DOD Releases Class Deviation and Related Guidance Implementing Section 3610 of the CARES Act

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The Coronavirus Aid, Relief, and Economic Surety (CARES) Act was enacted on March 27 to provide relief from the effects of the COVID-19 pandemic. Section 3610 of the CARES Act authorizes agencies to reimburse federal contractors for leave provided to employees who cannot work as a result of the COVID-19 public health emergency. As we explained in a previous blog post, there are many questions as to how Section 3610 will be implemented. Those questions are being answered on a rolling basis as agencies continue to release information. Since our last post, the Department of Defense (DOD) issued a class deviation as well as a FAQ document.

On its face, Section 3610 gives contracting officers discretion to reimburse contractors for the cost of providing paid leave to their employees and subcontractors who cannot work as a result of the COVID-19 crisis, in order to keep them in a “ready state.” In order to qualify, an employee must be unable to work at a site that has been “approved by the federal government” due to facility closures or “other restrictions,” and they must be unable to perform their job duties remotely.

Two immediate questions that arise when reading Section 3610 are: “What is a government-approved site?” and “What does it mean to keep workers in a ready state?” The DOD FAQ document addresses both questions. A government-approved site is the contractor’s location and any other places of performance specifically identified in the contract. This includes any contractor or subcontractor facilities where contract administration services are performed. The term “ready state” means that the contractor will be able to mobilize and resume performance in a timely manner.

The DOD FAQ document also clarifies the meaning of “facility closures or other restrictions” that prevent an employee from accessing the site. Thankfully, the DOD has adopted a broad interpretation. Even when a work site or facility is open, the “other restrictions” requirement will be satisfied as long as the COVID-19 pandemic prevents the employee from accessing the site. Obstacles such as state and local restrictions, childcare issues resulting from school closures, or quarantine resulting from actual or potential exposure, all would satisfy the “other restrictions” requirement.

In order to receive payment under the class deviation, the contracting officer must make a written finding that the contractor is “affected” by the COVID-19 pandemic. In doing so, the contracting officer should:

Describe the actions the contractor has taken to continue performing work under the contract, the circumstances that made it necessary to grant employee leave, an explanation of why it was not feasible for employees to continue performance via telework or other remote work, and how the leave served to keep employees in a ready state.

Furthermore, contractors are responsible for supporting any claimed costs with appropriate documentation. That is, contractors must ensure that the reimbursable costs are segregated and identifiable in such a way that they will provide a sufficient audit trail. For example, the documentation should identify the affected employees, the contracts they are performing under, and the amount and dates of the paid leave they received. The documentation should also explain how the COVID-19 pandemic prevented each employee from accessing the government-approved work site and why the employee could not work remotely.

Adequate documentation must also identify any credits for which the contractor is eligible in connection with the COVID-19 pandemic, such as tax credits pursuant to Division G of the Families First Coronavirus Response Act, any Payroll Protection Program loans, any other provisions of the CARES Act, or any state or local credits, and the contracting officer must reduce payments to the contractor under Section 3610 to the extent that the contractor is eligible for other credits.

The methods of obtaining reimbursement under Section 3610 will vary depending on the type of contract. On a fixed-price contract, for example, the contractor should submit a request for equitable adjustment, and the contracting officer should establish one or more separate line items for section 3610 payments. The DOD recommends creating separate fixed-price line items for each “appropriate unit of measure, e.g., ‘Hours’ or ‘Days.’”

While these are some of the most notable developments regarding the implementation of Section 3610, the specifics will likely vary from contract to contract. 

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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