In recent blog published by Deltek, Baker Tilly shared top questions we encounter related to the Paycheck Protection Program (PPP). Addressed in the blog are the following questions: My company performs government contracts and we received a PPP loan. If the SBA forgives our loan, do we have to give the government credits on our contracts? My company’s PPP Loan amount is $2 million, but we incurred more than $4 million in payroll costs during the 24-week application period. How do I know which payroll costs we need to credit? Only 15% of my company’s work is federal government cost-reimbursement contracts; the rest is Labor Hour (LH) and Firm-Fixed Price (FFP) contracts. The DCAA’s audit guidance doesn’t mention those. We didn’t include payroll from the cost-reimbursement work in our forgiveness application. Will the government have an interest in the forgiven payroll costs related to our LH and FFP contracts? How should the receipt of the PPP Loan proceeds be recorded in the General Ledger? What steps should the company take to determine the best use of the PPP Loan proceeds? Can you provide some best practices for how to calculate that projection of impact on rates? What about projecting the impact of these higher or lower rates on billing and revenue?
For more information on this topic, or to learn how Baker Tilly government contract specialists can help, contact our team.

Baker Tilly co-authored Deltek’s recent blog discussing questions often asked by government contractors related to PPP loans and forgiveness.

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Seven things government contractors need to know about PPP loans and forgiveness

Authored by Leo Alvarez, Steven Brewer and Jeff Clayton Over the past several years, DCMA’s Commercial Item Group (CIG) has stood at the forefront of a push to make contracting less complex for DoD and its commercial suppliers. In late March, the CIG once again leaned in and issued a class Commercial Item Determination (CID) for select products and services that may be used to meet urgent national needs in response to the COVID-19 pandemic. Many applauded the CIG’s quick work to navigate DoD’s acquisition workforce toward the streamlined acquisition methods afforded to it under FAR Part 12.  As it turns out, the CIG was not done.  On April 10, the CIG took the unprecedented step of releasing a Request for Information (RFI) on beta.sam.gov that allows contractors to request a CID for their product(s), ahead of government solicitation. This will allow certain contractors to engage directly with the forward-thinking minds at the CIG. Their judgments were previously reserved for requests that came directly from DoD contracting officers.  As a backdrop, the last several years have seen a significant push from Congress, DoD leadership, and others for an increased focus on commercial item acquisition, with a primary goal of increasing access to innovative companies and their products, services, and solutions. The CIG has been a key part of this push, providing specialized resources to assist Contracting Officers with analyzing products and services and assessing their commerciality. This RFI represents a huge opportunity for a specific subset of entities who may not have typically sold their products to DoD customers due to the burdens and complexities that come with entering into a government contract governed by FAR Part 15, FAR Part 31, or the Cost Accounting Standards. Contractors who are considering responding to this RFI should review the requirements and assess their product offering to determine if a CID would better position them for future DoD procurements. Below are some thoughts on the RFI, in addition to a discussion of some common issues that interested companies should bear in mind: RFI specifics: Nontraditional defense contractors: This is only intended for nontraditional defense contractors as defined in 10 U.S.C. 2302(9), meaning entities that are not currently performing and have not recently (within past year) performed on full CAS-covered contracts. This will exclude some established contractors who hold large cost-type contracts. Products only: As written, this RFI is limited to products and excludes services. Commercial Item Determinations for services have always been more difficult, since services are often tailored to each customer’s needs and may include unique terms and conditions. We hope that commercial services are considered for future efforts. We understand the potential difficulties associated with defining services for unknown efforts as commercial; however, we think there could be some opportunities to define specific types of services for specific companies as commercial, with some thought given to the process. New, high-value items: The CIG is currently only looking for items that are not already being procured by DoD as commercial items, with unit prices or potential extended value over the TINA threshold of $2 million. As one would expect, the CIG is looking to maximize its return on investment, but even contractors with lower priced items (based on unit price) should consider this opportunity if there is an upcoming requirement or a potential demand that would lead to over $2 million in total value. Due date of May 18, 2020: Responses are due to the CIG by May 18, 2020, and the review time will depend on the overall workload of the CIG, with normal (DoD customer) requests taking precedence. Key themes for successful CIDs: Follow the regulation language: The required documentation for this RFI starts with a statement of which part of the FAR definition of a commercial item the product satisfies, which in turn dictates the necessary types of commerciality support. When making a commerciality assertion and preparing the support package, contractors should look to the specific language in the definition as well as other government resources like the DoD Guidebook for Acquiring Commercial items for ideas on how to support that assertion. Modified items (part three of the definition) may need additional details on the scope and price of the minor modification, whereas items that are “of a type” sold commercially may need more side-by-side comparisons of technical specs (more on that below). Compare form, fit, and function: When asserting that your products are of a type sold commercially, the CIG required documentation discusses side-by-side comparisons to assist with their review. Specifically, some of the suggested comparisons align with what we have historically seen as best practices for supporting commerciality, including a look at the essential physical characteristics, performance characteristics, functions, and visual representations of the proposed item and the comparable item sold commercially. These types of comparisons, which are similar to the “form, fit, and function” criteria described in DoD’s Guidebook for Acquiring Commercial Items, are critical for contractors arguing the “of a type” part of the commercial item definition. Address price differences: In practice, we have seen that many commerciality discussions still hit snags on price differences between the proposed item and similar items sold commercially. As opposed to shying away from these discussions, contractors should proactively address the price differences, using multiple approaches if necessary to develop the narrative for price reasonableness. Some topics that may require attention include: Key price drivers for customized products, or the overall pricing process for similar products Premium pricing for various features or functionality Impact of the location of production or design Market comparisons to similar items Prior government purchases of similar items Conclusion: DCMA’s CIG have been at the forefront of commercial item acquisition innovation, and this RFI further demonstrates their willingness to engage with industry and leverage nontraditional companies to increase access to innovative products. Nontraditional contractors who have been looking for inroads into the commercial item acquisition space should carefully review this opportunity, as a favorable CID now will set them up for streamlined procurements of their items in the future.

