House Passes Legislation Modifying Existing PPP Regulations

May 28, 2020
On May 28, 2020, the U.S. House of Representatives passed the Paycheck Protection Program Flexibility Act of 2020 (the Act), new legislation meant to provide additional assistance to small businesses and loosen regulations related to the Paycheck Protection Program (PPP). Should this bill become law, it would make major adjustments to the PPP.

The Paycheck Protection Program Loan Forgiveness Application: Cracking the Code and Deciphering the Confusion

May 28, 2020
As noted in our previous alert, SBA recently released its long-awaited PPP Loan Forgiveness Application. Unfortunately, the Forgiveness Application is difficult to understand and complete. To help crack the code, we have put together the following analysis with our review of the application, SBA's newly released guidance as to the loan terms, and key issues in the application, as well as input from our accounting partners.

DOD Issues New CARES Act, Section 3610 Guidance

May 19, 2020

Guidance from the Department of Defense (DOD) has finally been issued related to Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allowed for payments to federal contractors to keep non-working employees at the ready to return to work when required to do so. The new guidance can be found here.

As we noted in a previous blog, the CARES Act allows contracting officers to pay contractors at the “minimum applicable billing rates” for any employees who cannot perform work at a government site or government-approved contractor site due to a shutdown of said site because of COVID-19. That is a statutory allowance and, as such, cannot be changed by any agency action. However, there has been confusion about specific terms in the statute and conflicting guidance coming out of various agencies. While this new guidance does not clear up the inconsistencies, it does help clarify how DOD is going to treat contractor requests for 3610 funding.

First, the new guidance clearly states: 

  • the authority provided by Section 3610 is a permissive authority and the contracting officer is not required to reimburse any or all of the requested paid leave costs;
  • any reimbursement under Section 3610 is subject to the availability of funds;
  • the contracting officer has sole discretion to make decisions on a contractor’s affected status and the amount of any Section 3610 reimbursement;
  • contractors must not be reimbursed (or otherwise paid) twice for the same costs;
  • the contracting officer has the right to determine the amount reimbursed under Section 3610 and at what level (e.g., contract, division, segment, company, or corporate) the costs will be reimbursed;
  • contractors must segregate COVID-19 paid leave costs in their books and records;
  • contractors may not request, and shall not receive, Section 3610 reimbursement for any hours related to employees a contractor has furloughed or laid off—such hours must be excluded from any request for Section 3610 reimbursement;
  • paid leave reimbursement under Section 3610 excludes any profit or fees; and
  • contracting officers shall document any COVID-19 paid leave reimbursement decisions in a memorandum for record (MFR)—a template that contracting officers may use to complete the MFR will be provided separately, but this template should be tailored to the specific circumstances and is not a substitute for a contracting officer’s independent thought or reasoned judgement.

While some of this is not consistent with a plain reading of the CARES Act itself (specifically, there is no indication that fee or profit is excluded—quite the opposite, as the Act says “minimum applicable billing rates,” not costs), this is the guidance that DOD has chosen to adopt. And because, as noted above, the granting of 3610 funding is entirely discretionary, the cognizant contracting officer can simply give contractors a “take-it-or-leave-it” offer. It is highly unlikely that a contractor could actually sue to seek any additional 3610 funding, or any funding at all under Section 3610, as it not mandatory.

It is also critical to note that this guidance states that you cannot “double dip” by using both 3610 funding and forgiven Paycheck Protection Program (PPP) loans for the same expenses. This is not a shock to those who have been following the guidance and pendulum of thinking on this, but this new guidance does make it much more explicit. It also now requires contractors to take the affirmative step of notifying any contracting officer who has received, or is reviewing, a request for 3610 funding. This is to ensure that contracting officers do not pay 3610 funds to contractors who have received, or will receive, PPP loan forgiveness. Additionally, it is also meant to notify contracting officers of other situations where the contractor has received any other tax credit or other funding which could cover the same costs being requested, or which may have already been paid with 3610 funding. This is to allow the contracting officer to deny 3610 funds, or to demand reimbursement of already-paid 3610 funding.

While this may seem like a change, it should also be noted that most accountants who are well versed in government contract issues have already been instructing clients that any amounts of PPP loan forgiveness or other tax credits would likely be owed back to the government for cost-reimbursable contracts, at the very least, and possibly all contracts in some cases. So this new guidance simply solidifies the reality that a government contractor cannot “double dip” by seeking funding from two different government programs for the same costs.

