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	<title> - THE INTERACTION BETWEEN THE PAYCHECK PROTECTION PROGRAM AND FEDERAL ACQUISITION RULES: WHAT IT MEANS FOR GOVERNMENT CONTRACTORS</title>
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	[House Hearing, 117 Congress]
	[From the U.S. Government Publishing Office]


	THE INTERACTION BETWEEN THE PAYCHECK
	PROTECTION PROGRAM AND FEDERAL
	ACQUISITION RULES: WHAT IT MEANS FOR
	GOVERNMENT CONTRACTORS

	=======================================================================

	HEARING

	BEFORE THE

	SUBCOMMITTEE ON CONTRACTING AND INFRASTRUCTURE

	OF THE

	COMMITTEE ON SMALL BUSINESS
	UNITED STATES
	HOUSE OF REPRESENTATIVES

	ONE HUNDRED SEVENTEENTH CONGRESS

	FIRST SESSION

	__________

	HEARING HELD
	MARCH 23, 2021

	__________

	[GRAPHIC NOT AVAILABLE IN TIFF FORMAT


	Small Business Committee Document Number 117-007
	Available via the GPO Website: www.govinfo.gov

	__________


	U.S. GOVERNMENT PUBLISHING OFFICE
	43-803 WASHINGTON : 2021

	--------------------------------------------------------------------------------------



	HOUSE COMMITTEE ON SMALL BUSINESS

	NYDIA VELAZQUEZ, New York, Chairwoman
	JARED GOLDEN, Maine
	JASON CROW, Colorado
	SHARICE DAVIDS, Kansas
	KWEISI MFUME, Maryland
	DEAN PHILLIPS, Minnesota
	MARIE NEWMAN, Illinois
	CAROLYN BOURDEAUX, Georgia
	JUDY CHU, California
	DWIGHT EVANS, Pennsylvania
	ANTONIO DELGADO, New York
	CHRISSY HOULAHAN, Pennsylvania
	ANDY KIM, New Jersey
	ANGIE CRAIG, Minnesota
	BLAINE LUETKEMEYER, Missouri, Ranking Member
	ROGER WILLIAMS, Texas
	JIM HAGEDORN, Minnesota
	PETE STAUBER, Minnesota
	DAN MEUSER, Pennsylvania
	CLAUDIA TENNEY, New York
	ANDREW GARBARINO, New York
	YOUNG KIM, California
	BETH VAN DUYNE, Texas
	BYRON DONALDS, Florida
	MARIA SALAZAR, Florida
	SCOTT FITZGERALD, Wisconsin

	Melissa Jung, Majority Staff Director
	Ellen Harrington, Majority Deputy Staff Director
	David Planning, Staff Director

	C O N T E N T S

	OPENING STATEMENTS

	Page
	Hon. Kweisi Mfume................................................ 1
	Hon. Maria Salazar............................................... 2

	WITNESSES

	Mr. Greg Bingham, Partner, HKA, Washington, DC................... 5
	Ms. Susan Moser, Partner, Cherry Bekaert, Tysons, VA............. 7
	Ms. Robin Greenleaf, PE, Chief Executive Officer, Architectural
	Engineers, Boston, MA, testifying on behalf of the American
	Council of Engineering Companies (ACEC)........................ 9
	Mr. Carlos A. Penin, PE, President, CAP Engineering, Coral
	Gables, FL..................................................... 10

	APPENDIX

	Prepared Statements:
	Mr. Greg Bingham, Partner, HKA, Washington, DC............... 23
	Ms. Susan Moser, Partner, Cherry Bekaert, Tysons, VA......... 30
	Ms. Robin Greenleaf, PE, Chief Executive Officer,
	Architectural Engineers, Boston, MA, testifying on behalf
	of the American Council of Engineering Companies (ACEC).... 35
	Mr. Carlos A. Penin, PE, President, CAP Engineering, Coral
	Gables, FL................................................. 40
	Questions for the Record:
	None.
	Answers for the Record:
	None.
	Additional Material for the Record:
	AIA - American Institute of Architects....................... 41


	THE INTERACTION BETWEEN THE PAYCHECK PROTECTION PROGRAM AND FEDERAL
	ACQUISITION RULES: WHAT IT MEANS FOR GOVERNMENT CONTRACTORS

