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.

Tina D. Reynolds

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.

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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.

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Deregulating Federal Procurement: Implications of Three Recent Executive Actions

Kickstarting AI in the Federal Government: OMB’s Policy to Implement Executive Order 14179

Bid Protest Spotlight: Instructions, Price Evaluation, Standing

FAR Overhaul Underway

FedRAMP 20x: Reformulating the Authorization Process

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Updated June 5, 2020In the wake of the massive economic disruption caused by the Coronavirus outbreak, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The Payroll Protection Program (PPP), which is part of the CARES Act, provides aid to qualifying small businesses in the form of loans with terms favorable to borrowers, including, in particular, provisions that allow potentially the entire loan amount to be forgiven if the proceeds are spent on payroll and other qualifying expenses. Since then, Morrison and Foerster has covered the evolution of implementing regulations closely through its Coronavirus Resource Center.Now, Congress has passed new legislation, the <a href="https://www.congress.gov/bill/116th-congress/house-bill/7010/text">Paycheck Protection Program Flexibility Act</a>, which President Trump signed earlier today. The Act extends the time borrowers have to spend PPP funds from 8 weeks after origination to the earlier of 24 weeks after origination or December 31, 2020, and reduces the overall percentage that must be spent on payroll costs, from 60% to 75%. Also, the legislation adds additional flexibility for businesses that are unable to rehire individuals or return to the same level of business activity at which such business was operating before February 15, 2020, because of COVID-19 restrictions.<table><tbody><tr><td width="188" style="width: undefined%; height: auto;"></td><td width="189" style="width: undefined%; height: auto;">New Rule</td><td width="189" style="width: undefined%; height: auto;">Old Rule</td></tr><tr><td width="188" style="width: undefined%; height: auto;">How long do I have to apply for the loan?</td><td width="189" style="width: undefined%; height: auto;">June 30, 2020</td><td width="189" style="width: undefined%; height: auto;">June 30, 2020</td></tr><tr><td width="188" style="width: undefined%; height: auto;">How many weeks do I have to spend the money and have the loan forgiven?</td><td width="189" style="width: undefined%; height: auto;">24 weeks after loan origination OR until December 31, 2020</td><td width="189" style="width: undefined%; height: auto;">8 weeks after loan disbursement</td></tr><tr><td width="188" style="width: undefined%; height: auto;">How much of the money has to be spent on payroll costs?</td><td width="189" style="width: undefined%; height: auto;">60%</td><td width="189" style="width: undefined%; height: auto;">75%</td></tr><tr><td width="188" style="width: undefined%; height: auto;">As I reopen, can I rehire fewer employees without penalty?</td><td width="189" style="width: undefined%; height: auto;">Yes, if employees let go after February 15, 2020, refuse offer of rehire AND no other qualified candidates available by December 31, 2020, OR the business is unable to return to former levels of business activity due to social distancing requirements and other COVID-19 related restrictions</td><td width="189" style="width: undefined%; height: auto;">Yes, if employees let go after February 15, 2020, refuse offer of rehire</td></tr><tr><td width="188" style="width: undefined%; height: auto;">When can I apply for loan forgiveness?</td><td width="189" style="width: undefined%; height: auto;">Within 10 months of the last day of the covered period (covered period meaning 24 weeks after loan origination or December 31, 2020)</td><td width="189" style="width: undefined%; height: auto;">Within 6 months of the last day of the covered period</td></tr><tr><td width="188" style="width: undefined%; height: auto;">How long can I defer repayment?</td><td width="189" style="width: undefined%; height: auto;">Until the date of which the determined forgiveness amount is remitted to the lender</td><td width="189" style="width: undefined%; height: auto;">Not less than 6 months, but not more than 1 year</td></tr><tr><td width="188" style="width: undefined%; height: auto;">What is the maturity date of my loan if there is a remaining balance after application of forgiveness?</td><td width="189" style="width: undefined%; height: auto;">Minimum of 5 years and maximum of 10 years</td><td width="189" style="width: undefined%; height: auto;">2 years</td></tr><tr><td width="188" style="width: undefined%; height: auto;">If I have a PPP loan, can I also qualify for tax credit to defer payroll taxes?</td><td width="189" style="width: undefined%; height: auto;">Yes</td><td width="189" style="width: undefined%; height: auto;">No</td></tr></tbody></table>From the outset of the PPP program, applicants have assumed that the list of recipients would become public. It appears that day may be coming sooner rather than later, as the Chairman and Ranking Member of the Senate Committee on Small Business and Entrepreneurship co-signed a <a href="https://www.rubio.senate.gov/public/_cache/files/b8b25113-f66b-4c1d-ab6c-5a6458b20d16/6FF27A0DFF85CB90C915EF49E6602A7B.20.06.03-rubio-cardin-letter-mnuchin-and-carranza-data-request-letter-final.pdf">letter</a> to Treasury Secretary Mnuchin and Small Businesses Administrator Carranza requesting, among other items, that “[i]n adherence to the SBA’s current disclosure practices of “frequently requested information,” the SBA should begin making available on its website the following PPP information for all loans approved since the program began . . . Name of business or nonprofit borrower and address, lender and address, loan or grant amount, business type, Congressional District, number of jobs supported.”We anticipate further updates as the Small Business Administration (SBA) issues guidance on these changes. Find analysis of SBA’s current rules on PPP loan forgiveness <a href="https://govcon.mofo.com/small-business/sba-issues-new-rules-on-ppp-loan-forgiveness-and-loan-review-procedures/">here</a>.

