Three tips for Government contractors seeking CARES Act Section 3610 assistance for paying employees or subcontractors

As many Government contractors have heard by now, Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes a section that could allow contractors to obtain their customer’s assistance in paying employees or subcontractors that cannot perform due to facility closures or other restrictions. In short, the section permits an agency to modify a contract to reimburse the contractor for any paid leave to keep employees or subcontractors in a ready state, subject to certain situations and limits.

Section 3610, which can be read here in full, may very well help a number of contractors, but not all contractors will benefit from it. Agencies are rolling out guidance on implementing this provision, and a contractor who is looking to get this assistance may want to consider the following three tips based on the information available as of today:

1. Carefully word statements of non-performance in the request to avoid a potential termination

The relief is not a mandate for all Government contracts, so contracting officers will not automatically offer this assistance to a contractor. In fact, some agency guidance and clauses[1] issued since the passage of the CARES Act anticipates that a contractor’s request for equitable adjustment or a contractor’s telephonic request would be the first step in a contracting officer’s consideration of a contract modification.[2] In making a request, the contractor should explain how it meets any agency requirements and the statutory requirements, which will ultimately demand an explanation of an inability to perform due to facility closures or other restrictions.

However, if a contractor states that it cannot or will not perform the remainder of the contract without the relief, it may be deemed to be anticipatory repudiation of the contract, resulting in a termination for default. Thus, although a contractor needs to explain how it cannot perform due to the closures or other restrictions, it should be mindful of other statements regarding non-performance in its request.

2. Consider whether the modification language could result in limiting other compensation or contract adjustments to which you would otherwise be entitled

If a contracting officer agrees to grant the request for the modification, the contractor should expect for the relief to be granted through a bilateral modification addressing the relevant costs. The Section 3610 relief covers limited costs for labor-related expenses, but it does not cover all labor-related expenses or non-labor related costs due to COVID-19 related closures or restrictions. It also does not include equitable adjustments for performance timelines. Thus, the contractor should carefully negotiate, review and consider whether the modification language may mean that it is agreeing to forego the ability to exercise other contractual rights or related costs, which could potentially dwarf the Section 3610 relief received. Indeed, broad-based language in a modification could later prohibit the contractor from seeking other costs or equitable adjustments that it would normally be able to obtain.

3. Stay current on cost-and-pricing guidance to ensure you comply with the necessary requirements to receive or retain payment

Although some agencies have released deviations or clauses expressly affirming the allowability of costs contemplated under Section 3610,[3] the deviations and clauses have not addressed all information that contracting officers and contractors may need to complete their negotiations or performance of the modifications. All of the early guidance leaves no doubt, however, that contractors will bear the burden of supporting and tracking the relevant costs.[4] The Defense Pricing and Contracting office has noted that contractors “are responsible for supporting any claimed costs . . . with appropriate documentation and for identifying credits that may reduce reimbursement under section 3610.”[5] The deviation also requires that the costs are “segregated and identifiable in the contractor’s records” in order for compliance to be ascertained. Many agencies have not, however, yet issued guidance on obtaining or receiving payment. Further, agencies that have issued guidance expect future guidance. Indeed, the Defense Pricing and Contracting office has expressly noted that it expects further guidance on whether the costs should be charged as direct or indirect costs and utilization of new cost categories/pools.[6] Given that future guidance will likely affect both the ability to obtain the relief and what contractors must do to obtain (or retain) payment, contractors seeking and receiving Section 3610 relief must ensure they obtain and stay abreast of guidance applicable to each modification.

The above provides a trio of timely tips for contractors seeking CARES Act assistance, which is one of the ways contractors may be able to obtain some relief due to impacts they are suffering due to COVID-19 issues.

If you are a contractor with questions about how Thompson Coburn can help you obtain or negotiate CARES Act assistance, obtain other contractual relief, or address other Government contracts issues, please reach out to your Thompson Coburn contact or the author below.

Jayna Marie Rust is an associate in Thompson Coburn's Washington, D.C., office. Jayna advises companies, transportation authorities and other entities regarding their rights and obligations when doing business with the Federal Government. She works with her fellow attorneys and clients to help the clients recover money owed under Federal contracts, protest problematic contract awards and challenge adverse agency actions. In doing so, she represents them before agencies, the Government Accountability Office (GAO), Boards of Contract Appeals, the U.S. Court of Federal Claims, and the U.S. Court of Appeals for the Federal Circuit, as necessary. She also counsels clients on contract- and grant-administration matters.  

Click here to subscribe to News & Insights from Thompson Coburn related to our practices as well as the latest on COVID-19 issues.

[1] U.S. Department of Defense, Acquisition and Sustainment, Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (2020); U.S. Department of Energy, Cost-Reimbursement type contract, Fixed-price type contract, and Time-and-Materials type contract clauses to implement Section 3610 of the CARES Act.

[2] For instance, the DoD guidance suggests that requests for equitable adjustments will be received for fixed-price, time-and-materials, or labor-hour contracts, but NASA guidance requires only “phone or email” notification to a contracting officer. U.S. Department of Defense, Acquisition and Sustainment, Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act, supra n. 1, NASA’s Frequently Asked Questions (FAQ) Regarding COVID-19 Impacts & the Advance Agreement for NASA Contractors (2020).

[3] See, e.g., U.S. Department of Defense, Class Deviation 2020-O0013, CARES Act Section 3610 Implementation, Department of Energy, Cost-Reimbursement type contract, Fixed-price type contract, and Time-and-Materials type contract clauses to implement Section 3610 of the CARES Act, supra n.1

[4] See, e.g., U.S. Department of Energy, Guidance for using DOE’s Clauses developed to implement Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Pub. L. No. 116-36).

[5] U.S. Department of Defense, Class Deviation 2020-O0013, CARES Act Section 3610 Implementation, supra n. 3.

[6] Defense Pricing and Contracting, Office of the Under Secretary of Defense (Acquisition & Sustainment), Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Frequently Asked Questions.