	----------


	TUESDAY, MARCH 23, 2021

	House of Representatives,
	Committee on Small Business,
	Subcommittee on Contracting and Infrastructure,
	Washington, DC.
	The Subcommittee met, pursuant to call, at 12:00 p.m., via
	Webex, Hon. Kweisi Mfume [chairman of the Subcommittee]
	presiding.
	Present: Representatives Mfume, Golden, Newman, Salazar,
	Stauber, Meuser, Fitzgerald, Andy Kim, Schneider, and Hagedorn
	Chairman MFUME. Ladies and gentlemen, good afternoon since
	it is technically a few minutes after noon.
	I want to call this meeting to order officially and I want
	to make some important announcements which also are
	requirements.
	Let me begin by saying that the standing House and
	Committee rules and practices will continue to apply during
	these remote hearings. All members are reminded that they are
	expected to adhere to these standing rules, including the rules
	that cover decorum.
	House regulations, as most of you know, require members to
	be visible through a video connection throughout the entire
	proceeding, so to the extent possible, please keep your cameras
	on. Also, please remember to remain muted until you are
	recognized in order to minimize background noise. If you have
	to participate in another proceeding that might be going on
	simultaneously, please exit this one and then log back in if
	you can later.
	In the event that a member encounters technical issues that
	prevent them from being recognized for their questioning, I
	will move to the next available member of the same party and I
	will recognize that member at the next appropriate time if he
	or she is able to correct the problem.
	Again, I know all of you have busy schedules. I appreciate
	everybody taking time to be here. I am going to formally
	introduce our witnesses in just a few moments but let me just
	underscore the fact that this hearing on the Subcommittee on
	Contracting and Infrastructure for the 117th Congress is our
	first. And for our opening hearing I thought it was very
	important to examine an issue that is a priority for government
	contractors and that is the interplay between the Federal
	Acquisition Regulation, also known as the FAR, and the Paycheck
	Protection Program, also known as PPP.
	The FAR serves as a primary set of rules governing all
	executive agencies and their acquisitions of goods and
	services. And so today we will focus on part 31 of Far, which
	helps contractors determine which costs are, in fact,
	reimbursable.
	Specifically, we will be taking a look at an aspect of the
	credit cause, which can impact Federal contractors who have
	taken advantage of the Paycheck Protection Program. Congress
	created the PPP to help, as we know, 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 false
	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 that were under a government
	contract.
	So this is by far some of the virtue of FAR credits and the
	motion of the credit clause, which is included in these type of
	arrangements and more specifically I should say, in these type
	of contracts.
	In April 2020, shortly after PPP's launch, the Department
	of Defense issued guidance stating that the loan amounts could
	constitute credits. In essence, the government's position has
	been to take a credit that is due to avoid duplication of
	payments. With that said, some small contractors will argue
	that this is antithetical to the PPP program's intent which is
	to help struggling firms during a time of crises.
	Contractors contend that if the government forces them to
	repay portions of the loan through credits, then the PPP loan
	was not truly forgivable.
	So today, we will have an opportunity to examine the
	varying positions on this critical issue, and during the
	hearing it will be very important to note that the Defense
	Contract Audit Agency has issued additional guidance on the
	treatments of credits. And while there is certainly room for
	more guidance, this one represents, I think, an important first
	step because it clarifies that when a contractors receives PPP
	loan forgiveness, only the amount of the loan forgiveness
	allocable to a government contract results in a credit.
	So moreover, it clarifies other matters that help ensure
	appropriate application of credits of which we will learn more
	about today in the hearing that is now beginning.
	It is 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 deep into the subject and
	to better understand all sides of the issue, as well as
	available guidance that might come to us or that might shed
	light on this subject just as the new guidance did today.