Tina is a partner in Morrison & Foerster’s Government Contracts practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmace

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Damien is a partner in the firm’s Government Contracts & Public Procurement practice. He represents clients in all facets of government contracts transactions, as well as regulatory counseling, subcon

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Damien C. Specht

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Ali Young is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.

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Ali Young is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.

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Congress Passes PPP Revisions and Advocates for Public Disclosure of Recipients

Another Ticking Clock: Additional District Court Preliminarily Enjoins EO 14042 | Increasing Need for OMB Update on GA Court Clarification Order

Updated June 5, 2020 In the wake of the massive economic disruption caused by the Coronavirus outbreak, Congress enacted the Coronavirus Aid, Relief, and Econom

Congress Passes PPP Revisions and Advocates for Public Disclosure of Recipients

Since the inception of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) nearly eight weeks ago, the Small Business Administration (SBA) has issued loans under the Paycheck Protection Program (PPP) that have helped thousands of businesses remain afloat during the COVID-19 pandemic.  One of the most beneficial aspects of these loans for borrowers is that the entire loan amount may be forgiven if the proceeds are spent on payroll costs and other qualifying expenses during the eight-week period after loan disbursement (the “Covered Period”).  Last week, SBA released its PPP Loan Forgiveness Application, which provides borrowers with insight into what documentation and information will be necessary to apply and qualify for full loan forgiveness.Over the weekend, SBA issued additional guidance on this process by issuing two new interim final rules on <a href="https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf">loan forgiveness</a> and the <a href="https://home.treasury.gov/system/files/136/PPP-IFR-SBA-Loan-Review-Procedures-and-Related-Borrower-and-Lender-Responsibilities.pdf">loan review process</a>, respectively.  Below, we have highlighted a few of the most noteworthy aspects of these new rules.New Rule on Loan Forgiveness As we described <a href="https://govcon.mofo.com/small-business/ppp-loan-forgiveness-application-is-finally-here/">previously</a>, the PPP Loan Forgiveness Application provides detailed guidance for borrowers on how to calculate eligible payroll and non-payroll costs.  The new forgiveness rule incorporates this guidance, but also contains some additional clarifications:<ul><li>Alternate Time Frames for Eight Weeks of Payroll. Borrowers can select either: (1) the date the lender disburses the PPP loan to  the borrower,  (“Covered Period”), or (2) the first day of the first payroll cycle after the date of disbursement (“Alternative Payroll Covered Period”) as the first day for purposes of calculating the eight week time period for forgiveness eligibility.  Payroll costs paid and/or incurred during the Covered Payroll Period or Alternative Payroll Covered Period are eligible for forgiveness.  The new rule confirms that payroll costs are considered paid on the date of paycheck distribution or ACH credit transaction, and also clarifies that payroll costs are generally incurred on the day the employee’s pay is earned (i.e., on the day that the employee worked).  For incurred expenses to be eligible for forgiveness, the borrower must pay those costs on or before the next regular payroll date – even if that payroll date is after the eight-week period.  This flexibility means that borrowers need not run a special payroll during the eight weeks following disbursement to ensure eligibility for forgiveness.</li><li>No Alternative Time Frame for Non-Payroll Costs. Non-payroll costs are handled a little differently from payroll costs, however, as there is no Alternative Payroll Covered Period.  Non-payroll costs are mortgage interest payments (not including any prepayments or payments of principal), business rent or lease payments, and covered utility payments.  Such costs are eligible for forgiveness if they are:  (i) paid during the covered period, or (ii) incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.