NOTE: more information on this subject is also available in this recording of an interactive session with government contractors about these provisions.
Now that the dust has settled on the Paycheck Protection Program (which is also just about out of funding), it is time to look at some other provisions of the CARES Act, specifically Section 3610. This section allows Federal Contractors (which includes subcontractors) to be reimbursed for providing employees with paid leave during the COVID-19 quarantines. There are two overarching goals with this Section: 1) to continue to provide paychecks to as many people as possible; and 2) to keep a contractor workforce in a “ready state.” The latter means that when the Government re-opens, it wants to be able to have the Contractor force immediately available.
This means that if you are a contractor (or subcontractor) who provides on-site labor to the Federal Government you may fall under Section 3610. This section applies to employees who cannot access their worksite due to the quarantine and are unable to work telework or otherwise work remotely. Some examples are employees who normally work in a SCIF, general maintenance workers, and janitorial and cleaning employees. The bottom line is if you are a contractor whose workforce was told to stay home due to the quarantine and cannot perform their work, you might be eligible for relief under Section 3610.
Note: This is Not Mandatory
Section 3610 of the CARES Act states (in part):
Notwithstanding any other provision of law, and subject to the availability of appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020.
Note the bold and italicized language – the Government may provide this relief – meaning this is not mandatory and, thus, cannot lead to a demand or a Claim. This is important because Contractors need to approach the Government in the correct manner. The DoD did issue a Class Deviation implementing Section 3610 and creating DFARS 231.205-79. This Class Deviation stresses that while this program is optional, it is “imperative that [the Government] support affected contractors.” The Contracting Officer is also advised to consider the “immediacy” of the harm to a contractor who requests this reimbursement. So, while this is not mandatory, approaching the Government in the correct manner should result in a positive outcome.
In the simplest terms, a Contractor can provide covered employees up to 40 hours per week of paid leave and submit these costs as direct charge to your contract. The Class Deviation states that the costs are “allowable at the appropriate rates,” which seems to suggest that these would be the fully burdened rates under the contract. Also note, that unlike the PPP, there are not salary caps or restriction on these costs – meaning that even if your employee is paid over $100,000 a year, you can claim the full amount as a direct charge.
When reviewing the Class Deviation, it is important to remember the goals of the CARES Act generally and of Section 3610 specifically. The CARES Act is designed to keep as many individuals employed as possible. Section 3610 adds the additional goal of keeping the Government’s contractor workforce in a “ready state.” The Government wants you to keep these employees on the payroll so that the minute the quarantine lifts, they are back at work. If you assess your contract and your workforce with these goals in mind, it will become fairly obvious which contracts and which employees are covered.
As always, there are limits and restrictions to the program. Notably, Section 3610 states that “the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant” to other COVID-19 relief programs. Meaning simply that a Contractor cannot double dip. Any claim to reimbursement under Section 3610 must be offset by the tax credits provided through the Families First Coronavirus Response Act and the PPP. In regard to the latter, the reduction should only apply to a PPP loan that is ultimately forgiven – meaning, if a Contractor pays back a PPP loan, it can still claim full relief under Section 3610. Given the restrictions and salary cap on the PPP loans, paying that loan back and getting reimbursed under Section 3610 may be the best course of action.
Section 3610 is a significant lifeline to the applicable Federal Government Contractors. However, as with all of the COVID-19 relief packages, there are several open questions and intricacies on how to proceed. You are encouraged to contact us for questions, clarifications and assistance in reaching out to the Government. On that note, we will be providing a Webinar next week (time and date TBD) to discuss this program and provide some general guidance. Lewis Rhodes can be reached at lrhodes@gcpc.com .
Again, more information on this subject is also available in this recording of an interactive session with government contractors about these provisions.
