COVID Contracting - Requests For Equitable Adjustment: Mind The Gap(s)

COVID-19
Requests for
Equitable Adjustment:
Mind the Gap(s)
FRIDAY APRIL 17, 2020
1pm EST

COVID-19
Requests for Equitable Adjustment:
Mind the Gap(s)
J Schaus & Associates
Washington DC
Professional Services For Federal Contractors
202-365-0598
Hello@JenniferSchaus.com

SBA:
https://disasterloan.sba.gov/ela/
J Schaus & Associates - 202-365-0598 Hello@JenniferSchaus.com
COVID-19 - Requests for Equitable Adjustment: Mind the Gap(s) – 5/01/2020

Defense Production Act:
https://www.fema.gov/defense-production-act-overview

Critical Infrastructure Workforce:
https://www.cisa.gov/publication/guidance-essential-
critical-infrastructure-workforce

Tax Relief:
https://www.irs.gov/coronavirus

GSA Activities:
https://www.gsa.gov/governmentwide-
initiatives/emergency-response/covid19-
coronavirus

DOL/OSHA - COVID-19 And The Workplace:
https://www.dol.gov/agencies/whd/pandemic?utm_mediu
m=email&utm_source=govdelivery

Corona Virus - DOD Response:
https://www.defense.gov/Explore/Spotlight/Coronav
irus/

OMB Memo M-20-18 / Managing Federal Contract
Performance :
https://www.whitehouse.gov/wp-
content/uploads/2020/03/M-20-18.pdf

* The Webinar is being recorded *
AGENDA
Speaker Introductions
Speaker Insight
Questions
Wrap Up

David Dempsey
Partner
Dempsey Fontana, PLLC
703.880.9171
ddempsey@deftlaw.com

Requests for Equitable Adjustment:
Mind the Gap(s)
May 1, 2020
12pm

TOPICS
►Background to REAs (after communication3, documentation3, cost segregation3)
►Evidence of Actual Damages
►Peculiarities of a REA based on the COVID-19 pandemic (Mind the Gap(s))
● Timeframes from Statutory and Guidance
● Focus on small businesses
● Simultaneous scope of a pandemic
● Relevance of Federal agency or State restrictions to REAs
►Objectives of the REA
● get money
● future - properly worded contract modification
© May 2020 All Rights Reserved No part of this information may be reproduced without the prior written approval of the author.

Requirements for Any REA Submission
1. Remedy granting contract provision:
Section I: Changes SF 33 (RFP/IFB) SF 1449 (commercial item)
Stop Work Order (90 days or less)
Suspension of Work Order (CO identifies timeframe)
Excusable Delays (termination for default)
** DFARS 252.239-7024, “Continuation of Contractor Essential Services”
** GSAR 552.222-70 CARES Act Sec. 3610 Paid Leave Reimbursements (APR 2020)
Section H: Remedies granted based on the specific contract
( e.g., government caused delay = contract extensions on a “for each day” basis)
Section J Remedies granted based on specifics of SOW / PWS
§ 3610 – CARES Act authorization

Requirements for Any REA Submission (cont.)
2. Mitigation of damages – description of efforts and identification of credits
3. Certification (to the best of “knowledge and belief”)
In the absence of a specific remedy-granting provision:
1. “constructive” change / stop-work order / suspension of work (“delay,” “disruption,”
“intervention,” “acceleration”)
2. Pub. L. 85-804 (FAR 50.1 – “Extraordinary Contractual Action”
(FAR 50.2 – “Support Anti-terrorism by Fostering Effective Technologies Act of
2002” (or SAFETY Act)

Basics of the CARES Act
Basics of the CARES Act § 3610:
♦ available appropriations under any Act
♦ any federal agency
♦ modify a contract to reimburse contractor / subcontractor
● minimum applicable contract billing rate, NTE average of 40 hours/week
● any paid leave, including sick leave
● that a contractor pays to keep employees in a ready state
● but only for an affected contractor where:
→ employees cannot perform on an approved federal site AND
→ due to facility closures or other restrictions (e.g., state stay-at-home orders) AND
→ cannot telework because job duties cannot be performed remotely AND
→ between Jan. 31 to Sept. 30, 2020
♦ less “credits” available from FFCRA and other CARES Act provisions