</li><li>40 Hour FTEs. Unless an exception applies, if the borrower’s average number of full-time equivalents (FTEs) during the Covered Period (or the Alternative Payroll Covered Period) is lower than its average number of FTEs between February 15, 2019 and June 30, 2019 or between January 1, 2020 and February 29, 2020, then the forgiveness amount will be subject to a reduction (unless salary/wage reduction is also a factor, as detailed below).<a name="_ftnref1" href="#_ftn1">[1]</a>  In general, a reduction in average FTEs will reduce the loan forgiveness amount by the same percentage as the percentage reduction in average FTEs.</li></ul>The new rule defines an FTE as “an employee who works 40 hours or more, on average, each week.”  To calculate the total average number of FTEs during the Covered Period (or Alternative Payroll Covered Period), the borrower must assign a value from 0-1.0 to each person employed during the Covered Period (or Alternative Payroll Covered Period), then aggregate those values.  In determining which value to assign to each employee, borrowers must divide the average number of hours the employee is paid per week during the Covered Period (or Alternative Payroll Covered Period) by 40. If the result is one or higher, the value 1.0 is to be assigned, while “the hours of employees who work less than 40 hours per week are calculated as proportions of a single full-time equivalent employee.”For part-time employees, borrowers can use one of two calculations:  (1) the average number of hours a part-time employee was paid per week during the covered period to arrive at a proportionate FTE count (e.g., a part-time employee who was paid for 30 hours per week on average would equal 0.75 of an FTE, while an employee paid for 10 hours a week on average would equal 0.25 of an FTE); or (2) considering all part-time employees (i.e., those at any amount less than 40 hours on average per week during the Covered Period or Alternative Payroll Covered Period) as 0.5 FTE employees for convenience.  Whichever method a borrower selects, it must apply the method consistently.After assigning a value to each employee, and aggregating those values to arrive at the total average FTEs for the Covered Period, the borrower must go through the same process of calculating the total average FTEs for the reference period that the borrower chooses.  Importantly, however, SBA will not use the reduction in total average FTEs against a borrower in the forgiveness reduction calculation if, by June 30, 2020, the borrower eliminates any reductions in FTEs that occurred between February 15, 2020 and April 26, 2020 (the “FTE Reduction Safe Harbor”).  In other words, if the number of FTEs in the borrower’s pay period inclusive of February 15, 2020 (calculated using the above methodology) is the same as or lower than the borrower’s total FTEs as of June 30, 2020, then the FTE Reduction Safe Harbor will apply.<ul><li>25 Percent Wage Reductions. SBA may also reduce loan forgiveness if there is a reduction in an employee’s salary or wages in excess of 25 percent during the Covered Period or Alternative Payroll Covered Period as compared to the wages paid during the selected reference period.  The forgiveness amount will be reduced by the weekly reduction in salary or wages that exceed 25 percent.  The new rule illustrates this by explaining that if a full-time employee’s weekly salary was $1,000 per week during the reference period, but only $700 per week during the Covered Period (or Alternative Payroll Covered Period), and that employee continued to work 40 hours or more a week, then the forgiveness amount would be reduced by $400.  This is because the first $250 reduction per week (i.e., 25 percent of $1,000) is exempt from reduction, but the remaining $50 of reduction per week must then be multiplied by 8 (i.e., the number of weeks in the Covered Period).</li></ul>The new rule makes clear, however, that borrowers will not be penalized twice if they have both an FTE employee reduction and salary/wage reductions.  In this situation, SBA will only apply the salary/wage reduction to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction.  Further, these reductions do not apply to compensation above $100,000.  Additionally, if the borrower eliminates any reduction in an employee’s salary or wages by restoring the average annual salary or wage to the pre-February 15 level  by June 30, then the salary or wage reduction will not be used to reduce the forgiveness amount.New Rule on SBA Loan Review Procedures and Related Borrower and Lender ResponsibilitiesThis new rule provides further guidance to both lenders and borrowers regarding lender and SBA reviews of loan and forgiveness applications.  