UPDATE: Section 3610 and PPP Guidance for Government Contractors

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We previously reported on a series of issues arising from the CARES Act and Paycheck Protection Program (PPP) that uniquely impact government contractors. We have cautioned that government contractors should be mindful of the positions that the Department of Defense (DoD) and other agencies stake out in the treatment of PPP loans or Section 3610 reimbursements and the impact that such relief may have on future credits or billing rates.

In recent weeks, the Defense Contract Audit Agency (DCAA) has provided additional guidance on audit and cost treatment for contractors receiving relief under the CARES Act. The DoD, too, appears poised to issue new guidance for contracting officers regarding negotiation of reimbursements under Section 3610.

Government contractors should review and continue to monitor these developments as they navigate the unique cost issues presented by the CARES Act and contracting with the U.S. government during COVID-19.

Recent DCAA Guidance on Section 3610 Reimbursements and PPP Loans

The DCAA recently issued answers to frequently asked questions (FAQs) regarding COVID-19, the CARES Act, and the impact of the CARES Act on contract billing and costing. The DCAA provides contract and financial audit services to the DoD, and has oversight over billing and audits of DoD cost-type or reimbursable contract line items.

Answers to the FAQs provide insight into the unique cost issues created by COVID-19, including the treatment of costs paid by PPP loans; reimbursed expenses under CARES Act Section 3610; and deferred expenses under CARES Act Section 2302 (payroll taxes). The answers to the FAQs also address the DCAA’s approach to COVID-19 impacts to forward pricing rate engagements, noting that auditors will assess factual circumstances encountered by contractors as a result of COVID-19.

Government contractors should review the DCAA’s guidance to confirm how to allocate or treat costs or expenses for which the contractor has obtained relief under the CARES Act, and to prepare for potential audits of cost-type contracts and proposals impacted by COVID-19.

Forthcoming DoD Guidance on Section 3610

The DoD reportedly is working on additional guidance for implementation of Section 3610 of the CARES Act, including a defined path for payments to federal contractors for amounts under $2 million.

In this regard, the DoD Undersecretary for Acquisition and Sustainment Ellen Lord recently stated: “We have developed a streamlined path forward for low dollar value reimbursements under $2 million, and a path to settle globally at a company or division level that will eliminate the need to have proposals and negotiations on the contract-by-contract basis.”

DoD’s announcement follows reports that the DoD expects to “be fielding upwards of $10 billion in coronavirus claims from defense companies looking for relief under COVID-19 relief legislation.”

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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