OSD Class Deviation Tightens Agencies’ Implementation of CARES Act Section 3610

By Adrian Wigston and Robert Nichols

April 9, 2020

On April 8, 2020, the Office of the Under Secretary of Defense (OSD) issued an important class deviation to guide contracting officers’ (CO) implementation of CARES Act Section 3610 and to ensure an appropriate balance between flexibilities and limitations.  The document recognizes the imperative to support affected contractors using available acquisition tools to maintain a healthy, resilient, and responsive total force including government contractors.  It also highlights the importance of the CO’s role to ensure good stewardship of taxpayer funds while supporting contractor resiliency.  Agencies are instructed to use DFARS 231.205-79, CARES Act Section 3610 Implementation, for this purpose.

For contractors, there are six takeaways:

1. Duplicative payments are not allowable. Contractors may be receiving compensation from other provisions in the CARES Act, such as tax credits and Paycheck Protection Program (PPP) loans that are forgivable. For example, small businesses that are sheltering in place could use the PPP loan to pay its employees and then have the loan forgiven.  In such a case, the business should not also seek reimbursement for payment from DoD to cover costs of those idle employees with paid administrative leave under the provisions of Section 3610.
2. Contractors will likely have to certify other forms of COVID-19 relief claimed or received. Contractors are responsible for supporting any claimed costs, including claimed leave costs for their employees, with appropriate documentation and for identifying credits that may reduce reimbursement under Section 3610.  The class deviation instructs CO’s to receive certifications from contractors regarding forms of other Federal relief claimed or received stemming from COVID-19, including an affirmation that the contractor has not or will not pursue reimbursement for the same costs under Section 3610.
3. Section 3610 is applicable to any contract type. Our interpretation of Section 3610 is that its provisions apply to all contract types.  OSD’s guidance confirms this interpretation.
4. Paid leave for issues not related to COVID-19 remain subject to normal regulations. The costs covered by Section 3610 are limited to those incurred for leave due to the COVID-19 national emergency. Costs of paid leave unrelated to the COVID-19 national emergency remain subject to applicable provisions of FAR subparts 31.2, 31.3, 31.6, 31.7 and DFARS 231.2, 231.3, 231.6, and 231.7.
5. Paid leave under Section 3610 has two key limitations. OSD reminds us that coverage is limited to leave taken by employees who otherwise would be performing work, but cannot perform due to facility closures, inaccessibility, or inoperability, and where the employee is unable to telework because work cannot be performed remotely.
6. This guidance puts contractors on notice that paid leave may be disallowed even just because contractors are eligible to receive benefits elsewhere. This class deviation remains in effect until rescinded and OSD anticipates the need for additional guidance.  Here, we see ambiguities that hopefully will be improved.  Under 231.205-79(b)(6), costs made allowable by Section 3610 are to be reduced by the amount the contractor is eligible to receive under any other Federal payment, allowance, or tax or other credit allowed by law that is specifically identifiable with the COVID-19 public health emergency.  This apparently could result in a cost disallowance for contractors that were eligible to receive benefits under a different provision, even if the contractor has not actually received that benefit.  We hope to see additional guidance that clarifies this ambiguity.  For now, we suggest that contractors explore all options to receive benefits for paid leave necessary because of COVID-19 and to clearly document those efforts.