This is a continuation of our series addressing ways companies can protect themselves during government enforcement actions related to COVID-19. For more information, see our previous articles focused on general corporate best practicesthe health care industry and public companies.

The economic disruptions wrought by the COVID-19 pandemic have been particularly acute for government contractors. State quarantine measures and the closure of both contractor and government worksites meant many contractors were unable to perform ongoing contracts, thus risking a lapse in payment and the need to lay off or furlough workers. To mitigate this risk, Congress passed §3610 as part of the March 27, 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act). That brief provision gives federal agencies authority to reimburse contractors for paid leave to employees who are unable to work due to the pandemic. The Department of Defense (DoD)—which obligated by far the most funds pursuant to §3610—has issued guidance, instructions, and regulations clarifying eligibility for relief and the procedures contractors must follow in order to be reimbursed. Eligible contractors should be mindful of this guidance, summarized below, and carefully monitor ongoing developments.

Section 3610: the Legislative Language

Section 3610 of the CARES Act gives agencies discretion (which they are not required to exercise) to “reimburse, at the minimum applicable contract rates (not to exceed an average of 40 hours per week) any paid leave, including sick leave, a contractor provides to keep its employees or contractors in a ready state” between January 31, 2020 through Sept. 30, 2020—which Congress recently extended to Dec. 11, 2020. Importantly, the maximum reimbursement authorized under §3610 must be reduced by the amount of credit a contractor is allowed under the Family and Medical Leave Act or any applicable credits a contractor already receives under the CARES Act. Beyond these general principles, the legislative language leaves much of the detail to be worked out by individual agencies. For example, the legislation authorizes agencies to reimburse at the “minimum applicable contract billing rates,” a term that is not defined, but only if the employees cannot perform work at a site that has been “approved by the Federal Government” without guidance on what such approval entails.

DoD Guidance, Class Deviations and FAQ

From the days immediately following the passage of the CARES Act, the DoD has taken a leading role in both implementing §3610 and reimbursing contractors. Indeed, a September 3, 2020 Government Accountability Office (GAO) report found that the DoD had obligated $18.3 billion using §3610 authority as of July 20, far more than any other government agency. (For comparison, over the same period, NASA obligated approximately $3.5 billion and the Department of Energy approximately $500 million.)

On April 8, less than two weeks after the passage of §3610, the DoD issued Class Deviation 2020-O0013, laying out the framework for implementing §3610. The Class Deviation, which the DoD updated on August 17, 2020, provides a new DFARS Clause implementing §3610, 48 CFR 231.205-79, “CARES Act Section 3610 – Implementation.” Also on August 17, the DoD issued Class Deviation 2020-O0021, which provides guidance to contracting officers reviewing requests for relief and creates another DFARS clause, 48 CFR 252.243-7999, “Section 3610 Reimbursement.” In response to Congressional action, on October 14, the DoD revised these class deviations again to extend the relief period through Dec. 11, 2020. Also on August 17, the DoD issued an updated FAQ, which can be found here. The volume and frequency of these deviations and guidance—coupled with the fact that reimbursement is not mandatory— illustrates the need for contractors to closely familiarize themselves with these publications and closely monitor any new developments.

Important Considerations for Contractors

These DoD resources highlight several broad considerations that contractors should take into account when considering whether to seek §3610 reimbursement. First, the implementing cost principle, DFARS 231.205-79, applies only if both of the following conditions are met:

  1. A contracting officer has made the written determination that, due to closures or other restrictions, a contractor’s employees or its subcontractor’s employees cannot perform work on a particular contract.
  2. Such employees are unable to telework because their job duties cannot be performed remotely.

This means that §3610 relief will not be available for contractor employees who can telework.

Second, the “approved work site” language used in the legislative provision refers to the contractor’s location and any other places of performance specifically identified in the contract. This includes any contractor or subcontractor facility at which contract administration services are performed in support of those contracts or that has been cleared by the National Industrial Security Program (NISP) Contract Classification System (NCCS) on a DoD form 254 or electronic equivalent. Depending on the contract, it may include multiple work sites and/or locations.

Third, contractors may only seek reimbursement for paid leave costs between March 27, 2020—and not Jan. 31, 2020, as specified in the legislative provision—through Dec. 11, 2020. To be clear, contractors may still submit requests for costs incurred prior to March 27, but to the extent relief is given it must be from sources other than §3610 funds. Importantly, contractors may choose to submit multiple requests under §3610 as long as they incurred those costs within the inclusive dates. Requests may be made inclusive of both cost-type and fixed-price contracts, though contractors should only request costs allocable to its DoD contracts. Direct requests may only be made by prime contractors; subcontractors should provide their paid leave costs to the prime contractor for submission to the government.

Fourth, contractors may submit requests for reimbursements for either a single contract, multiple contracts, or for the entire business. DoD provides checklists for each of these approaches—an “Abbreviated Reimbursement Checklist” for single-contract requests seeking less than $2 million, “Global Reimbursement Checklist” for business-wide requests for reimbursement, and a “Multipurpose Requirement Checklist” for all other requests for reimbursement. DoD guidance recommends early engagement with contracting officers prior to submitting requests for reimbursement. Contractors should very carefully review the relevant checklists to ensure compliance with all requirements.

Fifth, and finally, the maximum reimbursement the DoD will allow must be reduced by the amount of credit a contractor is “allowed” pursuant to the Families First Coronavirus Response Act (FFCRA) credit provision and “any applicable credits a contractor is allowed under the CARES Act.” Class Deviation 2020-O0013 makes clear the DoD interprets “credit” under the CARES Act broadly to include not just tax credits but also any other coverage, such as potentially forgivable loans under the Paycheck Protection Program (PPP). For this reason, it is important that government contractors fully utilize relief made available under the FFCRA and the CARES Act, including PPP loans, before seeking §3610 relief, and those who already received reimbursement under §3610 should immediately notify the contracting officer in case they also obtain relief through any other CARES Act or FFCRA programs.

Conclusion

As is clear from the amount of relief the DoD has provided to contractors under §3610, this provision has enabled government contractors to keep a significant number of employees on the payroll during the shutdowns imposed in response to the COVID-19 pandemic. By paying to keep those employees in a “ready state,” federal agencies both mitigated the harm caused by the shutdown, which would have otherwise resulted in mass layoffs and furloughs of government contractor employees, and ensured accelerated economic recovery by stabilizing the contractor workforce.

The government is to be commended for its swift issuance of §3610 guidance and the rapid implementation of this provision. That said, given the complexity of this much-needed relief provision and the continued evolution of related guidance, it is recommended that government contractors consult with counsel prior to applying for §3610 relief.

The articles in the series are available on the Corporate Counsel website and on the firm’s related blogs, links below: