Recovering COVID-19 Costs Where Section 3610 of the CARES Act Does Not Apply

Stephanie M. Harden

The financial relief offered to contractors under Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is limited to contractors who: 1) cannot perform work at their approved sites due to site closures, and 2) cannot telework. For contractors that do not meet these two conditions, the traditional Request for Equitable Adjustment (“REA”) and claims processes are still available and may permit recovery of some cost increases due to COVID-19.

Below we provide a brief refresher of key considerations for contractors considering COVID-related REAs or claims. Of course, the particular facts and terms of each contract will ultimately determine whether cost increases are recoverable.

What Types of Costs May Be Recovered?

Costs stemming from COVID-19 may be recoverable under several Federal Acquisition Regulation (“FAR”) clauses:

  • The Changes Clause (g., FAR 52.243-1): A wide array of costs may fall under the Changes clause, such as costs stemming from government direction to alter or stagger work hours, provide additional personnel, use more costly procedures, use procedures requiring additional training for personnel, provide personal protective equipment, or perform additional cleanings. A recent Department of Defense Memorandum is instructive as to how such costs are likely to be viewed, advising that contracting officers should consider whether such costs are “reasonable to protect the health and safety of contract employees as part of the performance of the contract.”
  • The Stop Work Order Clause (FAR 52.242-15): Costs stemming from the government’s direction to stop work will generally be recoverable under this clause. As discussed in our previous blog post, this may include the cost of “idle time” where employees are unable to access work sites, potentially providing some relief to contractors who are not covered by Section 3610 of the­ CARES­­ Act. Arguably, this clause should cover situations in which employees cannot work due to government-required quarantine procedures or government-caused delays, even if the work site is technically open—though this remains an open issue.
  • The Government Delay of Work Clause (FAR 52.242-17): Where the government causes a delay, the costs stemming from such a delay, such as increased material costs, may be recoverable under this clause.

Notably, while the Excusable Delays clause (e.g., FAR 52.249-14) excuses a contractor’s failure to perform for reasons including “epidemics” and “quarantine restrictions,” this clause does not provide financial relief, but rather, provides a basis for excusing what might otherwise give rise to a termination for default.

What Is the Difference between an Equitable Adjustment and a Claim?

A claim is a formal written demand subject to the detailed procedures set forth in the Contract Disputes Act (“CDA”). Once a claim is made, the Contracting Officer must issue a final decision within 60 days (or, for claims over $100,000, provide a firm date by which a final decision will be issued), which may be appealed to the Boards of Contract Appeals or the Court of Federal Claims. Claims must include a “sum certain”—i.e., the amount of damages being claimed—and claims of $100,000 or more must be certified by the contractor as current and accurate.

An REA is generally considered less adversarial than a claim and is not subject to a formal disputes process. There is no set timeline for resolution of an REA; however, if an REA is not resolved satisfactorily, it can be converted into a claim.

In the context of COVID-related costs, there are advantages and disadvantages of both options.  The less formal REA process provides agencies more leeway as they work to coordinate internally on how to address costs relating to COVID-19, which may ultimately be to the benefit of contractors. However, the claims process puts the government “on the clock” and, thus, may result in a faster response. Note that contractors are entitled to interest that accrues while a claim is pending, but not while an REA is pending. As for legal costs, they are allowable when incurred to support an REA, but are unallowable when incurred in support of a claim.

Timing Considerations

Whether a contractor ultimately submits a request for equitable adjustment or claim, it must notify its Contracting Officer of the delay, disruption, or right to an adjustment, with different deadlines depending upon which clause applies. For example:

  • FAR 52.242-15 (Stop Work Order Clause) requires contractors to assert their right to an adjustment within 30 days after the end of the period of work stoppage;
  • FAR 52.242-17 (Government Delay of Work) requires contractors to notify the Contracting Officer within 20 days of the act or failure to act giving rise to the delay; the contractor must also assert the amount of the claim in writing as soon as practicable after the termination of the delay or interruption, but not later than the day of final payment under the contract; and,
  • FAR 52.243-1 (Changes) requires the contractor to assert its right to an adjustment within 30 days from the date of receipt of a written change order. There is an exception “if the Contracting Officer decides that the facts justify it,” where the request is made before final payment of the contract.

Claims are also subject to a six-year statute of limitations.