Basics of the CARES Act
§ 3610 reflected in:
DoD implementation
● DoD/DPC Class Deviation - CARES Act Section 3610 Implementation (April 8, 2020)
(includes DFARS 231.205-79 CARES Act Section 3610 – Implementation)
● DoD/DPC FAQ Document “Implementation Guidance for Section 3610 of the Coronavirus
Aid, Relief, and Economic Security (CARES) Act FAQs” (updated April 24, 2020)
GSA implementation
● GSAR Class Deviation - CARES Act Section 3610 Implementation (April 21, 2020)
● GSAR 552.222-70 CARES Act Sec. 3610 Paid Leave Reimbursements (APR 2020)
● GSA FAQs (latest entry is April 21, 2020)
DOE implementation
● PF 2020-22 Guidance for using DOE’s Clauses developed to implement Section 3610 of
the [CARES] Act (April 15, 2020) w/ 2 attachments: (1) Guidance for using DOE's Clauses;
(2) Cost-Reimbursement, FFP and T&M type contract)

Preparation of REA
Because § 3610 is not an exclusive remedy …
1. Factual Background
a. Chronology (specify beginning and ending )
b. Substantiation of facts
♦ contemporaneous details (e.g., time entries, POs, delivery documents,
emails / correspondence, hold on scheduled destruction of e-records)
♦ labor costs (hours per employee per contract from accounting records)
♦ material costs (allocated per contract)
♦ G&A and Overhead (allocated per contract on direct/indirect basis)
♦ absence of unallowable costs (see MRD 19-PAC-002(R), “Audit Alert on
Identifying Expressly Unallowable Costs (May 14, 2019)
♦ timeframes of events match to timelines from Federal and State actions
♦ contractor has burden of proof (“facts more likely than not”)

Preparation of REA (cont.)
c. Subcontractor facts + sponsorship provision
d. Credibility of electronic records (Deltek, Unanet, Quick Books)
→ DCAA approved accounting system
2. Cost of REA preparation allowable (FAR 31.205-33 on Professional and Consultant costs;
CAM ¶12-606(a))
● management effort / time
● COVID-19 REAs are a team sport (as DOL and the IRS made certain)
3. Mitigation / Offset / Credits (discussed below)
4. Contract modification (SF 30)

COVID-19 carve outs or “gaps” in the REA: Labor costs
tax credits / incentives –
► Family First Coronavirus Response Act (Pub. L. 116-127)
► CARES Act (Pub. L. 116-137)
► Paycheck Protection Program and Health Care Enhancement Act (Pub. L. 116-139)
OMB Guidance:
● OMB M-20-22, Memorandum on Preserving Resilience (Section 3610), dated April 17, 2020)
● OMB M-20-21, Memorandum on Supplemental Funding Provided in Response to COVID-19 (April 10, 2020)
● OMB M-20-20, Memorandum on Repurposing Existing Federal Financial Assistance Programs and Awards to
Support Emergency Response to COVID-19, dated April 9, 2020

Labor Department Guidance:
● COVID-19 and the Fair Labor Standards Act Questions and Answers
https://www.dol.gov/agencies/whd/flsa/pandemic
● Families First Coronavirus Response Act: Employee Paid Leave Rights
https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave
● Families First Coronavirus Response Act: Questions and Answers
https://www.dol.gov/agencies/whd/pandemic/ffcra-questions#8
● Labor Dept. Issues temporary regulation on Coronavirus Paid Leave Law for 29 C.F.R. 826 (85 Fed. Reg.
19326, April 6, 2020) and 85 Fed. Reg. 20156, April 10, 2020 –correction)

Under the “Emergency Paid Sick Leave Act” (part of FFCRA), an employee (from April 1 to December 31, 2020) is eligible
for:
→ Up to 80 hours of paid sick leave at the employee’s regular rate of pay where the employee is unable to
work because the employee is (1) quarantined pursuant to an authorized order or (2) been advised to self-
quarantine by a health care provider or (3) is experiencing COVID-19 symptoms and seeking a medical
diagnosis . . . for up to $511 per day or $5,110 over a 2 week period; or
→ Up to 80 hours of paid sick leave at 2/3rds the employee’s regular rate of pay because the employee is
(1) unable to work because of a bona fide need to care for an individual subject to an authorized quarantine
order or (2) is caring for a child under age 18 whose school is shut down for reasons related to COVID-19,
and/or (3) the employee is experiencing a substantially similar condition . . . for up to $200 per day or
$2,000 over a 2 week period and

