With the novel coronavirus (COVID-19) pandemic front and center, this month has seen several developments that impact government contractors, including notable legislative and regulatory updates, the publication of various reports, and modifications to the procedures and operations of courts and administrative bodies. This article provides an overview of these events from April 2020.
Many Venable practice groups are providing frequent updates regarding various aspects of the impacts of COVID-19 that affect our clients, including the Paycheck Protection Program (PPP) loans administered by the Small Business Administration (SBA). To keep abreast of all pandemic-relevant content, please visit our COVID-19 webpage.
Background – Legislative Developments
On March 27, 2020, Congress passed and President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), Pub. L. No. 116-136, which includes, among other things, a number of loan programs aimed at assisting various business and industries, including the much-publicized PPP loan program. Moreover, Section 3610 encourages federal agencies to modify the terms and conditions of their contracts with business concerns of all sizes to reimburse contractors for keeping their personnel in a ready state (as opposed to terminating them), based on "the minimum applicable contract billing rates not to exceed 40 hours" a week of leave.
Regulatory Developments
On April 3, 2020, the Department of Defense (DoD) issued Class Deviation 2020-O0012 to implement CARES Act Sections 13004 and 13005. Effective immediately, Defense Federal Acquisition Regulation Supplement (DFARS) 217.7404-4(a), which limits obligations, after receipt of a qualifying proposal, to 75% of the not-to-exceed price before definitization, does not apply to undefinitized contract actions (UCAs) related to the public health emergency for COVID-19. Furthermore, the head of the contract agency (HCA) may waive the limitation in DFARS 217.7404(a)(1)(i), 217.7404-3(a), and 217.7404-4(a) if the HCA determines that it is necessary because of the national COVID-19 emergency.
On April 8, 2020, the General Services Administration (GSA) issued Class Deviation CD-2020-06 to deviate from the Federal Acquisition Regulation (FAR) and the General Services Acquisition Regulation (GSAR), to implement CARES Act Section 15003 regarding the requirement to notify Congress of public interest exceptions to competition. Specifically, FAR 6.302-7 and the General Services Acquisition Manual (GSAM) 506.302 are amended to require GSA to notify Congress not less than 3 days before a contract award if the award is made without competition for public interest reasons due to the public health emergency surrounding COVID-19.
On April 8, 2020, the DoD issued Class Deviation 2020-O0013 to authorize contracting officers to use DFARS 231.205-79 as a framework to implement CARES Act Section 3610. Section 3610 allows agencies to reimburse contractors at the minimum applicable billing rate (not to exceed an average of 40 hours/week) for paid leave including sick leave, so that employees or subcontractors can remain in a ready state until September 30, 2020. Contractors should not receive Section 3610 relief if they have received Paycheck Protection Program (PPP) funds pursuant to CARES Act Sections 1102 and 1106. Contractors are responsible for documenting claimed costs and identifying credits received that may reduce their allowable Section 3610 funds.
On April 15, 2020, the Department of Energy (DOE) released (1) a cost-reimbursement-type contract clause and (2) a fixed-price-type contract and time-and-materials-type contract clause to implement CARES Act Section 3610 pertaining to paid leave. The full text of these clauses can be found here. Additionally, DOE issued "Guidance for using DOE's Clauses to implement Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Pub. L. No. 116-136)" to assist contracting officers in the use of Section 3610 funds.
On April 20, 2020, the DoD and GSA issued Class Deviation 2020-O0014 in response to COVID-19 to deviate from the requirements of FAR 9.406-3(c) and (e) and 9.407-3(c) and (d)(4). This class deviation expands the regulations to notify contractors of a suspension, proposed debarment, or debarment via certified mail to include electronic notification via email and/or secure file exchange service. In addition to notification, suspension and debarment officials will provide contractors with instructions to present matters in opposition (PMIOs) or evidence relevant to the facts as authorized by DFARS Appendix H-103 and H-104 via internet or telephone. Venable's April article explores the impact of this deviation here.
Defense Pricing and Contracting (DPC), which is responsible for all pricing, contracting, and procurement policy matters for the DoD, is providing the public with an opportunity to provide input on the implementation of the CARES Act within the acquisition regulations. The public may submit its input through the DARS website.
Reports and Other Memoranda
On April 9, 2020, the DoD issued a memorandum to provide "Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act." The memorandum provides guidance on implementing Section 3610 by contract type to ensure traceability and proper documentation of funds. Fixed-price contracts, including those with incentive provisions, shall include one or more separate contract line items for Section 3610 COVID-19 payments. Contractors are instructed to distinguish leave paid under these line items from actual hours worked. Contractors are also instructed on how to submit monthly invoices with supporting documentation. DoD recommends a separate account for cost-reimbursement contracts, such as an "Other Direct Costs – COVID-19" account for charges. Time and Materials or Labor Hour contracts should have a separate line item for Section 3610 reimbursements so that these costs are segregated. Section 3610 is dependent on the availability of funds. Requests for Equitable Adjustment (REAs) will not be approved unless sufficient funds are available. For more information, the memorandum can be read here.
