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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Presented by  Brent Calhoon  and  Jen Flickinger video In our last COVID-19 triage plan webinar (April 30, 2020), we declared the “end of the beginning” for the government contractor (govcon) community’s scramble to navigate the pandemic.  As if on cue, DoD announced on May 4 that draft Section 3610 Implementation Process Guidance was forthcoming.  DoD released it for public review and comment on May 18. In this webinar, we introduce DoD’s Draft Reimbursement Process Guidance and report out on the benefits and challenges of DoD’s approach.  Isaac Natter of DoD’s Office of the General Counsel and advisor to DPC shares his views and insights.  We don’t yet know how DoD will incorporate public comments into its Final Guidance, so please view this webinar if you’re seeking Section 3610 relief on defense contracts.
Our previous webinars in this series are available for you to view here: COVID-19 Crisis Impacts and Relief for Government Contractors: Weekly Updates and FAQs 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. To learn how Baker Tilly specialists can help, contact our COVID-19 support team.

This week, we fully digest DoD’s Draft Reimbursement Process and reported out on new guidance updates from the civilian agencies. We also shared new insights and anecdotes gathered from across the government contracting marketplace.

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COVID-19 Triage plan part 7: details of DoD’s draft Sec. 3610 process guidance as of May 21, 2020

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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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 the article below 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

The Coronavirus Aid, Relief, and Economic Security (CARES) Act Paycheck Protection Program (PPP) has stirred up increasing chatter, consternation and controversy since its debut in early April.  We’ve been watching and listening, but we’re not seeing and hearing the self-evident things that we expected to see and hear.  Which means our views might be wrong, or unpopular, or perhaps even both or neither.  For those that know us and read this blog, you know we advocate for common sense government contracting.  Although a PPP loan isn’t a government contract, it comes with a unique forgiveness feature that allows the government to convert the loan, effectively, into a quasi-grant.   With a country in crisis and the small business community in dire straits, Congress rushed to pass legislation and the Small Business Administration (SBA) quickly issued implementing regulations.  What could possibly go wrong?  For those of us in the government contracting community, when we see snarly language in regulations like “you will be subject to additional liability such as charges for fraud,” we know to pay very close attention to the fine print.  All of it.   The marketplace is abuzz with debate and confusion around a particular statement to which a PPP loan applicant much certify: “current economic uncertainty makes this loan necessary to support the ongoing operations of the applicant.”  Given the unprecedented circumstances created by our collective reactions to the coronavirus pandemic, most rational business owners and operators could (and still can) make that representation in good faith.  Although seemingly uncontroversial for most small businesses, this point is in the spotlight after the Treasury Department made it murkier by connecting “necessity” with the “ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”   Strangely, we don’t see any meaningful attention given to the next, and perhaps more instructive, statement to which an applicant must certify: “the funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments; I understand that if the funds are knowingly used for unauthorized purposes, the Federal Government may hold me legally liable such as for charges of fraud.”  This statement goes beyond meeting the need for a PPP loan – it gets into how the loan will be used once received.  