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DoD Issues Class Deviation Regarding Implementation of Section 3610 of the CARES Act

Apr.10.2020

On April 8, 2020, the Office of the Under Secretary of Defense, Acting Principal Director, Defense Pricing and Contracting (DPC) issued Class Deviation 2020-O0013, effective immediately, establishing a new DFARS cost principle entitled DFARS 231.205-79, “CARES Act Section 3610 – Implementation,” which sets forth rules regarding applicability, allowability, and avoiding duplicate payments under Section 3610 of the CARES Act.

The class deviation recognizes that it is imperative that DoD support contractors who are struggling to maintain a mission-ready workforce, while balancing flexibilities and limitations. The new DFARS cost principle makes “allowable” as direct costs the cost of paid leave, not otherwise reimbursable, for contractor employees who are unable to telework following facility closures or other restrictions.  Specifically, the cost principle applies to: (1) “any contract type,” (2) where employees cannot perform at an approved facility or site due to “closures or other restrictions,” and (3) where the employee was unable to telework. The cost principle states that the covered paid leave is limited to leave taken by employees who otherwise would be performing work on a site that has been approved for work by the Federal Government, “including on a government-owned, government-leased, contractor-owned, or contractor-leased facility or site approved by the federal government for contract performance.” The cost principle also states that “closures or other restrictions” includes where travel to the facility is “prohibited or made impracticable by applicable Federal, State, or local law, including temporary orders having the effect of law.” 

Applicability aside, the cost principle and Class Deviation state that direct reimbursement is authorized “at the appropriate rates under the contract” and for “contractor or subcontractor payments made for costs incurred, not otherwise reimbursable” for paid leave taken during the January 31, 2020 – September 30, 2020 period. Further, those paid leave costs must have been incurred to keep employees in “ready state” or to “protect the life and safety of Government and contractor personnel” in light of COVID-19. The new cost principle also explains that the Government will not make duplicate payments under other provisions of the CARES Act, such as tax credits, or other COVID-19 relief scenarios. And the clause reiterates that allowable costs “must be segregated and identifiable in the contractor’s records so that compliance with all terms of this section can be reasonably ascertained.” 

On the same day, the Office of the Director of National Intelligence (ODNI) released similar guiding principles to its industry partners relating to the implementation of Section 3610. In contrast with the DPC Class Deviation, the guidelines direct contractors to submit a request for equitable adjustment (REA) for COVID-19 related costs that were incurred before the effective date of the legislation on March 27, 2019. The ODNI guidelines anticipate formal Section 3610 guidance from the Office of Management and Budget (OMB).  

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Nicole Owren-Wiest
Partner – Washington, D.C.
Phone: +1 202.624.2863
Email: nowrenwiest@crowell.com
J. Chris Haile
Partner – Washington, D.C.
Phone: +1 202.624.2898
Email: chaile@crowell.com
Stephen J. McBrady
Partner – Washington, D.C.
Phone: +1 202.624.2547
Email: smcbrady@crowell.com
Nkechi Kanu
Counsel – Washington, D.C.
Phone: +1 202.624.2872
Email: nkanu@crowell.com
Skye Mathieson
Counsel – Washington, D.C.
Phone: +1 202.624.2606
Email: smathieson@crowell.com
Charles Baek
Associate – Washington, D.C.
Phone: +1 202.624.2894
Email: cbaek@crowell.com