As COVID-19 issues permeate virtually all aspects of commerce nationally and internationally, we stand ready to help. Blank Rome’s Coronavirus (“COVID-19”) Task Force includes interdisciplinary resources across every business sector.

Nothing Is Certain except Death, Taxes, and Now COVID-19 Contracts and Relief Funding Audits

Merle M. DeLancey Jr.

Despite COVID-19 article overload—and understandable fatigue—there is no doubt that there will be substantial audit activity related to COVID-19 contracts and receipt of relief funding. All of the ingredients for a Perfect Storm are present: unprecedented federal and state spending causing significant government budget deficits, coupled with hyper-partisan politics, and the creation of multiple government audit functions. Add in revenue-stressed government contractors perhaps focusing less on compliance, with a workforce working remotely, and you have everything necessary for a Perfect Storm. Let’s face it, the press and politicians are—or will be—on the lookout for relief funds and sweetheart contracts awarded to companies with cozy relationships with the executive branch, contracts that didn’t provide the intended benefit, and contracts and relief funds that have otherwise already received media attention.

There is nothing you can do to prevent an audit, but you can be prepared.  Below are some very general guidelines you can follow now to make your life easier in the future if you do become the target of an audit or potential audit.

  1. Memorialize Everything. Too many things are happening too fast.  Information that you think you will remember (so you don’t bother to write down or don’t write down with sufficient detail) will be forgotten. Audits can occur two, three, or even five years after the fact. Memories fade. Employees retire or move on.
  2. Ensure You Have Contracting Officer Approvals. Only contracting officers have warrants and only they can authorize changes to contracts that affect dollars, schedule changes, deliverables, and requirements. If you didn’t get contracting officer approval at the time, go back and request approval (in writing) now.
  3. Establish Commonsensical and Clear Labeling. At some point in time, you have moved to a new home and someone has told you to take an extra 30 seconds to add more detailed descriptions on your boxes. For example, while the label “closet” seemed adequate when packing-up, it is not useful when you are looking for bed sheets to sleep on at midnight for the first night in your new home. The same is true with government contracts. Simply labeling a folder or e-mail “HHS contract” is better than nothing, but it is not very helpful when trying to locate a specific conversation or contract modification.
  4. Centralize Contract Files for a Later, Easy Location. It is of no value to maintain documents and records if you cannot find them. Establish standard operating procedures (“SOPs”) so that someone walking in off the street two years from now can read them and easily understand where files are located.
  5. Archive E-mails to Avoid Automatic Deletion Programs. Company information technology systems are overwhelmed. As a result, many companies have implemented programs that automatically delete e-mails after a certain period of time. Design an SOP so that relevant government contracting e-mails are archived in a manner to avoid deletion.
  6. Perform Periodic Internal Spot Reviews. Simply having a compliance policy and procedures are no longer enough. You need to periodically confirm that the policy and procedures are being followed—and are effective. Conduct periodic spot checks and memorialize the results. Remember, the only thing worse than not having a compliance program, is having a program and not following it.
  7. Conduct Exit Interviews and Laptop Ghosting. Know how to find former employees. Don’t simply accept a former employee’s laptop, clean it, and reissue it to another employee. Take the extra time to ghost the laptop and save the contents in a place that you can locate at a later date (again, think two years from now). In addition, take the time to interview departing employees and, among other information, determine the location (hard and soft copy) of relevant government contracting files.

It makes no sense to work hard to win these contracts, help a state or the federal government respond to the COVID-19 national emergency, and record revenue today to only years later have to give back the money you earned because you don’t have documents in your contract files to substantiate information requested by an auditor. To be clear, auditors may be very nice people, but they don’t care that you did a great job and helped an agency achieve its mission. Auditors have a job to do. They have checklists to follow. If the required documents are not provided or available, they cannot and will not check the box. Rather, they will tell you to provide your explanation to the next level of review. Take the time now and follow the above guidelines to protect yourself. You will hate it now and claim that there just isn’t enough time in the day but, if and when you get that audit request, you will be thankful.

12 Steps for Reducing CARES Act Enforcement Risks

William E. Lawler III, Gregory F. Linsin, Justin A. Chiarodo, Dominique L. Casimir, and Sara N. Gerber

The Coronavirus Aid, Relief and Economic Security, or CARES, Act provides more than a trillion dollars in relief to both small and large businesses in the form of loans, grants and tax credits, designed to quickly stabilize the economy during the ongoing crisis.