We suspect Congress used the words “retain” and “maintain” intentionally, since they show up in a couple different places.  Most business owners we know would not use “other sources of liquidity” to retain workers they no longer, and cannot foreseeably, need to support operations. Taken together, these two certification statements bring the program’s name into focus: to protect paychecks.  To us, the certifications make it reasonably clear that Congress intended PPP loans to help businesses pay employees that would otherwise (and necessarily) have been furloughed, laid off, or taken pay/schedule cuts.  Perhaps alternatively, PPP loans could allow small business to retain employees and maintain payroll at lower productivity levels and, thus, allow the business to retain some modicum of profitability (i.e., often the small business owner’s own “payroll”).   We reasonably guess that a great majority of small businesses have experienced economic uncertainty and could use a cash infusion, if not immediately then to cushion whatever might happen next as the crisis unfolds.  However, not all small businesses have experienced, or will experience, deteriorating operating revenues such that a PPP loan is necessary to “retain workers and maintain payroll.”   The SBA hasn’t yet issued regulations to implement Section 1106 of the CARES Act concerning PPP loan forgiveness.  Nevertheless, the uncertainty surrounding forgiveness has sounded alarm bells within government and sparked pleas for clarity from the business community.  Most of what we see and hear focuses on ambiguities around calculating the forgiveness amount.   Based on the broad-brush language on SBA’s website, it seems like a forgone conclusion that loan proceeds spent on payroll, rent, utilities, and other allowable expenses will be forgiven once we get the math worked out.  However, “payroll” (which must represent at least 75% of the amount forgiven) isn’t just any payroll; it must be payroll associated with “retained employees.” This is in the fine print to which the borrower must certify when seeking loan forgiveness.  Proceed carefully. In this regard, we’ve summarized below four risk areas that PPP loan applicants and recipients should keep top of mind: 1.      The documented rationale/basis of certifications made at the time of loan application (see discussion above); 2.      Documentation of how the loan proceeds are used once received.  Make sure you know the permissible uses – they’re in the CARES Act (Section 1102) and SBA’s regulations (85 FR 20811).  In this regard the SBA’s regulations caution borrowers: “If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud.” 3.      The documented basis of certifications made when requesting loan forgiveness.  Were loan proceeds used to pay payroll that you otherwise would have paid if you didn’t have the PPP loan?  If so, would profitability have deteriorated without the PPP loan?  Was the loan used to pay employees that you may have laid off, cut pay, or cut hours but for the loan?  Document all of this now, and be particularly careful if loan forgiveness will cause your business to become more profitable.  In our experience the government doesn’t look favorably upon windfall profits. 4.      For government contractors and recipients of federal assistance awards, prepare analyses that demonstrate expenses related to PPP loan forgiveness weren’t also recovered by other forms of government contract or grant recovery, or vice versa (i.e., no double dipping). Congress intended the PPP loan program to help small businesses weather the COVID-19 crisis by keeping their employees and maintaining payroll.  Despite the program’s confusing terms, the relief it offers can ease the financial burden of payroll and other permissible expenses arising from many legitimate operational impacts.  Be sure to work with qualified business advisors and counsel to evaluate, manage, and mitigate the risks associated with receiving government money.  Stay aligned with the intent of the Paycheck Protection Program and proceed with confidence, but be ready to demonstrate compliance with the fine print.  
For more information on this topic, or to learn how Baker Tilly government contract specialists can help, contact our team.

