Small business federal contractors hit by FAR terms on PPP loans
PPP loans viewed as credits under FAR in some cases;
Problem affects primarily cost-reimbursable contracts
Small federal contractors told a House subcommittee recently that they are being hurt financially because their Paycheck Protection Program (PPP) loans are being viewed as credits under the Federal Acquisition Regulation by some federal agencies.
The government’s stance is intended to prevent reimbursing contractors twice for the same expenses. But the vendors asserted that the end result is that the PPP loans, in effect, are not “forgiveable” for them, contrary to Congress’ intent when it created the PPP program last year.
Rep. Kweisi Mfume, D-MD, chair of the House Small Business Committee's subcommittee on contracting and infrastructure, acknowledged at the March 23 hearing that some 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.”
The problem started a year ago, shortly after the PPP was launched. The Defense Dept. issued guidance saying that the forgiven loan amounts could constitute credits under the FAR.
“In essence, the government’s position has been that a credit is due to avoid duplication of payments,” Mfume said. “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,” Mfume added.
The hearing was convened to gain more information and raise awareness of the issues, the chairman said.
Executives of architectural and engineering firms testified that as a result of the PPP and FAR provisions, vendors with cost-reimbursable contracts experience losses in comparison to those with firm fixed-price contracts.
Greg S. Bingham, partner of HKA’s government contract practice, compared two vendors with PPP loans of $1 million that were forgiven. The vendor with only firm-fixed-price contracts would not need to repay the government, but the vendor with the cost-reimbursable contracts would be required to repay the government the full $1 million.
Robin Greenleaf, CEO of Boston-based Architectural Engineers, said a FAR credit most likely would be applied by reducing the firm’s overhead rate, possibly for several years.
“On my $594,000 PPP loan, on which we just received forgiveness last week, I’m looking at a 32% drop in my overhead rate, resulting in a loss of at least $129,000 per year,” Greenleaf said at the virtual hearing.
For firms that are heavily reliant on cost-reimbursable federal contract work, the losses could exceed the value of the loans they received, she added.
Carlos A. Penin, president of CAP Engineering, raised similar concerns. “The proposed guidance of the FAR, as currently applied, negates the main purpose for the PPP loans and unintentionally penalizes the small businesses and people that it intended to help,” Penin said in his testimony.
More Information:
Hearing website: https://bit.ly/2Pv3I8w
