Insight by: Craig Stetson, Partner
April 14, 2020
CARES Act, Section 3610 – New Points Noted
Initial questions and responses released April 9, 2020 by the DoD regarding the implementation of CARES Act, Section 3610 – Click to read Blog posted 4.9.2020 with our expert insight.
As noted by DPAP, questions and responses will expand as specific situations arise.
A few interesting, and new, points noted:
1. The government’s decision to reimburse contractor costs is ‘permissive, not mandatory’. In other words, discretionary.
2. Reimbursement of costs may be permitted under commercial item (FAR Part 12) contracts; however, Section 3610 is ‘permissive, not mandatory’. Further, additional guidance re application of Section 3610 reimbursement to commercial item contracts will be forthcoming.
3. Advance payments are not permitted under Section 3610. Presumptively, this means contractors can only seek reimbursement for costs incurred (historical); and not, costs anticipated and estimated to be incurred (prospective)? Contractors should now be communicating with COs re specific situations encountered or anticipated and potential reimbursement under Section 3610..
Listed below are sampling responses to the most frequently asked questions. In addition, please refer to the following DPC issuances related to Section 3610 of the CARES Act:
Q1: When would Class Deviation – CARES Act Section 3610 Implementation not be appropriate for consideration?
A1: Pursuant to this deviation, the new cost principle is inapplicable when employees or subcontractor employees were able to work, including remote or telework; when costs were not associated with keeping employees in a ready state; for costs incurred prior to January 31, 2020, or after September 30, 2020; or when the contractor has been or can be reimbursed for employee leave costs by other means. Additionally, it is inapplicable for costs not related to COVID-19 and is subject to the availability of funds.
Q2: What should be considered in assessing and negotiating requests for equitable adjustment of contracts under section 3610?
A2: Contractor requests for determinations of affected contractor status that would make the new cost principle applicable should describe the actions the contractor has taken to continue performing work under the contract, the circumstances that made it necessary to grant employee leave, an explanation of why it was not feasible for employees to continue performance via telework or other remote work, and how the leave served to keep employees in a ready state. Where the contractor is considered part of the essential critical infrastructure workforce, as described in the Defense Pricing and Contracting Memo, Defense Industrial Base Contract Considerations, dated March 20, 2020, or when the contractor was directed to implement the Continuation of Essential Services Plan in the contract, the contractor must demonstrate that all reasonable efforts were made to continue contract performance. Contractor requests made in relation to this deviation must be considered on a case-bycase basis, in consideration of the particular circumstances of each contract, including, among other things, the impacts realized from COVID-19, Defense Industrial Base telework or remote work efforts, the availability of funds for reimbursement, applicable As of 4/9/2020 laws and regulations, and any relief the contractor has secured or may secure through the CARES Act and/or other laws enacted in response to this national emergency.
Q3: I have a contract with a nontraditional supplier utilizing Other Transaction Authority (OTA), would this deviation apply to my contract?
A3: The language in section 3610 provides the authority to “modify the terms and conditions of a contract, or other agreement,” to include Federal Acquisition Regulation (FAR) based contracts and other forms of agreements like OTAs. While OTAs are not FAR based actions, they are contracts or other agreements within the meaning of section 3610. The same principles of the deviation may be applied by the agreements officer to resolve COVID-19 impacts on an OTA.
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