Government Contracts & Investigations

Coronavirus Aid, Relief, and Economic Security (CARES) Act Government and Government Contractor Activities Provisions

In addition to providing relief to individuals, employees, small and non-small businesses, the Coronavirus Aid, Relief, and Economic Security (CARES) Act also mobilizes government and government contractors to address the special needs arising from the emergency and this relief package:

Defense Production Act (DPA)

The Defense Production Act (DPA) provides for creation, maintenance, expansion, or restoration of domestic capabilities essential for the national defense, including military, emergency preparedness, homeland security, and critical infrastructure protection and restoration activities. The DPA, and implementing regulations, authorize agencies to issue rated orders and emergency preparedness directives to obtain materials, supplies, and services for these national defense purposes. The DPA establishes parameters to limit the funding and scope of orders so that both commercial and governmental needs can be addressed appropriately.

However, for the next two years, the CARES Act removes the requirement for prior congressional action and prior notice to Congress for DPA orders to correct a resource shortfall, even where the aggregated amount of such orders would exceed $50 million. It also removes the cap on the DPA funds available for DPA activities for the next two years. Such provisions are intended to remove impediments to quickly taking actions to obtain manufacture, production and distribution of needed supplies and services.

It is likely that commercial entities, even those that may not have understood themselves to be part of the government’s supply chain, will begin to see rated order provisions in their purchase orders and supplier agreements in the coming days, weeks and months. Recipients of direct contracts and orders from the government will be receiving these rated orders and directives and will have an obligation to flow down the rated orders’ requirements and DPA provisions to their commercial and noncommercial subcontractors and suppliers to ensure that they will be able to timely supply the quantity and quality of ordered materials.

Recipients of DPA rated orders or directives at all tiers must accept these orders if they produce, manufacture, or supply the items being ordered. If there are issues with regard to scheduling or having sufficient quantities to meet rated and unrated, or commercial orders, rated orders come first and must be satisfied. There is a short window for accepting or rejecting an order, or offering alternatives, where you anticipate difficulties in meeting the stated requirements.

These are special terms and conditions that run contrary to typical commercial contracting terms. Knowing the rules and how to respond is important. Failure to comply with such provisions can have serious consequences.

Federal Contractor Reimbursement for Limited Leave

Section 3610 of the Act provides authority, subject to the availability of funds, for the Government to reimburse a government contractor “at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave,” where the contractor expends such funds “to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020.” This authority to reimburse such government contractors for paid leave states that it will apply only where a contractor or its subcontractor “cannot perform work on a site that has been approved by the Federal Government, including federally-owned or leased facility or site, due to facility closures or other restrictions” and they cannot telework during this public health emergency. The Act also provides that such payment reimbursement “shall be reduced by the amount of credit” the contractor is allowed under the payroll tax credits permitted under the Families First Coronavirus Response Act, and the CARES Act. Questions that need answers include: whether and to what extent this relief will be made available to government contractors that have encountered obstacles to contract performance; the extent to which such funding will be made “available”; and whether this relief is in addition to normal stop work, excusable delay, and changes relief provisions included in existing contracts.

Special Inspector General for Pandemic Recovery

The Act establishes an Office of Special Inspector General for Pandemic Recovery (SIGPR) to audit and investigate the loans, loan guarantees, and other investments being made by the Secretary of Treasury for programs covered by the CARES Act. The SIGPR and his or her auditors and employees will audit or investigate concerns and work to ensure that the activities pursuant to the CARES Act are being properly issued, administered and used by banks, investment entities, applicants and recipients.

Turning square corners in seeking, obtaining, and carrying out these loan and investment matters will be critical. Whether involved in these activities at the banking or investment level, as an applicant or recipient of a loan or investment, or involved in addressing the research and development, manufacture, production, or distribution of needed supplies and services under the Act, it is important that you know and understand the rules and requirements. Ensure you, and your personnel involved in these activities, know what to do and that you and they document your proper activities. If questions arise, having an effective compliance plan in place and operating will aid in addressing concerns, and in responding to and addressing matters in the event of a SIGPR audit or investigation.

Conflicts of Interest

Notably the CARES Act also includes conflict of interest provisions to ensure that covered entities, in which covered individuals—including the president of the United States, the vice president of the United States, a head of an executive department, or a member of Congress, as well as their spouse, child, son- or daughter-in-law—have an equity interest which is directly or indirectly a controlling interest, may not be eligible for any emergency relief or taxpayer protections available under Section 4003 of the CARES Act.

Congressional Oversight Commission

The CARES Act also establishes a Congressional Oversight Commission to hold hearings, take testimony, and receive evidence regarding the CARES Act. The specific reason for the commission is not defined. It is unclear whether and to what extent the commission will supplant traditional types of hearings and investigations by the House and Senate regarding enacted programs. Given the bipartisan nature of the commission and that it will have representatives on it that are appointed by the House and Senate majority and minority leaders, precisely what the commission will focus on and accomplish will have to be seen.

Additional information on the CARES Act can be found here. If you have questions about this article, please contact the authors or the Stinson counsel with whom you regularly work.

Contact Jack Bowling, Susan Ebner, Gerald Weidner, David Jenson, Judith Araujo, Audrey Fenske, Patrick Respeliers, Thomas Salerno, Zack Sheahan, Christopher Simpson, Matthew Tews, Jessica Wheeler for more information.