	This hearing is an essential first step in coming to a
	resolution that does not inflict further harm on the small
	businesses already suffering from this pandemic across the
	country.
	So again, I want to thank the witness for joining us here
	today, and now I would like to yield to the Ranking Member, Ms.
	Salazar of Florida for her opening statement.
	Ms. SALAZAR. Thank you, Chairman.
	It is undeniable that small business contractors play a
	critical role in the Federal sphere. As you have said, these
	businesses are innovators. They drive down the costs by
	promoting competition and their flexibility allows them to be
	agile and adaptable, while continuing to deliver excellent
	results often faster and cheaper than their larger
	counterparts.
	That is why protecting these essential members of our
	workforce is critical to maintain Federal operations at a best
	and optimal level.
	But they are not immune, and they have not been immune to
	the far-reaching effects of the COVID-19 pandemic. Indeed,
	small businesses everywhere, specifically in District 27, have
	suffered from the governmental imposition of endless lockdowns
	and restrictions. And many have suffered from cuts to billable
	hours, widespread project cancellations, significant
	disruptions in cashflow, and interruptions in their ability to
	perform on the contract.
	I have spoken to many of my small business contractors in
	District 27 in South Florida that I represent in Congress, and
	many of them have shared their concerns, including my
	constituent, Mr. Carlos Penin, who is here with us today as a
	witness.
	Many small contractors have turned to their Paycheck
	Protection Program (PPP), anticipating they may be able to
	receive loan forgiveness provided they comply with the criteria
	that has been established by the government.
	But apparently, the rules have changed. When the Department
	of Defense (DOD) issued in April 2020 a memorandum applying
	Federal Acquisition regulations cost principles to the PPP
	forgiveness, DoD had classified forgiveness of the PPP loan as
	a credit allowed under contract. Now, the DoD has dictated that
	the contractor must give this amount back to the government.
	According to the Department of Defense, this application of
	the Federal Acquisition Regulation may be necessary to prevent
	against potential abuse by contractors who are seeking a
	windfall by billing the government twice. This activity is
	known as double dipping, and we are here, elected in Congress,
	to prevent exactly that and to help safeguard taxpayers' money.
	However, the contracting community has raised several
	concerns with the DoD's strategy. Some contractors argue that
	the DoD's disposition contradicts congressional intent on the
	PPP. Others have taken the view that this unfairly impacts
	certain contract types triggering a requirement for payment of
	the PPP for some contractors but not for others.
	So many take issue with the DoD's change of rules
	expressing their concerns and that they were surprised. This
	was a surprise decision which was made unilaterally without
	their consent. Now as we know, the deadline for forgiveness is
	around the corner and they must decide what to do with their
	loan. For some, PPP may be a welcome and necessary supplement
	to their existing cashflow, but for others it may not be worth
	the trouble, particularly in light of how application of the
	Federal Acquisition Regulation credit may negatively affect
	future revenues.
	So I hope, and I am sure you do, Chairman, through the
	insight of our distinguished panelists, we will be able to gain
	a better understanding of the DoD's stated policy, its
	potential effects on small contractors, and identify flexible
	solutions in a bipartisan fashion.
	Thank you for your time, and I yield back, Chairman.
	Chairman MFUME. Thank you very much. The Ranking Member
	yields back. And I want to thank her for her comments and thank
	again all of you who are here joining us.
	By the way, if Committee members have an opening statement
	prepared, we would ask that they be submitted for the record.
	And while I am at it, I am going to ask unanimous consent
	that every member has 5 legislative days to revise and extend
	their remarks.
	I would like to just take a moment to explain how this
	remote hearing will proceed. Each witness will have 5 minutes
	to provide a statement and each Committee member will receive 5
	minutes for questions. Please ensure again that your microphone
	is on when you begin speaking and that you return to mute when,
	in fact, you are finished.
