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.
The recent memo from the Defense Pricing Center (DPC) has created quite the stir around the current economic uncertainties in the government contractor community tied to inflation. The unfortunate reality is that for many years, economically speaking, the risk of inflation has been a steady 2-3% and so both contractors and the acquisition professionals on the other side have not had to realistically consider this factor in pricing/negotiating contracts. History has shown us that the threat is all too real and can cause significant hurdles for contractors to weather an inflationary period like we saw in the 80s, early nineties and as recently as 2009. The question of is it transitory or are we headed toward a recession is best left to our friend the magic 8-ball, but I do think there are a few things that all contractors should be aware of during this time.
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)
Recently, our office has become aware of a few instances of auditors misunderstanding the DCAA Headquarters’ guidance pertaining to the treatment of credits associated with PPP Loan Forgiveness.
In our last newsletter, we focused on some of the unnecessary obstacles small businesses face in the regulatory environment and areas where, in our opinion, Government auditors, particularly DCAA, misinterpret regulatory guidance in their efforts to question costs.
The focus of fraud used to be primarily on defense contractors, health care providers and health care suppliers. However, other companies are now being exposed to the Federal Claims Act (FCA) including software companies, private equity financiers, insurance companies, and educational institutions. Additionally, fraud is not just related to companies receiving the funds.
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.
SBA Extends the Repayment Date Again – May 18, 2020
On May 13th the Small Business Administration (SBA) updated its Frequently Asked Questioned (FAQs) – adding Questions 46 and 47. Question 47 extends the safe harbor (repayment) date to May 18th. Question 46 is very interesting; it lays out the SBA and Department of Treasury plan to review certifications of the necessity of the loans.