DOD Issues Guidance on the Implementation of Section 3610 of the CARES Act

Obermayer Rebmann Maxwell & Hippel LLP

Obermayer Rebmann Maxwell & Hippel LLP

A few weeks ago we reported on Section 3610 of the CARES Act, which authorizes contracting officers to reimburse contractors for sick or other paid leave that was paid to retain workers during the COVID-19 pandemic.  Since that time, the Department of Defense has issued guidance on how Section 3610 will be implemented on DOD contracts.  While the guidance is best characterized as general instructions for contracting officers, there is some important in information for contractors as well.

First, the guidance makes it clear that the contracting officer’s ability to reimburse contractors for paid leave begins with a contractor’s request for equitable adjustment.  In other words, if you don’t ask for reimbursement, you won’t get any—it’s not going to be automatically provided.

Second, the guidance specifically advises contracting officers that equitable adjustments under Section 3610 depend on the availability of funds.  You may recall that in our blog on Section 3610, we discussed the fact that the CARES Act authorizes contracting officers to use any available funding to make the required equitable adjustments.  While this empowers the contracting officer to use any funds that are available, even if such funds were allocated for other purposes, there still must be funds available to the contracting officer to make any adjustment.

Third, the form and procedures governing an equitable adjustment under Section 3610 will depend on what type of contract is at issue. For example, on fixed-price contracts the contracting officer will create a new line item in the contract to provide reimbursement for paid leave—the guidance suggests calling it something like “Labor Force Retention COVID-19.”  Using a separate line item is intended to make contractors distinguish between reimbursement for paid leave and actual project labor.  In other words, this payment will not simply be lumped under the normal labor line items in your contract, and should not affect the percentage of work that has been completed in any other line item.

Fourth, the equitable adjustment is intended to cover costs, exclusive of profit.  The guidance makes it clear that Section 3610 is intended to maintain your workforce “and shall not increase profit.”  Regardless of how you normally mark-up and bill for project labor, you are only entitled for reimbursement of your hard costs under Section 3610.

Fifth, any request for an equitable adjustment under Section 3610 must include “supporting documentation to identify and explain why claimed hours could not be worked, along with a statement that these costs are not being reimbursed under other authorities.”  You should not expect contracting officers simply to accept any request without documentation to prove that your costs were incurred to pay paid leave to retain workers.

Finally, if there is one running theme throughout this DOD guidance, it is that the government intends for payments made under Section 3610 to be traceable so that government auditors and agencies can easily determine what funds were expended pursuant to Section 3610.  Consequently, contracting officers are likely to prioritize making sure that they follow the guidance and carefully document how, when and why such payments are being made, over getting money into your hands as quickly as possible.  We are advising our clients to be prompt in their submissions, but not to expect that payment under Section 3610 is necessarily going to be quick.  If you have questions about how to request an equitable adjustment under Section 3610 for reimbursement of paid leave, give us a call.

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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