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Emergency Paid Sick Leave for COVID-19: What Government Contractors Need to Know

To date, Congress has enacted three pieces of legislation, described as “phases 1 through 3,” to respond to the COVID-19 epidemic. This legislation has both expanded requirements for sick leave and provided additional funding for contractors who have incurred costs retaining employees that are unable to work due to the closure of a federal site. Relevant provisions of the legislation, and the class deviation issued by the Department of Defense (“DoD”) for implementation of the CARES Act requirements in the DoD Federal Acquisition Regulation Supplement (“DFARS”) which we previously addressed in this blog on April 9, are discussed here.

Members of the Dentons’ Government Contracts Practice Group are available to assist government contractors regarding their obligations for paid sick leave under new or existing Federal legislation.

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Emergency Paid Sick Leave for COVID-19: What Government Contractors Need to Know

DOD Implementation of CARES Act Section 3610

On April 8, 2020, the Department of Defense issued a class deviation implementing CARES Act Section 3610, Federal Contractor Authority. Specifically, the Class Deviation, which is effectively immediately, authorizes contractors to use a new Department of Defense Federal Acquisition Regulation Supplement (DFARS) Part 231 clause—DFARS 231.205-79, CARES Act Section 3610 Implementation—”as a framework for implementation of section 3610″ of the CARES Act. The Class Deviation identifies that Section 3610 can provide “reimbursement on any contract type.”

Most notably in DFARS 231.205-79, provided below, is that:

  • It only applies to contractors for which the “cognizant contracting officer has established in writing to be an affected contractor.”  This is an important distinction and contractors should ensure to obtain, and maintain in its contract files, this affirmation from the contracting officer; 
  • It clarifies both that it applies to “work on a site that has been approved for work by the Federal Government, including on a government-owned, government-leased, contractor-owned, or contractor-leased facility approved by the federal government for contract performance,” which provided needed clarity to the language in the CARES Act, and that the performance location can be deemed inaccessible because of local shelter in place orders; and
  • In order for costs to be allowable, they must be “segregated and identifiable in the contractor’s records so that compliance with all terms of this section can be reasonably ascertained.”

