On April 8, the Department of Defense (DoD) issued a Class Deviation 2020-O0013 laying out the framework for implementing Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). DoD is to be commended for swift action to implement this useful permissive authority, which is but one of the many tools available to contracting officers to ensure affected contractors with contracts or agreements under Other Transaction Authority are fairly compensated and are prepared, to the maximum extent possible, to continue to support DoD’s mission.

The legislative provision, which we commented on when it first appeared in the Senate version of the bill, raised questions that the class deviation and subsequent implementation guidance and FAQs helpfully address. Hopefully, DoD’s guidance will be helpful to agencies across the government that are eager to use the authority at Section 3610 but have been delayed due to uncertainty caused by unclear legislative language.

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. Further, Section 3610 provides that the maximum reimbursement authorized shall be reduced “by the amount of credit a contractor is allowed pursuant to division G of Public Law 116-127,” which is a reference to the Families First Coronavirus Response Act (FFCRA) payroll tax credits for paid sick and family/medical leave, and “any applicable credits a contractor is allowed under this Act,” which is not defined.

The Class Deviation goes a long way to answering these questions in a new DFARS clause, Section 231.205, “CARES Act Section 3610 Implementation,” which can be added to a contract without consideration from the contractor and can be added to any type of contract. It should also be noted that in its introduction, the Class Deviation references the March 30, 2020, Defense Pricing and Contracting Memorandum that stresses the importance of military, civilian and contracting communities working together to withstand the effects of COVID-19 and maintain mission readiness.

It also stresses that it is “imperative that [DoD] support affected contractors, using the acquisition tools available to us, to ensure that, together, we remain an healthy, resilient, and responsive total force” while simultaneously ensuring that contracting officers are “good stewards of taxpayer funds.”

First, the implementing cost principle, DFARS 231.205-79, applies only if a contracting officer has made the written determination that a contractor’s employees or its subcontractor’s employees meet both of the following criteria:

  • They cannot perform work on a government-owned, government-leased, contractor-owned, or contractor-leased facility or a site approved by the federal government for contract performance due to closures or other restrictions.
  • They are unable to telework because their job duties cannot be performed remotely during the public health crisis.

This restriction, which resolves the open question regarding what Congress meant by “a site that has been approved by the Federal Government,” makes clear that if your employees can access the worksite or can telework, Section 3610 relief will not be available. Additional guidance about the “approved” site issue is included in the FAQs:

Q6: What does the section 3610 mean by “a site that has been ‘approved’ by the Federal Government”?

A6: Section 3610 states: “Such authorities shall apply only to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the Federal Government, including a federally-owned or leased facility or site…”

The approved work site is 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 DD form 254 or electronic equivalent. Depending on the contract, it may include multiple work sites and/or locations.

Second, the Class Deviation clarifies that the maximum reimbursement allowed will be reduced by the amount of credit a contractor is “allowed” pursuant to the FFCRA credit provision and “any applicable credits a contractor is allowed under the CARES Act.”  That restriction is clearly required by the legislative language, and the introductory section of the Class Deviation explains that 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 Section 3610 relief.

DoD also explains that the maximum authorized reimbursement will be reduced by any other credit allowed by law that is specifically identified with the COVID-19 public health emergency.  While we understand the need to ensure that contractors are not compensated more than once for the disruption caused by COVID-19, we note that the authorization limitation in Section 3610 was tied specifically to the FFCRA and the CARES Act.

The FAQs sum up these restrictions as follows:

Q1: When would Class Deviation – CARES Act Section 3610 Implementation not be appropriate for consideration?

A1: Pursuant to this deviation, the new cost principle is inapplicable when employees or subcontractor employees were able to work, including remote or telework; when costs were not associated with keeping employees in a ready state; for costs incurred prior to January 31, 2020, or after September 30, 2020; or when the contractor has been or can be reimbursed for employee leave costs by other means. Additionally, it is inapplicable for costs not related to COVID-19 and is subject to the availability of funds.

Third, rather than repeating the undefined term “minimum applicable contract billing rates” from the statute, the regulation uses the term “appropriate rates under the contract for up to an average of 40 hours per week.”  The use of the word “appropriate” will wisely allow contracting officers to determine what rates should be used.

Under the new provision, these rates are allowable if paid for paid leave between January 31, 2020, and September 30, 2020, to do either of the following:

  1. Keep contractor and subcontractor employees in a “ready state,” including, but not limited to, protecting the life and safety of government and contractor personnel.
  2. Protect the life and safety of government and contractor personnel against risks arising from the COVID-19 public health emergency.

Importantly, this maintains the broad discretion in Section 3610 under which a contracting officer may determine it is appropriate to allow these charges even for purposes other than protecting the life and safety of government and contractor personnel.

Finally, the deviation makes clear that to be allowable, costs “must be segregated and identifiable in the contractor’s records so that compliance with all terms of this section can be reasonably ascertained.” In other words, contractors bear responsibility for supporting any claimed costs with documentation as well as identifying and reporting any support they receive according to other CARES Act provisions or related statutes. So if you avail yourself of Section 3610, make sure you maintain documentation that will stand up to audit, because, as we have noted, audits by the Special Inspector General for Pandemic Recovery and others are coming.

Therefore, contractors must conduct due diligence, including evaluation of eligibility for PPP loan relief and other relief under the FFCRA and the CARES Act, to ascertain their eligibility for relief before seeking reimbursement under Section 3610. In a similar vein, the Class Deviation encourages contracting officers to prioritize contractors who have a more immediate need for relief. Eligible contractors who continue to generate revenue or are able to conduct at least some work remotely may face longer waiting times than businesses more severely impacted by the COVID-19 pandemic. Finally, contractors planning to request Section 3610 should familiarize themselves with the implementation guidance and FAQs, and look for additional guidance from DoD, including upcoming guidance on the application of Section 3610 to commercial item contracts, as well as from other agencies.

If you have any questions about Section 3610, DFARS 231.205, or the CARES Act, please contact Richard Arnholt. Additional information is also available at our COVID-19 Resource Center. Bass, Berry & Sims will be hosting a free webinar at 1 p.m. Eastern on April 16 about COVID-19 issues impacting government contractors, including a detailed discussion of DoD’s implementation of Section 3610.