Uncommon Sense | Paycheck Protection Program Pandemonium

Presented by  Brent Calhoon  and  Jen Flickinger video In our COVID-19 triage plan webinar last week (April 23, 2020), we discussed DoD’s updated FAQ and OMB’s latest guidance as well as the latest updates, insights and anecdotes we gather from across the government contracting marketplace. We’ve declared week seven as “the end of the beginning” of the COVID-19 crisis and its impacts on the government contracting community. In the week since our last webinar, new agency guidance slowed to a trickle.  This week we provided a recap of the guidance and general approaches and stances taken by many agencies (e.g., DoD, NASA, DOE, USAID, GSA and the intelligence community). In this on-demand webinar, Baker Tilly's government contractor advisors discuss what contractors should be doing now.
Our previous webinars in this series are available for you to view here: COVID-19 Crisis Impacts and Relief for Government Contractors: Weekly Updates and FAQs 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. To learn how Baker Tilly specialists can help, contact our COVID-19 support team.

In our COVID-19 triage plan webinar last week (April 23, 2020), we discussed DoD’s updated FAQ and OMB’s latest guidance as well as the latest updates, insights and anecdotes we gather from across the government contracting marketplace.

COVID-19 Triage plan part 6: updates and FAQs as of April 30, 2020

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

Presented by Brent Calhoon and Jen Flickinger 
Video In our COVID-19 triage plan webinar last week (April 16, 2020), we provided the latest news on evolving government policies, relevant CARES Act Section 3610 implementation updates, and anecdotes from our experiences since last week’s webinar. Week six of the COVID-19 crisis concluded with more guidance from DoD and OMB, which made for some interesting weekend reading and head-scratching. Although much of the government’s guidance to date carried a pleasant tune of solidarity with its contractors, this recent guidance rings a bit off key.  This week we discussed DoD’s updated FAQ and OMB’s latest guidance as well as the latest updates, insights and anecdotes we gather from across the government contracting marketplace.  In this on-demand webinar, Baker Tilly's government contractor advisors discuss what contractors should be doing now. Our previous webinars in this series are available for you to view here: COVID-19 Crisis Impacts and Relief for Government Contractors: Weekly Updates and FAQs 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.
To learn how Baker Tilly specialists can help, contact our COVID-19 support team.

This week we discussed DoD’s updated FAQ and OMB’s latest guidance as well as the latest updates, insights and anecdotes we gather from across the government contracting marketplace.

COVID-19 Triage plan part 5: updates and FAQs as of April 23, 2020

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.

Government Contractor Coronavirus Resources

Deep dive into DoD’s CARES Act 3610 implementation approach

Since the COVID-19 pandemic evolved into a nationwide health and economic crisis, we’ve worked tirelessly to deliver timely and relevant information and insights to the government contracting community.  Hosted by the Public Contracting Institute since March 25, 2020, we teamed up with Dentons US to provide the latest policy updates, observations, recommendations, and cautionary warnings for government contractors affected by the crisis.  You can view each week's on-demand webinar at the links below. We commit to delivering timely, actionable information until the crisis abates and avenues to relief become clearer. Please check back frequently for new episodes and look out for our weekly registration emails.  Recent recaps:
 May 21 - Part 7  April 30 - Part 6  April 23 - Part 5  April 16 - Part 4  April 9 - Part 3  April 2 - Part 2  March 25 - Part 1  Connect with our speakers directly below:  Brent Calhoon, Baker Tilly Jennifer Flickinger, Baker Tilly Phil Seckman, Dentons

In cooperation with the Public Contracting Institute, we have provided updates, observations, recommendations and cautionary warnings for government contractors affected by COVID-19 crisis in a multi-week webinar series.  Check back frequently for new recordings.  

COVID-19 Crisis Impacts and Relief for Government Contractors: Weekly Updates and FAQs

Presented by  Brent Calhoon  and  Jen Flickinger video In our COVID-19 triage plan webinar last week (April 9, 2020), we presented and discussed several practical steps that government contractors should take to position themselves for potential future financial remedies as the coronavirus crisis abates. As we wrapped up week five of the COVID-19 siege and its impacts on the government contracting community, we provided the latest news on evolving government policies, relevant CARES Act Sec. 3610 implementation updates, and anecdotes from our experiences since last week’s webinar. More specifically, we covered DoD’s implementation guidance and FAQs, as well as DOE’s Sec. 3610 implementation clauses and FAQs, and discussed what they mean for contractors, including the tidal wave of equitable adjustments to come. In this on-demand webinar, Baker Tilly's government contractor advisers discuss what contractors should be doing now.
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. To learn how Baker Tilly specialists can help, contact our COVID-19 support team.

As we wrapped up week five of the COVID-19 siege and its impacts on the government contracting community, we provided the latest news on evolving government policies, relevant CARES Act Sec. 3610 implementation updates, and anecdotes from our experiences since last week’s webinar. More specifically, we covered DoD’s implementation guidance and FAQs, as well as DOE’s Sec. 3610 implementation clauses and FAQs, and discussed what they mean for contractors, including the tidal wave of equitable adjustments to come  

COVID-19 triage plan part 4: updates and FAQ as of April 16, 2020

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.

