The Office of Management and Budget (OMB) has issued Memorandum M-20-22, which provides federal agencies with guiding principles to aid federal contractors and award recipients in maintaining their ability to perform on the terms of the contracts. These principles include strategies for maximizing telework and extending performance dates, or reimbursing paid leave if work solutions are not possible as a direct result of COVID-19. The goal is for federal agencies to ensure awards and contracts can be fulfilled as soon as possible, as circumstances permit.
Memo M-20-22 was issued to supplement and provide guidance on section 3610 of the CARES Act, which encourages the creation and implementation of strategies to combat the significant disruptions caused by COVID-19 to the health and economic well-being of the federal contracting base, and to maintain the resilience of that base. To that end, federal agencies have been given discretionary authority, subject to certain conditions, in reimbursing the costs of paid leave for business entities and nonprofit organizations serving as federal contractors. The memo creates six guiding principles for federal agencies to support the resiliency of federal contractors and award recipients and exercise good stewardship over federal expenditures:
- Carefully consider if reimbursing paid leave to keep the contractor in a ready state is in the best interest of the Government for meeting current and future needs. Agencies are given discretion in treating paid leave as a reimbursable cost for lost work time between March 27 and September 30, 2020, provided the leave is paid “to maintain a ready state, including to protect the life and safety of Government and contractor personnel,” allowing modification of agreements to permit reimbursement of leave costs.
- Be mindful of the challenges faced by small businesses. Federal agencies are encouraged to maintain close communications with contract and award recipients.
- Maintain mission focus and evaluate use of section 3610 in the broader context of all strategies to promote contractor resiliency. While they are not compelled to allow reimbursement of leave costs, agencies are given discretion in granting reimbursement after looking at the funding available and evaluating the opportunities for telework or contract extensions.
- Follow restrictions in section 3610. This applies to contractors and award recipients whose employees cannot work at the approved location and cannot work remotely to fulfill the contract terms. Further, reimbursement is limited to the contracted rate, up to 40 hours per week.
- Work with the contractor to secure necessary documentation to support reimbursement and prevent duplication of payment. The cost of payroll and leave benefits cannot be allocated to both the federal award and relief programs, including Paycheck Protection Program loan forgiveness.
- Track use of section 3610. Federal agencies should implement modifications to allow tracking of section 3610 funds.
Nonprofit organizations and federal contractors should reach out to their oversight agencies and contract administrators to discuss the impact COVID-19 is having on your ability to perform under your specific federal agreements, and to see if relief is available for your organization in these challenging times.
Please reach out to the team at ARB if you have additional questions.
by Christina Taylor & Jason C. LeBlanc, CPA