Last night the Senate passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, (CARES Act), by a vote of 96 to 0. This rescue package will now be considered by the House, which, according to the latest reports, will likely vote on the legislation this Friday.
The bill, which is 883 pages long, will provide immediate assistance to American workers and companies impacted by the COVID-19 pandemic. For the 3.28 million Americans who filed initial unemployment claims last week, this is welcome, and much-needed legislative action that includes extended unemployment benefits, direct cash payments, small business loans, among other emergency assistance.
Like any complex legislation that is passed so quickly, it will take time to fully digest the implications of all of the provisions, many of which have not been debated or widely discussed. Among them is a section that has received little notice to date that, if included in the bill when it is signed into law by the president, gives agencies the authority to provide relief to government contractors by authorizing them to pay contractors for paid leave, including sick leave, to maintain employees in a ready state during the shutdown.
Under The Families First Coronavirus Response Act (FFCRA), small businesses under 500 employees are required to provide employees an additional two weeks of paid sick leave at full salary due to illness of the employee relating to COVID-19. The sick leave may also be used to care for a relative who is ill or care for a child whose school is closed due to the COVID-19 pandemic, in which case the employee is to receive two-thirds of his or her daily salary. Also, FFCRA requires that small business employers provide employees up to another 10 weeks of paid leave at two-thirds their salary under the Family Medical Leave Act to care for family members impacted by the pandemic.
While the intent of FFCRA was good – to give employees additional benefits required due to the pandemic – and the legislation provides that the government will reimburse small businesses in full for these expenses through payroll tax credits, the fact is that most small businesses in the United States, including small government contractors, do not have sufficient liquidity to provide these benefits upfront and then wait three to six months or more for reimbursement from the government. As a result, the legislation that was supposed to provide benefits to employees at little or no cost has had the perverse effect of causing many small businesses to lean more heavily toward the termination of employees before FFCRA goes into effect on April 1, 2020.
Section 3606 of the CARES Act provides some relief to that problem, authorizing the government to advance those refundable tax credits. And for government contractors, Section 3610 of the Senate’s bill, which is copied below, provides a second fix to this challenge and goes much further, authorizing agencies to pay contractors to keep their employees on staff and ready to perform. That section authorizes agencies to modify a contract or other agreement “without consideration” to reimburse contractors for any paid leave, including sick leave, in order “to keep its employees or subcontractors in a ready state” through September 30, 2020. The reimbursement is limited to the “minimum applicable contract billing rates not to exceed an average of 40 hours per week,” but it appears the authority can be used broadly to ensure contractors are fully prepared to resume performance when the crisis subsides. While the provision references the use of this authority “to protect the life and safety of Government and contractor personnel,” it does not limit the use of the authority to that situation, instead referencing that as but one example of the situations in which the authority may be used.
The authority does, however, have limitations. It only applies 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, due to facility closures or other restrictions. Further, this provision is restricted to employees who cannot telework because their job duties cannot be performed remotely during the public health emergency.
In addition, the maximum reimbursement authorized by Section 3610 will be reduced by the amount of credit a contractor is allowed according to the payroll tax credit provisions of the FFRCA and any applicable credits a contractor is allowed under the CARES Act.
While this provision has not yet become law, it is a positive sign for contractors that Congress has considered the importance of providing funding to certain government contractors to maintain their staff in a ready state during the COVID-19 shutdown. This provision would allow, for example, the government to pay a contractor for 40 hours of paid leave each week that it provides maintenance and housekeeping employees who are unable to work due to the shutdown of government buildings.
This small, but important, provision, if passed, will reduce the number of Americans out of work as a result of the virus and permit the contractors to quickly resume full performance in support of the government when the country gets back to work. This is yet another example of how the federal government is making adjustments to our procurement system to reduce the impact of COVID-19, and to ensure the full power of our government is leveraged to stabilize the workforce and our economy more generally.
For further information about how this, or any other government contract COVID-19 issue, please contact Richard Arnholt. Additional information is also available at our COVID-19 Resource Center.
SEC. 3610. FEDERAL CONTRACTOR AUTHORITY.
Notwithstanding any other provision of law, and subject to the availability of appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing 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 subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020. Such authority 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, due to facility closures or other restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for COVID–19: Provided, That the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant to division G of Public Law 116–127 and any applicable credits a contractor is allowed under this Act.