On April 9, 2020, the Office of Management and Budget (OMB) issued memorandum M-20-20, "Repurpose Existing Federal Financial Assistance Programs and Awards to Support the Emergency Response to the Novel Coronavirus (COVID-19)." The administration directs federal agencies to use all legally available federal resources to combat the public health crisis. OMB issues this exception to allow agencies to repurpose their federal assistance monies either in whole or in part to support the COVID-19 response. For example, federal agencies may allow fund recipients to donate medical equipment purchased with federal money to hospitals and medical centers serving the public. Federal agencies must engage with their legal counsel before repurposing or donating funds and must maintain records and documentation of these instances.
On April 10, 2020, the Defense Contract Audit Agency (DCAA) issued memorandum 20-PAS-001(R) to provide guidance in response to contractor closures and limited access to contractor records and personnel due to the public health crisis. Audit teams should continue with audits and validate electronic documents received with original records (referenced as "selective testing") once the agency and/or contractor resumes normal business operations. Once documents are verified, audit teams issue the audit report. Priority audits that need to be completed before selective testing is done may be limited in scope, but the audit team will conduct selective testing within 90 days of resuming normal operations. Contractors should come to an agreement with the audit team on how the audit can be completed remotely.
On April 10, 2020, the OMB issued memorandum M-20-21, "Implementation Guidance for Supplemental Funding Provided in Response to the Coronavirus Disease 2019 (COVID-19)." The memorandum seeks to employ a balance between delivering COVID-19 funds while maintaining accountability. The OMB's memorandum focuses on three core principles when delivering COVID-19 relief and response efforts: (1) mission achievement, (2) expediency, and (3) transparency and accountability. Venable has written at length on this memorandum here.
On April 17, 2020, the OMB issued memorandum M-20-22, "Preserving the Resilience of the Federal Contracting Base in the Fight Against the Coronavirus Disease 2019 (COVID-19)." This memorandum provides additional guidance on implementation of CARES Act Section 3610 funds. Agencies and the acquisition workforce are encouraged to follow guiding principles to exercise sound business judgment, such as (1) supporting contractor resiliency and (2) exercising good stewardship. Agencies are encouraged to follow the restrictions under Section 3610. Specifically, payments to contractors are allowed only if their employees or subcontractors "cannot perform work on a government-owned, government-leased, contractor-owned, or contractor-leased facility or site approved by the federal government for contract performance due to closures or other restrictions, and are unable to telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for Coronavirus (COVID-19)."
Effective April 21, 2020, the Office of the DoD Chief Information Officer issued DoD Instruction 5000.82 on the "Acquisition of Information Technology (IT)." This instruction provides functional acquisition policy and procedures for programs containing IT, including the National Security Systems (NSS), but does not include contractor-provided equipment used in the course of contract performance (i.e., telephones, fax machines, computers). Additionally, DoD Instruction 5000.82 assigns program responsibilities and restructures acquisition processes and procedures for all programs containing IT, to comply with the Adaptive Acquisition Framework under DoD Instruction 5000.02.
On April 28, 2020, the Small Business Administration (SBA), in consultation with the Department of the Treasury, issued additional guidance to answer borrower and lender questions concerning the implementation of the PPP. The PPP was established by Section 1102 of the CARES Act and can be read in more detail here. Borrowers and lenders may rely on information in this guidance as SBA's interpretation of the CARES Act and the PPP Interim Final Rules.
On April 30, 2020, the DoD issued a memorandum to update previous guidance on reporting COVID-19-related actions to the Federal Procurement Data System (FPDS). This memorandum incorporates previous guidance provided on March 31, 2020 and April 9, 2020 and provides new instruction. The following are some highlights:
- For Contracts:
- In the National Interest Action (NIA) field, agencies should enter "COVID-10 2020."
- In the Emergency Acquisition field, agencies should enter "Presidential Issued Emergency Declaration."
- In the Description of Requirement field, agencies should enter "COVID-19 3610" for modifications to an award to allow payments authorized by CARES Act Section 3610 in addition to the actual description.
- In the Funding Agency field, agencies should identify the agency that provided the most funds.
- In the Place of Performance field, agencies should identify the location of predominant performance.
- For Grants and Cooperative Agreements:
- In the Description of Requirement field, agencies should enter "COVID-19."
The Procurement Business Intelligence Service (PBIS) will pull FPDS reports each business day on COVID-19 and COVID-19 3610 actions. More information on this memorandum can be found here.