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Law360 (May 7, 2020, 5:24 PM EDT) --
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| Michael McGill |
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| Thomas Pettit |
The memorandum consists of guidance to GSA contracting officers responsible for administering contracts affected by the COVID-19 public health emergency and a new general services acquisition regulation, or GSAR, clause 552.222-70, which will be used to modify contracts when a contracting officer provides relief pursuant to the GSA's implementation of the statute.[2]
On balance, the GSA's approach is more conservative than the U.S. Department of Defense's approach to implementation of the CARES Act in terms of willingness to provide relief to contractors. The memorandum states that the GSA "expects limited use of the paid leave reimbursement authority" and that use of the authority should only be contemplated after the contracting officer considers "other methods to maintain key contractors in a ready state."[3]
As discussed below, the GSA's guidance provides contracting officers with numerous justifications for not providing relief to contractors and stresses that all relief must be in the government's best interests.
The following highlights 12 key takeaways from the GSA's implementation.
The GSA believes there will be limited need to use the Section 3610 authority to provide relief to contractors supporting the GSA.
The memorandum reflects the GSA's view that due to steps the agency has taken to date, "nearly all GSA contractors are able to continue to perform their work safely and, thus, paid leave is not at issue as to those contracts." The GSA even states that it "does not expect significant use of the paid leave reimbursement authority."
Then why did the GSA issue guidance?
The memorandum indicates that it is primarily intended to guide contracting officers establishing and administering contract vehicles that other agencies will use — e.g., federal supply schedule, or FSS, contracts; One Acquisition Solution for Integrated Services, or OASIS, contracts; and government-wide acquisition contracts, or GWACs — and contracting officers performing assisted acquisition.[4]
The GSA requires that its contracting officers secure written approval from the head of contracting activity before modifying a contract to add the new GSAR clause.
The GSA's guidance states that before modifying a contract to provide relief for paid leave pursuant to Section 3610 and GSAR 552.222-70, the contracting officer must receive approval from the head of contracting activity, or HCA.[5] This requirement for HCA approval applies even for assisted acquisition funded by another agency.[6]
It generally would not apply, however, to orders placed by other agencies under GSA contract vehicles.[7]
The GSA does not intend to provide relief under Section 3610 for contract vehicles.
The memorandum indicates that while relief may be provided through orders issued under GSA's contract vehicles, relief will not be provided at the contract level, e.g., through the FSS contract or GWAC. The GSA has directed that where an ordering agency negotiated hourly rates that are lower than those in the umbrella contract, the reimbursement at the order level should be at the lower rates.[8]
The GSA is limiting relief to certain paid leave starting on March 27.
Section 3610 suggested that agencies could use the statutory authority to provide relief for certain paid leave dating back to Jan. 31, when the president declared a public health emergency.
The GSA's class deviation limits the use of the authority to leave that is provided from March 27 — the date the CARES Act was signed into law—through Sept. 30, 2020.[9] The GSA's implementation seeks to foreclose the possibility that contractors recover under this authority for paid leave costs incurred prior to the passage of the CARES Act, even though some contractors were incurring increased paid leave costs due to the COVID-19 public health emergency before that date.[10]
The GSA has not defined what constitutes government approval of a work site sufficient to satisfy that element of Section 3610.
Section 3610 states that its authority only applies "to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the [f]ederal [g]overnment." The GSA's implementation of this element of the statute is vague.
The memorandum states that relief can only be provided pursuant to Section 3610 to a "contractor whose employees or subcontractors ... [c]annot perform work on a [g]overnment-owned, [g]overnment-leased, contractor-owned, or contractor-leased facility or site approved by the [f]ederal [g]overnment for contract performance due to closures or other restrictions."[11]
The GSA's guidance does not indicate whether the government must affirmatively approve a contractor's facility to satisfy this requirement. In contrast, the DOD's implementation suggests that any contractor facility or place of performance identified in the contract is normally considered to be approved.[12]
The GSA makes clear that paid leave under its implementation of Section 3610 is not authorized where an employee could work remotely but chooses not to.
The memorandum indicates that if the affected contractor or subcontractor employees can perform through telework or "other remote means," the contracting officer should authorize the contractor to perform in that way and not provide relief through Section 3610 and GSAR 552.222-70.
The memorandum further states: "leave provided for contractor employees who choose not to telework or work remotely is not eligible for reimbursement."[13]
The GSA's guidance does not address — at least not explicitly — whether a contracting officer is authorized to provide a contractor relief for an employee who could perform through telework or other remote means but is unable to do so due to illness, the need to care for family members, or other fallout from the COVID-19 public health emergency.[14]
The GSA directs its contracting officers to consider whether it is in the government's best interest to keep a contractor and its employees in a ready state.
Section 3610 authorizes agencies to reimburse contractors for certain paid leave that is necessary to keep contractor and subcontractor employees in a ready state.
