CARES Act Section 3610, DPC DFARS Class Deviation and Guidance

On August 17, 2020; Acting Principal Director for Defense Pricing and Contracting issued two memos providing guidance in support of DFARS Class Deviation 2020-O0013 and 2020-O0021 – CARES Act Section 3610 Implementation. There is also a memo providing contracting officers with a template for a Memorandum for Record to document the file for the issuance of the Section 3610 related contract modification.

DFARS Class Deviation 2020-O0013 Revision:

The Class Deviation 2020-O0013, Revision 1, provides revised language for DFARS 231.205-79, CARES Act Section 3610 – Implementation. The cost principle language makes costs of paid leave (including sick leave) allowable at the appropriate rates under the contract for up to an average of 40 hours per week and may be charged as direct to a contract. The revision provides the following changes:

• Section 3610 reimbursement is limited to cost incurred from March 27, 2020 (enactment of CARES Act) to September 30, 2020 (end of the GFY). The original deviation provided a time period of January 31, 2020 (declaration of public health emergency) to September 30, 2020.
• Addition of a new paragraph (b)(7) to clarify that the allowable amount under this deviation is limited to the amount of funds obligated on a separate line item specifically for the purpose of reimbursement under Section 3610.

The remainder of the memo focuses on contracting officer being as efficient and effective (immediacy) to get funds to contractors that could “generate no new revenue, and may have difficulties making payroll, retaining employees, and meeting other financial obligations.” Plus ensuring the contractor makes adjustments in its request for reimbursement related to credits from Families First Coronavirus Response Act, Coronavirus Aid, Relief, and Economic Security (CARES) Act, and other credits allowed by law that is specifically identifiable with the public health emergency declared on January 31, 2020 for COVID–19.

DFARS Class Deviation 2020-O0021:

This deviation reminds contracting officers that Section 3610 authorizes, but does not require, contracting officers to modify contracts, without consideration, to reimburse contractors and subcontractors for paid leave related to COVID-19. However, the memo provides very little guidance on how best to account for the paid leave. On a good point, it makes clear that Section 3610 does not prohibit reimbursing a contractor for paid leave prior to March 27, 2020, using contract authorities otherwise available (i.e., request for equitable adjustment – REA), as other COVID-19 related costs.

The deviation promotes Early Engagement, which should include the following:

• The information required by the class deviation, including the checklist(s);
• The requirement that the contractor’s status as an affected contractor must be established by the contracting officer in writing, in order for the contractor to receive reimbursement under section 3610;
• Whether funding is available for the section 3610 reimbursement request;
• What costs are and are not authorized in a section 3610 reimbursement request;
• The expected submission frequency of the section 3610 reimbursement requests; and
• The contractor’s estimate of the amount of its section 3610 reimbursement request.

Checklist of Required Data:

The deviation includes three attached checklists to support the submission of requests for reimbursement under Section 3610. The three checklists cover a request for single contract under $2M (Abbreviated Reimbursement Checklist), single contract over $2M or multiple contracts under one program or for a single customer (Multipurpose Reimbursement Checklist), and an entire business unit or segment (Global Reimbursement Checklist).

Key Requirements:

• You are required to segregate and report the actual amounts of section 3610 paid leave costs within your accounting system to support any requests for reimbursement.
• Your request must comply with Cost Accounting Standards (CAS) for CAS-covered contracts, or FAR 31.203 for non-CAS covered contracts, in order to be reimbursed.
• More than one request for the same contract or contracts can be submitted, for example, a request for 3-months of cost at a time.
• Cost included in the request cannot have been requested elsewhere in another section 3610 reimbursement request.
• Your request cannot include projected costs – limited to cost incurred (and paid) as of the end of the monthly accounting period.
• You must collect any requests from your subcontractors and submit your opinion on whether the subcontractor was “an affected contractor” per DFARS 231.205-79.
• If you have your own subcontracts you have to go through the prime to get reimbursement for your subcontracts.
• You and your subcontractors must provide and sign a listing of representations.
• All requests must be adjusted for credits and loan forgiveness. If a later credit is collected, you must refund an appropriate amount to DoD.
• Appropriate rates applied to the paid leave hours can include labor rates, overhead, and G&A, but may not include profit or fees.
• Reimbursement request may be inclusive of cost-type, fixed-price, and commercial Government contracts.
• Reimbursements under section 3610 are limited to the cost incurred by the contractor allocable to DoD contracts, only.
• Requests must be made in good faith, and the supporting data is accurate and complete to the best of the contractor’s knowledge.

Potential Pitfalls:

• CAS compliance – Make sure you have updated your disclosed practices to support the recording of the paid leave related to COVID-19. DCAA issued guidance to its auditors that a contractor creating a new cost account or cost category to capture COVID-19 related leave cost is not a cost accounting practice change requiring a cost impact proposal.
• What overhead and G&A rates to apply – All of the checklists require a substantial amount of data related to other accrued leave costs in those rates, but no real guidance on what to do with it.
• The Multipurpose Reimbursement Checklist drop a potential bomb on the entire process. It states in this checklist and only this one: “Contractors also may not be reimbursed for paid leave costs for salaried employees to the extent that the salaried employee is paid whether working or not.” What this means is not clear and why it would only apply to this checklist is not explained.

Redstone GCI is available to assist contractor’s in assessing their risk of audit intervention and assisting with the development of Section 3610 requests. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying new guidance as it comes out.