DFARS 231.205-79 CARES Act Section 3610 – Implementation

  1. Applicability.
    1. This cost principle applies only to a contractor:
      1. that the cognizant contracting officer has established in writing to be an affected contractor;
      2. whose employees or subcontractor employees:
        1. Cannot perform work on a government-owned, government-leased, contractor-owned, or contractor-leased facility or site approved by the federal government for contract performance due to closures or other restrictions, and
        2. Are unable to telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020, for Coronavirus (COVID–19).
    2. The maximum reimbursement authorized by section 3610 shall be reduced by the amount of credit a contractor is allowed pursuant to division G of the Families First Coronavirus Response Act (Pub. L. 116– 127) and any applicable credits a contractor is allowed under the CARES Act (Pub. L. 116-136) or other credit allowed by law that is specifically identifiable with the public health emergency declared on January 31, 2020 for COVID–19.
  2. Allowability.
    1. Notwithstanding any contrary provisions of FAR subparts 31.2, 31.3, 31.6, 31.7 and DFARS 231.2, 231.3, 231.6, and 231.7, costs of paid leave (including sick leave), are allowable at the appropriate rates under the contract for up to an average of 40 hours per week, and may be charged as direct charges, if appropriate, if incurred for the purpose of:
      1. Keeping contractor employees and subcontractor employees in a ready state, including to protect the life and safety of Government and contractor personnel, notwithstanding the risks of the public health emergency declared on January 31, 2020, for COVID-19, or
      2. Protecting the life and safety of Government and contractor personnel against risks arising from the COVID-19 public health emergency.
    2. Costs covered by this section are limited to those that are incurred as a consequence of granting paid leave as a result of the COVID-19 national emergency and that would not be incurred in the normal course of the contractor’s business. Costs of paid leave that would be incurred without regard to the existence of the COVID-19 national emergency remain subject to all other applicable provisions of FAR subparts 31.2, 31.3, 31.6, 31.7 and DFARS 231.2, 231.3, 231.6, and 231.7. In order to be allowable under this section, costs must be segregated and identifiable in the contractor’s records so that compliance with all terms of this section can be reasonably ascertained. Segregation and identification of costs can be performed by any reasonable method as long as the results provide a sufficient audit trail.
    3. Covered paid leave is limited to leave taken by employees who otherwise would be performing work on a site that has been approved for work by the Federal Government, including on a government-owned, government-leased, contractor-owned, or contractor-leased facility approved by the federal government for contract performance; but
      1. The work cannot be performed because such facilities have been closed or made practically inaccessible or inoperable, or other restrictions prevent performance of work at the facility or site as a result of the COVID-19 national emergency; and
      2. Paid leave is granted because the employee is unable to telework because their job duties cannot be performed remotely during public health emergency declared on January 31, 2020, for COVID-19.
    4. The facility at which work would otherwise be performed is deemed inaccessible for purposes of paragraph (b)(3) of this subpart to the extent that travel to the facility is prohibited or made impracticable by applicable Federal, State, or local law, including temporary orders having the effect of law.
    5. The paid leave made allowable by this section must be taken during the period of the public health emergency declared on January 31, 2020, for COVID–19, up to and including September 30, 2020.
    6. Costs made allowable by this section are reduced by the amount the contractor is eligible to receive under any other Federal payment, allowance, or tax or other credit allowed by law that is specifically identifiable with the public health emergency declared on January 31, 2020, for COVID–19, such as the tax credit allowed by division G of Public Law 116–127.

The Class Deviation can be found here and remains in effect until rescinded.

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DOD Implementation of CARES Act Section 3610

Government Contracting During the COVID-19: Key Considerations for Negotiating New Government Contracts Amidst the Global Pandemic

Regulation update

The COVID-19 global pandemic and the United States’ response to the national emergency are having significant impacts on the government contractor community, shaping the way contractors perform their current contractual obligations and the way contractors will negotiate future contracts, task orders, and modifications. Indeed, for contractors preparing proposals or negotiating new contracts, the landscape is now much different and more uncertain than it was prior to the COVID-19 global pandemic.

To assist contractors in protecting against these uncertainties, we have outlined below considerations and strategies that should be employed (additional details related to each of the below identified strategies may be found here):

  • Understand the contract or subcontract type being negotiated and, in particular, the risk tradeoffs of flexibly priced contracts versus fixed price contracts – Fixed price contracts and subcontracts are designed to place the maximum risk on the seller for reasonably foreseeable risks; because the pandemic is a known fact, those considering a fixed price contract must proceed with caution.
  • Understand that the government may assert the basic FAR excusable delay clause has limited applicability to new government contracts because COVID-19 is now a known fact – The government may argue that when a potential risk exists at the time of award, any impact to the contract stemming from that risk may be foreseeable and inexcusable under the FAR delay clauses. In order to protect against this risk, contractors should consider including disclaiming language in their proposals and, to the extent possible, negotiate a reopener or other special clause that makes clear that the full impact of COVID-19 is not foreseeable and the contractor does not assume such risks to schedule or cost.
  • Consider how the contingencies cost principle affects contractors’ ability to include the costs of unforeseeable events in their proposals – Because COVID-19 is a presently known condition with an impact that likely cannot be measured with accuracy at this time, the government may take the position that any contingency, management reserve, or other cost associated with potential impacts arising from COVID-19 are unallowable and must be excluded from cost estimates. To protect against this risk, contractors should seek higher fee and/or the inclusion of reopener clauses in their contracts that permit the parties to reopen cost or price negotiations based on future COVID-19 related events.
  • Monitor indirect cost rates carefully and make adjustments to forward pricing rates and billing rates as necessary. Terminate existing Forward Pricing Rate Agreements – In order to protect against the risk of a quick change to indirect rates, contractors should carefully monitor how COVID-19 related issues are impacting rates and take appropriate action, including, but not limited to, terminating FPRAs and updating forward pricing rates and billing rates.
  • Prepare for a potential increase in sole source contracts and/or limited bid protests – If the government does utilize a full and open procurement competition, be aware that the government may override the automatic stay of performance in GAO bid protests, pursuant to FAR § 33.104(c)(2)).

