OMB Issues Guidance on the Implementation of Section 3610 of the CARES Act
Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) gives agencies the authority “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.” On April 17, 2020, the Office of Management and Budget (“OMB”) issued M-22-20, Preserving the Resilience of the Federal Contracting Base in the Fight Against the Coronavirus Disease 2019 (“COVID-19”). As stated by OMB “[t]his memorandum provides guiding principles to help agencies determine the appropriate role of Section 3610 in supporting the needs of their contractors and subcontractors, both small and large.” Of significance, this memorandum discusses the relationship between Section 3610 and the Paycheck Protection Program (“PPP”).
One thing contractors need to understand about Section 3610 is that it does not entitle a contractor to an equitable adjustment to a contract. An equitable adjustment is a term of art in government contracting. An equitable adjustment provides contractors with relief as a matter of right and includes fee or profit when costs are involved in the adjustment. In contrast, as stated by the United States Office of Personnel Management (“OPM”), Section 3610 “provides agencies with considerable discretion to treat paid leave as a reimbursable cost.” In this regard, providing relief under Section 3610 is similar to the relief contractors may receive under P.L. 85-804, (see the Federal Acquisition Regulation [“FAR”] Subpart 50.1). Further, the adjustment provided under Section 3610 does not include any fee or profit.
Another distinction between an equitable adjustment and Section 3610 is that relief under Section 3610 is limited to funds available to the agency. Interestingly, any funds available to the agency can be used for this purpose. Thus, the same funds used in the award of the contract do not have to be used to fund this adjustment. This is a major departure from the Purpose Statute, 31 U.S.C. §1301, which states that “[a]ppropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.”
According to the memorandum, the adjustment can be made to cover leave provided after March 27, 2020 and before September 30, 2020. This clarifies when the leave must be taken for its cost to be included in an adjustment. Prior to this memorandum being issued, there was disagreement among agencies as to when the covered leave could be taken. Some agencies, such as the Department of Defense, had issued guidance setting the beginning point as January 31, 2020. Clearly, that guidance will have to be revised.
Recognizing that the government has provided various forms of potential relief to companies, OMB lists actions that agencies are to take to insure that “federal funds are not being used to make multiple payments for the same purpose.” In this regard, Section 3610 specifically requires the government to reduce the maximum reimbursement authorized by the amount of credit a contractor is allowed pursuant to division G of the Families First Coronavirus Response Act and any applicable credits a contractor is allowed under the CARES Act. Note that these credits apply to any contract type, not just contracts subject to the FAR cost principles. Therefore, if a firm fixed price contract for commercial items is adjusted under Section 3610, these credits would apply to that adjustment even though the FAR cost principles do not. The OMB states that, “it is important to secure fully supported documentation from contractors regarding other relief claimed or received, including credits allowed, along with the financial and other documentation necessary to support their requests for reimbursement under Section 3610.”
OMB went on to say “[f]ully supported documentation, which may involve representations, will help to prevent incidence of double-dipping, as would be the case, for example, if a federal contractor that was sheltering-in-place and could not telework were to use the PPP to pay its employees, have the loan forgiven, . . . and then seek reimbursement for such payment from a federal contracting agency under Section 3610.” In conclusion, it should be noted that the credit mentioned in Section 3610 is separate from and in addition to the credit discussed in FAR 31.201-5.