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  But it has now been 110 days since President Trump signed the CARES Act into law and 58 days since DoD released draft guidance for reimbursement under Section 3610, and defense contractors are still waiting for the final guidance.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 is sought after for his regulatory expertise and his ability to apply that knowledge to the transactional environment. Scott has deep experience leading classified and unclassified due diligence reviews of government contractors, negotiating transaction documents, and assisting with integration and other post-closing…

Scott is sought after for his regulatory expertise and his ability to apply that knowledge to the transactional environment. Scott has deep experience leading classified and unclassified due diligence reviews of government contractors, negotiating transaction documents, and assisting with integration and other post-closing activities. He has been the lead government contracts lawyer in dozens of M&A deals, with a combined value of more than $76 billion. This has included Advent’s acquisition of Maxar Technologies for $6.4 billion, Aptiv’s acquisition of Wind River for $3.5 billion, Veritas Capital’s sale of Alion Science and Technology to Huntington Ingalls for $1.65 billion, and Peraton’s acquisition of Perspecta for $7.1 billion.

Scott also represents contractors at all stages of the procurement process and in their dealings with federal, state, and local government customers. He handles a wide range of government contracts matters, including compliance counseling, claims, disputes, audits, and investigations. In addition, Scott counsels clients on risk mitigation strategies, including obtaining SAFETY Act liability protection for anti-terrorism technologies.

Scott has been recognized by Law360 as a MVP in government contracts. He is a past co-chair of the Mergers and Acquisitions Committee of the ABA’s Public Contract Law Section.

Photo of Michael Wagner Michael Wagner

Mike Wagner represents companies and individuals in complex compliance and enforcement matters arising in the public procurement context. Combining deep regulatory expertise and extensive investigations experience, Mike helps government contractors navigate detailed procurement rules and achieve the efficient resolution of government investigations and…

Mike Wagner represents companies and individuals in complex compliance and enforcement matters arising in the public procurement context. Combining deep regulatory expertise and extensive investigations experience, Mike helps government contractors navigate detailed procurement rules and achieve the efficient resolution of government investigations and enforcement actions.

Mike regularly represents contractors in federal and state compliance and enforcement matters relating to a range of procurement laws and regulations. He has particular experience handling investigations and litigation brought under the civil False Claims Act, and he routinely counsels government contractors on mandatory and voluntary disclosure considerations under the FAR, DFARS, and related regulatory regimes. He also represents contractors in high-stakes suspension and debarment matters at the federal and state levels, and he has served as Co-Chair of the ABA Suspension & Debarment Committee and is principal editor of the American Bar Association’s Practitioner’s Guide to Suspension & Debarment (4th ed.) (2018).

Mike also has extensive experience representing companies pursuing and negotiating grants, cooperative agreements, and Other Transaction Authority agreements (OTAs). In this regard, he has particular familiarity with the semiconductor and clean energy industries, and he has devoted substantial time in recent years to advising clients on strategic considerations for pursuing opportunities under the CHIPS Act, Inflation Reduction Act, and Bipartisan Infrastructure Law.

In his counseling practice, Mike regularly advises government contractors and suppliers on best practices for managing the rapidly-evolving array of cybersecurity and supply chain security rules and requirements. In particular, he helps companies assess and navigate domestic preference and country-of-origin requirements under the Buy American Act (BAA), Trade Agreements Act (TAA), Berry Amendment, and DOD Specialty Metals regulation. He also assists clients in managing product and information security considerations related to overseas manufacture and development of Information and Communication Technologies & Services (ICTS).

Mike serves on Covington’s Hiring Committee and is Co-Chair of the firm’s Summer Associate Program. He is a frequent writer and speaker on issues relating to procurement fraud and contractor responsibility, and he has served as an adjunct professor at the George Washington University Law School.

Photo of Peter Terenzio Peter Terenzio

Peter Terenzio routinely advises clients regarding the multiple regulatory regimes that apply to federal contractors. His practice also extends outside of traditional government procurement contracts to include federal grants and Other Transaction Authority (OTA) research, prototype, and production agreements.

Among other things, Peter…

Peter Terenzio routinely advises clients regarding the multiple regulatory regimes that apply to federal contractors. His practice also extends outside of traditional government procurement contracts to include federal grants and Other Transaction Authority (OTA) research, prototype, and production agreements.

Among other things, Peter regularly helps clients with the constantly evolving domestic-preference requirements promulgated pursuant to various federal laws, including, for example, the Buy American Act (BAA) and Trade Agreements Act (TAA), but also including more recently the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA). He also has particular experience with helping clients navigate the complicated prevailing wage rules imposed by the Davis Bacon Act (DBA) and Service Contact Act (SCA). Peter has used this regulatory knowledge to help clients negotiate the specifics of their contracts, grants, and OTA agreements.

Peter also has significant experience with the disputes that may arise during the execution of government prime contracts. He knows how to work closely with the client’s subject matter experts to prepare and submit detailed requests for equitable adjustment (REAs) in order to secure much-needed price or schedule relief. Where necessary, he has assisted clients with converting their REAs into certified claims, and when disputes cannot be resolved at the Contracting Officer level, he has helped clients vindicate their contractual rights in litigation before the Boards of Contract Appeals.