By Richard P. Rector of DLA Piper
Section 3610 of the CARES Act provides an important protection for the defense industrial base by ensuring that Government agencies can reimburse contractors for employees and subcontractors that are unable to perform work due to COVID-19 restrictions. The Act provides that agencies may modify a contract to reimburse any paid leave (up to 40 hours per week) that a contractor provides in order to keep its or its subcontractors’ employees in a “ready state,” provided that the employees (i) cannot perform work at their regular location due to facility closures or other restrictions, and (ii) cannot telework because their job duties cannot be performed remotely.
Specifically, Section 3610 states:
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.
The plain language of the law supports the following conclusions:
- It authorizes contractors under flexibly priced contracts to submit, and agencies to immediately pay, invoices based on leave paid to covered employees.
- It authorizes contractors under fixed-price contracts to seek equitable adjustments of those contracts in the future to compensate the contractor for maintaining a “ready” workforce of covered employees.
- It applies “notwithstanding” any other provision of law, so any FAR Part 31 cost principles that might otherwise restrict the allowability of such costs are not applicable.
- Agencies can use any appropriated funds for such reimbursement, not just funds made available through the Act. Thus, agencies do not need to obtain special funding prior to reimbursing such claims.
- The law applies equally to contracts and “other agreements,” which means it covers task orders, delivery orders, cooperative agreements, other transactions, and other contractual agreements.
- It applies “without consideration,” so the contractor does not need to concede something of value in exchange for the reimbursement.
- It applies to any paid leave, including sick leave, as long as the reimbursement is made “at the minimum applicable contract billing rates” and does not exceed “an average” of 40 hours per week. The reference to contract billing rates is important as it suggests a price-based, rather than a cost-based, reimbursement.
- The leave must be paid by the contractor to keep it employees, or its subcontractors, in a“ready state” – i.e., ready to return to work and restart performance consistent with the life and safety of contractor and Government personnel.
- The employees (i) must be unable to perform work at their regular place of performance — which the Government typically approves through FAR 52.215-6 — due to facility closures or other restrictions related to COVID-19, and (ii) must be unable to telework because their job duties cannot be performed remotely. This would include, for example:
- A manufacturing employee whose facility was closed due to COVID-19 restrictions
- A professional employee whose facility was closed and is unable to telework due to security restrictions
The law is limited to leave granted through September 30, 2020, and the reimbursement must be reduced by the amount of any credit the contractor receives under the Act. Also, the decision to reimburse a contractor is discretionary; the law permits, but does not require, an agency to grant such contractual relief. As such, industry groups should advocate for additional guidance to ensure that the law is equitably applied and that contractors, subcontractors, and their employees are protected, as appropriate, during this unprecedented period.
In addition, contractors should take steps now that will help them support a contract adjustment in the future. This may include (i) establishing separate charge numbers for employees who are unable to work due to COVID-19 restrictions, (ii) documenting the specific public-health guidance and directives that the company relied on in implementing facility shutdowns or other work restriction, (iii) documenting the company’s telework decisions, including the rationale for deciding which employees are capable of working remotely; and (iv) coordinating with subcontractors regarding the actions they should be taking to support a subcontract adjustment.
