CARES Act Section 3610 – Part 1: Confusion and Shifting Sands

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As we noted previously, last week Defense Pricing and Contracting issued draft instructions and requirements for contractors submitting funding requests under Section 3610 of the CARES Act. These requirements contain some departures from previous guidance and define several points that previously were left up to a contracting officer’s discretion. In this two-part blog series, we examine some of the key areas in which the guidance either clarified or, in some cases changed, existing practice.

First, the new guidance prescribes a lengthy checklist intended to ensure that the contractor provided enough information to allow the contracting officer to determine whether the contractor is an “affected contractor,” and to support the amount of relief the contractor is requesting. The checklist requires copious supporting information and documents, including information about the contractor’s accounting system, information regarding commercial business (e.g., non-government), and detailed explanations of the duties of any employees claimed as indirect costs. The guidance also states that contracting officers can request more information than what was included in the checklist and puts no restrictions on what the contracting officer may request (and thus on what the contractor must provide).

The guidance also states that contracts may be modified to include a firm-fixed-price line item, so the contractor may be paid in a lump sum for all requested reimbursement, regardless of contract type. It also clarifies that a single contract line item in a single contract may be used to reimburse the affected contractor for all its COVID-related costs across multiple contracts, to ensure that the contractor is not effectively double-paid for COVID costs across multiple contracts. Indeed, some of these changes signal that as the pandemic enters a new phase the shift—from Congress to the White House and even agencies themselves—is on reducing costs, not moving quickly to continue ensuring jobs, or the survival of small businesses. This is clear from the complexity of the checklist.

Finally, to put an even finer point on the primacy of cost savings, the guidance states that “in no event shall the reimbursement include profit or fee on paid leave costs.” This requirement appears to be in direct contradiction of the substance of Section 3610, because Section 3610 specifically states that contractors should be reimbursed “at the minimum applicable billing rate” under their contracts—not costs. Thus, the new guidance ignores the “minimum applicable billing rate” requirement in favor of imposing a new, more limited, basis of only cost recovery—which, of course, does little to stave off closing of small businesses whose owners are barely able to pay for personal expenses from profits—some of which are far from the extravagance that is falsely claimed by many detractors of the hard working federal contracting community.

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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