Commercial item determination opportunity through recently released RFI.

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Commercial item determination opportunity – act now for future success

Authored by Pat Fitzgerald, Baker Tilly, and Dominique Casimir, Blank Rome Government and contractors were unprepared for COVID-19 to so abruptly push so many employees to remote work. Even now, as businesses start to contemplate how to reopen their offices, the continued need for social distancing means many employees will be choosing or required to continue remote work for the foreseeable future. It’s a fundamental change in how organizations operate, fraught with inconsistencies, challenges and distractions. What are the compliance implications of mass telework? Read our recent article outlining important questions to ask (and answer) to help government contractors stay compliant while working remotely.

Six questions to test your telework compliance for government contractors during COVID-19

Six questions to test your telework compliance

Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program. 
Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), provided funding to the Small Business Administration (SBA) totaling $349 billion for loans available to qualifying small businesses. These Paycheck Protection Program (PPP) loans have several favorable characteristics, including a low interest rate, no origination fees, no collateral requirements and the possibility of forgiveness. Since the program launched on April 3, overwhelming demand quickly depleted available funding and prompted Congress to add an additional $310 billion as part of the Paycheck Protection Program and Health Care Enhancement Act, enacted on April 24. Not surprisingly, questions about this novel loan program abound. Primary among them are: (1) how does a potential qualifying applicant (or current recipient) assess or demonstrate “economic need”; and (2) how does the PPP loan recipient consider qualified expenses when seeking forgiveness? Determining economic need Initial regulations issued by the SBA on April 15 require borrowers to certify in “good faith” on the PPP loan application that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The borrower also needs to certify that the funds “will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.” Apparently recognizing the ambiguity of the required certification, the Treasury Department updated its PPP loan FAQ on April 23 to provide some clarity, stating that:  “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.” After the PPP program launched, but before the regulations and guidance were issued, some public companies such as Ruth’s Chris Steak House, Shake Shack and Potbelly Sandwich Shop applied for and received PPP loans. The combination of public backlash, high-profile opinion, and the SBA’s later clarification of the law led to these three companies and others returning their PPP loan funds.  At least one bank recently sent an email to customers noting that businesses that do not adhere to the SBA’s guidelines may face criminal investigations as described in the PPP loan application and the SBA’s implementing regulations. Any borrower that applied for and received a PPP loan prior to the issuance of the regulation and repays the loan in full by May 7, 2020, however, will be deemed by the SBA to have made the required certification in good faith. Information relevant to current and prospective PPP borrowers Small businesses that have received or are considering a PPP loan face a challenging dilemma: how to make the required certification with ambiguous and inconsistent information, and significant residual uncertainty regarding how the COVID-19 crisis may affect operations. It is unclear how long any business will be closed down, operate at less than full capacity, or experience unsustainable operational inefficiencies that bear directly on employment levels. Also, will the SBA call into question the legitimacy of a certification if a business has received a PPP loan that it has not yet used and may or may not need before May 7, but wishes to retain because it does not know whether future events will affect the viability of its operations? Under the SBA’s interim regulations, a business can only receive one PPP loan and, accordingly, the SBA encourages borrowers to “consider applying for the maximum loan amount.” So, if loan funds already disbursed, but not yet needed, are returned by May 7, a business cannot later reapply for a PPP loan even if an economic need emerges. We encourage the SBA and Treasury Department to resolve this uncertainty. Unless the borrower can make a case, pursuant to its good faith certification that it needs a PPP loan to pay