Set forth below is a high level summary of certain recent actions taken by the federal government to address the COVID-19 pandemic. This summary is intended to highlight the issues and concerns of interest to government contractors and is certainly not a comprehensive or complete description of the new laws.
1. Families First Coronavirus Response Act
Issue:
On March 18, 2020, President Trump signed into law the “Families First Coronavirus Response Act’’ (hereinafter “Coronavirus Act”), which goes into effect on April 2, 2020. This Act provides a number of actions that will impact a company’s labor and employment policies, among other impacts. The biggest impact on a government contractor from the Coronavirus Act will be from the additional sick leave requirements. There are new requirements for employers to pay for sick leave for their employees in two areas – sick leave for the employee’s illness (or quarantine) and sick leave for the employee to care for a family member. This additional sick leave has specific limitations and the impact of the additional sick leave may be addressed through tax credits. The Secretary of Labor is required to provide posters that must be hung in a conspicuous area for employees. The Coronavirus Act is applicable to all companies with less than 500 employees, but there may be a waiver for companies with less than 50 employees. This waiver and how to apply for the waiver are subject to regulations to be issued by the Secretary of Labor.
The DOL issued several documents in response to the Coronavirus Act. The first document is Field Assistance Bulletin 2020-1 on March 24, 2020. This Bulletin provided several things that the Coronavirus Act will not be enforced for the period March 18 – April 17, 2020 so long as “the employer has made reasonable, good faith efforts to comply with the Act.” The notice poster along with Frequently Asked Questions (“FAQ”) was also issued. Probably the most important question, was how to satisfy the requirement to notify all employees when the employees are teleworking. According to FAQ 1 – this may be satisfied by (a) posting in a conspicuous place at the place of employment; (b) emailing or direct mailing the poster to each employee; and/or (c) posting this notice on an employee information internal or external website. The notice must be provided to employees by April 1, 2020 (FAQ 14).
Finally, the DOL published “Families First Coronavirus Response Act: Questions and Answers” (“Q&A”). The Q&A has 59 questions. Question 1 provides the effective dates for the paid leave provisions – April 1 – December 31, 2020. Question 58 deals with the small business (less than 50 employees) exemption and the requirements to get the exemption.
58. When does the small business exemption apply to exclude a small business from the provisions of the Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act?
An employer, including a religious or nonprofit organization, with fewer than 50 employees (small business) is exempt from providing (a) paid sick leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons and (b) expanded family and medical leave due to school or place of care closures or child care provider unavailability for COVID-19 related reasons when doing so would jeopardize the viability of the small business as a going concern. A small business may claim this exemption if an authorized officer of the business has determined that:
As can be seen from the above Q&A, merely having less than 50 employees is not enough.
Action:
All contractors need to download the Poster today and “post” in accordance with FAQ 1. Document any sick leave taken by employees and the reason for the leave. Contractors with less than 50 employees will need to determine whether they intend to submit a request for the waiver of providing the extra leave. Pending approval of the waiver, the employer should presume that the Coronavirus Act provisions regarding sick leave will apply to them. The DOL has not issued the regulations as of today with regard to the Coronavirus Act as of 03/30/20. The DOL has a new website to keep track of their actions “COVID-19 and the American Workplace.” All of the documents discussed in this section may be found there as well as two Fact Sheets: Coronavirus Act: Employee Paid Leave Rights and Coronavirus Act: Employer Paid Leave Requirements.
Note that if you have subcontractors, you do not need to act as an intermediary with the government. This is outside of your role as a government contractor.
2. OMB Memorandum to the Heads of Executive Departments and Agencies (M-20-18)
Issue:
On March 20, 2020, Margaret Weichert, Deputy Director for Management sent out a Memorandum to the Heads of Executive Departments and Agencies, Subject: “Managing Federal Contract Performance Issues Associated with Novel Coronavirus (COVID-19)” (hereinafter “Memo.”) This Memo provides guidance for agencies to work with their contractors to evaluate and maximize telework for contractor employees. It also encourages agencies to be flexible in providing “extension to performance dates if telework or other flexible work solutions … are not possible, or if a contractor is unable to perform in a timely manner due to quarantining, social distancing, or other COVID-19 related interruptions.” Finally, it encourages agencies to determine if current contracts that “possess capabilities for addressing impending requirements such as security, logistics or other functions, may be retooled for pandemic response consistent with the scope of the contract.”
Attached to the Memo are “Frequently Asked Questions” (“FAQs”). Under the “Teleworking” question (Q.1), the guidance suggests that contracting officers modify contracts to permit teleworking if the contract currently prohibits it. Under the Mitigation section, Q.2 permits contracts to be extended or otherwise altered. It also suggests that if the current contractor cannot perform, it be terminated for convenience if another contractor is able to perform. Q.3 discusses REAs and the potential for increased costs and extended schedules. Basically, it leaves that decision up to the contracting officer to determine on a case-by-case basis. The FAQ answer also implies that the government may pay for down time to keep “skilled professionals or key personnel in a mobile ready state for activities the agency deems critical to national security.” Q.4 deals with construction projects at closed government buildings. Again, the answer recommends that the contracting officer review such contracts and decide on a case-by-case basis.
