The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which is an expansive economic relief bill, includes a provision that may provide relief to contractors whose employees are unable to work due to coronavirus-related facility disclosures or other restrictions. This provision, Section 3610, permits agencies to modify the terms and conditions of the contract to reimburse contractors who provide paid leave to their employees to keep the employees in a “ready state.”

Section 3610 states:

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.

Who is covered?

Contractors may receive a modification under Section 3610 if 

  • their employees or subcontractors cannot perform work on a government-approved site due to coronavirus-related facility closures or restrictions, and 
  • those employees cannot telework because their job duties cannot be performed remotely.

What are the limitations?

  • Section 3610 is permissive, not mandatory, which means that an agency is not required to grant such relief and such relief may be limited by the availability of funds. 
  • The contracting officer must establish in writing that the contractor is entitled to reimbursement under Section 3610. 
  • It does not apply to contractor employees who are able to telework.
  • Reimbursement of leave costs is allowable only up to an average of 40 hours per week per employee and at minimum applicable billing rates.
  • Reimbursement will not be made for costs incurred after the end of the government’s current fiscal year, September 30, 2020.
  • No “double-dipping” – Payments are offset by amounts of refundable tax credits for providing paid family and sick leave under the Family First Coronavirus Relief Act (“FFCRA”), and other refundable tax credits under the CARES Act. Additionally, Contractors who have obtained a Paycheck Protection Program loan (“PPP loan”) and intend to seek forgiveness on that loan cannot also receive Section 3610 relief for payroll costs covered by the PPP loan. 

OMB Guidance

On April 17, 2020, the Office of Management and Budget (“OMB”) issued a memorandum to the heads of executive departments and agencies, entitled “Preserving the Resilience of the Federal Contracting Base in the Fight Against the Coronavirus Disease 2019 (COVID-19).” In this memorandum, OMB outlined “guiding principles” that are “designed to support continued exercise of sound business judgment by agencies and the acquisition workforce in the use of section 3610.” These guiding principles set forth by OMB are:

  • Support contractor resiliency
    • Carefully consider if reimbursing paid leave to keep the contractor in a ready state is in the best interest of the Government for meeting current and future needs.
    • Be mindful of the challenges faced by small businesses.
  • Exercise good stewardship
    • Maintain mission focus and evaluate use of section 3610 in the broader context of all strategies to promote contractor resiliency.
    • Follow restrictions in section 3610.
    • Work with the contractor to secure necessary documentation to support reimbursement and prevent duplication of payment.
    • Track use of section 3610.

Further details of these principles can be found in OMB’s full memorandum. 

Agency Guidance 

The Department of Defense has issued a Class Deviation establishing a new DFARS cost principle setting forth the rules regarding payments under Section 3610, and a number of agencies have already issued guidance on the provision as well:

Berenzweig Leonard’s government contracts, business, and employment attorneys are closely monitoring this and other COVID-19 related updates impacting government contractors and other businesses during this time. Please do not hesitate to reach out to us if we can be of assistance.

Stephanie Wilson is a Partner and Co-Director of Government Contracts at Berenzweig Leonard. She can be reached at [email protected]

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