DoD Issues Class Deviation Providing Guidance on Section 3610 of the CARES Act
By: Eric Poppe & John Ford
In a response to the CARES Act that was enacted on March 26, 2020, as a response to the ongoing coronavirus (“COVID-19”) pandemic that is impacting the nation and the economy, on April 8, 2020, the Department of Defense (“DoD”) issued class deviation 2020-O0013 titled CARES Act Section 3610 Implementation (“the Act”) to provide guidance on how to appropriately interpret Section 3610 of the Act. Specifically, the deviation focuses on one part of Section 3610 regarding the reimbursement to a contractor up to 40 hours a week to be in a ‘ready state.’
To summarize, Section 3610 of the Act allows for the use of available funds to be used to reimburse up to 40 hours per week on any paid leave, including sick leave, that a contractor provides to keep its employees or subcontractors in a ‘ready state’ to perform on a contract beginning January 31, 2020 through September 30, 2020. This action can be used by a contractor whose employees or subcontractors cannot perform work on a site and cannot work remotely. Within the deviation, a ‘ready state’ is defined as ‘able to mobilize in a timely manner.’
DoD took a unique approach to implementing section 3610 in that it created a new Defense Federal Acquisition Regulation Supplement (“DFARS”) cost principle, 231.205-79, CARES Act Section 3610 – Implementation. The deviation states that contractors are responsible to support any claimed costs, including claimed leave, and this allowable reimbursement should be available for all contract types. These costs incurred can be considered to be direct charges.
Reimbursement should be based on the use of appropriate rates per the contract and up to an average of 40 hours a week per employee. Additionally, if a contractor is receiving compensation from other provisions of the CARES Act, such as the Paycheck Protection Program, or other COVID-19 relief programs, the contractor is not entitled to also bill the contract under section 3610.
In order to be allowable, contractors should ensure they can identify and segregate these costs within the accounting system and appropriately track the time within the timekeeping system.
Subsequently, on April 9, 2020, the DoD issued guidance on how to implement class deviation 2020-O0013. Essentially, that guidance states a preference for contractors to establish separate accounts for costs relating to the leave for which a price adjustment is being requested. In this regard, contractors are not to receive an increased fee or profit in this price adjustment. On the government side, the guidance encourages the use of separate CLINs to reflect the use of section 3610 on a contract.
If you have questions concerning any of these issues or other contracting matters, do not hesitate to contact us for advice and assistance.