Contractors should expect extraordinary circumstances as a result of the global pandemic, including rapid procurement processes for new government contracts, variable (and likely increased) contract performance costs, and disrupted contract performance schedules. Vigilant and proactive contractors may be able to create contractual protections, especially when entering into new government contracts, that may minimize financial repercussions of COVID-19.

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Government Contracting During the COVID-19: Key Considerations for Negotiating New Government Contracts Amidst the Global Pandemic

2017 Financial Forum Series

new-tax-picture

Dentons’ Government Contracts practice and the Public Contracting Institute (PCI) present a monthly webinar series offering practical advice and CLE credit. Each session will take an in-depth look at topics such as cost accounting compliance, cost and pricing trends, contractor best practices and more. The current schedule of dates and topics is below.

Contractors and government practitioners alike will benefit from this informative and exciting webinar series.

 
Every second Tuesday of the month
12–1 p.m. ET

January 10: Subcontract and vendor cost allowability and related issues

February 14: Final indirect cost rate proposals: auditor focus areas, trends and best practices

March 14: Selected FAR cost principles, Part 1: compensation, legal, consulting, organization, restructuring, tangible and intangible capital asset costs

April 11: Selected FAR cost principles, Part 2: IR&D, B&P, selling, advertising, public relations costs, other business development costs

May 9: Cost estimating and truthful cost or pricing data requirements

June 13: Cost reasonableness and travel and relocation cost allowability

September 12: Managing internal investigations into accounting matters: mandatory disclosures

October 10: CAS overview and best practices

November 14: Termination cost recovery

December 12: TBD

Register now for the 2017 Financial Forum Series. All sessions are complimentary for Dentons clients.

Each webinar will provide CLE credit and will be recorded and available online.

For more information, please contact Sofia Abraham Mendoza at sofia.mendoza@dentons.com.

[Register now]

2017 Financial Forum Series

Speaking up about DOD’s proposed Independent Research and Development costs rule

A February 8, 2016, Department of Defense (DOD) advance notice of proposed rulemaking sought input to help address agency concerns regarding substantial future Independent Research and Development (IR&D) when such effort is undertaken as a means of reducing evaluated bid prices in competitive source selections. The proposed rule, if made final, would require the government to add costs (for proposal evaluation purposes) to any contractor offers that rely on IR&D efforts. In a recent client alert, Dentons encouraged contractors to participate in the comment process on the proposed rulemaking.

Dentons partners Thomas A. Lemmer and Steven M. Masiello submitted comments on the proposed rule. Specifically, they describe the relevant decisional authority establishing the appropriate methodology for distinguishing between direct costs of contract effort versus indirect costs of IR&D effort. Based upon this relevant authority, DOD’s concerns underlying the proposed rulemaking initiative to attribute IR&D project costs to the proposed price for evaluation purposes are misplaced.

Indeed, contrary to DOD’s concerns, relevant decisional authority confirms that IR&D efforts properly permit contractors willing to undertake, at their own risk, IR&D projects, to gain a relative price and technical advantage. Moreover, DOD should not discourage innovation by penalizing contractors for conducting IR&D projects resulting in innovation relevant to a competitive government procurement. Finally, IR&D costs are not contract costs, and treating them as such for evaluation purposes during the competitive procurement process misconstrues their nature and may skew award decisions.

You can read Dentons’ comments in full here.