employees that it otherwise would furlough or lay off, and has no other source of funds for these expenses that “is not significantly detrimental to the business,” it runs the risk of further questioning by the SBA. To protect themselves from significant risks, we encourage PPP loan applicants and recipients to speak with their accounting and legal advisors about making disclosures to stakeholders regarding their economic need to keep employees employed, and the business in business. Identifying costs and expenses for PPP loan forgiveness A PPP borrower is eligible for loan forgiveness equal to the amount spent by the borrower on payroll costs, interest payment on any mortgage, rent and utilities, during an eight-week period after the origination date of the loan. Borrowers have expressed concern about how to determine the specific costs and expenses to be considered in determining potential forgiveness of the loans. The April 15 SBA interim regulations require borrowers to provide documentation on payroll costs, covered mortgage interest payments, covered rent payments and covered utilities. Although the SBA has not yet issued regulations governing PPP loan forgiveness, it indicated that forgiveness will be based on the sum of these documented costs, as adjusted for changes in the number of employees or the amount of compensation provided to employees in comparison with the identified base period. Information relevant to PPP borrowers Businesses that receive PPP funds should record the loan and continue recording payroll and operating expenses in accordance with generally accepted accounting principles (GAAP). Potential forgiveness of some or all of the PPP loan is currently undefined and, thus, remains an uncertain future event. Expect to produce accounting records necessary to demonstrate eligibility and compliance with the program, including the statutory forgiveness certification that “the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments.” Act quickly and be prepared! Initial funding for PPP loans was exhausted quickly. The new law provides more funds for loans and also makes it easier for smaller banks, credit unions and minority and community development financial institutions to process these loans. Businesses interested in tapping into this new round of funding should make sure they have the right documentation ready before approaching a lender. Check our resource for PPP borrowers. Give us a call – we can help!
Baker Tilly COVID-19 support Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
For borrowers with a straightforward PPP loan compliance environment, we have developed a self-service, Excel-based loan forgiveness calculator. But if your situation is more complex, or you have limited staffing available to support the loan requirements, we can provide an automated approach to forecasting eligible spend, monitoring specific payroll exceptions, and managing compliance with final documentation requirements.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Small businesses have many questions about the Paycheck Protection Program (PPP). Primary among them are: (1) how does a potential qualifying applicant (or current recipient) assess or demonstrate “economic need”; and (2) how does the PPP loan recipient consider qualified expenses when seeking forgiveness?

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PPP loans: important economic need and accounting considerations

Video As an important adjunct to our recurring COVID-19 triage plan webinar series, we teamed up with attorneys from Arnold & Porter to deeply explore and map the labyrinth of the Defense Department’s CARES Act 3610 implementation approach. Congress provided a path for contractors to seek relief, and government agencies have scrambled to craft actionable guidance for contracting officers and the contracting community.  In this on-demand webinar, we dissect the regulatory approach taken by the DoD, with a focus on cost recovery, tease relevant clues and cues from case law, and post warning signs where we see potential compliance and audit pitfalls. Key takeaways from the webinar:  CARES Act Section 3610 DoD implementation guidance, including the DFARS Class Deviation and associated FAQ Relevant case law And more Presenters and subject-matter specialists: Joseph McCaffrey, Baker Tilly Paul Pompeo, Arnold & Porter Mike McGill, Arnold & Porter
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.  Government contractor coronavirus resources The unprecedented actions taken by governments here and around the world to manage the COVID-19 pandemic are affecting, and will continue to affect, government contractors in many ways. Visit our resource center for timely updates, alerts and how we can help. 

