It goes without saying that the COVID-19 pandemic has significantly affected the Department of Defense (“DoD”) and the defense industrial base.  And while Congress has taken steps to mitigate these impacts, the sheer scale of the pandemic’s effects pose a continuing challenge to both DoD and its contractors.  Now a group of major defense contractors has submitted a pair of joint letters to the Pentagon and OMB highlighting the need for further action and the risk to the defense industrial base if such actions are not taken.

As noted in our earlier coverage, Section 3610 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allows federal agencies to reimburse contractors for the costs of providing paid leave to employees who could not work because of facility closures.  But it has now been 110 days since President Trump signed the CARES Act into law and 58 days since DoD released draft guidance for reimbursement under Section 3610, and defense contractors are still waiting for the final guidance.  Moreover, Congress has not appropriated any additional funds for reimbursement under Section 3610, which could mean that any attempt to reimburse contractors under Section 3610 would result in offsetting cuts to other DoD programs, a concern identified by Under Secretary of Defense for Acquisition and Sustainment Ellen M. Lord in her June 10, 2020 statement to the House Armed Service Committee.

At the same time, and as described in a July 2, 2020 DoD memorandum, contractors have been required to incur significant costs that may not be covered by Section 3610.  These include, for example, the costs associated with facility closures, worksite sterilization and personal protective equipment (“PPE”), and social distancing within facilities, all of which are necessary to ensure safe operation during the ongoing pandemic.

To further highlight these concerns, last week, the CEOs of eight major defense contractors sent joint letters to both Under Secretary Lord and acting OMB Director Russell Vought.  The eight contractors expressed the concern that, without further appropriations, attempts to reimburse contractors under Section 3610 could significantly reduce the funds available for other DoD programs.  They further recommended that additional funds be appropriated so that DoD can assist contractors with the types of costs that may not be covered by Section 3610, including, for example, the costs of PPE and facility sterilization.

Finally, the eight contractors emphasized the significant financial risks that the defense industry could face in the absence of additional appropriations.  Without additional funds, the government  contractors may be unable to maintain their workforce or hire new employees.  Prime contractors who support many tiers of the defense industrial base may be unable to support the many small but critical subcontractors that make up the defense supply chain, which may result in production slippages and delays in delivering products or services to the government end-user, increased costs, or even the failure of some suppliers.

We will continue to monitor updates in this area as Congress considers additional COVID-19 stimulus legislation and DoD works to finalize its Section 3610 guidance on how defense contractors can seek to recover some of their COVID-19 costs.

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Photo of Scott A. Freling Scott A. Freling

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement…

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement advice, claims and other disputes, teaming and subcontracting, and mergers and acquisitions. He represents clients in federal and state court litigation and administrative proceedings, including bid protests before the Government Accountability Office and the U.S. Court of Federal Claims. He also represents clients in obtaining and maintaining SAFETY Act liability protection for anti-terrorism technologies. Mr. Freling’s experience covers a wide variety of industries, including defense and aerospace, information technology and software, government services, life sciences, renewable energy, and private equity investment in government contractors.

Photo of Michael Wagner Michael Wagner

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government…

Mike Wagner helps government contractors navigate high-stakes enforcement matters and complex regulatory regimes.

Combining deep regulatory knowledge with extensive investigations experience, Mr. Wagner works closely with contractors across a range of industries to achieve the efficient resolution of regulatory enforcement actions and government investigations, including False Claims Act cases. He has particular expertise representing individuals and companies in suspension and debarment proceedings, and he has successfully resolved numerous such matters at both the agency and district court level. He also routinely conducts internal investigations of potential compliance issues and advises clients on voluntary and mandatory disclosures to federal agencies.

In his contract disputes and advisory work, Mr. Wagner helps government contractors resolve complex issues arising at all stages of the public procurement process. As lead counsel, he has successfully litigated disputes at the Armed Services Board of Contract Appeals, and he regularly assists contractors in preparing and pursuing contract claims. In his counseling practice, Mr. Wagner advises clients on best practices for managing a host of compliance obligations, including domestic sourcing requirements under the Buy American Act and Trade Agreements Act, safeguarding and reporting requirements under cybersecurity regulations, and pricing obligations under the GSA Schedules program. And he routinely assists contractors in navigating issues and disputes that arise during negotiations over teaming agreements and subcontracts.

Photo of Peter Terenzio Peter Terenzio

Mr. Terenzio advises contractors across a broad range of different issues. His practice includes bid protests, contract claims and disputes, regulatory counseling, and internal investigations.

Before joining the firm, Mr. Terenzio clerked for Chief Judge Susan G. Braden of the Court of Federal Claims.