	So I would now like to now introduce our witnesses. Our
	first witness today is Greg Bingham, a partner at KHA and a co-
	lead of their Government Contracts group. He is a forensic
	accounting and quantum expert with over 33 years of experience
	in the field of business consulting primarily for government
	and construction contractors. Mr. Bingham is an authority on
	government contracts, having served as an adjunct professor at
	the George Washington University, and among his professional
	memberships, Mr. Bingham is also a member of GW's Government
	Contracts Advisory Board. He holds a Bachelor of Science degree
	in Electrical Engineering and an MBA degree as well. Welcome,
	Mr. Bingham.
	Our second witness is Ms. Susan Moser. Moser. I am getting
	that wrong but I will say Moser until I am corrected. And if I
	am wrong, please forgive me. Ms. Moser is a partner at Cherry
	Bekaert and the leader and founder of their Government
	Contracting Services Group. Ms. Moser has 36 years of
	professional experiences and advises contractors in multiple
	areas. She also serves as a regional market leader of the
	Cherry Bekaert's Virginia, D.C., and Maryland practices, and is
	a board member of the Northern Virginia Chamber of Commerce.
	She holds a Bachelor of Science degree in Engineering--in
	accounting, excuse me--and is a certified public accountant and
	a certified information technology professor. Thank you very,
	very much, Ms. Moser. Again, forgive me if I am mispronouncing
	your name.
	Our third witness today is Ms. Robin Greenleaf. Ms.
	Greenleaf has more than 30 years of professional experience and
	is the chief executive officer and founder of the Architectural
	Engineers in Boston. She is a professional engineer and an LEED
	accredited professional. Ms. Greenleaf holds a Bachelor of
	Science in Civil Engineering and a Master of Science in
	Structural Engineering. She is the Co-Chair elect of the
	American Council of Engineering Companies. Welcome again, Ms.
	Greenleaf.
	Our final witness before I yield back, and Mr. Penin.
	Please bear with me because I am just making sure that I have a
	bio on you. I did not see one here. Okay.
	Ms. SALAZAR. Chairman, I have it here.
	Chairman MFUME. I have it. Oh, no, I do not. You do have
	it?
	Ms. SALAZAR. Yes. Yes, I do.
	Chairman MFUME. Please, please, please introduce him, would
	you?
	Ms. SALAZAR. All right. Absolutely. Thank you. Thank you,
	Chairman.
	I would like to welcome our final witness who is from my
	district, District 27 in Florida, Mr. Carlos Penin. Mr. Penin
	is the president and founder of CAP Engineering. CAP is a
	minority-owned consulting firm specializing in providing
	engineering services for government clients. Under his
	leadership, CAP Engineering has earned a stellar reputation for
	the professional management of its infrastructure projects and
	this has resulted in 30 years of dependable services to satisfy
	government clients. Mr. Penin has an extensive resume with over
	40 years of direct project experience and managerial expertise.
	Among his many accomplishments, Mr. Penin worked on several
	major architectural and engineering projects in South Florida,
	including Joe Robbie Stadium, the widening of the Julia Tuttle
	Causeway and the reconstruction of SW Eighth Street. Lastly, I
	would like to congratulate Mr. Penin on his recent appointment
	by Florida Governor Ron DeSantis to the South Florida Regional
	Transportation Authority Governing Board. I wish you well in
	your new role, and thank you for all that you have done, not
	only for our district, District 27, but for the United States
	and for this magnificent country who opened its arms to you and
	to your family when you were a little boy. Same case with me,
	and that is why we are so grateful, and I am delighted to have
	you here talking to us and explaining, and giving us your
	experience in this last 40 years.
	Now I yield back, Mr. Chairman. Thank you.
	Chairman MFUME. Thank you, Ms. Salazar. Hopefully, we will
	make a great one-two punch throughout the 117th Congress and I
	appreciate you stepping up and doing what you could in terms of
	properly introducing Mr. Penin. And Mr. Penin, thank you very
	much, as with all the witnesses again for being here today.
	Madam Salazar, I am going to move to start introducing or
	calling for remarks of the witnesses unless you have a question
	or comment or observation at this point.
	Ms. SALAZAR. You can proceed with all the witnesses. Thank
	you, Chairman.
	Chairman MFUME. Thank you.
	Mr. Bingham, you are now recognized for 5 minutes, sir.