On-demand webinar with Baker Tilly and Arnold & Porter dissects DoD’s regulatory approach toward CARES Act Section 3610, implementation guidance, relevant case law and more.

Deep dive into DoD’s CARES Act 3610 implementation approach

Authored by Jeff Haynes and Aaron Kahn Times were good, revenue growth was climbing, hiring was like clockwork, and prosperity seemed as if it would never end. There were signals of a slowdown, then a possible recession, but we didn’t expect a global pandemic to begin the year. So, now what? If your organization ran models and had a financial plan in place for a downturn, perhaps you are more prepared to make well-thought-out critical decisions. If not, here are some thoughts on the steps you can take. Let’s take a look at five examples where enterprise performance management (EPM) software can give your organization the power and visibility it needs to navigate these times of economic uncertainty, and why it’s a perfect time to consider investing in a solution.  Prepare Ideally, you are prepared and have already worked through a variety of scenarios for your organization, ranging from the best case to worst case. Maybe you have even mapped out a plan for “in case of” scenarios. As we have seen, recessions happen fast, and quick decisions need to be made. Being prepared can help you make rational decisions before you are in the depths of a crisis. Having a plan in place can be the difference between not knowing what to do versus making the right critical decisions confidently and accurately.   In case your organization isn’t as prepared for the current situation, EPM software, such as Oracle EPM Cloud can help do exactly that. This software can ensure you have a plan in place for what’s next. Oracle EPM provides best practices for planning and scenario modeling with true out-of-the-box functionality. These models, managed by Oracle, are used to forecast, plan, run what-if scenarios and model your business trajectory in real time.  This means no more waiting for IT to run reports to get the information you need to make critical, timely decisions. In the current economic environment, this is more important than ever. Cash management The most vital bloodline of your organization is cash. We all have heard the expression “cash is king.” Knowing your cash flow options is critical.   You need to be able to make cash flow decisions quickly, accurately and thoughtfully. This applies to many areas, including: modeling operational cash flow, determining which financial vehicles to leverage during times of crisis, and/or raising investment capital for M&A.   Many organizations try to model cash flow in Excel, but this can be error prone and time-consuming, resulting in a maintenance nightmare. The same is true for systems based on custom calculations. In contrast, Oracle EPM provides true out-of-the-box models for the majority of your cash flow drivers, models and reports, which will enable the types of speedy accurate decision-making you need in this critical time and support easily maintained custom calculations if needed.  Strategic modeling The strategic modeling business process in Oracle EPM enables rapid analysis of vital cash flow. This is ideal for what-if modeling of business risks, simulation of long-term alternative strategies, stress testing financial models and development of contingent scenarios, or even modeling how to fund M&A opportunities. You can easily run various scenarios at different levels of granularity within the organization, giving you much greater insights and capabilities than trying to manage these models with spreadsheets.  Baker Tilly client organizations have used this functionality to renegotiate more favorable terms on debt covenants, refinance debt, model-hedging strategies, determine M&A options, decide whether to dissolve unprofitable revenue segments, and reinvest in creating new business lines. Oracle’s patented Strategic Modeling is the most powerful tool available to ensure you can confidently make quick game changing decisions accurately, so your team can be prepared to navigate these difficult times. Execution Oracle’s EPM Cloud solution offers out-of-the-box driver-based modeling, trend-based planning, and predictive analytics built right into the solution. This allows your planners to quickly update their plans. From conducting what-if analysis, using numerous versioning options, or simply entering their sales numbers, your knowledge workers across the business can easily input their key metrics. This allows you to get accurate reports and analysis so you can confidently make decisions at the speed of business. Workforce Another vital part of your organization is your workforce; one in which you have probably invested heavily.  In most industries, it is the most expensive and important line on your profit and loss statement. Modeling how to fully maximize your workforce will be key to a successful recovery. Understanding the skill sets, availability and mobility of your resources and candidates could mean the difference in not only mitigating financial impact, but also maximizing recovery and productivity. Utilizing an EPM solution such as strategic workforce planning will ensure you have the right supply of people to meet the demand now and in the future.  We are currently in a time of crisis, but also poised for a time of recovery. The right solution such as EPM can help your organization understand how to navigate this crisis by gaining insights into your cash flow and how to prepare your workforce for what’s next. If you have questions about how EPM can help your organization, please contact our team. 