Consistent with Office of Management and Budget guidance, the GSA directs its contractor officers to consider not only whether the paid leave is necessary to keep employees in a ready state but also whether it is in the government's best interests to incur costs for paid leave keep the employees in a ready state.
The GSA asks contracting officers to determine
The GSA has identified other authorities and contract terms that contracting officers might rely upon to assist contractors.the impact on the mission if contractors are unable to perform critical operations ... [consider] the scarcity of the required skills for the critical operation or the challenge for the contractor to resume operations if previous staff is no longer available ... [where] the contract is in its lifecycle, such as contract expiration ... [weigh] the costs and benefits of using the Section 3610 reimbursement authority and discuss the opportunity costs with [their] program office.[15]
The memorandum asks that contracting officers consider the other potential means to address the impact on contractors from the COVID-19 public health emergency.
The GSA suggests that contracting officers may have other tools in their tool box that are more advantageous to the government, including extending delivery schedules and contract periods, using progress payments, and accelerating payments to small business contractors and subcontractors.
The memorandum indicates that the GSA intends to issue another class deviation to increase the limits on progress payments to 90% for large businesses and 95% for small businesses.[16]
The GSA requires that contractors provide a representation as a prerequisite to recovery through the new clause implementing Section 3610.
The memorandum states, consistent with Section 3610, that the government is required to reduce the maximum reimbursement under the Section 3610 authority by the amount of credit a contractor is allowed under the CARES Act and Division G of the Families First Coronavirus Relief Act, or FFCRA.
To accomplish this, the GSA directs its contracting officers to communicate with contractors about which, if any, other relief they are seeking under the CARES Act and the FFCRA and to use that information "in determining whether and how much to reimburse" those contractors.[17]
Additionally, the GSA requires that contracting officers obtain a representation from contractors prior to modifying a contract to provide relief.
The contractor must represent that (1) the "reimbursement request for paid leave is only for reimbursable leave for applicable work, at the applicable rate in accordance with clause 552.222-70;" (2) the contractor will "timely notify" the contracting officer of the circumstances surrounding any covered credits received, including the dates and amounts of such credits; and (3) all information submitted is "true, accurate, complete, and correct" as of submission to the contracting officer.[18]
The memorandum does not require the contracting officer to determine the amount by which the contractor's relief might need to be reduced before authorizing payment. This is because, as discussed below, the GSA's clause requires the contractor to repay the amount that overlaps with certain so-called covered credits.
The GSA's new clause requires contractors to repay "double payments" and agree to government audits.
As noted above, the GSA intends to require contractors to make certain representations as a precondition to the contracting officer modifying a contract to provide relief through the addition of GSAR 552.222-70.[19]
One of those representations is a commitment to "timely notify" the contracting officer when the contractor receives covered credits, which are defined as "the amount of any credit received by an affected contractor pursuant to any section of the [CARES Act] or division G of the [FFCRA]."[20]
In addition to the representation, the new clause imposes an affirmative repayment obligation on the contractor. It states "[t]he affected contractor is not allowed to keep any double reimbursements after the application of covered credits."[21]
To avoid such double recovery, the contractor is obligated to provide written notice to the contracting officer when the contractor receives covered credits and to repay the "amount of the reimbursement up to the amount of the covered credits."[22] The clause states the amount of the repayment that is owed is considered an overpayment for purposes of federal acquisition regulation, or FAR, 3.1003(a)(3).
This is important for several reasons, including exposing the contractor to the risk that it could be charged with fraud and noncompliance with mandatory disclosure obligations for failure to repay the covered credits.
Additionally, GSAR 552.222-70 requires that contractors retain records supporting their request for relief for three years after final payment on a contract, including the new clause. The clause also provides the government with broad audit rights.
It states that the contracting officer or an authorized representative (which could be the GSA inspector general), the GAO comptroller general and the Pandemic Response Accountability Committee "shall have the right to examine and audit all the pertinent records and affected contractor employees."[23]
The GSA has provided minimal guidance for contracting officers to address reimbursement by contract type.
The memorandum indicates that after a contracting officer has decided to provide relief and has satisfied the prerequisites, the contracting officer should negotiate an equitable adjustment with the contractor. Regardless of contract type, this adjustment will involve the addition of a new contract line item for the Section 3610 payments.
GSAR 552.222-70, which is prescribed for all contract types when the contracting officer decides to provide relief, states that reimbursement "shall" exclude profit and fee "[w]here practicable,"[24] but the GSA has not provided guidance to explain how it expects contracting officers to exclude profit and fee from fixed-price and fixed-rate contracts (such as time-and-material and labor-hour contracts).
The GSA's guidance for cost-reimbursement contracts is limited, stating contracting officers "will need to work with the contractor to establish appropriate cost procedures. ... Additional efforts will be required to adjust the estimated costs, ... [and] supporting documentation would be retained for audit, while the interim invoice would be provisionally approved and paid under existing procedures."[25]
The GSA's class deviation applies only to procurement contracts.
