CARES Act Provides Much Needed Relief for Government Contractors

Obermayer Rebmann Maxwell & Hippel LLP

Obermayer Rebmann Maxwell & Hippel LLP

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES).  CARES section 3610 “Federal Contractor Authority” provides specific relief for government contractors:

Notwithstanding any other provision of law, and subject to the availability of appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020. Such authority shall apply 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 facility closures or other restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for COVID–19: Provided, That the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant to division G of Public Law 116–127 and any applicable credits a contractor is allowed under this Act.

Let’s walk through, in plain English, what this means for government contractors. 

Simply put, it means that agencies are now authorized to reimburse government contractors for sick or other paid leave provided by that contractor to its employees during pandemic.  (See here for our firm’s recent guidance on expanded leave requirements under the Families First Coronavirus Response Act.).  The contracting officer can issue an equitable adjustment for reimbursements “without consideration,” meaning that the government does not have to receive some additional benefit to provide such reimbursements.  Furthermore – and critically important – Section 3610 authorizes contracting officers to make equitable adjustments to contract pricing from any funding source.  In other words, if there is money available to an agency, the contracting officer can use it to adjust your contract, without regard to whether Congress originally provided that money for that purpose.  Contracting officers will not be required to go back to Congress for authorization to use available funds to adjust contracts in response to COVID-19. 

Note, however, that there are certain limitations to, and qualifications on, the relief that can be provided, as well as some open questions. First, reimbursement cannot exceed an average of 40 hours per week.  Second, the Act provides that such reimbursements will be made “at the minimum applicable contract billing rates,” but does not explain how rates will be calculated when there are no specified contract billing rates.  Contractors will likely have to negotiate such rates on a case-by-case basis.  Third, to be eligible for reimbursement, the contractor must show that: (1) the contractor’s employees cannot perform work on a site that has been approved by the Federal Government, due to “facility closures or other restrictions”; and (2) the employee’s job duties cannot be performed remotely or through telework.  Most federal construction contractors will be able to easily satisfy the second requirement, given that construction cannot be performed remotely; a variety of other service employees whose work must be performed on site will likely be able to satisfy this requirement as well.  Fourth, the paid leave must be provided “to keep employees in a ready state.”  Fifth, at this point, only leave paid through September 30, 2020 is reimbursable.  Finally, any adjustment must be reduced by the amount of the tax credit a contractor otherwise receives under the CARES Act or the Families First Coronavirus Response Act (Public Law 116–127), passed on March 18, 2020. So if your business is claiming extensive tax credits under the various COVID-19 relief acts, this will likely limit the size of any potential equitable adjustment under CARES section 3610.

As an overall matter, contractors should keep in mind that this Act gives contractors the authority to reimburse contractors, but it does not make such reimbursement mandatory.  As this situation continues to unfold, we expect and hope that further guidance will be provided by the government, ideally communicating a uniform interpretation and application of section 3610 across all federal agencies.  Otherwise, it will be interesting to see how each agency – and each contacting officer – handles the questions that come up.  And questions will most certainly arise.  For example, will every Federal project will be deemed to take place at a “site that has been approved by the Federal Government?  Will “other restrictions” be interpreted to include local stay-at-home restrictions and the like?  Will the September 30, 2020 date be extended if the quarantine and limitations on travel continue?  We certainly have our own opinions about how these questions should be answered, and argued on behalf of our clients.

The government’s response to the COVID 19 crisis, and the related legal changes, are a constantly-evolving situation.  We will continue to keep you posted on any new developments, or interpretive guidance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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