CARES Act Relief for Federal Contractors

Clark Hill PLC

There is a consistency of approach among agencies’ implementation of the programs recently enacted by Congress in response to the COVID-19 Pandemic. While there have been hiccups in the implementation as the federal (and other) responses proceed, as with any large undertaking by government there are bound to be challenges to smooth implementation.  Nevertheless, matters are beginning to take shape.  The kinks are being winnowed out of the system even as many annoyances may remain.

As we noted previously, early last month (on the 8th of April 2020) the Department of Defense issued its implementation of CARES Act section 3610, “FEDERAL CONTRACTOR AUTHORITY”.  The DOD’s Class Deviation and related contract clause closely followed Office of Management and Budget (OMB) guidance issued to the Heads of Executive Departments and Agencies on the 20th of March 2020 regarding the challenges faced by Federal contractors.

On the 21st of April 2020 the General Services Administration issued its own Class Deviation under authority of General Services Administration Acquisition Manual (GSAM) 501.404 [with its own attached clause “552.222-70 CARES Act Sec. 3610 Paid Leave Reimbursement (APR 2020)”] implementing section 3610 of the CARES Act as to the civilian side of the Federal acquisition enterprise.  GSA also followed the OMB guidance closely.  This completes the “circle” of Federal contracting activities, with only the minor exception of agencies not subject to the Federal Acquisition Regulation.

The points of most significant importance to civilian (non-Defense) contractors in GSA’s implementation of section 3610 are largely the functional equivalent of the DOD’s implementation, although there are necessary and important nuances.  The organization and presentation by GSA are distinct.  The similarities are undoubtedly consequent to the fact that like the DOD implementation, the GSA also closely follows the OMB guidance in its implementation as it addresses GSA’s own mission.  That latter point is illustrated by the common circumstance in which an ordering agency negotiates a lower hourly rate under the Federal Supply Schedule or any other of GSA’s GWAC vehicles.  That lower rate implicates section 3610’s hourly rate cap as to that vehicle.

The GSA Deviation applies only to FAR-based contracts and agreements, and therefore does not apply to leases of real property (which are non-FAR based contracts).  Interestingly, the deviation does not apply to “Indefinite Delivery Vehicles” but may apply to task orders issued under IDVs, as where an agency negotiates a discount of the rates included in the IDV.  Additional highlights of the GSA implementation include:

  • The acquisition flexibility provided by the deviation is immediately available to Contractors, as does the DOD implementation.
  • As with its DOD’s analog, the GSA deviation, instructs contracting officers to reduce any relief authorized under section 3610 by amounts received under another programs.  Interestingly, contracting officers are “not required to determine [the amount of the credit] in advance of making payment” to a contractor, which puts a burden directly on the contractor requesting the action. In addition, it is a contractor responsibility to notify the contracting officer and repay any payment it received that was offset by another program.  This provision will capture future as well as existing credits and likely provide fertile soil for disputes unless closely monitored and carefully and contemporaneously documented by contractor.
  • The reimbursement payable under section 3610 is limited to the cost of paid leave (including sick leave) in the enumerated circumstances at “appropriate rates” if such leave (1) is necessary to keep contractor and subcontractor employees in a “ready state” notwithstanding the risks associated with the public health emergency declared on January 31, 2020; or (2) to protect the life or safety of personnel (Government of contractor) against risks arising from the COVID-19 health emergency.
  • To be reimbursable, costs must be properly documented, segregated and identifiable (traceable) in a contractor’s records, for ease of ascertaining compliance. Contractors may use any means to segregate costs if it establishes a sufficient audit trail.
  • Perhaps the most important feature of section 3610 is authority to amend contracts without consideration (and adjust delivery and progress payment terms) “subject to the availability of appropriations, funds made available to an agency by [the CARES Act] or any other Act” to reimburse covered costs. (Provided, of course, that the leave and associated costs meet all the required criteria for reimbursement.)

In summary, covered leave costs may be reimbursed, and delivery schedules and progress payments may be adjusted by amendment to any FAR-based contract without consideration, as may be necessary and consistent with section 3610.  Leave costs are to be paid at the rates allowed, but only to the extent of funds already on the contract or as otherwise may be made available in response to the health emergency associated with or in response to COVID-19.

Of course, the “devil” from the contractor’s point of view, is in the details, as is the case in so many things in federal acquisition.  Contractors experiencing financial urgency and contracting officers keen to maintain contractors in a “ready state” likely will result in the finer details of actions undertaken to provide rapid and often critically required relief in immediately exigent circumstances almost surely to include errors or omissions.   The prescriptions of the regulations and related matters will almost certainly be coolly reviewed months or even years later under somewhat more reflective and deliberative circumstances. Those reviewers will include variable mixes of program personnel, as well as legions of financial and other auditors and their federal lawyers.  The review will scrutinize every jot and tittle of every action taken.  Contractors, therefore, must use caution in seeking relief in these circumstances and take special care to document everything carefully and contemporaneously. 

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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