Additionally, Dentons lawyers advised the American Bar Association Section of Public Contract Law on its comments on the proposed rule, which can be found here.

Speaking up about DOD’s proposed Independent Research and Development costs rule

2016 Business Systems Webinar Series

Dentons government contracts lawyers and the Public Contracting Institute (PCI) will present this business systems series addressing the expanding requirements of the business systems rules. The Defense Federal Acquisition Regulation Supplement (DFARS) Business Systems Rule outlines requirements for contractor compliance

This series, valuable to both Department of Defense (DOD) and Department of Energy (DOE) contractors alike, will provide important guidance for any contractor seeking to improve its internal business system compliance and prepare for system self-assessments, and will help contractors prepare for and respond to government system reviews. This series will address the six covered business systems (including the systems covered by the DOE rule), and will feature guest speakers discussing practical insights and lessons learned from business system reviews.

Fourth Tuesday of the month

12:00 p.m. to 1:15 p.m. ET

January 26 – Business system administration and recent developments

February 23 – Accounting systems

March 22 – Estimating systems

April 26 – Purchasing systems (including counterfeit parts)

May 24 – Property/Earned value management system (EVMS)/Materials management and accounting system (MMAS)

For more information, or if you would like to attend a course (complimentary to Dentons’ clients), please reach out to Sofia Abraham Mendoza at sofia.mendoza@dentons.com. All webinars offer CLE credit. They are recorded and available to watch online for one year after the live date.

2016 Business Systems Webinar Series

2016 Financial Forum Series

Join Dentons government contracts lawyers for a Public Contracting Institute (PCI) webinar series involving the most current industry analysis in government contract cost accounting from a team of leaders in the field with unparalleled experience. For both contracting officials and private practitioners, these exclusive webinars offer the latest developments, hot topics and the unique opportunity to “ask the authorities.”

Second Tuesday of the month

12:00 p.m. to 1:00 p.m. ET

January 12 – Pricing requests for equitable adjustment and pursuing claims

February 9 – Subcontractor, travel and legal cost reasonableness

March 8 – Preventing, investigating and reporting accounting issues: The mandatory disclosure rule

April 12 – Incurred cost submissions and Defense Contract Audit Agency (DCAA) audits: Strategies, trends and areas of focus

May 10 – Compensation cost allowability: Select compensation costs

June 14 – Principles of fiscal law and government contracts-related funding issues

September 13 – Application of cost accounting standards (CAS) and modified CAS coverage: CAS 401, 402, 405 and 406

October 11– Full-CAS coverage: Disclosure statements and allocation of direct and indirect, home office, general and administrative (G&A) and selected costs

November 8 – Developments in cost and pricing issues: A year in review

For more information, or if you would like to attend a course (complimentary to Dentons’ clients), please reach out to Sofia Abraham Mendoza at sofia.mendoza@dentons.com. All webinars offer CLE credit. They are recorded and available to watch online for one year after the live date.

2016 Financial Forum Series

FMS — A DoD interim rule would alter indirect offset cost reasonableness evaluations

The Department of Defense (DoD) issued an interim rule Tuesday amending DFARS 225.7303-2 to instruct contracting officers to accept all indirect offset costs imposed in Foreign Military Sales (FMS) acquisitions as reasonable without performing a cost reasonableness analysis. This new rule should reduce transaction costs for contractors, as it removes some DoD oversight from FMS offset agreements and, therefore, obviates the need for data calls and other effort that contractors provide as support for the contracting officer’s reasonableness evaluation.

Many governments require foreign defense contractors to “offset” the value of a procurement through any number of transactions intended to turn at least some of that value back around to benefit domestic economic activity. These transactions may directly support the overall defense project, or they may be “indirect offsets” wholly unrelated to the underlying procurement. Though the United States does not impose offset requirements in its own contracts, it allows foreign nations to request through the FMS program both direct and indirect offset requirements by including them in the FMS Letter of Offer and Acceptance (LOA) and related DoD contract.

