Government contractors, like most businesses, have faced difficult operational and financial challenges since the emergence of the COVID-19 pandemic in March of this year. Quick federal legislation with contractor relief mechanisms followed with the $2.2 trillion CARES Act, enacted on March 27, 2020, which included Section 3610, “Federal Contractor Authority,” and the more widely applicable and used Paycheck Protection Program (PPP). Significant ink has since been spilled about these contract recovery mechanisms in the form of class deviations, draft guidance, OMB memorandums, and updated FAQ releases. Importantly, recent Sec. 3610 DOD class deviations revisions discuss the continuing interplay between Section 3610 relief and other COVID-19 contractor relief methods. This Client Alert provides summaries of the recent updates with a focus on the interplay among alternative contractor relief mechanisms.
On October 14, 2020, the DOD issued two class deviations: Class Deviation—CARES Act Section 3610 Implementation (“Sec. 3610 Implementation Rev. 2”) and Class Deviation—Section 3610 Reimbursement Requests (“Sec. 3610 Reimbursement Requests”) and an updated FAQ on Sec. 3610 Implementation Guidance. All three releases make prominent references to the need for contractors requesting reimbursement through Sec. 3610 to accurately track, report, and credit alternative COVID-19 relief mechanisms for the government.
Sec. 3610 Implementation Revision 2
Sec. 3610 Class Deviation Rev. 2 replaces the August 17, 2020, Rev. 1 and provides DOD contracting officers with an updated framework for Sec. 3610 implementation. It also extends the date range that paid leave may be taken from March 27, 2020, to December 11, 2020. Along with the framework, Rev 2 provides a list of authorized actions COs may take to provide the maximum amount of flexibility to both contractors and contracting officers, including:
- Enable contractors to remain in a “ready state” by treating paid leave costs as allowable
- Use available agency funds for the reimbursement of contractors for workers’ lost time related to COVID-19 related interruptions
- Provide reimbursement to contractors regardless of the contract type
Sec. 3610 Implementation Rev. 2 acknowledges that many small businesses may have sought relief through other COVID-19-related mechanisms, such as the PPP, and reminds COs to avoid authorization of duplicate payments. Small businesses and contractors with forgiven PPP loans are prohibited from seeking Sec. 3610 relief for the same expended funds. Rev. 2 also references credits received from the Families First Coronavirus Response Act (Pub. L. 116–127) as an additional prohibited duplicate reimbursement when considering Sec. 3610 relief.
Sec. 3610 Reimbursement Requests
Sec. 3610 Reimbursement Requests replaces the August 17, 2020, Class Deviation 2020-O0021; extends the eligibility period to December 11, 2020; and provides detailed guidance for COs when responding to contractors’ requests for reimbursement. The guidance is organized into three checklists COs may use to appropriately evaluate reimbursement requests:
- An abbreviated checklist for contractors applying for reimbursement for a single contract, and the amount of reimbursement sought is below $2 million
- A multipurpose checklist for contractors applying for relief for multiple “homogenous groups” of separate contracts, such as for the same program
- A global checklist for contractors seeking reimbursement at a business-unit level
Other important CO guidance clarifies that contractors may seek reimbursement more than once as long as the requests comply with the stipulated time period, and COs should engage early with contractors seeking reimbursement. Notably, Sec. 3610 Reimbursement Requests also explicitly requires contractors to notify COs within thirty days of receiving any credits or loan forgiveness that are duplicate reimbursements related to COVID-19.
FAQ on Sec. 3610 Implementation Guidance
FAQ no. 23 addresses the requirement to provide a “credit” to contract costs, to the extent that PPP loan proceeds or any other COVID-19-related relief provides a reimbursement of contract costs. The FAQ cites FAR 31.205-1, “Composition of Total Cost,” which provides that total costs equals the sum of direct and indirect costs, reduced for allocable credits. Thus, forgiven PPP loans or other reimbursements, tax credits, or COVID-19-related relief that offset costs charged to contracts must be reimbursed as credits to the applicable contracts.
Despite the rollout of Sec. 3610 in March 2020 and significant regulatory and guidance publications since, significant confusion remains among the contractor community and contracting agencies. Early Sec. 3610 guidance in the spring was at times confusing to contractors, especially with regard to the interplay between various relief mechanisms like Sec. 3610 and PPP. Further, actual use of Sec. 3610 as a reimbursement mechanism for paid leave costs has been tepid to date, at least compared to the more recognized and widely used PPP program. It should not be surprising that the guidance revisions, class deviations, and FAQ updates continue to reiterate the limitations of Sec. 3610 when pursuing other COVID-19 relief mechanisms.
Despite the apparent slow start to Sec. 3610 through the first eight months of its existence, its wide application to differing contracting circumstances, specific use for government contracts, and relatively lenient rules for paid leave reimbursement bode well for its use in the future. Contractors should monitor possible parallel COVID-19 relief efforts at their companies and track costs carefully to maintain employees or subcontractors in a ready state in anticipation of seeking Sec. 3610 relief.
 For full Text of Sec. 3610, see Sec. 3610 of ‘‘Coronavirus Aid, Relief, and Economic Security Act’’ (CARES Act) at https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf
 Sections 1102 and 1106 of the CARES Act.
 DARS Tracking Number: 2020-O0013, Revision 2, available at: https://www.acq.osd.mil/dpap/policy/policyvault/USA002146-20-DPC.pdf
 DARS Tracking Number: 2020-O0021, Revision 1, available at: https://www.acq.osd.mil/dpap/policy/policyvault/USA002147-20-DPC.pdf .
 Issued October 14, 2020; framework is DFARS 231.205-79, CARES Act Section 3610 Implementation.