Read this article for five examples where Enterprise Performance Management (EPM) software can give your organization the power and visibility it needs to navigate these times of economic uncertainty, and why it’s a perfect time to consider investing in a solution.

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Navigating economic uncertainty

Fed Talks is a series of audio episodes featuring current issues in government contracting, offering thoughtful, bite-sized insights with rotating guests from inside and outside Baker Tilly.  On this unique episode of Fed Talks, we discuss the rapidly-evolving impacts of the COVID-19 pandemic and what government contractors are doing to deal with it successfully. Questions addressed include: What are some parallels that exist between pandemic response and business activities during this challenging time? What does it mean to be reasonable or prudent in the midst of a rapidly evolving situation?  What might be some lasting impacts of COVID-19 to the government contracting community? 

About the producer Andrew Graziano, Senior Consultant  Andrew has been with Baker Tilly for over 2 years and has spent that time working with government contractors on a wide variety of compliance matters.  In particular, Andrew has experience with incurred cost proposals, indirect rate modeling, price proposal preparation, cost impact analysis, and commercial sales practice disclosures. In his spare time, he produces and edits this Fed Talks podcast.
Next episode: Changes to GSA’s Order-Level Materials (featuring Steve Sizemore) 
Music Credit
Artist: Chael 
Song: Sparks 
https://www.free-stock-music.com/artist.chael.html 

On this episode of Fed Talks, we discuss the rapidly-evolving impacts of the COVID-19 pandemic and what government contractors are doing to deal with it successfully

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Fed Talks: Special edition - COVID-19’s impact on contractors

Aside from focusing on the safety and well-being of their personnel and their businesses amid the COVID-19 response, the government contracting community has also had to deal with digesting the plethora of information and guidance coming from Congress, the Office of Management and Budget (OMB) and individual agencies. We have tried to create a helpful compendium for our clients below to distill the best places to find information. We will continue to update this list. General information (includes OMB guidance) Department of Defense National Institutes of Health Memorandum for NASA Contractor Community | March 24, 2020 United States Agency for International Development For more information on these topics or to learn how Baker Tilly specialists can help, contact our team.

Aside from focusing on the safety and well-being of their personnel and their businesses amidst the COVID-19 response, the Government contracting community has also had to deal with digesting the plethora of information and guidance coming out from Congress, the Office of Management and Budget, and individual Agencies.

COVID-19 guidance links and helpful documents for government contractors

Authored by Alex Mikhelson
 Aside from focusing on the safety and well-being of their personnel and their businesses amid the COVID-19 response, the government contracting community has also had to deal with digesting the plethora of information and guidance coming out from Congress, the Office of Management and Budget and individual agencies. Much of the guidance has had a similar flavor, recognizing the impact on the greater community and providing the government’s commitment to protecting and working together with its contracting community. NASA’s recent guidance, however, takes a stronger, more defined position. NASA’s definitive stance stems partly from its unique circumstances. NASA operates from fewer locations than many other agencies. Unfortunately, individuals at several of these locations have been diagnosed with COVID -19. On March 17, NASA leadership elevated all centers and facilities to stage three of NASA's response framework, effectively transitioning all employees and contractors to mandatory telework. Mission-essential personnel continued to be granted access on-site. Subsequently, some facilities further restricted access, moving to stage four and limiting on-site access to protect life and critical infrastructure. In response to the ever evolving situation, NASA’s office of procurement released a memorandum titled “Preserving Readiness of the Space Industrial Base and Mission Operational Readiness due to the Coronavirus (COVID-19) Situation.” NASA’s memorandum gives clear instructions to both contractors and their government counterparts surrounding denial of access to facilities, teleworking and stop-work orders. Even more importantly, it directs employers to maintain their workforce and readiness to assume full contract performance. Fortunately, NASA recognizes that maintaining readiness comes at a cost. For on-site contractors, NASA invoked the NASA FAR Supplement (NFS) clause at 1852.242-72. Under the clause, contractors should maintain their workforce so that they can immediately resume operations. However, this clause doesn’t give contractors a blank check. They must still use sound judgment (in the absence of specific contracting officer direction) to minimize unnecessary contract costs and performance impacts. For contractors, this means implementing remote work, redeploying resources where possible, or documenting the reasons why these actions aren’t feasible. Additionally, NASA instructs its off-site contractors to continue performance. In the event that contract activities cannot continue, the memo instructs contractors to contact their contracting officers, who will treat any stoppage or interruptions consistently with FAR 52.242-15 Stop-Work Order. Again, contractors are still required to mitigate costs while maintaining readiness to assume full performance once the emergency has passed. NASA recognizes that contractors will incur costs to maintain the readiness of their workforces. As a result, it is establishing advance agreements with contractors to ensure that these costs are treated as allowable contract costs, similar to other safety or weather-related leave. NASA directs contractors to contact their contracting officers should companies face work disruptions. While NASA intends to provisionally pay its contractors for these costs, NASA will require contractors to reconcile provisional payments to actual costs as part of a request for equitable adjustment. NASA’s memo provides contractors with a clear path forward. Affected contractors should be identifying affected work and initiating discussions with contracting officers. As NASA’s clear preference is to continue work where possible, contractors should explore creative solutions for telework. (e.g., Is it possible to perform later phases of work to allow employees to work remotely?) Where remote work is impossible, redeployment of personnel is the preferred next step. When redeployment is not possible, contractors are entitled to establish a new category of COVID-19 leave in order to compensate and maintain its workforce. Contractors must identify and segregate these costs and ensure that the leave complies with its current policies. Where this type of leave is unaddressed, contractors should amend their policy to cover this special leave. NASA’s memo demonstrates it’s dedicated to maintaining the financial capability of its contractors and will take action to solidify contractor cash flow. As we’ve stressed in prior communications, contractors must understand the COVID-19 impacts to their businesses and track those costs with some reasonable degree of visibility. Actively communicate with contracting officers regarding your specific situations. Last, but most importantly: document, document, document. Eventually, contractors must submit requests for equitable adjustment (REAs) that support costs incurred and demonstrate the reasonableness of actions taken to mitigate costs in the midst of the crisis. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

