DOD updates guidance for CARES Act Section 3610 implementation and reimbursement
Updated 8/24 from guidance originally published 4/17.
The Office of the Under Secretary of Defense recently issued revised Class Deviation guidance on how contracting officers should use DFARS 231.205-79, “CARES Act Section 3610 Implementation,” as a framework for implementing Section 3610 of the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136), “Federal Contractor Authority.” This guidance supplants the previous guidance that was issued in April.
Concurrently with this Class Deviation, the office issued another Class Deviation, which provides guidance on Section 3610 reimbursement requests.
Read on for highlights of the two pieces of guidance.
REVISED IMPLEMENTATION 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 period of March 27, 2020 – revised from 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.
- Reimbursement requests under Section 3610 should be reduced by any credits received from other relief programs, including Paycheck Protection Program (PPP) loan forgiveness and any related state or local 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 elsewhere for the same costs accounted for under their Section 3610 request.
- Contracts will need to be appropriately modified.
- Early engagement between affected contractors and contracting officers is recommended to review a potential reimbursement request.
- Three types of checklist are provided for use when submitting reimbursement requests:
- Abbreviated Reimbursement Checklist – To be used for a single contract with reimbursement requested below $2 million. This checklist may be used for subcontractor reimbursements in conjunction with the Multipurpose and Global Reimbursement checklists.
- Multipurpose Reimbursement Checklist – To be used for a single contract with reimbursement requested of $2 million or higher, or for multiple contracts when the Global Reimbursement Checklist is not used. The contractor must certify these claims in accordance with FAR 15.403-4.
- Global Reimbursement Checklist – To be used for business unit- or segment-level requests. These should be adjudicated by Cognizant Federal Agency Officials (CFAO), who usually are the Administrative Contracting Officers (ACO). The contractor must certify these claims in accordance with FAR 15.403-4.
- Reimbursements may only be for DOD prime contracts. Reimbursable Section 3610 costs incurred by a contractor as a subcontractor need to be submitted separately via the appropriate prime contractor.
- Prime contractors are expected to evaluate subcontractor Section 3610 claims, determine if they’re affected contractors, and analyze their submissions for allowability. Subcontractors have the option to submit supporting information directly to the government contracting officer separately.
- Contractors should properly segregate Section 3610 costs within their accounting system to support any reimbursement requests. All submissions are subject to audit.
- Reimbursement requests may not include paid leave to which an employee was otherwise entitled (e.g., typical PTO, holiday, per labor agreement or employment contract)
- Section 3610 reimbursement may not include any profit or fee.
- Reimbursement may be performed as a firm-fixed price or cost type line item.
- Contractors have 30 days to notify their contracting officer if they receive any credits or loan forgiveness for the same paid leave costs that have already been reimbursed under Section 3610.
As previously communicated, guidance on the CARES Act from a contractor and government acquisition point of view will continue to be refined over the coming weeks and months. DOD has already updated its Frequently Asked Questions related to Section 3610. We expect the federal government to do everything in its power to allow contractors to get paid as quickly as possible (more likely as a fixed-price CLIN) and to keep them in business by allowing contractual equitable adjustments, subject to available funding.
This guidance presents many accounting and compliance challenges. The issue of how to apply PPP forgiveness to final cost objectives is very much an open one. We recommend applying forgiveness on a top-line basis to all affected contracts, including non-governmental projects, by allocating the credit via direct labor cost proportion, as we see this being a likely equitable allocation. 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 confirm that they are simultaneously “keeping themselves whole” while maintaining sufficient records to prove that they properly followed all regulations and guidance.
Our Top 6 takeaways for this latest 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.
4. Certifying subcontract Section 3610 claims will likely lead to more expedited processing as opposed to letting the government evaluate the subcontract claims.
5. While non-COVID-19 funds are now allowed to be used to pay for these reimbursements, there is a prevalent theme that contracting officers may limit or even reject reimbursements due to a lack of funding. There is pending legislation in Congress that may change this.
6. Follow the appropriate checklist when submitting Section 3610 claims for reimbursement.
For more information, see our COVID-19 business survival guide for government contractors, or read the full new class deviations on Implementation and Reimbursement.
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