COVID-19: CARES Act Provides New Relief Authority for Federal Contractors

COVID-19: CARES Act Provides New Relief Authority for Federal Contractors

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The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, signed into law on March 28, contains important relief authority for federal contractors affected by the COVID-19 pandemic.  Specifically, Section 3610 of the CARES Act allows federal contractors to seek reimbursement for employee compensation at the lowest contractually specified full-time billing rates for employees and subcontractor personnel who are unable to perform their contract requirements at their designated work locations due to facility closures, limited access, or other restrictions as a result of COVID-19, and cannot perform such work remotely.

Section 3610 provides: 

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. Such authority shall apply only to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the Federal Government, including a federally-owned or leased facility or site, due to facility closures or other restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for COVID–19: Provided, That the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant to division G of Public Law 116–127 and any applicable credits a contractor is allowed under this Act.

As set forth above, Section 3610 does not compel contracting officers to provide the requested compensation; however, its grant of authorization provides a valuable tool for contracting officers to alleviate the burden of facility closures and access limitations on contractors.  Contractors should cite this provision as a basis for adjustment of any contract in which performance is adversely impacted by facility closures or access restrictions relating to COVID-19. 

While DoD and other contracting agencies may face difficulty in applying this newly-granted authority consistently in the current crisis, and further federal guidance is forthcoming, we identify below several suggested best practices to consider where cost or schedule impacts arise or are anticipated due to COVID-19:   

  1. Document any impacts or anticipated impacts to your contract(s) due to COVID-19 related issues (e.g., facility closure, limited site access, prohibition or infeasibility of telework, etc.);
  2. Notify contracting officers of such issues early and in writing to preserve rights and to develop a record should a dispute arise;
  3. Keep contracting officers informed of the tools made available by the CARES Act and any agency implementing guidance that may follow;
  4. Set up charge codes to track costs related to COVID-19 employee and subcontractor standby hours for workers affected by social distancing reduced or rotating shifts, paid leave, or other costs;
  5. Mitigate, to the extent possible, the impact to your contractor workforce by re-assigning employees to other work under the contract or to other contracts;
  6. Seek schedule or cost relief under the CARES Act as soon as practicable, rather than waiting for a consolidated equitable adjustment later; and
  7. Continue to perform to the maximum extent possible.   

Sec. 3610 raises several issues to consider when seeking relief under the Act, including: 

  • This relief is applicable only for contractor employees and subcontractors whose work requires access to an approved site and cannot be performed by telework for security, technical, or other reasons, and for additional work performed to protect the lives and safety of Government or contractor (or subcontractor) personnel. This appears to cover certain ramp-down costs that might be incurred in connection with a facility shutdown or force reduction. 
  • This relief is not limited to classified Government sites that are closed. By referring to work sites that are “approved by the Federal Government, including a federally-owned or leased facility,” Sec. 3610 may be read nonexclusively to apply to restrictions imposed at any authorized Government or non-Government work location that is closed, restricted, or otherwise made inaccessible or less accessible due to COVID-19 restrictions, whether imposed by the Federal Government, by the contractor or subcontractor, or by a state or local government in connection with the COVID-19 pandemic.
  • COVID-19 performance impacts may be alleviated through modifications to the affected contract or other agreement.
  • Contracting officers are authorized, but not required, to agree to such modifications.
  • Sec. 3610 presumes that affected contracts are cost-reimbursement, labor-hour, or time-and-materials contracts; Sec. 3610 could be applied to fixed-price contracts by referring to known rates for comparable work, consistent with government cost principles or similar guidelines. Subcontractor workforces are expressly protected, and there should be no presumption that they are paid on a cost-reimbursement, labor-hour, or time-and-materials basis.
  • Sec. 3610 contemplates a wide range of potential impacts, such as full facility closures, rotating (“blue-gold”) shifts, or reduced workforces resulting in workers being placed on paid leave. To be eligible for relief, the law contemplates that idled workers will be on paid leave in order to maintain the pre-emergency workforce at a “ready state.”  This relief would not apply for workers who are laid off and no longer in a “ready state” but would presumably cover compensation for the entire workforce that was assigned to the affected contract prior to the emergency.
  • The September 30, 2020 date refers to the last day for which this authority can be used for compensation of idled contractor employee and subcontractors, not a deadline for initiating a request for a contract modification.
  • Sec. 3610 does not allow contract modifications that duplicate relief that may be provided to a contractor through any credits pursuant to the Families First Coronavirus Response Act enacted March 18, 2020, or through other provisions of the CARES Act.   

Relief under Sec. 3610 may be sought in a several different ways. Contracting officers may use Sec. 3610 as a basis for modifying a contracting on their own or in response to a contractor’s request.  In addition: 

  • FAR 52.242-15 – Stop Work Order: Contracting officers may idle contractor and subcontractor personnel by issuing a stop work order to fully or partially suspend contract performance (e.g., if portions of employee teams are stopped from performing in intervals to increase social distancing), and the contractor can initiate a request for equitable adjustment for its costs under FAR 52.242-15(b).  Sec. 3610 authorizes the contracting officer to include workforce compensation in the equitable adjustment.
  • FAR 52.243-[x] – Changes Clauses: Contracting officers may impose restrictions that constitute changes under the applicable Changes clause, which also entitles the contractor to request an equitable adjustment, that may include workforce compensation pursuant to Sec. 3610.
  • FAR 52.242-17 – Government Delay of Work Clause:  A contracting officer’s facility closure or restrictions may constitute a Government delay, which also provides for contractors to request equitable adjustments for the costs of the Government’s action (e.g., closing a work site or directing telework) or government inaction (e.g., delays or refusal to approve alternative work arrangements or site access) resulting in the delay.   

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For more information and updates useful for defense, aerospace and government services clients, visit our COVID-19 Center or contact members of the Firm’s Defense, National Security and Government Contracts Practice

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