The following are some of the notable points:<ul><li>60 Days for the Bank, 90 Days for SBA. Borrowers must complete and submit the Loan Forgiveness Application (SBA Form 3508 or the lender equivalent) to their lenders.  Lenders are responsible for conducting a good faith review of the forgiveness application and confirming that the borrower made all required certifications, submitted all required documentation, and correctly calculated the forgiveness amounts on the application.  The lender will then: (a) approve the forgiveness application in whole or in part, (b) deny the application, or (c) (if directed by SBA) issue a denial without prejudice due to a pending SBA review of the loan.  The lender must inform SBA of its decision within 60 days from the date the lender received the borrower’s complete application.  SBA will perform its review and, after that review, send the forgiveness amount plus any accrued interest to the lender within no more than 90 days.  To the extent the lender’s determination is negative, borrowers will have the ability to request that SBA review the lender’s denial within 30 days of receiving notice from the lender.</li><li>SBA’s Audits. SBA has the right to review any loan application or loan forgiveness application at any time, regardless of the value of the loan.  In its review, SBA may review borrower documents to determine (a) if the borrower was eligible for the loan, (b) whether the borrower calculated the loan amount correctly, or (c) whether the borrower is entitled to loan forgiveness amounts claimed in the forgiveness application.  This is important for borrower who, together with its affiliates, received PPP loans in an amount less than $2 million who may not have realized its loan application could still be subject to SBA review for calculations and eligibility.  Specifically, SBA previously indicated<a name="_ftnref2" href="#_ftn2">[2]</a> that it would not audit those loans to determine whether the borrower correctly certified “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  However, this new rule makes clear that simply because SBA will not audit loan applications of loans under $2 million for the specific purpose of reviewing the borrower’s loan necessity certification does not mean such loans are free from SBA review entirely.  <ul><li>Although the new rule does not specify how SBA will choose when and which applications to review, it does state that SBA can review such applications at any time, therefore making it important for borrowers to retain all PPP-related documentation for the required six years after the date the loan is forgiven or repaid in full.</li></ul></li><li>Borrower Ineligibility and Forgiveness. If SBA determines that a borrower was ineligible for a PPP loan (for example, because the borrower did not qualify as an eligible small business), then the borrower is not eligible for forgiveness.  Borrowers will apparently be given an opportunity to appeal this decision based on a to-be-determined appeal process.  Although the rule does not address other remedies, SBA could pursue other actions against businesses that are ineligible.</li><li>Lenders and Ineligible Borrowers. Importantly, and somewhat surprisingly, SBA states that if it determines a borrower was ineligible for a PPP loan, SBA will not pay the lender’s loan processing fee for that loan.  This seems contrary to SBA’s earlier guidance to lenders that they could rely on a borrowers’ representations of eligibility in their loan applications.  It is possible that some lenders would not have participated in the PPP program or would have more closely scrutinized loan applications had they been aware SBA would not reimburse processing fees in instances where it determines that a borrower was not eligible for the loan in the first instance.</li></ul><a name="_ftn1" href="#_ftnref1">[1]</a> The borrower has the option to choose one of these two time periods.  Seasonal employers will also be able to compare their Covered Period to either of these periods or to any consecutive twelve-week period between May 1, 2019 and September 15, 2019.<a name="_ftn2" href="#_ftnref2">[2]</a> SBA provided this guidance, together with the Treasury Department, when it added FAQ #46 to the <a href="https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf">FAQ Document</a> on May 13, 2020.

