DOD Issues New Contractor Payment Guidance Related to COVID-19

Key Takeaways

• Industry partners unable to meet contracted deadlines and deliverables because of quarantined employees and shut facilities will not be subject to penalties for non-performance.
• Employee health and safety is being elevated to primary importance.
• Industry partners will receive at least some financial relief from bearing normally un-reimbursable employee leave costs.

In case you missed it, on 9 April the Office of Defense Pricing and Contracting (DPC) issued new guidance concerning the release of payments to contractors. Titled “Class Deviation - CARES Act Section 3610 Implementation,” the DPC memo authorizes contracting officers to work with industry partners “struggling to maintain a mission-ready workforce due to work site closures, personnel quarantines, and state and local restrictions on movement related to the COVID-19 pandemic that cannot be resolved through remote work,” by adjusting how reimbursement is provided.

Section 3610 of the CARES Act “allows agencies to reimburse, at minimum applicable contract billing rates (not to exceed an average of 40 hours per week), any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, during the public health emergency declared for COVID–19 on January 31, 2020, through September 30, 2020.”

Implementation of this section authorizes contracting officers to do the following:

• Help contractors to stay in a ready state by treating incurred paid leave costs as allowable, provided those costs support contractor readiness. 
• Use “any funds made available to the agency” by Congress to reimburse contractors for lost employee time if the contractor provides leave to “protect the life and safety of Government and contractor personnel.” This includes employees unable to work as a result of measures taken to enforce quarantines, “social distancing, or other COVID-19 related interruptions, as discussed in Office of Management and Budget Memorandum M-20-18, Managing Federal Contract Performance Issues Associated with the Novel Coronavirus, dated March 20, 2020.” 
• Modify contracts to provide for the reimbursement of allowable paid leave costs that are typically not otherwise reimbursable, without securing additional consideration.
• Provide reimbursement on any contract type.

There are payment limitations in Section 3610 of which industry partners should be aware. Specifically, reimbursement may be made only to contractor personnel who cannot work on government or contractor sites (owned or leased) due to quarantines or other restrictions and those who are “unable to telework because their job duties cannot be performed remotely.”

The guidance also stipulates that reimbursement will be made “at the appropriate rates under the contract for up to an average of 40 hours per week.” Contractor and subcontractor payments can also be made for typically non-reimbursable “costs incurred only from January 31, 2020 to September 30, 2020.

Observations

• Avoidance of Non-Performance Penalties. The new DOD guidance effectively provides relief for industry partners unable to meet contracted deadlines and deliverables because of quarantines and shut facilities.
• Employee Safety Comes First. The guidance recognizes the need for contractor personnel to remain safe and healthy in order to perform required tasks once the public health crisis passes.
• Relieving Contractor Burdens. Industry partners unable to generate revenue due to stopped work will receive at least some financial relief by not having to bear the normally un-reimbursable cost of paying employees who shelter at home.