ACEC received the guidance above from U
S. DOT on 3/. ACEC is reviewing it and has asked our group of CPA experts for their analysis and feedback as well. They have also requested a meeting with DOT/FHWA to discuss the guidance and its potential impact on the industry.
The guidance appears to be largely consistent with the draft that FHWA put out in January, with a few new components.
- If the PPP loan proceeds are applied to costs (direct or indirect) within the scope of a federally funded contract and the PPP loan is forgiven, appropriate adjustments are necessary to comply with 48 CFR part 31 (the cost principles).
- AE consultants cannot use PPP loan proceeds to pay for the direct costs on a Federal-aid or Federal lands highway program funded contract.
- AE consultants cannot bill direct costs and use PPP loan proceeds to fund the compensation costs of direct labor and other direct costs dedicated to federally funded contracts. This practice results in an improper payment for billing the Federal government twice.
- PPP loan proceeds cannot be used to pay the direct project costs even if those costs are not billed to the federally funded contract. This is essentially a donation to the project, which was not authorized and conflicts with the terms and conditions of the contract. AE consultants should continue to allocate and invoice both direct and indirect costs in accordance with contract terms.
- “All applicable credits (or loan recoveries) are to be applied based on an equitable allocation to all benefiting costs objectives in accordance with 48 CFR § -4.”
- “The indirect cost rate credit should only be applied until the credit is recovered fully.”
- “If adjustments to an AE consultants indirect cost rate has no bearing on the award or contract type (e.g., firm fixed price or lump sum contract), adjustment to that contract would not be required.”
ACEC let Chairman DeFazios counsel know that the guidance remains very broad and leaves many questions unanswered — for example what do these various provisions mean, will there be additional guidance and detail for implementation and what role does industry play in helping to craft that guidance, and other questions
ACEC is assessing whether these additions provide any protection or relief for firms. That first bullet may allow firms to allocate some of the PPP to private/commercial or other non-FAR covered work, thereby reducing the amount of the credit required, but that is not clear. The second bullet acknowledges the concerns we have raised about locking in a lower indirect cost rate and then applying that rate to new contracts, including multi-year contracts, thereby losing more revenue than the amount of the loan. The last bullet limits the scope to cost-reimbursement contracts, not fixed price, which is good.
Lastly, the guidance is clearly directed at only federally funded contracts. That also narrows the scope. But again, the key will be how states implement this.
However, its not clear how that condition would be implemented by the State DOTs or the firms to ensure that it is effectively applied
Chairman DeFazios staff reached out to ACEC’s Steve Hall on the morning of March 24 to discuss the guidance noted above. Here is the substance of that conversation:
First , they confirmed what we assumed that the guidance came out on March 24 because the Chairman has engaged the agency on our behalf. They have conveyed specific concerns we expressed over the draft guidance, as well as our concerns that State DOTs are moving forward with developing their own implementation rules in absence of federal guidance. This, coupled with the fact that the Secretary is appearing before the Committee on March 25 where this issue might be raised prompted the agency to release the guidance today.
Chairman DeFazio’s committee counsel emphasized that they have been working with the agency on this issue and will remain engaged going forward, including the potential of following up with the Secretary after tomorrows hearing. Depending on the meaning behind various provisions in the guidance for example, if the credits clause applies only to engineering contracts that have federal funds included the new guidance could be a significant inspect site step forward, but again it depends on how FHWA will interpret the rules. The guidance came directly to ACEC’s Matt Reiffer and Steve Hall from the Office of the Secretary and they have requested a meeting with agency staff to discuss these and other questions.
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