By Christopher L. McLean, Government Contracts & Defense Industries

The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress and signed into law last month contained a couple of provisions beneficial to government contractors, big and small. Section 3610 of the CARES Act is one provision that is specifically designed to help government contractors regardless of size that is impacted by COVID-19 work restrictions. This provision will be especially beneficial to large government contractors as well as small government contractors that may not receive a Paycheck Protection Program (PPP) loan under Section 1102 of the CARES Act.

Section 3610 of the CARES Act provides for the reimbursement from contracting agencies for contractors of paid leave costs, including costs related to sick leave, that would not otherwise be reimbursable. Contracting agencies have begun to release guidance as to how each agency will implement Section 3610 of the CARES Act. The Office of the Under Secretary of Defense issued a memorandum, “Class Deviation – CARES Act Section 3610 Implementation” (the “Class Deviation Memorandum”), setting forth guidance for the Department of Defense’s (DoD) implementation of Section 3610 and appropriate amendments to the Defense Federal Acquisition Regulation Supplement (DFARS).

The Class Deviation Memorandum states that, in the event that a contractor’s employees are unable to work, a contractor on any type of contract will be reimbursed at the appropriate rates under the contract for up to an average of 40 hours per week if those costs are incurred to keep the contractor and subcontractor employees “in a ready state” or to protect U.S. government and contractor personnel against risks related to COVID-19. Additionally, the Class Deviation Memorandum provides contracting officers the authority to modify existing contracts to permit reimbursement of paid leave costs without requesting additional consideration.

The Class Deviation Memorandum and DFARS 231.205-79 list a number of restrictions and caveats regarding the Section 3610 reimbursements:

• Contractors eligible for reimbursement are contractors whose employees (a) cannot work on government or contractor facilities because such facilities are closed or practically “inaccessible” or inoperable; AND (b) cannot work remotely during the COVID-19 public health emergency (an “Affected Contractor”).
  • A facility is “inaccessible” if it is determined that travel to the facility is prohibited or made impracticable by applicable federal, state, or local law.
• Reimbursements can only be received by an Affected Contractor for which the contracting officer has established in writing to be an Affected Contractor.
• Contracting officers must consider “the immediacy of the specific circumstances of the contractor involved and respond accordingly.” Therefore, reimbursements for Affected Contractors whose operations have ceased completely may be prioritized over relief for contractors that can continue to work or work remotely.
• An Affected Contractor’s maximum reimbursement will be reduced by other benefits the Affected Contractor may receive under the Families First Coronavirus Response Act or the CARES Act.
  • For instance, if an Affected Contractor receives and uses a PPP loan to pay employees and seeks forgiveness under Section 1102 of the CARES Act, then the Affected Contractor should not seek Section 3610 reimbursement from the DoD. Additionally, contracting officers are charged to secure representations from Affected Contractors regarding any other relief claimed or received stemming from COVID-19, including an affirmation that the Affected Contractor has not or will not pursue reimbursement for the same costs accounted for under their request, to support its requests for reimbursement under Section 3610.
• Affected Contractors will be responsible for providing support of any claimed costs, including claimed leave costs for their employees, with appropriate documentation as well as identifying credits that may reduce reimbursement under Section 3610 (such as a PPP loan). Contracting officers are encouraged to work with Affected Contractors to understand how the Affected Contractor is using or plans to use the COVID-19 relief provisions and encourage contractors to use existing contract terms or the relief provisions available to them in response to COVID-19.
• Reimbursements will be limited to covering costs of paid leave that are due to the COVID-19 public health emergency and that would otherwise not be incurred without regard to the COVID-19 pandemic.
• The paid leave must be taken between January 31, 2020, and September 30, 2020.
• As with all government funds, reimbursements will be contingent upon the availability of funds.

Please feel free to reach out to any of our Government Contractors & Defense Industries team members with any questions.

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