But this is not free money: The CARES Act also includes a robust oversight and enforcement regime to enable the government to combat fraud, waste and abuse. Experience shows that when this much government money is being spent, there will be investigations and enforcement actions.

The CARES Act is complex with evolving regulatory guidelines, and this increases the potential for missteps by companies trying to take advantage of the program’s benefits while navigating program requirements. How can companies manage this uncertainty and reduce the risk of becoming an enforcement target?

We offer 12 suggested steps.

To read the full article that was published in Law360 on May 11, 2020, please click here.

Implementation Guidance for Section 3610 of the CARES Act

Brian S. Gocial and Dominique L. Casimir

As we summarized on March 31, 2020, CARES Act Section 3610 throws an immediate lifeline to qualifying firms whose workforce has been displaced by coronavirus COVID-19 shutdowns. On April 8, 2020, the U.S. Department of Defense (“DOD”) issued Class Deviation 2020-O0013 authorizing contracting officers to immediately use a new cost principle, DFARS 231.205-79, to implement section 3610; and on April 9, 2020, the Office of the Under Secretary of Defense issued Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act and Frequently Asked Questions. This blog post summarizes the new Federal Acquisition Regulation Supplement (“DFARS”) clause and guidance.

What is the purpose of CARES Act Section 3610 and DFARS 231.205-79?

Deviation 2020-O0013 establishes a new cost principle that will allow recovery of employee leave costs related to the COVID-19 pandemic where appropriate. The Class Deviation recognizes that “contractors are struggling to maintain a mission-ready workforce due to work site closures, personnel quarantines, and state and local restrictions on movement related to the COVID-19 pandemic that cannot be resolved through remote work.” To that end, contracting officers are instructed to use DFARS 231.205-79 “to appropriately balance flexibilities and limitations” and are directed to “consider the immediacy of the specific circumstances of the contractor involved and respond accordingly. The survival of many of the businesses the CARES Act is designed to assist may depend on this efficiency.” Continue reading “Implementation Guidance for Section 3610 of the CARES Act”

A Federal Contractor’s Five-Part Guide to the CARES Act

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law. This massive $2.2 trillion economic package provides a host of opportunities and resources for all varieties of federal contractors—from those who need financial assistance through the coronavirus pandemic to those who can leverage their resources to assist the federal government in its response.

The five timely posts below discuss discrete portions of the CARES Act, how they might affect federal contractors, and what federal contractors can do to take advantages of the many programs and opportunities offered under the Act. Please contact us for assistance with any of these, or other components, of the Act.

1. The CARES Act Provides Much Needed Financial Relief for Small Businesses

Michael Joseph Montalbano
This article discusses the expanded $349 billion loan program set aside for small businesses under the CARES Act.

2. CARES Act § 3610: An Immediate Lifeline for Qualifying Federal Contactors Displaced by COVID-19

Michael J. Slattery
This article discusses § 3610 of the CARES Act, which provides funds that federal agencies can use to alleviate disruptions to federal contractors caused by the coronavirus pandemic.

 3. CARES Act Grant Programs: Searching for Opportunity in the Coronavirus Relief Effort

Tjasse L. Fritz
This article discusses the wealth of grant programs available to federal contractors and other businesses under the CARES Act.

4. CARES Act: Significant Funds for Defense Department and Defense Contractors

Adam Proujansky
This article discusses the billions of dollars in loans, loan guarantees, and other financial assistance available through the Department of Defense to defense industry contractors.

5. New Contracting Authorities and Preferences Established under the CARES Act

Albert B. Krachman
This article discusses new contracting authorities delegated under the CARES Act as well as sole source opportunities available under the Act.

As COVID-19 issues permeate virtually all aspects of commerce nationally and internationally, we stand ready to help. Blank Rome’s Coronavirus (“COVID-19”) Task Force includes interdisciplinary resources across every business sector from insurance recovery to HR.

The CARES Act Provides Much Needed Financial Relief for Small Businesses

Michael Joseph Montalbano

On March 27, 2020, Congress passed, and the President signed into law, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is a massive $2.2 trillion law designed to stabilize the United States’ economy as the country deals with the novel coronavirus COVID-19.

