the change/delay, document attempts at mitigation, segregate costs, and continue to keep an open line of communication with the contracting officer.

With final Congressional approval secured for the groundbreaking $2 trillion stimulus package in response to the Coronavirus (COVID-19) pandemic, our COVID-19 Task Force has launched the CARES Act Resource page that tracks the bill closely from all angles. The resource page is designed to help you understand the implications of the bill for both businesses and individuals, offering smart takes and answers to frequently asked questions from partners across the firm.