With the Federal government issuing near-daily guidance to government contractors and rolling out much needed relief for small businesses, there is one key take-away for every government prime and subcontractor presently experiencing adverse impacts to performance as a result of COVID-19: document … document … document … and then document some more.
A recent survey from the Associated General Contractors of America Association, published on April 24, finds that although the Paycheck Protection Program (PPP) has allowed construction firms to add and retain employees despite cancelation of projects, the loan program “will cover only a limited part of company expenses and is not enough to offset the huge drop in projects.”
It is no surprise that legislation being passed at lightning speed in the face of an unprecedented worldwide pandemic leaves much to be desired. Piecemeal and sometimes unclear federal guidance means that government contractors must be proactive and meticulous with their communications to the government and maintaining documentation of additional costs.
Section 3610 of the Coronavirus Aid, Relief and Economic Security (CARES) Act permits an agency Contracting Officer the discretion to reimburse contractors for their costs to keep employees and subcontractors in a “ready state” if they are currently unable to perform work due to COVID-19. This would apply, for example, to a construction contractor’s workforce, unable to report to work due to restricted access to the site as a result of a suspension or stop-work order.
For firm fixed-price contracts, DOD’s guidance recommends that Contracting Officers should establish a separate contract line item number (CLIN) for Section 3610 payments to keep personnel in a “ready state” to pick up contract performance after the pandemic subsides and COVID-19 restrictions are lifted. DOD’s guidance also states that Contracting Officers may require supporting documentation to “identify and explain why claimed hours could not be worked, along with a statement that these costs are not being reimbursed under other authorities.”
Contractors should submit a request for equitable adjustment (REA) in a timely manner if their covered employees cannot report to work or work remotely as a result of COVID-19. For firm fixed-price contracts, Contractors should obtain the Contracting Officer’s advanced agreement on a minimum reimbursable daily rate (or hourly rates) for keeping the contract workforce in a “ready state” until COVID-19 restrictions are lifted. New and detailed cost codes should be established to track all COVID-19 adverse impact costs, including coding employees to as granular a level of detail as possible.
The Contracting Officer should be encouraged to issue a modification to the contract reflecting the negotiated adjustment in contract price (or new CLIN) to pay the contractor’s employees to remain on standby during COVID-19 restrictions to the worksite. Invoicing to the government should continue on a regular basis, including invoicing the agreed rates for the “standby” workforce while work is suspended during COVID-19. Efforts to mitigate losses, including reassigning employees to other projects, where possible, should be documented, filed, and furnished to the Contracting Officer to support the contractor’s claim. To the extent that any other relief, including tax relief under the Paycheck Protection Program, overlaps, a Contractor should offset those amounts gained from the total amount claimed from the government.
For more information, contact OFP Shareholder Lars Anderson.