CARES Act Relief – Federal Contractor Relief

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law as a means of providing economic support and guidance to the business sector, employees, individuals, and families.

Significantly, for Federal Contractors, Section 3610 of the CARES Act generally authorizes federal agencies to use funds available via the CARES Act to keep employees/subcontractors in a “ready state.”

Specifically, such funds may be used to modify contracts to reimburse contractors’ paid leave costs (including sick leave) — but only if the employees/subcontractors are unable to (1) enter a government-approved worksite due to closures or other restrictions resulting from COVID-19, and (2) telework because their jobs cannot be performed remotely.

Although this provision comes as welcome relief to contractors struggling to maintain a “ready state” during this pandemic, contractors must be aware that Section 3610 contains several limitations.

Furthermore, since very little guidance exists yet, many important issues remain unresolved–including just how one may apply for reimbursement.

We recommend that contractors seek experienced legal counsel to help navigate them through this developing relief opportunity.

Section 3610. Federal Contractor Authority

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.

Limited Guidance Available

At this point, existing guidance on Section 3610 is sparse. The intelligence community received some direction and advice on April 3, 2020, from the Office of the Director of National Intelligence.¹ This guidance primarily addressed certain implementation aspects and urged IC agencies to “make full use of the flexibility” provided by Section 3610.² Shortly thereafter, on April 8, 2020, the Department of Defense issued a memorandum clarifying how their contacting officers are able to use the Act.³

Discussion

Again, the goal of Section 3610 is to help contractors keep employees / subcontractors in a “ready state” during the COVID-19 pandemic. As such, contractors are “reimbursed” for the cost of maintaining their employees’ “ready state.” We presume this means payroll, although this is not explicitly stated by in the Act.

1. Eligibility

Provided funds are available, contractors are eligible for Section 3610 reimbursement, if both of the following apply:

• An approved worksite is inaccessible due to COVID-19 restrictions.
• The employees are unable to perform their work remotely.

2. Limitations

Several limitations apply to those seeking Section 3610 reimbursement:

• The contracting officer must substantiate in writing that the company trying to secure reimbursement is an affected contractor.
• Per Section 3610, only “the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave” is reimbursable.  
• Reimbursement may be sought where injury is incurred as a direct result of COVID-19 and would not have otherwise occurred in the course of business.
• Costs incurred after September 30, 2020, will not be reimbursed, and all reimbursements are subject to the availability of funds.
• Contractors are required to make an effort to mitigate disruption and allow teleworking where possible; contractors should keep mitigation documentation.
• Contractors may not receive both reimbursement under Section 3610 and financial assistance under the CARES Act relief programs where financial assistance would cover the same costs.
• Costs allowable for reimbursement under Section 3610 are reduced by the amount the contractor is eligible to receive under any other federal payment program, allowance, tax, or credit specifically linked to COVID-19.

Editor’s Note

Section 3610 does not define when contractors are in a “ready state.” This omission leads some to wonder if a standard like that used in J. Dick, Inc. v. Principi will apply. In that case, a contractor was required to show that workers were on “standby” in order to recover certain costs. That standard provides that a contractor is on “standby” when work is suspended indefinitely but the contractor remains ready to resume work at full speed and immediately.⁴ Federal Acquisition Regulation (FAR) provisions related to suspension of work may also provide some idea of what will be considered “readiness.” ⁵

If you have questions or concerns about federal contractor relief during the pandemic, contact Frost Law at 410-862-2806.