COVID-19 Crisis: NASA to its contractors – “We get it”

Video As we enter week two of social distancing and expanding shut-ins, government contractors face increasingly uncertain operating conditions. But one thing is certain – neither contract prices nor agency funding levels contemplated the wide variety of delays, disruptions, scope changes, and other inefficiencies that are impacting the performance of many government contracts. While contractors may not be able to predict the impact of these disruptions, contractors can take many tangible steps now to maximize whatever remedies may be available in the future. In this on-demand webinar, Baker Tilly's government contractor advisors discuss what contractors should be doing now. 
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Listen to our on-demand webinar discussing practical steps government contractors should take now to improve cost recovery later. 

COVID-19: steps government contractors should be taking now

During this uncertain time, Baker Tilly has been receiving many inquiries on employment best practices surrounding the COVID-19 outbreak. While this situation is fluid, we will continue to advise our clients with the latest information available. Overall, best practices dictate employers listen to employee concerns, support them and work to solve issues in this previously unknown environment. Many answers to the below FAQs may differ depending on which state(s) you operate in. If you have any specific questions or concerns, please do not hesitate to reach out directly to our consultants. Updated as of March 25, 2020 FAMILIES FIRST CORONAVIRUS RESPONSE ACT, H.R. 6201 On March 18, 2020, the Senate passed and President Trump signed into law the Families First Coronavirus Response Act (the Act). The Act has multiple components including, but not limited to: Emergency Family and Medical Leave Expansion Act The Act amends the Family and Medical Leave Act (FMLA) to require employers with fewer than 500 employees to provide paid public health emergency leave to certain employees through Dec. 31, 2020. Key provisions include: An employee must have been employed for at least 30 days. An employee is unable to work or telework due to a need for leave in order to care for a son or daughter under the age of 18 because the child’s school or place of care has been closed, or the childcare provider is unavailable due to an emergency declared by federal, state or local authority with respect to COVID-19. The first 10 days of leave may be unpaid and then paid leave is required and will be calculated at two-thirds the employee’s regular pay rate for the employee’s regularly scheduled hours, not to exceed $200 per day and $10,000 in total payment. Emergency paid sick leave  Private employers with fewer than 500 employees and public employers of any size must provide 80 hours of paid sick time to full-time employees who are unable to work or telework for specific reasons related to COVID-19. Part-time employees are entitled to paid sick leave based on their average hours worked over a two-week period. Key provisions include: The amount of hours is available immediately regardless of the employee’s length of employment. The maximum amounts payable depend on the reason for the absence. Employees who are: (1) subject to a quarantine or isolation order; (2) advised by a health provider to self-quarantine; or (3) experiencing symptoms and seeking diagnosis, must be compensated at their regular rate of pay, up to a maximum of $511 per day or $5,110 in total payment. Employees caring for an individual described in category (1), (2) or (3) above, caring for a son or daughter whose school is closed or childcare provider is unavailable, or experiencing a “substantially similar condition,” must receive two-thirds of their regular rate of pay, up to a maximum of $200 per day or $2,000 in total payment. Employers may exempt health care providers and emergency responders and the Department of Labor can issue regulations exempting businesses with fewer than 50 employees. The paid sick leave provision takes effect on April 1, 2020 and expires on Dec. 31, 2020. Health provisions Group health plans and insurers offering group or individual health insurance must cover COVID-19 diagnostic testing and must include services related to the administration of the test. Expand the section(s) below to view the FAQ.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The COVID-19 pandemic has brought a host of new challenges for employers as they learn to navigate through these troubled times. These frequently asked questions (FAQ) include more detailed information for employers on the Families First Coronavirus Response Act and topics such as workplace closures, remote work, unemployment and COBRA benefits, group health plan administration, among others. 