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Roke Iko is an associate in the Litigation Department in Morrison & Foerster’s Washington, D.C. office.
Roke assists clients in the full range of government contracts litigation and compliance matters

Roke Iko

SBA Issues New Rules on PPP Loan Forgiveness and Loan Review Procedures

Since the inception of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) nearly eight weeks ago, the Small Business Administration (SBA) 

SBA Issues New Rules on PPP Loan Forgiveness and Loan Review Procedures

During these uncertain economic times, the Small Business Administration (SBA) loans under the Paycheck Protection Program (PPP) have been a critical lifeline for many small businesses trying to weather the COVID-19 pandemic.  The PPP, which we have written about <a href="https://www.mofo.com/resources/insights/200327-faq-coronavirus-economic-stabilization-act-cesa.html" target="_blank" rel="noopener noreferrer">previously</a>, is part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  One of the most beneficial aspects of these loans for Borrowers is that the entire loan amount may be forgiven if the proceeds are spent on payroll and other qualifying expenses during the eight-week period after loan disbursement (i.e., the Covered Period).As small businesses are beginning to use their loan proceeds, many are now wondering how they can ensure the specific use of their loan later qualifies for full forgiveness.  We are still waiting on SBA and the Treasury Department to issue more detailed guidance in this regard.  In the meantime, however, the new <a href="https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf" target="_blank" rel="noopener noreferrer">Loan Forgiveness Application</a> provides Borrowers with an idea of what the forgiveness application process will look like, as well as the level and type of documentation that Borrowers should be sure to have readily available.While we encourage Borrowers to closely review the application for themselves, below are a few points we found worth highlighting:<ul><li style="padding-bottom: 18px;">The application confirms that the eight-week Covered Period of the PPP loan begins on the first day the PPP loan was disbursed. To illustrate this point, the application explains that “if the Borrower received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, June 14.”  However, the application also clarifies that Borrowers with biweekly or more frequent payroll schedules may choose to calculate eligible pay roll costs using the eight‑week period beginning on the first day of the first pay period following the PPP Loan Disbursement Date.  This is referred to as the “Alternative Payroll Covered Period.”</li><li style="padding-bottom: 18px;">The application attaches a “PPP Schedule A Worksheet”, which provides Borrowers with a step-by-step method for calculating eligible payroll costs. Of note, the instructions for this worksheet explain that for each employee, the total amount of cash compensation eligible for forgiveness may not exceed $15,385 (which is the prorated amount of an annual salary of $100,000 during the Covered Period).</li><li style="padding-bottom: 18px;">Regarding eligible payroll costs, the application clarifies that payroll costs paid and payroll costs incurred during the Covered Period or Alternative Payroll Covered Period are eligible for forgiveness. The day that paychecks are distributed or the Borrower originates an ACH credit transaction is the day payroll is considered paid, while the day the employee’s pay is earned is the day payroll is considered incurred.  Payroll costs that are incurred but not paid during the Borrower’s last pay period of the Covered Period or Alternative Payroll Covered Period are still eligible for forgiveness if the Borrower pays those incurred costs on or before the next regular payroll date.</li><li style="padding-bottom: 18px;">One way a Borrower’s forgiveness amount can be reduced is if the Borrower’s average number of full-time equivalent (FTE) employees during the Covered Period (or the Alternative Payroll Covered Period) is lower than its average number of FTE employees between February 15, 2019, and June 30, 2019, OR between January 1, 2020, and February 29, 2020.<a href="#_ftn1" name="_ftnref1">[1]</a> The CARES Act provides that the calculation looks at the average number of FTE employees per month as calculated by the average number of FTE employees for each pay period falling within a month.  