The memorandum indicates that the class deviation is intended to apply to "FAR-based contracts and agreements" and that it does not apply to "non-FAR based contracts" including real property leases. [26]
Conclusion
The GSA's class deviation and accompanying memorandum are helpful to GSA contracting officers and contractors in the sense that they at least provide some level of clarity. The GSA's implementation of Section 3610, however, is relatively conservative, and contactors should expect that some GSA contracting officers may be reluctant to provide relief under the statutory authority.
Contractors that secure relief under the GSA's implementation of Section 3610 should be diligent about making sure that their representations are current, accurate and complete, and that they comply with the repayment obligations and the other requirements imposed through GSAR 552.222-70.
Given the hurdles and potential pitfalls associated with the GSA's implementation, contractors should exercise caution when pursuing relief through GSAR 552.222-70.
Contractors should think strategically about whether it is more advisable to seek equitable adjustments under other contract provisions, including FAR 52.242-15 (Stop Work Order), the various changes clauses, FAR 52.242-14 (Suspension of Work); and FAR 52.242-17 (Government Delay of Work).
Seeking relief under Section 3610 does not toll the deadlines for seeking equitable adjustments under these clauses or under other existing contract terms.
Michael McGill is a partner and Thomas Pettit is an associate at Arnold & Porter. Associate James Mestichelli, who is not yet admitted to the D.C. bar, also contributed to this article.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://www.gsa.gov/cdnstatic/CD-2020-12_0.pdf.
[2] The GSA Office of Governmentwide Policy memorandum, "GSAR Class Deviation - CARES Act Section 3610 Implementation" (April 21, 2020) ("GSA Memorandum") at 6, Attachment B. In contrast, the DOD's class deviation introduced a new cost principle, but does not include a contract clause. Although the DOD has provided relatively extensive guidance for its contracting officers to modify DOD contracts, the DOD has not introduced a contract clause for that purpose.
[3] Id. at 5.
[4] GSA offers acquisition assistance to other agencies. Additional information about GSA's Office of Assisted Acquisition Services is available at aas.gsa.gov. The applicability of GSA's class deviation to assisted acquisitions will depend on the identity of the requesting agency and the status that agency's own Section 3610 implementation.
[5] GSA Memorandum at 6.
[6] Id. ("For assisted acquisitions, the use of this authority must be explicitly identified and agreed upon, the requesting agency must certify the funds, and the acquisition strategy must be approved by the GSA [Head of Contracting Activity] before execution of the modification to include clause 552.222-70.").
[7] The memorandum provides guidance for GSA contracting officers and it "makes clear that the Section 3610 authority applies at the order level." Id. at 2. It follows that the class deviation does not apply to orders that are administered by contracting officers from other agencies.
[8] Id. at 2, 7.
[9] Id. at 2.
[10] GSA's March 27 cut-off is consistent with the recent memorandum from the Office of Management and Budget acting deputy director for management. See OMB Acting Deputy Director for Management memorandum, "Preserving the Resilience of the Federal Contracting Base in the Fight Against the Coronavirus Disease 2019 (COVID-19)" (April 27, 2020).
[11] GSA Memorandum at 3. Notably, the new GSAR clause indicates that all contractor and subcontractor work sites will be considered approved unless the contracting officer identifies specific sites that are not approved. Id. at 12 (GSAR 552.222-70(g)). However, the clause only applies after the contracting officer has made a determination on eligibility and decided to modify the contract to include the clause.
[12] The DOD's guidance states that "[t]he approved work site is the contractor's location and any other places of performance specifically identified in the contract." Office of the Under Secretary of Defense (Acquisition & Sustainment), Defense Pricing and Contracting, "Implementation Guidance for Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Frequently Asked Questions" (originally published on April 9, and updated on an ongoing basis), FAQ #6. The DOD's guidance also indicates that this extends to any facility "at which contract administration services are performed in support of those contracts." Id.
[13] GSA Memorandum at 4.
[14] In comparison, the DOD's guidance expressly indicates that a contractor may be able to recover for otherwise unallowable employee leave costs that arise not because the contractor's facility is closed and remote work is infeasible, but because an employee cannot be in the workplace and cannot work remotely due to "public health reasons or family care issues." DOD FAQ #7.
[15] GSA Memorandum at 4.
[16] Id. at 5.
[17] Id.
[18] Id. at 6, 11-12 (GSAR 552.222-70(e)).
[19] Id.
[20] Id. at 10 (GSAR 552.222-70(a)(5)).
[21] Id. at 12 (GSAR 552.222-70(f)).
[22] Id.
[23] Id.(GSAR 552.222-70(e)(4)).
[24] Id. at 11 (GSAR 552.222-70(c)).
[25] Id. at 7.
[26] Id. at 3.
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