GAO Says CARES Act Contractor Leave Pay Is Limited So Far

By Daniel Wilson
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Law360 (September 3, 2020, 10:27 PM EDT) -- The U.S. Government Accountability Office said Thursday that federal agencies have reported only $22 million in reimbursements to federal contractors under a program for employees unable to work due to COVID-19, mostly from the U.S. Department of Defense.

The DOD had reported about $18.3 million for reimbursements under Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, as of July 20, with NASA being the next-closest agency with $3.6 million in related obligations, according to a GAO report.

"So far, most agencies haven't reported using Section 3610 much," the GAO said in a statement accompanying the report.

The CARES Act is the multi-trillion dollar coronavirus relief package passed by Congress in March. Section 3610 allows agencies to reimburse contractors for the costs of paid leave to keep their workforce in a "ready state" if their employees are unable to work due to the pandemic, such as if they are sick or if the nature of their work means they can't telecommute.

The GAO examined the seven biggest contracting agencies within the federal government, each of which had contracting obligations in excess of $10 billion in fiscal year 2019, it said.

The watchdog found that apart from the DOD and NASA, only the U.S. Department of Energy had reported Section 3610-specific contractual modifications in the Federal Procurement Data System database, accounting for about $500,000 in reimbursements.

But the DOE had separately reimbursed its contractors for almost $550 million in paid leave costs for more than 9,000 contractor employees using its authority to obligate additional funding to existing contract obligations without needing a contract modification, the GAO said.

The departments of Health and Human Services, Homeland Security and Veterans Affairs, as well as the General Services Administration, did not report any Section 3610-specific reimbursements at all, and the GAO said there were several factors contributing to why reimbursements were so low.

Section 3610 is an authorization without an appropriation, allowing agencies to use existing funds to make reimbursements but not providing any specific funding, and some agency officials told the GAO they were reluctant to take funding from other programs, according to the report.

There were also other options available to provide similar relief, such as equitable adjustment clauses in contracts, payroll tax credits, accelerated payments, or the Paycheck Protection Program with forgivable loans for small businesses, the GAO said. And NASA already had the authority to reimburse paid leave costs in certain circumstances, the watchdog noted.

Most agency officials either weren't sure about the level of future Section 3610 requests they would receive or did not expect to receive many requests ahead of when the Section 3610 authority expires at the end of September, the GAO said.

But a DOD official said the department had taken a rough poll of several large defense contractors and expected to receive billions of dollars in related requests, especially from those large prime contractors, if a pending request with Congress for additional appropriations goes through, according to the GAO.

Senate Republicans' proposed $1 trillion supplemental COVID-19 assistance package, introduced in July, would provide nearly $11 billion for Section 3610 claims by defense contractors, after the DOD had repeatedly said that it cannot make additional payments without dipping into funds it needs for readiness and modernization programs.

But congressional Democrats, whose own $3 trillion supplemental assistance bill passed the House in May, have pushed back against providing additional funding for the DOD, and the parties are currently at loggerheads on a final compromise bill.

The GAO said that its report was only intended as observational and did not make any recommendations. None of the agencies listed in the report made any formal comments on a draft version of the report, the GAO said.

Representatives for the agencies were not immediately available for comment late on Thursday.

--Editing by Haylee Pearl.

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