However, the application provides that the actual loan forgiveness amount that the Borrower will receive may be reduced if the Borrower’s average weekly FTE employees during the Covered Period (or the Alternative Payroll Covered Period) was less than during the Borrower’s total average weekly FTE employees during the chosen reference period.  Therefore, there may be a discrepancy between the statute and application.<a href="#_ftn2" name="_ftnref2">[2]</a><ul><li style="padding-bottom: 18px;">That said, the application does provide some much-welcomed clarity in what constitutes a FTE employee. While not a definition, per se, the application does provide methodologies for calculating the average number of FTE employees by giving each of the Borrower’s employees a numerical value based upon the average number of hours paid per week.  Borrowers can choose a simplified method for calculating FTEs, which assigns a value of 1.0 for each employee who works 40 hours or more per week and 0.5 for each employee who works fewer than 40 hours per week.</li></ul> </li><li style="padding-bottom: 18px;">The application also explains that the Borrower need not enter mortgage interest, rent, or utility payments made that the Borrower does not want to include in the forgiveness amount. Additionally, for eligible non-payroll costs to be forgiven, they must have been paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date (even if that billing date is after the Covered Period).  As a reminder, these eligible non-payroll costs cannot exceed 25% of the total forgiveness amount.</li><li style="padding-bottom: 18px;">Borrowers are required to submit certain documentation with the forgiveness application, such as: <ul><li style="padding-bottom: 18px;">Bank account statements (or third-party payroll service provider reports) documenting the amount of cash compensation paid to employees;</li><li style="padding-bottom: 18px;">Payroll tax forms (or equivalent third-party payroll service provider reports) and state employee wage reporting for the Covered Period (or Alternative Payroll Covered Period);</li><li style="padding-bottom: 18px;">Payment receipts, cancelled checks, or account statements documenting employer contributions to employee health insurance and retirement plans that are included in the forgiveness amount;</li><li style="padding-bottom: 18px;">Documentation showing average number of FTE employees on payroll per month between February 15, 2019, and June 30, 2019, OR between January 1, 2020, and February 29, 2020.<a href="#_ftn3" name="_ftnref3">[3]</a> Whichever time period the Borrower selects must be the same time period selected for the forgiveness reduction calculation; and</li><li style="padding-bottom: 18px;">For nonpayroll expenses, documentation verifying the existence of the obligations/services prior to February 15, 2020, as well as documentation related to eligible payments made during the Covered Period.</li></ul> </li><li style="padding-bottom: 18px;">Borrowers are also required to maintain certain additional supporting documentation related to eligibility, compliance, and forgiveness for six years after the date the loan is forgiven and repaid in full.</li></ul>We are monitoring the situation closely and will be sure to post about any further guidance issued by the Government in the near future.<a href="#_ftnref1" name="_ftn1">[1]</a> The Borrower will have the option to choose which of these two time periods it wishes to be compared to the Covered Period.  Seasonal employers will also be able to compare their Covered Period to either of the preceding periods or a consecutive twelve-week period between May 1, 2019, and September 15, 2019.<a href="#_ftnref2" name="_ftn2">[2]</a> Regardless of this discrepancy, under both the CARES Act and the Loan Forgiveness Application, the Borrower is exempt from the reduction in loan forgiveness based on the number of FTE employees if both of the following conditions are met:  (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (2) the Borrower then restored its FTE employee levels by no later than June 30, 2020, to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.<a href="#_ftnref3" name="_ftn3">[3]</a> Seasonal employers may also provide documentation for any consecutive twelve-week period between May 1, 2019, and September 15, 2019.