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Families First Coronavirus Response Act FAQ

President Trump invoked the Defense Production Act (the Act) through executive order on March 18, 2020. The invocation of this emergency measure is currently targeting the medical equipment and supply industries. How could the Act impact your company, what opportunities may exist, and what other things should you be thinking about?  Companies that manufacture and sell medical equipment, supplies and devices, as well as companies that provide healthcare and healthcare-related services, and operate in the pharmaceutical and biotech industries could all receive covered orders. Other industries could also be impacted, particularly if certain types of supplies become scarce, or other threats to our national security emerge. These companies should stand ready and understand their obligations.   Important considerations and questions  1.     My company just received a rated order. How do we respond?  You should review the order, follow the guidance outlined further below and the information contained in the order, review the associated regulations and law, and contact the procuring agency in accordance with these requirements.    If accepted, be certain to fulfill the order in accordance with the requirements. Understand the impacts to other non-rated and commercial orders, and communicate proactively with these customers.    2.     I believe my company can help the Government respond to the crisis? Where do I start, and how do I contact the right people to offer our products or services?   There are a wide variety of methods to reach potential government customers. A number of contract vehicles exist that allow the Government (both federal and state and local governments in times of national emergency) to procure commercial items, many of them established specifically for medical supplies and devices, and also for pharmaceuticals. A number of dollar thresholds and other rules and regulations that apply to Federal Government procurements have been relaxed to allow the Government easier access to critical products and services. If you believe you can help, finding the right person at the right agency is likely the best first step. The White House recently established a web-based survey, so that companies who can meet some of the most pressing needs can respond and signal their ability to provide assistance.   Understanding the Government buyer’s preferred methods for purchasing, and putting the right contract vehicles in place may be an important next step. Some of these things can take significant time and effort, and a phased approach that allows for immediate access, but also provides for a long term solution may be necessary. It is also important to note that most arrangements with the Government include some obligations related to pricing, accounting, reporting, contract performance, or in other areas that companies must understand and abide by.     3.     The Act provides that the President can provide appropriate incentives to develop, maintain, modernize, restore, and expand the productive capacities of domestic sources for critical components, technology items, materials and industrial resources essential for the national security strategy of the United States. Baker Tilly was seeing a trend to “on-shore” production in some industries before to the COVID-19 pandemic struck. With the potential for enhanced Federal Government and state-level incentives, broad concern about the supply chain, cybersecurity, and counterfeit parts issues, in addition to a host of other concerns, the potential for more rapid and frequent occurrences of this phenomenon seem likely.      4.     The Act allows the Government to stockpile critical components. We understand that the Government had stockpiled some supplies prior to this crisis. These supplies may have included personal protective equipment, ventilators, and many other types of equipment that could be important during a national emergency, a time of war, a terrorist attack, or even during a pandemic like the one we are currently experiencing. It seems likely that the Government will procure and ultimately stockpile this kind of equipment throughout the current crisis and beyond, so that it stands ready to respond in the event of future emergencies. It would be wise for companies who can meet the Government’s need to get engaged now. A wide array of avenues exist for accomplishing this. Understanding the Federal Government contracting landscape, the potential buyers, the most important contract vehicles, and the associated compliance obligations will all be vitally important for companies looking to help the Government meet its needs.    5.     The Act provides a wide ranging set of powers and provides authorization and instruction for the Executive, Legislative and Judicial branches of government in a variety of areas across approximately 60 pages. For a full understanding of all that it bestows, we recommend reviewing the Act in the US Code of Federal Regulations.. We provide a brief primer below.   Defense Production Act Primer The Defense Production Act is a federal law that was enacted in 1950, in response to the Korean War. The Act addresses a wide array of issues, and includes a number of different provisions. The Defense Priorities and Allocation System (DPAS) regulations associated with the law are found in the US Code of Federal Regulations. Some of the most important portions of the Act for purposes of this discussion include:  Authorization for the President to require performance under contracts or orders (other than contracts for employment) which are deemed necessary or appropriate to promote the national defense.   