Oracle

Oracle EPM Cloud

Navigating economic uncertainty

Welcome to the Baker Tilly video series where we bring leaders across our firm to discuss timely, relevant and impactful topics that can enhance or protect your value. Christine Anderson, Baker Tilly managing partner of growth strategies, sits down with  Brent Calhoon, a partner in Baker Tilly's government contractor advisory services group, to discuss the disruptive and hectic effect COVID-19 has had on government contractors. Recorded shortly before the CARES Act was passed into law, he shares some prescient, practical advice and enduring recommendations for contractors across all industries who are experiencing adverse operational and financial impacts from these unprecedented circumstances. video To learn more about the effect COVID-19 has had on government contractors, listen to the full podcast episode with Brent Calhoon, where he discusses practical advice and actionable recommendations for contractors across all industries.  Podcast

Brent Calhoon shares practical advice for government contractors dealing with COVID-19

On today's episode, Brent Calhoon, a partner in Baker Tilly's Government Contractor Advisory Services Practice, discusses the disruptive and hectic effect COVID-19 has had on government contractors. He shares practical advice and actionable recommendations for contractors across all industries who are experiencing increased demand, as well as those who have been idled by these unprecedented circumstances.

On today's episode, Brent Calhoon, a partner in Baker Tilly's Government Contractor Advisory Services Practice, discusses the disruptive and hectic effect COVID-19 has had on government contractors.

Practical advice for government contractors dealing with COVID-19

Presented by Brent Calhoon and Jen Flickinger video In our COVID-19 triage plan webinar last week (April 2, 2020), we presented and discussed several practical steps that government contractors should take to position themselves for potential future financial remedies as the coronavirus crisis abates. As we wrapped up week four of the COVID-19 siege and its impacts on the government contracting community, we provide the latest news on evolving government policies, relevant CARES Act implementation updates, and anecdotes from our experiences during our latest webinar.  Previous week’s webinar participants and our clients have generated a raft of excellent questions that we addressed, including: CARES Act Section 3610 coverage: interpretations and applications, including subcontractors, and OCONUS employees CARES Act coverage for locations closed due to shelter in place orders Considerations for pricing modifications to accommodate remote contract performance Equitable adjustments for firm-fixed-price (FFP) and time-and-materials (T&M) contracts Impact on GSA Schedule contracts and other commercial item contracts  Accounting for training time regarding COVID-19 (including this class) In this on-demand webinar, Baker Tilly's government contractor advisors discuss what contractors should be doing now.
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. To learn how Baker Tilly specialists can help, contact our COVID-19 support team.

COVID-19 triage plan part 3: updates and FAQs as of April 9, 2020

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?   Please find our helpful triage plan we reference as a resource here: https://www.bakertilly.com/insights/covid-19-pandemic-operational--financial-triage-plan
Meet this episode’s guest speakers: Brent Calhoon, CPA, Partner Brent specializes in the complexities and nuances of the Cost Accounting Standards, FAR Part 31 and 2 CFR 200 Cost Principles, the Truth in Negotiations Act, contract terminations, Requests for Equitable Adjustments, Claims, and contractor business systems.  Brent works with his clients to avoid or address DCAA audit findings and negotiate reasonable resolutions or settlements.  He also works with outside counsel to investigate and resolve allegations of wrongdoing arising under the False Claims Act. Jen Flickinger, Principal Jen supports clients of all sizes with their government contract cost accounting, pricing, business systems, and Service Contract Act Compliance. Jen’s deep experience also includes forensic accounting, litigation support and expert testimony. She supports clients across many industries including aerospace & defense, IT services, healthcare, insurance, professional services, manufacturing and not-for-profits.  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

Consulting

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 Jennifer Flickinger and 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”

Presented by Brent Calhoon and Jen Flickinger video In our COVID-19 triage plan webinar (March 25, 2020), we presented and discussed several practical steps that government contractors should take to position themselves for potential future financial remedies as the coronavirus crisis abates. In this follow-up webinar, we provide updates regarding government policies, legislation and posturing related to the government contracting community. We also answer questions from our initial webinar and other FAQ including: How to handle stop-work orders, including your subcontractors and suppliers Tracking costs of transforming from a customer site workforce to a remote workforce COVID-19-related contract terminations and cancellations Cost recovery avenues on fixed prices (FFP contracts, unit rates/prices on IDIQ contracts, T&M contracts and supply orders) 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.

In our COVID-19 triage plan webinar last week, we presented and discussed several practical steps that government contractors should take to position themselves for potential future financial remedies as the Coronavirus crisis abates.

