FAR Deviations to Increase Cash Flow for Contractors

Cash is king – this important concept underpins many of the key elements of recent stimulus laws that the President and Congress have initiated in response to the COVID-19 pandemic. Some of the underlying key elements of the Family First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Acts are to provide cash flow to help small businesses keep afloat through the economic turmoil.

To help cash flow for contractors and subcontractors, the federal government has issued three Class Deviations in the past few days to bypass some of the red tape contained in payment processing requirements contained in the Federal Acquisition Regulation (FAR):

Civilian Agencies

Accelerated Payments to Small Business Contractors and Subcontractors

On April 6, 2020, the Civilian Agency Acquisition Counsel (CAAC) issued CAAC Letter 2020-02 to provide for accelerated payments to small business contractors and subcontractors.

This accelerated payment requirement was included in the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2020 to provide for accelerated payments to contractors that are small businesses, and to small business subcontractors by accelerating payments to their prime contractors.

The Department of Defense (DoD) already had similar coverage, and the government has undertaken rulemaking to formally incorporate this change (see below). CAAC Letter 2020-02 provides additions and deletions to clauses that are anticipated to implement the accelerated payment into the FAR.

While the government is working through the administrative process to update the FAR, this class deviation allows agencies to provide for accelerated payments to contractors that are small businesses, and to small business subcontractors by accelerating payments to their prime contractors.

Department of Defense

Submission of Interim Vouchers Under Classified Contracts

On April 3, 2020, the DoD issued a class deviation to change the reference to the office, to which interim vouchers are submitted, from “disbursing office” to “payment office.”

In response to the COVID-19 national emergency, contracting officers are instructed to direct contractors to submit interim vouchers under classified contracts, using an appropriate method and directly to the payment office listed in the contract.

Interim vouchers under classified contracts are now considered provisionally approved by the Defense Contract Audit Agency (DCAA) and can go directly to the payment office. Contracting officers shall require contractors to follow all program security protocols and to continue to safeguard program information when submitting interim vouchers that are considered provisionally approved.

Prior to this class deviation, contractors were required to submit interim vouchers to DCAA to receive a provisional approval prior to payment. This class deviation will eliminate this step in the payment process.

Class Deviation—Progress Payment Rates

On March 20, 2020, the DoD, in response to the COVID-19 national emergency, increased the progress payment rates at the Defense Federal Acquisition Regulation Supplement (DFARS) as follows:

  • Large Businesses – From 80 percent to 90 percent; and,
  • Small Businesses - From 90 percent to 95 percent.

The guidance provides the following revised deviation clauses:

Contracting officers shall use Alternate III of FAR clause 52.232-16 as prescribed at FAR 32.502-4(d) with the deviation for FAR clause 52.232-16 provided in the attachment.

This class deviation generated additional guidance from the DoD on April 3, 2020, to provide nine frequently asked questions and answers regarding the implementation of the class deviation. The guidance provides that higher progress payment rates will be applied to all previously submitted qualified costs, including those submitted prior to the issuance of the deviation.

Summary

DHG encourages our clients to maintain excellent communication with their customers, especially during these uncertain times. Remember to review contracts and evaluate the number of days it takes your customer to pay invoices, making sure you take advantage of these improved payment terms. These deviations may alleviate some of the challenges associated with COVID-19 as the federal acquisition system takes steps to increase cash flow to help sustain the critical infrastructure sector of the Defense Industrial Base (DIB).

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

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