One major component of the CARES Act is the $349 billion set-aside to provide relief for small businesses in the form of loans and other financial resources. Here we discuss the major components of this program that all small businesses need to know before deciding whether they should apply for one of these loans. Continue reading “The CARES Act Provides Much Needed Financial Relief for Small Businesses”

CARES Act § 3610: An Immediate Lifeline for Qualifying Federal Contactors Displaced by COVID-19

Michael J. Slattery

The recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides $2.2 trillion to stabilize the American economy as the country deals with the novel coronavirus COVID-19. In addition to directly providing many American families with cash stimulus payments, the CARES Act provides federal funds, grants, loan guarantees, and other resources to a wide variety of entities to help them combat the virus and weather the storm of its effects. These include state, local, and tribal governments; hospitals and healthcare workers; law enforcement and first responders; scientific research institutions; small businesses; local schools and universities; and federal contractors.

While contractors should note that the relief window is not open ended and agencies can only provide relief up to September 6, 2020, for federal contractors, the CARES Act provides potential new business opportunities, and throws an immediate lifeline to qualifying firms whose workforce has been displaced by COVID-19 shutdowns.

Continue reading “CARES Act § 3610: An Immediate Lifeline for Qualifying Federal Contactors Displaced by COVID-19”

CARES Act Grant Programs: Searching for Opportunity in the Coronavirus Relief Effort

Tjasse L. Fritz

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or “the Act”) is a $2.2 trillion legislative package designed to stabilize the United States’ economy as the country deals with the novel coronavirus COVID-19. Included in the Act are a wealth of grant programs that may hold opportunities for companies able to position themselves appropriately during this crisis.

Of particular interest are grant programs related to healthcare, technology, and workforce sustainment, which include:

1. Entrepreneurial development grants

Section 1103 of the CARES Act provides a $240 million grant fund for development of programs to provide education, training, and advising to covered small business concerns. Training topics include:

    • How to apply for Small Business Administration (“SBA”) resources, including business resiliency programs;
    • COVID-19 transmission prevention practices; and
    • How to manage and practice teleworking.

An additional $25 million grant is available for development of a centralized information hub where these educational materials may be accessed. Continue reading “CARES Act Grant Programs: Searching for Opportunity in the Coronavirus Relief Effort”

CARES Act: Significant Funds for Defense Department and Defense Contractors

Adam Proujansky

The recently enacted coronavirus COVID-19 Coronavirus Aid, Relief, and Economic Security Act stimulus package (the “CARES Act” or “the Act”) includes billions of dollars earmarked for the Department of Defense (“DoD”) and defense industry contractors. It does this in two ways:

    1. By providing billions of dollars in loans, loan guarantees, and other financial assistance to businesses through the Department of the Treasury, including up to $17 billion specifically for businesses “critical to maintaining national security;” and
    2. By providing $10.5 billion in supplemental appropriations to DoD, much of which is likely to go to procuring goods and services from federal contractors, including in areas ranging from healthcare to information technology. The Act also contains provisions intended to streamline DoD contracting during the present emergency.

Although the procedures to obtain these loans were not established by the Act, the Secretary of the Treasury is required to publish procedures for applying for these loans within 10 days of enactment. It is expected that DoD will issue solicitations very soon to meet these pressing needs. We expect many contractors in the defense industry will be eligible for these loans, or for the parallel loan program for small businesses being administered by the Small Business Administration under the Act. Continue reading “CARES Act: Significant Funds for Defense Department and Defense Contractors”

New Contracting Authorities and Preferences Established Under the CARES Act

Albert B. Krachman

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) creates several new contracting authorities that will present new business opportunities to firms offering COVID-19-related supplies and services. In some cases, the CARES Act also establishes specialized contracting priorities or preferences to contractors with particular service experience or qualifications, expertise, or ownership characteristics. The law also permits certain awards to be made without competition—in other words, sole source contracts—without the Justification and Approval normally required for such awards. This post surveys some of these new contracting authorities and award preferences.

New Contracting Authorities

The CARES Act delegates extensive new contracting authorities to the Department of Health and Human Services (“HHS”) and creates many new organizations with specific contracting authority. Here is a brief list of some of the key delegations and new organizations with contracting authority:

Blood Donor Awareness

The Act charges the Secretary of HHS with starting a national campaign about the importance of blood donation. Section 3226(b) of the Act gives the Secretary authority to contract with one or more public or private nonprofit entities to establish this campaign. These nonprofits will then engage advertising and public relations firms to execute the awareness programs. Media firms with public health communications experience will have an edge in securing this work. Continue reading “New Contracting Authorities and Preferences Established Under the CARES Act”