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 [email protected] before 5:00 PM ET on Friday, May 22, 2020. Please review the guidance here and send your comments to [email protected] 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. 

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 [email protected].