PPP Loan Forgiveness Application is Finally Here

During these uncertain economic times, the Small Business Administration (SBA) loans under the Paycheck Protection Program (PPP) have been a critical lifeline f

PPP Loan Forgiveness Application is Finally Here

Like the rest of the nation, and indeed the whole world, contractors today are fighting a war against an invisible enemy.  As we observed in a <a href="https://govcon.mofo.com/coronavirus/limits-on-a-contractors-ability-to-recover-for-unforeseen-risks-in-the-age-of-covid-19/" target="_blank" rel="noopener noreferrer">previous post</a>, responding to COVID-19 raises wartime contracting issues on the home front and abroad.  In “<a href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/bltdc107bc777a4b3f5/627318da8e09542a15b7df63/190424-contracting-fog-war.pdf">Contracting in the Fog of War</a>,” we reported on IAP Worldwide Servs., Inc., ASBCA Nos. 59397 et al., 17-1 BCA ¶ 36763 (May 17, 2017), in which the Armed Services Board of Contract Appeals (ASBCA) agreed with a contractor’s claim that the government had constructively accelerated performance in the face of excusable delays due to Pakistan’s closure of its borders to military shipments into Afghanistan.  The ASBCA concluded there that the contractor was “entitled to an equitable adjustment reimbursing it for expenses actually and reasonably incurred in complying with the acceleration orders.”  17-1 BCA ¶ 36763.  In this post, however, we discuss the Civilian Board of Contract Appeals’ (CBCA) recent decision that a contractor’s additional costs incurred due to the Ebola outbreak did not entitle the contractor to an equitable adjustment.  The case could have important implications for COVID-related claims, and may offer an important lesson for contractors.In <a href="https://www.cbca.gov/files/decisions/2020/SOMERS_04-22-20_5683__PERNIX_SERKA_JOINT_VENTURE%20(Decision).pdf" target="_blank" rel="noopener noreferrer">Pernix Serka Joint Venture v. Department of State</a>, CBCA No. 5683 (April 22, 2020), Pernix Serka Joint Venture (PSJV) was performing a firm, fixed-price contract for the Department of State (DOS) when the Ebola virus hit.  The contract required PSJV to construct a rainwater capture and storage system in Freetown, Sierra Leone.  The contract included an excusable delays clause providing that PSJV would be allowed time, but not additional costs, for excusable delays.  Examples of excusable delays included acts of God, epidemics, and quarantine restrictions.  PSJV received a notice to proceed from DOS on December 17, 2013, and began contract performance.  By July 2014, the Ebola outbreak had spread to Sierra Leone.PSJV sought guidance from the DOS contracting officer (CO) as to how to respond to the outbreak.  The CO, however, did not provide any guidance.  Instead, the Agency stated that PSJV would need to make its own decisions about whether PSJV should evacuate the jobsite to protect the health and safety of its personnel.  On August 8, 2014, the World Health Organization (WHO) declared the outbreak an “international public health emergency.”  That same day, PSJV decided to shut down the project and evacuate its personnel.PSJV notified DOS of its decision to temporarily shut down the project.  In response, DOS stated: “Since you are taking this action unilaterally based on circumstances beyond the control of either contracting party, we perceive no basis upon which you could properly claim an equitable adjustment from the Government with respect to additional costs you may incur in connection with your decision to curtail work on this project.”In March 2015, PSJV returned to the project site with additional medical facilities and services to protect its employees.  PSJV then submitted two requests for equitable adjustment (REAs) to the CO for the cost impacts associated with the Ebola outbreak.  The CO denied the first REA, stating, “there is no contractual basis for an adjustment to the contract price.”  The CO did not take action on the second REA.In January 2017, PSJV submitted a certified claim for $1,255,759.88.  The claim sought “(1) $608,891 in additional life safety and health costs incurred due to differing site conditions, disruption of work and the need to maintain a safe work site for the Pernix Serka Joint Ventures work and Government personnel, and (2) $646,868.88 in additional costs incurred resulting from that disruption of work, and the need to demobilize and remobilize at the work site.”  PSJV offered several theories for why these unforeseen costs should fall on the Government, including a cardinal change theory, a constructive change theory, and a constructive suspension of work theory.  PSJV did not assert a constructive acceleration claim.  The DOS moved for summary judgment, arguing that PSJV bore the risk of any unexpected costs not attributable to the Government under its firm, fixed-price contract, and the CBCA agreed.First, the Board stated, “PSJV’s firm, fixed-price contract obligated PSJV to perform and receive only the fixed price.”  