DOD provides guidance for government contractors on CARES Act Section 3610: ‘Federal Contractor Authority’
Section 3610 of the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136) is titled “Federal Contractor Authority.” The Office of the Under Secretary of Defense recently issued Class Deviation guidance indicating that contracting officers should use DFARS 231.205-79, CARES Act Section 3610 Implementation, as a framework for its implementation.
Read on for highlights of the guidance.
- Reimbursement is allowed of paid leave and/or sick leave at appropriate rates incurred to keep employees and subcontractor employees in a ready state.
- Reimbursement is contingent upon the availability of funds.
- Reimbursement is limited to the public health emergency period of Jan. 31, 2020, through Sept. 30, 2020.
- Reimbursement is not to exceed an average of 40 hours per week.
- Contractors should not seek reimbursement under Section 3610 if they are seeking reimbursement under other provisions of the CARES Act or any other relief measures. There should be no duplication of payments.
- Reimbursements requests under Section 3610 should be reduced by any credits received from other relief programs.
- Relief is only applicable to employees or subcontractor employees who cannot perform work on site due to closures or other restrictions and are unable to telework because their job cannot be performed remotely.
- This relief is offered as, the guidance says, many DOD contractors “are struggling to maintain a mission-ready workforce due to work site closures, personnel quarantines, and state and local restrictions on movement related to the COVID-19 pandemic that cannot be resolved through remote work.”
- Contracting officers are to use DFARS 231.205-79, CARES Act Section 3610 Implementation, to “balance flexibilities and limitations” while being “good stewards of taxpayer funds.”
- Relief may be granted to those in most immediate need first.
- Relief is available to all contract types.
- Contractors must receive, in writing, establishment from their cognizant contracting officer that they are an affected contractor.
- Contractors are responsible for supporting all claimed costs with appropriate documentation.
- Contracting officers should understand how contractors plan to use Section 3610.
- Contractors must provide representations of any other relief claimed or received related to COVID-19.
- Contractors must provide affirmation that they have not or will not pursue reimbursement for the same costs accounted for under their Section 3610 request.
- Contracts will need to be appropriately modified.
Guidance on the CARES Act from a contractor and government acquisition point of view will continue to quickly evolve over the coming weeks and months. We expect the federal government to do everything in its power to allow contractors to get paid as quickly as possible and to keep them in business by allowing contractual equitable adjustments. This memo presents some accounting challenges. The timing of loan forgiveness and when employees are being paid to remain in a ready state is one such example. Our recommendation is to submit reimbursement for an expense (if cost-plus or time and materials, but if fixed-price, maintain records regarding the incremental additional cost) that has been incurred, as there may be an opportunity for a request for equitable adjustment (REA) in future guidance. Once forgiveness occurs, make the appropriate adjustments and timely credit the government accordingly. Do not try to spread the forgiveness (credit) impact over all projects if some projects were able to proceed with little to no impediments. The exact accounting/claim approach to this situation can be intricate and will vary by contractor. We highly recommend that contractors consult with accounting and compliance professionals to ensure that they are simultaneously “keeping themselves whole” while maintaining sufficient records to prove that they properly followed all regulations.
Our Top 3 takeaways for this specific guidance are:
1. Receive written confirmation that you are an affected contractor.
2. Maintain sufficient supporting documentation for all costs claimed and credits received (both stimulus or civilian agency relief).
3. Do not claim the same costs for reimbursement under different programs.
Soon after the above guidance was issued, the Defense Pricing and Contracting division published an FAQ regarding this guidance. It states that further specific guidance is forthcoming, and we will be watching for that. For now, please consider potential Cost Accounting Standards disclosure and reporting impacts, if it applies to you. Again, our advice is to reach out to your contracting officer and advise them of the potential impacts.
For more information, see our COVID-19 business survival guide for government contractors.
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