Washington, D.C.— Today, the House Small Business Committee Subcommittee on Contracting and Infrastructure, led by Chairman Kweisi Mfume (D-MD), held a hearing focused on the interplay between the Paycheck Protection Program (PPP) and the Federal Acquisition Regulations (FAR).
The FAR serves as the primary set of rules governing all executive agencies in their acquisition of goods and services. Under the FAR “credits clause” principle included in flexibly priced contracts, some federal contractors that obtained PPP loans have found themselves owing the government a credit if their loan was forgiven and used to pay for costs covered under a government contract. Small contractors argue that this situation is antithetical to the PPP program’s mission of helping struggling firms during a crisis. At the same time, the government claims these credits are needed to avoid duplication of payments.
During the hearing, committee members heard from small business owners and experts about how the interaction between FAR and PPP impacts federal contractors.
“It’s clear that this is a complex issue with significant ramifications for small government contractors,” said Chairman Mfume. “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.”
“A credit which reduces the contractor’s allowable costs incurred reduces the amount paid to the contractor on a cost-reimbursement contract, but not on a fixed-price contract,” said Greg Bingham, Partner at HKA. “The impact, if any, of a credit associated with a PPP loan will depend on how the PPP loan funds were spent by the company. Any credit associated with PPP loan forgiveness should apply to contract costs in the same manner in which the PPP loan funds were originally spent by the contractor.”
“The PPP was designed to provide needed assistance to all types of small businesses,” said Susan Moser, Partner at Cherry Bekaert in Tysons, VA. “However, the reality for many contractors who received a PPP loan and intend to seek forgiveness is a concern that the offered assistance from a practical standpoint, based on the FAR requirements, which I will discuss, will equate to little or no benefit, but instead add to compliance concerns and certainly confusion on how to properly report forgiveness proceeds.”
“My firm’s current overhead rate is 147%. The PPP credit will reduce our rate to about 115%, which will reduce our billings to MBTA and result in a loss of at least $129,000 per year,” said Robin Greenleaf, PE Chief Executive Officer of Architectural Engineers in Boston, MA. “This is not sustainable and will likely result in our making the business decision to not provide services to clients who request proposals during the impacted time period. MBTA contracts can last for years, and to intentionally incur a loss of this magnitude over a multi-year period is not good business.”
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