On May 18, the Defense Department released a draft of its much-anticipated guidance implementing Section 3610 of the CARES Act, which authorizes the government to reimburse qualifying contractors for the costs of providing certain paid leave to employees as a result of the COVID-19 pandemic. Although a number of open questions remain pending the issuance of final guidance, contractors interested in pursuing recovery under the statute should start preparing now to satisfy these emerging rules and requirements.
Section 3610 permits federal agencies to reimburse contractors for the costs of providing paid leave to employees who cannot perform work on a government approved site or otherwise perform remotely due to the pandemic. The Defense Department's draft guidance implementing this statute includes an overarching guidance document, a reimbursement checklist and a set of checklist instructions. Taken together, they offer additional insight into who is eligible, what is the scope of coverage, and what substantiation will be required.
The guidance states that "affected contractors" may be eligible for reimbursement. An "affected contractor" is any prime or subcontractor that provided paid leave to employees to maintain them in a "ready state" while such employees were prevented from performing "on a site that has been approved by the federal government" and could not work remotely. For purposes of the statute, the term "ready state" means the ability to "mobilize and resume performance in a timely manner," and a government-approved facility may include both federal installations and the contractor's own location or any other places of performance specified in the contract.
The guidance provides that affected contractors may receive reimbursement for costs of up to 40 hours of paid leave per week at "appropriate rates." Contractors will bear the burden of establishing that any requested rates are appropriate, and the Defense Department may require extensive supporting documentation for claimed rates.
Reimbursement claims may include appropriate overhead and general and administrative costs, but not profit or fees.
Additionally, the guidance requires contractors seeking Section 3610 funding to disclose the amount of any loan that is forgiven under the Paycheck Protection Program or tax credits received under the Families First Coronavirus Response Act, and to decrement any reimbursement request by these amounts.
What substantiation will be...