CARES Act: DHG’s Considerations for Government Contractors

On March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law, which will provide tax relief for both individuals and businesses in response to the COVID-19 pandemic.

Federal agencies are given the authority, but not required, to modify terms and conditions of contracts and other agreements. Such modifications will allow the agencies to reimburse contractors whose employees and subcontractors are unable to work on federally approved work sites, including federally owned facilities. This must be due to facility closures or restrictions as a result of the public health emergency declared on January 31, 2020, and the employees, or subcontractors, are unable to telework because their job duties prohibit them from working remotely.

The reimbursements are based on the minimum applicable billing rates in the contract and cannot exceed 40 hours per week for paid leave, including sick leave, that the contractor pays to each affected employee or subcontractor. This is for the period that is presumed to begin on January 31, 2020, through September 30, 2020. One caveat in the law is that the payments are subject to availability of funds provided to the agencies.

The maximum reimbursement is reduced by the tax credits the contractor receives for paid sick and paid family medical leave provided by the Families First Coronavirus Response Act. It is also reduced by any other credit received in the CARES Act.

While this has the potential to be excellent news for contractors, the provisions are not mandatory and they do leave the contracting agencies with significant leeway. We expect that there will be guidance issued by agencies in the coming weeks.

The following are items of consideration as we wait for further guidance from the federal agencies:

  • Speak with your contracting officers (CO) upfront and make sure any guidance collected from the CO is in writing. Caution: Technical representatives do not have the authority to contractually bind the government, so make sure that you are getting authorization from your CO for any changes or government commitments.
  • Specifically identify and capture these costs separately for cost accounting purposes; we recommend you proceed as if these costs will be questioned at some period in the future.
  • You should be consistent in how they record such costs across all contracts. It is possible that companies could experience issues if such costs are recorded for one contract as direct and others as indirect based on whether they are agreed to be reimbursed or not by the CO.
  • While not explicitly stated in the law, there could be future challenges around whether the contractor could have received credits under another enactment. We recommend documenting pursuit of all other credits and reimbursements available during this crisis. If not, we foresee issues of reasonableness being raised if contractors attempt to fall back on this Act as being all inclusive.
  • We believe that there is also a possibility that areas that will be questioned for reasonableness include the amounts claimed and the time periods allowed for contractor personnel to be idle. Document all considerations and conclusions for maintaining employment status and pay rates for impacted employees.
  • Contemporaneous analysis and documentation are far more effective for future negotiations than data estimated after the fact.

For more information, please reach out to us at govcon@dhg.com.