Advice for Government Contractors on Tracking the Application of COVID-19 Related Funding

The Government Contractors Group at Gross Mendelsohn has been following the COVID-19 related traffic at the Department of Defense and other agencies, including DoD Class Deviation - CARES Act S3610 and DFARS 231.205-79 (CARES Act S3610 Implementation and subsequent FAQs).

Credits Against Contract Costs and Billings

The government has provided guidance that if a contract officer (CO) approves funds under CARES Act S3610 to allow contractors to bill in order to maintain employees at a “Ready State,” the contractor will need to deduct the amounts of these payments against future billings. In addition, the government will want a credit for any Paycheck Protection Program (PPP) loan funds or other COVID-19 credits (state, local or federal) used to offset direct and indirect labor costs and other direct and indirect costs via application of FAR 31.205-5 (Credits) and FAR 32.601 (Contract Debts - General). This flows from prime to sub and subsub levels and possibly lower. This will apply to all CPFF, T&M and FFP contracts. This is true even if the PPP loan amount is not forgiven (current guidance). The application of these contract credits has not been fully clarified.

We are recommending that all companies in the procurement pipeline track the application of funds against direct and indirect labor and other approved use of funds (rent/mortgage interest, other interest if applicable and utilities) in the event that there will need to be a credit, administrative set off or other modification of reimbursable contract costs.

When you are running payroll, if you are using PPP loan funds or other COVID-19 credits, you may need to track the impact at the contract level and at CLIN/SLIN, if applicable. There is a discussion of possibly using a new pool to track COVID-19 related loans/tax credits/state and local credits and then determining a rational application. This would need to be approved in writing by your CO/ACO.

This Guidance is Fluid

This guidance continues to be fluid and subject to lobbying/revision. You must continue working with your accountant, legal counsel and contracting officers to ensure you are staying up to date.

Need Help?

Contact us here or call 800.899.4623.