On June 27, 2023, The Small Business Administration (SBA) Inspector General issued a White Paper titled “COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape.” The paper states the IG “estimate[s] that SBA disbursed over $200 billion in potentially fraudulent COVID-19 EIDLs, EIDL Targeted Advances, Supplemental Targeted Advances, and PPP loans.” The paper going on to state: “OIG is working on tens of thousands of investigative leads on alleged fraud, waste, and abuse of taxpayer resources. Thousands of investigations will ensue for years to come because of swift congressional action to increase the statute of limitations to 10 years for COVID-19 EIDL and PPP fraud.”
We understand this revelation (so to speak) is likely too late for many contractors that have already established final indirect rates for the year of PPP forgiveness; however, any direct costs adjusted for loan forgiveness still remain open until closeout of the contract.
Recent Armed Services Board of Contract Appeals (ASBCA) cases have rejected contractor requests for equitable adjustments (REAs) related to the impact of COVID-19 on contract performance under firm fixed price (FFP) contracts. In both cases, discussed below, the ASBCA turned to the Connor Bros. Federal Circuit decision (550 F.3d 1368 (2008)). In that decision the Federal Circuit found the act of the Sovereign Government does not result in an act of the Government as a contracting party. Therefore, under the “Changes” clause (FAR 52.243-1, Changes-Fixed-Price) that was in Connor’s contract this did not give rise to an equitable adjustment in the contract price. The basis of the Connor Bros. decision and the two recent cases is the “Sovereign Acts Doctrine.”
Jamie Brabston, Director and Senior Legal Consultant, provides a summary of the status of the various COVID vaccine mandates, with a focus on Executive Order 14042. Although this federal contractor vaccine mandate is currently subject to an injunction, covered contractors still have some COVID related obligations for maintaining a safe workplace that should not be overlooked.
DCAA issued some guidance on PPP forgiveness treatment in the form of frequently asked questions (FAQs) to its auditors. The FAQs were not front and center on DCAA’s website but search on “PPP” did find them at: COVID FAQ for PWS 07142021 (dcaa.mil).
Topics: Compliant Accounting Infrastructure, Incurred Cost Proposal Submission (ICP/ICE), Small Business Compliance, Contracts & Subcontracts Administration, DCAA Audit Support, Defense Procurement and Acquisition Policy (DPAP), Government Regulations, COVID-19, Paycheck Protection Program (PPP) Loans, Federal Acquisition Regulation (FAR)
DFARS Class Deviation 2020-O0021 Revision
On January 15, 2021, the Principal Director at Defense Pricing and Contracting (DPC) issued a memorandum on the CARES Act Section 3610 Reimbursement Requests, DFARS Class Deviation 2020-O0021, Revision 2. This memorandum revises and supersedes the DFARS Class Deviation 2020-O0021 Revision 1 issued on October 14, 2020. The only revision is to extend the period for which paid leave must be taken from March 27, 2020 through December 11, 2020 to March 27, 2020 through March 31, 2021. The remainder of the memorandum remains unchanged and details are included in Redstone GCI’s blog.
Let us Set the Stage
On June 11, 2020, the Internal Revenue Service (IRS) put out a Notice (2020-46) that allowed employees to donate unused leave to charitable groups supporting the COVID-19 National Emergency. Under the leave-based donation program, employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments that the employer makes to charitable organizations. The notice provides that employee’s donation of leave will not be taxable income to the employee, however the employer will still treat the cost of the leave granted to the employee as either ordinary and necessary business expense or a charitable contribution. This applies to donations made before the end of the 2020 calendar year.
Physical floorchecks appear to be a thing of the past, at least during this COVID-19 pandemic. Watch our video as we walk you through a scenario, as experienced by a Government Contractor, of a virtual floorcheck. We play out the roles and responsibilities of management, compliance and employees as it relates to floorchecks, from DCAA notification, to expectations, to a beautifully acted example of a virtual floorcheck gone RIGHT and a virtual floorcheck gone WRONG. We also lay out questions that may be asked during a floorcheck as well as tips to surviving a DCAA floorcheck that every contractor should consider.
Apportioning the Costs of Buildings
The SBA and Treasury have made it clear that if you own or lease a building that you sublet to another company, the portion of the lease or mortgage expense that can be used as nonpayroll costs for PPP loan forgiveness is limited to the share of the expense applied to the business who’s PPP loan is being forgiven. The simple example is, you lease an office building for $10,000 per month and sublease part of the space to another company for $2,500 per month. Only $7,500 would be used toward your nonpayroll cost for loan forgiveness. This proration applies to utility and other shared costs of the tenants.
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.