The legal and regulatory framework for government contractors continues to evolve in response to the novel coronavirus (COVID-19). This update identifies certain key changes in that framework that were adopted in May 2020, and other legal and regulatory actions taken in the past month impacting government contractors, with regard to matters aside from the COVID-19 pandemic.
Venable continues to monitor and provide frequent updates regarding various aspects of the impacts of COVID-19 that affect our government contractor 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.
Key Legislative and Regulatory Updates
- On May 15, 2020, the U.S. Small Business Administration (SBA) issued its Paycheck Protection Program (PPP) Loan Forgiveness Application and Instructions, providing long-awaited guidance for how PPP borrowers can go about applying for and receiving loan forgiveness. On May 22, 2020, the SBA issued its interim final rule on PPP loan forgiveness, which tracks with the May 15, 2020 PPP Loan Forgiveness Application and Instructions. For a comprehensive review of these key actions, please see Venable's June 1, 2020 publication, Government Contractors: SBA Issues Regulations Governing Loan Forgiveness under the Paycheck Protection Program.
- On May 18, 2020, the Department of Defense (DoD) released a draft version of its implementation guidance regarding Section 3610 of the Coronavirus Aid, Relief, and Economy Security (CARES) Act, as well as a Checklist, and Instructions on the DoD Checklist for Contractor Requests for Section 3610 Reimbursement on FAR-based Contracts. Section 3610 "authorizes, but does not require, contracting officers (COs) to modify contracts and other agreements, without consideration, to reimburse contractors for paid 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 during the COVID-19 national emergency." The guidance builds on Class Deviation 2020-O0013, which provided limitations on these reimbursements, as discussed in Venable's May update.
- Draft Guidance. To grant a request for reimbursement, the contracting officer must issue a "affected contractor" determination, finding that "[t]he contractor has provided paid leave to its employees or subcontractor employees 'to maintain a ready state, including to protect the life and safety of Government and contractor personnel,' due to the COVID-19 Public Health Emergency (PHE) declared on 31 January 2020;" the leave was taken between 31 January and 30 September 2020; the contractor has not been reimbursed for the same costs for which it is requesting reimbursement; the leave was paid because the contractor's employees or subcontractors could not perform government contract-related work because of COVID-19-related closures or other restrictions; the employees or subcontractors were unable to telework because their job duties could not be performed remotely; and the requested reimbursement does not result in a total of paid work and paid leave charges for any employee or subcontractor employee exceeding an average of 40 hours per week.
- Draft Reimbursement Checklist and Instructions. The draft checklist requires contractors to include both administrative information and narrative format responses to demonstrate why Section 3610 is applicable and why reimbursement is appropriate.
Notably, none of the existing guidance guarantees that reimbursement will occur even if the specified conditions are satisfied, as the guidance places significant discretion with the CO to grant the requested relief. While comments on the draft guidance were due May 22, 2020, Venable will continue to track the status of this guidance as it is revised and finalized.
- On May 1, 2020, in response to the COVID-19 pandemic and to avoid the need for the physical exchange of documents, the Office of the Under Secretary of Defense issued a Class Deviation amending the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) to "provide flexibility with regard to original documents, manual signatures, seals, and notarization in order to facilitate certain essential contracting procedure." This Class Deviation modifies the requirements at FAR 28.1 – Bonds and Insurance – and 28.2 – Sureties and Other Securities for Bonds; augments the procurement regarding Assignment of Claims under FAR 32.8; and updates the requirements for Novation and Change-of-Name Agreements under FAR 42.12 to generally allow for the electronic execution and exchange of required documents. Additionally, the Class Deviation similarly updates FAR 22.228-11, Pledges of Assets, 52.228-13, Performance and Payment Bonds – Construction, FAR 52.228-16, Performance and Payment Bonds-Other Than Construction, and revised DFARS 552.232.805 under Assignment of Claims.
- On May 6, 2020, the DoD, U.S. General Services Administration (GSA) and National Aeronautics and Space Administration (NASA) issued a final rule amending the FAR to reflect the revocation of Executive Order (EO) 13897, Nondisplacement of Qualified Workers under Service Contracts. Before it was revoked, EO 13897 provided that service contractors and their subcontractors must offer employees of the predecessor contractor and its subcontractors a right of first refusal of employment for positions for which they are qualified. This EO was previously reflected in FAR 22.12 and 52.222-17, which the final rule deletes in their entirety, terminating the requirement that successor contractors offer right of first refusal to predecessor contractor employees. The rule also effects corresponding changes to FAR 1.106, 2.101, and clause 52.212-5. The rule became effective on June 5, 2020.
- On May 11, 2020, the SBA issued a final rule implementing the requirement that only the SBA or SBA-approved third parties can issue certifications to Women-Owned Small Business (WOSB) and Economically Disadvantaged Women-Owned Small Business (EDWOSB) applicants seeking to participate in the Procurement Program for Women-Owned Small Business Concerns (Program). WOSBs and EDWOSBs can no longer self-certify. The certification requirement applies to those WOSBs and EDWOSBs seeking to compete for set-aside or sole source opportunities under the Program. For those opportunities not covered by the Program, self-certification continues to be sufficient. Additionally, the final rule amends SBA regulations governing continuing eligibility and program examinations, as well as the thresholds for determining whether an individual qualifies as economically disadvantaged. This rule becomes effective July 15, 2020, although certain provisions will not take effect until October 15, 2020.
- On May 29, 2020, DoD issued Class Deviation 2020-O0018, Prohibition on Use of Certain Energy Sourced from Inside the Russian Federation. Effective immediately, contracting officers are prohibited from awarding a contract "for the acquisition of furnished energy for a covered military installation, if the contract uses any energy sourced from inside the Russian Federation as a means of generating the furnished energy for the covered military installation." The Class Deviation outlines an exception if a waiver is issued, which may occur "if the head of the agency certifies to the congressional defense committees that:  Waiver of the prohibition requirements is necessary to ensure an adequate supply of furnished energy for the covered military installation; and  The official has balanced these national security requirements against the potential risk associated with reliance upon the Russian Federation for furnished energy." This Class Deviation is now reflected in DFARS 252.225-7971, Prohibition on Use of Certain Energy Sourced from Inside the Russian Federation—Representation (DEVIATION 2020-O0018).
As always, Venable will continue to track the legal updates impacting government contractors to keep our clients abreast of relevant updates.