There are a few other items of note in the FAQs to include increasing the limits for micro-purchases from $10K to $20K, increasing the simplified acquisition threshold from $250K to $750K and the use of simplified acquisition procedures for up to $13M for purchases of commercial item buys.
Action:
Based on the Memo, contractors should review all of their prime and subcontracts for prohibitions related to telework. If there is a prohibition, and the work can be performed as telework or some other remote effort, then request that the contract be revised to permit remote work efforts. Be careful that you do not grant the right to telework to your subcontractors if your contract prohibits such telework.
If contractors have significant numbers of employees who cannot perform due to the COVID-19 virus, contractors should immediately notify the government contracting officer of any difficulties. Similarly, if due to the virus, there will be delays in performance, notify the contracting officer. Note that the workers under government contracts are not subject generally to the state or local mandates requiring persons to stay home unless they have been in contact with the virus or have the virus themselves.
3. Coronavirus Aid, Relief, and Economic Security Act (The “CARES Act”)
Issue:
There were a number of sweeping changes to tax laws, payments to persons and a number of other actions provided by the CARES Act. The list of items below is merely a short list of those items that have the greatest impact today on government contractors because they are government contractors. This by no means is a summary of the entire CARES Act.
a. Increased access to loans for any business concern, private nonprofit organization, or public nonprofit organization which employs not more than 500 employees shall be eligible to receive a loan made under section 7(a) of the Small Business Act. Sec. 1102. The allowable uses are payroll support, employee salaries, mortgage payments, rent, utilities, and any other debt obligations that were incurred before the covered period.
b. Debt forgiveness for 7(a) loans used for the “cost of maintaining payroll continuity during the covered period, which is defined as 03/01/20 through 06/30/20. Sec. 1105.
c. The Secretary of Health and Human Services (“HHS”) shall issue guidance on the sharing of patients’ protected health information. Basically, this relates to Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. 1320d–2 note). Sec. 4223.
d. Removed the cap on Other Transaction Agreements issued by HHS. Sec. 4301.
e. Revised some of the text of the prior bill “Families First Coronavirus Response Act” to add a rule regarding rehired employees. If an employee was laid off by the employer before March 1, 2020 and had worked for the employer for not less than 30 of the last 60 calendar days and was rehired, they are included in the term “employee” for this law. Sec. 4606.
Action:
The majority of the actions for this particular law does not apply to government contractors because they are government contractors, but as businesses in general. However, due to the unique role government contractors have in the potential for payments as REAs under their contracts, contractors must document where and how each of the particular items are addressed in their accounting records to not only make sure such costs are not included in billings or REAs submitted to the government, but also to show proof that there were not included. (Or in other words, a contractor may not take advantage of this bill with regard to wages and then include those same costs in a REA, unless the payment of the wages is through and loan that must be repaid.)
4. Supply Chain Impacts
Issue:
As a result of many state and local mandates, in addition to the general mandate issued by the federal government, many companies will be short staffed such that they may not be able to complete their efforts on schedule. Given that this is a worldwide issue, the chance that another subcontractor can satisfy the requirements is also low. Moreover, the buyer who is selling the goods or services to the federal government may also be short staffed such that even if the lower tiers are compliant with their schedules, the upper tier contractor may not be compliant with its schedule. This delay may be considered to be a force majeure event in many contracts.
Action:
All contractors should review their contracts with their customers and their suppliers to determine whether this pandemic falls within the definition of force majeure in a contract. And there is a good chance that it might be a force majeure in one contract, but not another. This determination should be documented. Regardless of whether the pandemic fits within the definition of force majeure in the contract, the contractor should document all impacts of the pandemic and keep separate cost records. If a contractor becomes aware of a potential delay for deliveries, the contractor should notify their customer and, in the notification, reserve the right for a potential request for equitable adjustment (“REA”) for schedule, costs or both.
5. Final Thoughts
Finally, contractors should think about setting up separate accounts for the costs related to the virus and if nothing else, contractors should DOCUMENT everything. While it is uncertain whether a contractor may recoup any costs related to the coronavirus if they have the proper documentation, it is almost a certainty that the contractor will not be able to recoup any costs if they do not have the documentation.
There is also a website that is trying to track all the different aspects of the government actions regarding government contractors and the pandemic. https://www.acquisition.gov/coronavirus This website includes links to OMB Guidance and Memorandums, Guidance and Memorandums from other agencies, and to the Government Response to Coronavirus.
Please contact Partner Jody Reed if you have questions or need further assistance.