DOD could face $4 billion in pandemic reimbursements for contractors

Civilian government and defense contractors were able to retain workers and sustain performance thanks to pandemic funding for paid leave. For the Defense Department, that could mean about $4 billion in eligible reimbursements under the CARES Act, according to a recent watchdog report.

The Government Accountability Office reviewed four federal agencies -- the Departments of Defense, Energy and Homeland Security and NASA -- to evaluate how they used reimbursement authorities of Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allowed federal contractors to pay employees who couldn't work during the response to COVID-19.

Actual and potential reimbursements from all those agencies totaled $883 million from Jan. 31, 2020 through March 31, 2021. Moreover, federal contract spending for products and services last year totaled over $660 billion -- about 60% of which DOD is responsible for, including engineering or technical services, health care, aircraft and ships.

DOD could have more than $4 billion in eligible paid leave reimbursement costs under section 3610, but it isn't necessarily planning to exercise the authority to "reimburse this full amount using existing funding." Previous reports noted that defense contractors often looked to other forms of relief, such as progress payments.

Defense officials were vocal throughout 2020 about the incurred costs to contract performance, which was estimated to reach $10 billion during the pandemic, while lawmakers have pushed to extend the reimbursement authority. But its use has been somewhat sparse.

Agencies reported using contractors' flexible workplace accommodations as part of the reasoning behind reimbursement decisions. In addition to 3610 payment relief, contractors also used other methods to keep employees on board, including boosting telework capabilities, shifting workers to different projects and implementing flexible or shift work schedules.

Of the 15 contractors reviewed for the study, some found that paid leave was still needed in some cases but that the proportion of employees and contracts that needed the 3610 reimbursement was "usually low compared to the contractor's overall workforce and contracting base" with some as low as 1% of the workforce as of February 2021.

One contractor reported in interviews with GAO that reimbursement funding significantly helped retain workers and "eased the fear of permanently losing employees with years of training and experience." Representatives of another contractor noted the ability to keep employees with security clearances due to paid leave reimbursement. Eleven companies said the reimbursements at least moderately helped subcontractors perform and stay viable.

But the rapid push to implement these payments meant varied approaches by agencies. As a result, the GAO recommended the Office of Management and Budget coordinate, collect and share lessons learned to improve the federal government's response in future emergencies.

This article first appeared on FCW, a Defense Systems partner site.