Under the Emergency Family and Medical Leave Expansion Act (part of FFCRA):
→ Up to an additional 10 weeks of paid expanded family and medical leave at 2/3rds the employee’s regular rate of pay
where an employee, who has been employed for at least 30 calendar days, is unable to work (so telework) due to a bona fide need for
leave to care for a child whose school or child care provider is unavailable for reasons related to COVID-19 . . . up to $200 per day and
$12,000 in the aggregate (two weeks of partial paid sick leave + up to 10 weeks of partial paid Emergency Family and Medical Leave
Expansion Act*
*Eligible employees may elect to substitute accrued vacation leave, personal leave or medical or sick leave for the first 2 weeks of partial paid sick leave
• Covered employers qualify for a dollar-for-dollar reimbursement through tax credits (plus allocable qualified health plan expenses
and the employer’s share of Medicare tax) for all qualifying wages paid under FFCRA – an employer is not required to provide leave
if the employee does not provide the requisite documentation per 29 C.F.R. § 826.100;
• A “covered employer” is a private entity with fewer than 500 employees (see 29 C.F.R. § 826.10

IRS Guidance
● https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-paid-sick-and-paid-family-leave-
overview
● https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments
● https://www.irs.gov/coronavirus/coronavirus-and-economic-impact-payments-resources-and-
guidance
IRS Notices: 8
Revenue Procedures: 7
COVID Tax Tips: 9
FAQs: 13

Tax Considerations from the CARES Act:
● Employee Retention Credit (ERC):
employer is shut down due to an authorized order or shuts down due to significant loss of business
ERC applies to wages paid after March 12, 2020 and before January 1, 2021
● Net Operating Losses – see Revenue Procedure 2020-24
● Deferral of the employer's share of Social Security tax that would otherwise be required to be made during
the period beginning on March 27, 2020, and ending December 31, 2020
deferral paid: December 31, 2021, 50 percent of the deferred amount and December 31, 2022 for the
remaining amount
● Alternative Minimum Tax credits refundable on corporate tax returns filed before December 31, 2020

What was not covered:
► Business continuity plans revised (conduct a workplace hazard assessment)
● OSHA general duty clause (did the employer fail to keep the workplace safe?)
● Employee’s right to leave premises due to their own health disorder
► IT service continuity (e.g., telework policies, cybersecurity policies)
► Employee privacy due to COVID-19 issues; social distancing
► Obligation to provide PPE to employees and visitors; hand sanitizers everywhere
► Adopt CDC or WHO guidelines for business
► Facility design or restructuring (e.g., windows that open)

QUESTIONS FROM THE PUBLIC

1. How long do you think a REA seeking under $500,000 / over $500,000 will take to process from start to
receipt of check?

2. Should I submit a separate REA for incurred costs that are not subject to Section 3610 credits from the
FFRCA (labor costs, taxes) or should I combine all the incurred costs in one REA?

3. Please touch on the DOD-issued FAR/DFARS Class Deviation on Section 3610 of the CARES Act and
Section 3610 of the CARES Act for FAS Indefinite Delivery Vehicles (e.g. GSA Schedules, GWACs, etc.),
regarding adjustments/reimbursements

4. Will our PBRs [provisional billing rates] and FRPAs [forward rate pricing agreements] require changes?

5. May contracting officers unilaterally reduce or deny REAs based on Section 3610?

6. Assuming that Section 3610 focuses on labor cost reimbursement, what other types of events that
resulted in contractor expenses would come under a REA?

Thank You!
Please send
additional questions to
Hello@JenniferSchaus.com

COVID-19 -
Requests for
Equitable
Adjustment: Mind
the Gap(s)
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For Joining Us!

COVID Contracting - Requests For Equitable Adjustment: Mind The Gap(s)

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