The guidance includes a number of instructions for how contractors and the government should work together to construct 3610 funding requests and how to determine the appropriate amounts to be paid. Comments from industry are due to osd.dfars@mail.mil before 5:00 PM ET on Friday, May 22, 2020. Please review the guidance here and send your comments to marketing@pilieromazza.com by 5:00 PM ET on May 21, 2020, so we can then gather comments into one document.

PilieroMazza is working to prepare a fulsome write-up on this new guidance and, on May 20, 2020, Cy Alba will be presenting a new webinar on the PPP loans and 3610 funding crossover. You can sign up for the webinar here.

PilieroMazza is monitoring the rapidly changing COVID-19 crisis and will provide updates when more guidance is released by the government. We also invite you to visit the Firm’s COVID-19 Client Resource Center to access further resources that will help businesses navigate the effects of the COVID-19 pandemic. If you need immediate assistance, please contact us at covid19@pilieromazza.com.

SBA Issues Long-Awaited PPP Loan Forgiveness Application

May 18, 2020

SBA recently issued its 11-page Paycheck Protection Program Loan Forgiveness Application, linked here. The application walks borrowers through a step-by-step process to determine loan forgiveness amounts based upon the information the borrower enters. It is of note that the application does require borrowers to provide documentation to support the payroll and non-payroll costs paid using PPP Loan funds. This includes the following information to prove the funds were properly spent on covered liabilities incurred, or which became due, during the 8-week period following disbursement of the PPP Loan funds (the application suggests that, if the funds were not actually spent, then the PPP Loan amounts are not forgivable—however, there is a bill making its way through Congress to allow for a longer period, but that has not yet passed). The application requires borrowers to provide, among other things:  

  • Bank account statements or payroll provider records, payroll tax forms, and state employee wage reporting, as well as payment receipts, cancelled checks or account statements showing payments to employee health or retirement plans.
  • Documents showing the average number of full-time equivalent employees for either the period of February 15, 2019 through June 30, 2019, or January 1, 2020 through February 29, 2020.
  • Documents showing business mortgage interest payments, copies of lender amortization schedules or cancelled checks verifying payments.
  • Documents showing rent or lease payments, including copies of the current lease and receipts or cancelled checks verifying the eligible payments.
  • Documents showing all utility payments with invoices from February 2020 and from the 8 weeks following disbursement of the loans, including the utility bill one month after the 8-week period (to cover the full amounts of such utilities used during the 8-week period).

The application also requires the borrower to maintain, in its records, but not submit with the application itself, documentation supporting various key forgiveness factors, including:

  • Each relevant employee’s date of hire/furlough/firing and the wages and any wage reductions, or reversal of such reductions, made to that employee.
  • Proof that no amounts paid to employees were in excess of the $100K annualized cap, or, if they were, that it was not paid with PPP Funds.
  • Any job offers, firings, furloughs, rehires, and evidence of any employee who refused to be rehired after a written offer was provided.

Further, the application requires a certification signed by the authorized representative for the company attesting to the accuracy of the information in the application, and the documentation provided.  Thus, any errors in the form, if made knowingly, or with reckless disregard for the truth, could subject the borrower to False Claims Act liability, or, in serious cases of intentional falsity, wire fraud or major fraud against the United States that carry criminal penalties. Thus, borrowers should be diligent in preparing the application and all borrowers should have all relevant information readily available in case of an audit or other review as they are required to maintain all relevant PPP records for 6 years after the loan is forgiven or repaid in full.

The application is fairly detailed and provides borrowers with a good deal of information and clarification of what is eligible for forgiveness and what may not be. Thus, we recommend that all clients review the forgiveness application very carefully to ensure they fully understand all the requirements and ensure that their in-house or outside accountants have made all required calculations correctly. We are sure more questions will arise as companies prepare their applications, and we will certainly be posting more on this in the near future.

PilieroMazza is monitoring the rapidly changing COVID-19 crisis and will provide updates when more guidance is released by the government. We also invite you to visit the Firm’s COVID-19 Client Resource Center to access further resources that will help businesses navigate the effects of the COVID-19 pandemic. If you need immediate assistance, please contact us at covid19@pilieromazza.com.

SBA, Treasury Issue New Guidance Concerning Good-Faith Certification on the Necessity of Their Loan Request

May 13, 2020
On May 13, 2020, the Small Business Administration ("SBA") and Treasury Department ("Treasury") released new guidance concerning good-faith certification for Paycheck Protection Program ("PPP") loan requests. This new guidance clarifies that businesses seeking a PPP loan of less than $2 million will have made their request in good faith unless proven otherwise.
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