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Resolution Sought on Conflict Between PPP and Federal Acquisition Regulations

  • Clause in Federal Acquisition Regulations could result in small contractors owing a credit for loans forgiven through Paycheck Protection Program
  • Guidance issued shortly after PPP establishment to avoid double payments
  • Contractors argue that the rule is not equitable and results in considerable losses on multiyear contracts

Summary by Dirk Langeveld

Congress is seeking to resolve a conflict between Federal Acquisition Regulations and the Paycheck Protection Program which small contractors argue is a disincentive for taking on multiyear government contracts.

Rep. Kweisi Mfume, chairman of the House Small Business Committee Subcommittee on Contracting and Infrastructure, said at a recent committee hearing that this is a “complex issue with significant ramifications for small government contractors.” He said he hopes the hearing will represent a first step toward finding a resolution that doesn’t create further harm to small businesses that have already suffered significant losses during the COVID-19 pandemic.

The Federal Acquisition Regulations direct federal agencies in their acquisition of goods and services. Under one clause of these regulations, small contractors may find themselves owing the government a credit if they received a PPP loan, used the funds to pay costs covered under a government contract, and had the loan forgiven.

The guidance was issued in April 2020 to avoid the potential duplication of payments. However, small contractors have argued that the rule is antithetical to the PPP’s intent of assisting small businesses during the pandemic.

Small contractors speaking at the hearing said requiring a credit could significantly reduce the overhead rate over the course of a multiyear contract, leading to major losses that far offset the value of the PPP loan. They also said the rule is not applied equitably, as it affects cost reimbursable contracts but not fixed cost contracts.

Critics also contend that requiring a credit for PPP recipients on these contracts creates confusion and compliance concerns, while also creating a disincentive for small contractors to pursue government contracts just as the Biden administration plans to roll out a major infrastructure initiative.

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