DOD Issues Draft Guidance For Leave Reimbursement Under Section 3610 of the CARES Act

In the afternoon last Monday (May 18, 2020), Defense Pricing and Contracting posted its promised Draft DOD Process for Section 3610 Reimbursement: Implementation Guidance.  That draft guidance package consists of a document describing the process itself and two attachments to it.  The first attachment is a Checklist to be completed for submission of leave reimbursement requests under Section 3610 of the CARES Act.  The second attachment is the Instructions for that Checklist.  [Comments from industry on the draft documents will be accepted until 5:00 p.m. Eastern Time on Friday May 22, 2020 via email at osd.dfars@mail.mil.] 

Small Package, Big Impact

Although the draft package’s length is relatively modest, consisting of 18 pages in total, the amount of information that it requires may well constitute a “heavy lift” for some contractors.  A significant quantity of the information the Checklist requires necessarily must be specially developed for the request and includes significant, detailed supporting documentation.  Such requirements and detail include calculation of a unique rate composed of only those elements of cost prescribed for that rate calculation, as well as specific supporting documentation for each component and circumstance involved in it, and the method by which it was calculated.  Details concerning any credits for payments received under other recovery programs also are required.  Everything must be presented in a machine-sortable format.  Properly done, reimbursement requests will be major undertakings for a certainty.

The Calculation/Documentation Challenge

Perhaps the most challenging aspect of preparing a reimbursement request will be Checklist Item 5, Section 3610 Circumstances Narrative and Information.  Witheringly complete in its coverage, Item 5’s statement of required information occupies roughly three of the six pages comprising the Checklist.  Significantly the draft guidance states that no profit or fee may be included in the rates used to calculate the reimbursement request, and any unaffected or commercial work that may exist is required to be allocated and clearly excluded from calculation of the rate used.  Historical or interim billing (or forward pricing) rates (even those that may have been audited and approved by DCAA) may not be used in a “plug-and-play” fashion, although substantial information concerning those rates must be provided.  Payroll records reflecting rates actually paid to personnel for whom leave reimbursement is sought may also be required at the contracting officer’s discretion.   Detailed explanation also is required concerning how indirect rates were developed prior to the Health Emergency Declaration of January 31, 2020.  Where subcontractor impacts are included the same information is required for the subcontractor.

Early Engagement Discussions

The Checklist’s Instructions provide for a potential “Early Engagement Discussions” in the discretion of the contracting officer in circumstances where he or she is advised by a contractor of an intent to seek leave reimbursement under section 3610.  While such discussions may potentially be valuable, contracting officers may make no commitments during them as to eligibility or calculation of the amount of reimbursement.  Early engagement discussions, then, amount to a “coaching session” that may provide useful insights for preparation of a reimbursement request but little more.  It is important to note that regardless of the suggestions or views expressed by contracting personnel during such discussions, they provide no “safe harbor” for any question(s) that later reviewers or auditors may develop months, or even years later.

The Bottom Line

In short, calculation of the rate used for reimbursement alone will require an exhaustively documented, “clean sheet” calculation in all instances.  Significant effort will therefore be required to prepare the request as well as to develop its required, supporting data and related (required) information – and to ensure full consistency of everything with the company’s accounting system.  The overhead cost attributable to these efforts easily may increase overhead for the entire enterprise in varying degrees, depending on the contractor, affecting competitiveness and profitability at least in the short term.  Even where no Truth in Negotiation Act certification is required (as where the threshold for that has not been reached for it), all of the information provided to the government would certainly be subject to an implied certification, leading to (sometimes much) later, possible False Claims Act assertions by the government or a Qui Tam relator.

Prudent contractors may find the administrative burdens, cost, and risk associated with a section 3610 leave reimbursement request to exceed the marginal gain it may represent.