Insight by: Craig Stetson, Partner
April 9, 2020
DoD Class Deviation – CARES Act, Section 3610 Implementation Framework
The initial March 30, 2020 DPAP memo indicated additional guidance on implementation of Section 3610 of the CARES Act would be forthcoming. The DoD issued April 8, 2080 a class deviation authorizing contracting officers (CO) to use the newly created guidance ‘CARES Act Section 3610 Implementation’ as a framework for addressing anticipated claims for reimbursement of applicable contractor paid employee leave costs arising from COVID-19. This implementation guidance, referenced as DFARS 231.205-79, is, in essence, a newly created cost principle applicable to a limited group of affected contractors.
Portions of the language contained in this cost principle are fairly objective and shouldn’t require a lot of debate or further explanation. However, several sections are undefined and remain unclear as to the day-to-day mechanics contractors will need to understand to effectively implement its requirements. Provisions for which questions remain include:
What is the process for contractors to obtain a written determination from the CO regarding ‘affected contractor’ status?
Will the government modify contracts to incorporate this implementation framework, notwithstanding the DFARS (Part 231.205) has not been revised?
What is the process to establish if a contractor’s worksite is ‘approved by the federal government’?
What are acceptable instances of ‘other restrictions’ that prohibit employees from performing work?
How are ‘appropriate rates’ determined – employee wages plus fringe benefits, fully burdened with indirect costs, profit or fee?
Are direct and indirect charging employees included in the reimbursement?
The guidance states ‘Costs covered…..are incurred as a consequence of granting paid leave as a result of the COVID-19 national emergency and that would not be incurred in the normal course of the contractor’s business.’ Paid leave, as described above, indicates such leave is additive to leave entitled to employees under established contractor policies. Is employee paid leave earned or otherwise available under existing contractor policies excluded from calculation of reimbursable costs under this cost principle?
How and when are applicable credits to costs claimed for reimbursement to be applied? The cost principle states ‘reduced by the amount the contractor is eligible to receive under any other Federal payment, allowance, or tax or other credit…..’. The term ‘eligible’ suggests a prospective credit. Are claimed reimbursable costs submitted now required to be reduced by anticipated, estimated, unknown (collectively future) credits a contractor may ultimately receive?
Implementation of Section 3610 of the CARES Act is currently being defined and additional DoD guidance will continue to be released. Contractors should reach out now to COs to begin a dialogue on how the overall process is anticipated to work. The recent DoD guidance is a framework and should provide a basis for contractors to seek reimbursement of applicable costs on a reasonable basis. As such, one solution will not fit all contractor circumstances and the government should consider alternative reimbursement scenarios based on specific contractor situations. Early communication with the government is important to establish coordination and is in both parties’ best interests. As always, and more so now, contractors should document discussions with the government to limit or mitigate potential downstream problems.
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