The contract explicitly stated that acts of God, epidemics, and quarantine restrictions would entitle PSJV to additional time, but not additional costs.  Therefore, PSJV cannot shift the risk of additional performance costs to the Government.  Furthermore, the contract did not “require the Government to provide PSJV with direction on how to respond to the Ebola outbreak.”  The Agency left it up to PSJV to decide whether to evacuate the worksite, and under the firm, fixed-price contract, PSJV bore the risk of any additional costs.Second, the Board addressed PSJV’s theory that it “was forced to perform in cardinal change conditions.”  A “cardinal change” is “a breach that occurs if the Government effects a change in the contractor’s work ‘so drastic that it effectively requires the contractor to perform duties materially different from’ those found in the original contract.”  PSJV asserted a cardinal change occurred when the Bureau of Overseas Building Operations (OBO), a branch within DOS, expected PSJV to work in Ebola crisis conditions without any guidance or direction from OBO, or a suspension of work.  PSJV further alleged that a cardinal change occurred when OBO pressured PSJV to return to the project site, which required PSJV to add safety measures that were not in its approved work plan.  The Board found this argument unavailing because, “[d]espite the difficulties encountered during the Ebola outbreak, the Government never changed the description of work it expected from the contractor.”  DOS informed PSJV that it would not order PSJV to evacuate the site and that PSJV would need to make its own decision as to whether it needed to demobilize from the site or take other steps to protect its personnel.  Furthermore, the implementation of additional safety measures after remobilization did not alter the contract.  PSJV remained obligated to perform at the contract price.Third, the Board addressed PSJV’s constructive change theory that it “was constructively ordered to provide medical and life safety measures outside the scope of the contract.”  A constructive change occurs when a contractor performs work beyond the contract requirements without a formal change order.  To recover on a constructive change claim, a contractor must show that (1) it performed work beyond the contract requirements and (2) the Government directed the contractor to perform the additional work without following the procedures in the Changes clause.  PSJV argued that both the demobilization and remobilization of its personnel and the additional safety measures put in place due to the Ebola epidemic should be considered constructive changes.  PSJV’s arguments failed, however, because the Government did not order it to take any action in response to the Ebola epidemic.Finally, the Board briefly addressed PSJV’s constructive suspension of work claim.  In its opposition brief, PSJV argued that the outbreak resulted in a constructive suspension of work.  However, the Board found this claim untimely because it did not arise from the same set of operative facts as the theories raised in PSJV’s certified claim.  For these reasons, the Board denied the appeal.Key Takeaways and Missed OpportunitiesIn this case, the Agency put the contractor in a difficult position by not providing it any guidance or direction on how to respond to the outbreak.  The Agency did not tell the contractor to do anything, so the contractor had no constructive change claim.The Board might have reached a different conclusion had the company been in a position to pursue a constructive acceleration claim.  A constructive acceleration claim requires: (1) a delay which entitles the contractor to additional time for performance (such as an excusable delay), (2) contractor notice to the government of such delay and a request for an extension of time, (3) an action or statement by the government that can be construed as an acceleration order, and (4) reasonable efforts by the contractor to accelerate work, resulting in additional costs.In the IAP case, the agency’s failure to promptly grant an extension request (which the contractor was entitled to receive due to excusable delay) constituted constructive acceleration.  While there is no guarantee it would have succeeded, PSJV might have been able to pursue a constructive acceleration with the proper groundwork, which would likely have involved the contractor (a) advising DOS that the schedule impact caused by the outbreak was unknown, (b) expressly asking DOS to agree to an excusable delay for the length of the epidemic and until the CO was able to establish a new, reasonable schedule, and then (c) refusing to restart operations until the epidemic was over unless the Agency ordered a restart.  Instead, the contractor played into the Agency’s hands by making the unilateral decision to cease work and then to restart operations with added safety measures.

J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. 