Until now, U.S. contracting officers were required by FAR parts 15 and 31 to determine price reasonableness regarding all aspects of FMS contracts, including indirect offset costs. Recognizing that these contracting officers have little or no insight into the pricing of indirect offsets – which are negotiated directly between the contractor and the foreign government – the interim rule eliminates this price reasonableness determination. Now, contracting officers are to deem reasonable “all offset costs that involve benefits provided by the U.S. defense contractor to the FMS customer that are unrelated to the item being purchased under the LOA,” so long as the contractor submits a signed offset agreement or other documentation showing that an indirect offset of a certain dollar value is a condition of the FMS acquisition. Contractors must remember that the interim rule applies only to indirect offsets, and contracting officers will continue to scrutinize direct offset costs for reasonableness in accordance with FAR part 31.

Sparked by a “recent and foreseeable trend” of increasingly complex indirect offsets desired by FMS customers, this rule will go into effect immediately to “allow DoD contracting officers to finalize pending negotiations for FMS contracts to support U.S. allies and partners, and maintain bilateral relationships.” However, the Defense Acquisition Regulations System is accepting comments until August 3, 2015 before issuing a final rule.

FMS — A DoD interim rule would alter indirect offset cost reasonableness evaluations

2015 Construction Law and Federal Contracting Breakfast Series

2015 is just a few weeks away.  Before your calendar fills up, make sure you save time for a six-part breakfast series entitled, Construction Law and Federal Contracting, hosted by Dentons and the San Diego Chapter of the Associated General Contractors of America (AGC).  The breakfast series will be held on the second Thursday of each month at the AGC’s San Diego headquarters.  Join us on January 8, 2015, for the kick-off breakfast, “The Federal False Claims Act on Construction Projects.”  During this 90-minute session, Dentons lawyers Laurence Phillips and Jae Park will lead a discussion regarding FCA provisions, how they apply on federal construction projects, recent changes and trends and best practices to mitigate exposure to liability.

Full 2015 Breakfast Series Schedule:

January 8, 2015 Federal False Claims Act on Construction Projects
February 12, 2015 Federal Prevailing Wage Requirements and Issues on Construction Projects
April 9, 2015 Compliance With Federal Small Business Size and Status Rules and Subcontracting Plans
May 14, 2015 Claims and Termination on Federal Projects
June 11, 2015 Government Contracts Compliance and Investigations  .
2015 Construction Law and Federal Contracting Breakfast Series

Proposed Update to DFARS Business Systems Rule Would Impose Significant Burden on Contractors to Self-Assess and Self-Report on System Compliance

On Tuesday, July 15th, DOD issued a proposed rule that would update the DFARS Business Systems Rule to require contractors to self-assess and report on business system compliance.  Contractors with estimating systems, accounting systems, and material management and accounting systems subject to the Business Systems Rule requirements would be required to provide a report on compliance with the relevant system criteria.  These same systems also would be subject to a triennial audit by an independent contractor-selected Certified Public Accountant (“CPA”) to assess the contractor’s compliance with the applicable system criteria.

If adopted, the proposed DOD rule would impose a significant obligation on contractors both to adequately and accurately self-assess and report on business system compliance and to obtain an independent review of system compliance.  Inadequate contractor system reviews or inaccurate reporting of system compliance could have significant consequences for contractors, including payment withholding, negative past performance evaluations, cost disallowances, inability to receive contracts and potential False Claims Act liability.

In anticipation of this DOD update to the business system rule, Dentons has been preparing an updated edition of its Business Systems Compliance Guide.  The updated guide will provide up-to-date information and assistance to contractors seeking to understand and assess the acceptability of their business systems under the DOD Business Systems Rule.

Proposed Update to DFARS Business Systems Rule Would Impose Significant Burden on Contractors to Self-Assess and Self-Report on System Compliance