UPDATE: Critical PPP Issues for Government Contractors

Bradley Arant Boult Cummings LLP
Contact

Bradley Arant Boult Cummings LLP

We recently reported on a series of Paycheck Protection Program (PPP) issues that uniquely impact government contractors. As we noted, particularly concerning for federal contractors is that agencies may seek credits or deductive changes from contractors who receive PPP loans. We specifically noted that the Department of Defense’s (DoD) implementation of CARES Act guidance is instructive on this point.

On April 17, 2020, the DoD issued an update to its answers to frequently asked questions (FAQ) about the CARES Act, stating in part:

Question: Please confirm that neither the FAR Credits provision, FAR 31.201-5, the credit provision in the Allowable Cost and Payment Clause, FAR 52.216- 7(h)(2), nor any other FAR or DFARS provision imposes an obligation on a contractor to credit any amount of a Payroll Protection Program (PPP) loan that is forgiven to any flexibly priced government contract or subcontract. We consider a contractor that has received a PPP loan will use the loan proceeds as it would any other funds in its corporate treasury to pay costs of doing business.

Answer: We disagree that any PPP loan that has been forgiven can be treated as though it belongs to the company to use as it pleases. FAR 31.201-1, Composition of Total Cost, states that total cost is the sum of the direct and indirect costs allocable to the contract less any allocable credits. Accordingly, to the extent that PPP credits are allocable to costs allowed under a contract, the Government should receive a credit or a reduction in billing for any PPP loans or loan payments, regardless of whether the PPP loan is forgiven. [bold in original, italics added]

In other words, DoD took the position that the government should receive a PPP credit from federal contractors — even if they must pay back their PPP loans with interest. As we noted, this appears to create a situation where the government — not the contractor — would be the one double-dipping.

On April 24, 2020, however, DoD updated the answer to this FAQ as follows:

Question: Please confirm that neither the FAR Credits provision, FAR 31.201-5, the credit provision in the Allowable Cost and Payment Clause, FAR 52.216- 7(h)(2), nor any other FAR or DFARS provision imposes an obligation on a contractor to credit any amount of a Payroll Protection Program (PPP) loan that is forgiven to any flexibly priced government contract or subcontract. We consider a contractor that has received a PPP loan will use the loan proceeds as it would any other funds in its corporate treasury to pay costs of doing business.

Answer: We disagree, [sic] any PPP loan that has been forgiven necessarily can be treated as though it belongs to the company to use as it pleases. FAR 31.201-1, Composition of Total Cost, states that total cost is the sum of the direct and indirect costs allocable to the contract less any allocable credits. Accordingly, to the extent that PPP credits are allocable to costs allowed under a contract, the Government should receive a credit or a reduction in billing for any PPP loans or loan payments that are forgiven. Furthermore, any reimbursements, tax credits, etc. from whatever source that contractors receive for any COVID-19 Paid Leave costs should be treated in a similar manner and disclosed to the government. (Updated: April 24, 2020) [bold in original, italics added]

As can be seen, DoD has, for the moment at least, retracted its position that the government should receive a PPP credit from federal contractors who pay back their PPP loans. Rather, this updated FAQ indicates that DoD believes it should receive a PPP credit only from contractors who have their loans forgiven.

DoD’s recent clarification in this regard is a welcome development for government contractors. However, DoD’s guidance still appears inconsistent with the CARES Act and the very idea of a forgivable loan. That is, if the proceeds of properly utilized PPP loans ultimately must get credited back to the government by contractors, then these loans are not truly forgivable. Federal contractors who pursue relief under the PPP should be aware of the positions DoD and other agencies are staking out on treatment of PPP-related funds, so they can budget and plan accordingly.

Bradley will continue to monitor and report on critical PPP issues for government contractors.

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.

© Bradley Arant Boult Cummings LLP | Attorney Advertising

Written by:

Bradley Arant Boult Cummings LLP
Contact
more
less

Bradley Arant Boult Cummings LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.