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Thank you all for being here today for the first hearing of the Subcommittee on Contracting and Infrastructure for the 117th Congress. For our opening hearing, I thought it was important to examine an issue that is a priority for government contractors: the interplay between the Federal Acquisition Regulations (the FAR) and the Paycheck Protection Program (PPP).

The FAR serves as the primary set of rules governing all executive agencies in their acquisition of goods and services.Today we will focus on Part 31 of the FAR, which helps contractors determine which costs are reimbursable.   Specifically, we will be taking a closer look at the FAR “credits clause”, which can impact federal contractors who have taken advantage of the Paycheck Protection Program. Congress created the PPP to help small businesses meet payroll costs and other expenses. These loans were designed to be fully forgivable if small businesses spent loan proceeds on these purposes. 

However, federal contractors- mainly those with “cost reimbursable contracts” - may find themselves owing the government a credit if the PPP loan has been forgiven and it was used to pay for costs covered under a government contract. This is by virtue of the FAR “credits clause,” which is included in these types of contracts. In April 2020, shortly after PPP’s launch, the DOD issued guidance stating the forgiven loan amounts could constitute credits. In essence, the Government’s position has been that a credit is due to avoid duplication of payments.

With that said, some small contractors argue that this is antithetical to the PPP program’s intent, which is to help struggling firms during a time of crisis. Contractors contend that if the government forces them to repay portions of the loan through credits, then the PPP loan wasn’t truly forgivable. Today, we will have an opportunity to examine the varying positions on this critical issue.  And during the hearing, it will be important to note that Defense Contract Audit Agency, has issued additional guidance on the treatment of credits.

While there is certainly room for more guidance, this one represents an important first step because it clarifies that, when a contractor receives PPP loan forgiveness, only the amount of the forgiveness allocable to a government contract results in a credit. Moreover, it clarifies other matters that help ensure an appropriate application of credits and of which we will learn more about today.

It’s clear that this is a complex issue with significant ramifications for small government contractors. I hope that today’s hearing will allow us to dive into this subject and better understand all sides of this issue, as well as available guidance. This hearing is an essential first step in coming to a resolution that doesn’t inflict further harm on the small businesses already suffering from the pandemic.