Contracts or orders issued pursuant to the Act, and any associated materials, services or facilities are required to take priority over any other contract or order.      Many companies already hold contracts that are covered by DPAS and include the associated contract clauses. Medical equipment and supply companies that hold these contracts should be aware of them, and they should also be aware that they may be issued rated orders under these contracts. Companies are required to accept rated orders and fulfill them by the required delivery or performance date, regardless of the sequence in which they were received or whether they currently have any unrated or commercial orders. Companies may not discriminate against rated orders and charge higher prices or negotiate non-standard terms. Unless otherwise directed, companies should reject DPAS rated orders if they are unable to fill them by the delivery date, if acceptance would interfere with delivery of any previously accepted rated orders, or if they are unable to fill all rated orders of equal priority status received on the same day.   Unless otherwise directed, contractors may reject rated orders under the following circumstances:  The ordering agency is unwilling or unable to meet regularly established terms of sale or payment; The order is for an item or service the contractor does not provide; The order is for an item produced, acquired, or provided only for the contractor's own use and for which no orders have been filled for two years prior to the date of receipt of the rated order;  The person placing the rated order, other than the U.S. Government, makes the item or performs the service being ordered; If acceptance of a rated order or performance against a rated order would violate any other regulation, official action, or order of the Department of Commerce. A rated order must be accepted or rejected in writing within fifteen (15) working days after receipt of a DO rated order, and ten (10) working days after receipt for a DX rated order. If the order is rejected, the contractor must also communicate the basis for the rejection in writing. If a rated order is placed for the purpose of emergency preparedness and expedited action is required, the contractor must accept or reject the order within six (6) or (12) hours depending on the situation. Where delays occur on accepted rated orders, the contractor must notify the customer immediately, provide the reasons for the delay, and advise of a new shipment or performance date.  Because DPAS requires scheduling preference for rated orders over all non-rated and commercial orders, contractors are offered protection from liability for damages and penalties for acts or failures to act resulting from compliance with DPAS regulations; however, contractors are not entitled to indemnification from the Government against successful third-party claims.  Companies who do not currently hold DPAS-covered contracts can also be issued orders under the Defense Production Act. The rules outlined above apply to these companies when performing under a DPAS rated order.    Baker Tilly’s experts frequently work with our clients to support on-shoring of manufacturing activities, to manage and mitigate risks to their supply chain, to manage cybersecurity risks, to obtain and manage government contracts and the associated compliance obligations, to produce and market medical supplies, devices and drugs, and to provide assistance in a wide variety of other areas. All of these and more are likely to be important as the country works to make it through, and ultimately recover from, COVID-19. We have a team of consultants and accountants who regularly work with medical and life sciences companies (and across a wide variety of other industries) to address issues, solve problems, generate new ideas, and work creatively with our clients.  This can be vitally important at a time like this. Please don’t hesitate to contact us if you have any questions or feel that we can assist in any way – we stand ready to help.     

Companies that manufacture and sell medical equipment, supplies and devices, as well as companies that provide healthcare and healthcare-related services, and operate in the pharmaceutical and biotech industries could all receive covered orders.

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President Trump invokes the Defense Production Act in response to COVID-19: What it means to you?

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The unprecedented actions taken by governments here and around the world to stem the COVID-19 pandemic are affecting, and will continue to affect, government contractors in many ways.  We applaud the speed at which contractors and government are adapting to unfamiliar, uncertain operating conditions. 

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The unprecedented actions taken by governments here and around the world to stem the COVID-19 pandemic are affecting, and will continue to affect, government contractors in many ways. We applaud the speed at which contractors and government are adapting to unfamiliar, uncertain operating conditions. 

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