COVID-19 triage plan: updates and FAQ as of April 1, 2020 

Authored by Jack Coviello, Elizabeth Bair, and Jen Flickinger COVID-19 and the resulting responses to control the pandemic have ground the global economy to a near halt. Businesses across the United States must balance creative strategies to keep their workforce productive and engaged with the need to remain financially sound. Government contractors may have a peculiar solution for achieving both of these objectives: clearing that pesky contract closeout backlog.  The contract closeout backlog is not a new or unknown phenomena. It is a problem decades in the making, perpetuated by years of insufficient action by government auditors, contracting officers, and contractors alike. The incurred cost audit backlog – as high as 21,000 rate years in fiscal year (FY) 2011 – has shrunk drastically to a mere 152 years in FY 2018, compounding this problem but creating the opportunity to finally take action. With the audit backlog mostly caught up and final rate agreements in place, contractors are on the clock to close contracts.  But, closing contracts can be hard work – especially the old ones where businesses have changed ownership, knowledgeable employees have turned over, and enterprise resource planning systems have sunset.  Needless to say, contract data is likely incomplete or unreliable without considerable financial archeology. No wonder this issue has simmered on the backburner for so long! Here at Baker Tilly, we ask: what better time than now to act? Government stakeholders are eager to make progress towards closing contracts. Now is an ideal time to form a dedicated contract closeout team.   Creating and executing contract closeout plans keeps employees productive and engaged with their colleagues, even if from home offices in front of tropical virtual meeting backgrounds. This work is leverageable and shouldn’t distract leaders from their focus on managing the business through the COVID-19 pandemic crisis. Plus, it’s more than just an opportunity to do what needs to be done! Final invoices can create a potentially meaningful cash flow stream for contractors with significant cash trapped in unbilled accounts receivable (AR). Unbilled AR may include indirect rate differentials, fee withholds, and retainages. This is the exact type of value-added indirect project that our colleagues recommended as part of Baker Tilly’s COVID-19 Pandemic Operational & Financial Triage Plan for Government Contractors.     We encourage our clients to be creative. Start with the regulatory Class Deviations that eliminate the need for most of the closeout process documentation for contracts entered into more than 17 years prior to the current fiscal year. These deviations also raise the threshold for quick-closeouts. From there, contractors should propose innovative solutions. Because closeouts are generally handled on a distributed basis, contractors must otherwise initiate discussions with multiple contracting branches that often aren’t aligned on closeout approach. At Baker Tilly, we have helped our clients successfully reduce their contract closeout workload by negotiating expansions of Class Deviations, applying sampling techniques, and utilizing new technologies to generate invoices in the blink of an eye – even where multiple accounting system data sets are involved. Our clients can ditch those slow and buggy spreadsheets! Of course this ugly contract administration mess existed before the spread of COVID-19, but now businesses are struggling to keep their workforces engaged due to social distancing and shelter-in-place orders, the ripple effects of which may impact contractor cash flows. Since every contractor will need to close those contracts sooner or later, one way or another, why not now? You’ll finally get that annoying to-do crossed off the list. And, better yet, you might solve some pressing cash collection challenges along the way.            
For more information on this topic, or to learn how Baker Tilly government contract specialists can help, contact our team.

Uncommon Sense | Contract Closeouts: A source of cash during the pandemic

Visit Baker Tilly's Coronavirus Preparedness Resource Center

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. 

Please give one of us a call, or send us an email, to discuss your company’s or organization’s circumstances and how we can help you think through the actions you must take now to weather, and ultimately recover from, these unprecedented times.

Since the COVID-19 pandemic evolved into a nationwide health and economic crisis, we’ve worked tirelessly to deliver timely and relevant information and insights to the government contracting community

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. 

With 250+ years of combined experience in government contracting, our practice leaders help clients address complex regulatory compliance, audit and other government oversight burdens.

Baker Tilly positions government contractors and their legal counsel for success in the federal marketplace, helping mitigate risk in a highly complex and regulated environment.

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COVID-19 Crisis Impacts and Relief for Government Contractors: Weekly Updates and FAQs