Section 3610 of the CARES Act allows agencies to pay contractor labor costs when they are not working due to Covid-19, to to keep the workforce in a “ready state.” Here’s the guidance for fixed-price contracts, where firms will make claims for equitable adjustment:
Under Fixed Price contracts (including those with incentive provisions), upon receipt of a request for equitable adjustment, the contracting officer will need to negotiate equitable adjustments to the price and delivery schedule to recognize the impact of any COVID-19 caused shutdowns. In the case of incentive contracts, this should be a separate fixed price line and not subject to the incentive structure. When the permissive authority under section 3610 is used, equitable adjustments should compensate only for the costs of providing paid leave as permitted by section 3610, for maintaining the workforce, and shall not increase profit. To the extent that the contractor workforce is shared across multiple contracts, contracting officers will need to coordinate on a reasonable allocation of costs, ideally through the administrative contracting officer. Contracting officers shall establish one or more separate contract line items for section 3610 COVID-19 payments to ensure traceability of expenditures and clarify whether payments under section 3610 constitute acceptance of the supplies or services that are not being delivered or performed.
Read the whole policy, effective through September 30. This is just one of 13 memorandums and 4 class deviations produced by Defense Pricing and Contracting Kim Herrington for Covid-19. The move is definitely good news for the contractor workforce, which as John Hillen argued could be treated as “day laborers” and move to the commercial sector instead.
It will be interesting to see whether contracting officers will routinely approve equitable adjustments submitted for Covid-19, or whether they will be challenged such as monitoring use of the minimum billing rates, the reasonableness of hours charged, the pricing of safety measures or telework to continue operations, so forth. The deluge of claims will make it difficult to challenge costs or pricing.
The guidance also has all Covid-19 related charges separately identified. CLIN level data won’t be available in public sources, but presumably someone at the Pentagon will be able to tally up the total cost of Covid-19 inactivity or extra costs to stay active.
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