	STATEMENTS OF GREG BINGHAM, PARTNER, HKA; SUSAN MOSER, PARTNER,
	CHERRY BEKAERT; ROBIN GREENLEAF, PE, CHIEF EXECUTIVE OFFICER,
	ARCHITECTURAL ENGINEERS; CARLOS A. PENIN, PE, PRESIDENT, CAP
	ENGINEERING

	STATEMENT OF GREG BINGHAM

	Mr. BINGHAM. Thank you. Thank you. This is quite an honor
	to get to testify here today.
	As you mentioned, the FAR, the Federal Acquisition
	Regulation is the primary set of rules used by the U.S.
	Government Executive Branch agency. The FAR has 53 parts and
	FAR 31 is dedicated to cost principles and procedures.
	A key part of FAR 31 is what is the composition of total
	cost of a contract and that is key to this credit issue. The
	cost of a contract is the sum of allowable direct costs,
	allowable indirect costs, less any allocable credit. And so
	there is more about this credit point in the credit clause,
	which is at FAR 31.201-5. Examples of credits are things like
	state tax refunds.
	This credit clause is not new. It has been in the FAR since
	the FAR began in 1984. It was in the Armed Services Procurement
	Regulation as early as 1948 in essentially the same form as it
	is today.
	The impact of the FAR credits clause is different on cost
	reimbursement contracts than on fixed price contracts. If a
	contractor incurs $1,000 in cost generally speaking on a cost
	reimbursement contract, they will be reimbursed $1,000. Any
	event that reduces the allowable cost incurred on a contract
	will reduce the amount reimbursed under a typical cost
	reimbursement contract. And a credit is an example of something
	that would reduce the cost on a cost reimbursement contract.
	The impact of the credit clause is different on fixed price
	contracts. In fixed price contracts, the invoicing and payment
	provisions generally focus on the contractor demonstrating they
	have provided some specified product or service and requesting
	payment of a predetermined price. And so if the contractor
	incurs more cost or less cost, they still get that
	predetermined price on a fixed price contract.
	So a credit will reduce a particular contract's cost and
	reduce the amount paid on a cost reimbursement contract but not
	on a fixed price contract.
	As an example, let's say Contractor A works solely with the
	Federal government and holds only fixed price contracts.
	Contractor A has a PPP loan worth $1 million forgiven in 2020.
	There would be no repayment to the government for any of the
	forgiven loan in this example. Contractor B works solely with
	the Federal government and holds only cost reimbursement
	contracts. Contractor B had a PPP loan worth $1 million
	forgiven in 2020. Contractor B would repay the government for
	this loan under this scenario.
	There are different types of costs. The major categories of
	cost are direct and indirect. And direct costs are for people
	that are actually working on contracts. Sometimes the labor of
	people working on contracts is referred to as touch labor
	because the mechanic's hands are actually touching the car or
	on the assembly line people are actually performing the work.
	Indirect costs are for costs that are not working on the
	contractor and more for the growing concern of the company. And
	so typical indirect costs are things like facility rent or the
	salary and benefits of the office administrator that works in
	the office and benefits all contracts, does not work on any
	particular contract but on all contracts.
	Indirect costs are often expressed in terms of an indirect
	cost rate. So an indirect cost rate is the ratio of indirect
	costs to direct costs. So remember numerator, denominator, top
	of the ratio, bottom of the ratio. You have got indirect costs
	on top and the direct costs on the bottom in a typical example.
	And so it might be expressed as something like 5 percent.
	For years that have already passed, a company can determine
	all of the direct costs and indirect costs that were incurred
	in this prior year. And so in a typical process, after these
	costs are audited by the government, the company and the
	government negotiate a final settlement of what was the
	indirect cost rate for that prior year. There are things called
	forward pricing rates. And so for years that are not yet
	completed, as 2021 is now not completed, and for years which
	have not yet commenced, government contractors often develop
	estimates of the total amount of indirect and direct costs that
	will be incurred over the course of the year.
	It should not be assumed that future years will have
	exactly the same indirect cost rate as a prior year. There can
	be nonrecurring events and the forgiveness of a PPP loan in
	2020 may well be a nonrecurring event. Maybe an event that
	occurs in 2020 that you do not anticipate will occur in future
	years. And if that is the case, then the indirect rates for
	2021 and future years should not be based at all, solely or
	blindly on whatever the experience was in 2020.
	And with that I will----
	Chairman MFUME. You probably looked at the clock and
	started wrapping up, but we have exhausted the amount of time
	for you. If you would let us get through the others I am sure
	there are going to be some questions directed your again. And
	again, I appreciate your understanding.
	Mr. BINGHAM. Certainly. Certainly. Thank you for this
	opportunity.
	Chairman MFUME. Sure. Sure.
	The question is now for Ms. Moser. Ms. Moser, again, I know
	I have said it several times, if I am mispronouncing your name,
	please correct me because with a name like mine I cannot afford
	to do that.
	Ms. MOSER. Thank you.
	Chairman MFUME. You are mute.

	STATEMENT OF SUSAN MOSER

	Ms. MOSER. Thank you. Chairman Mfume, Ranking Member
	Salazar, and members of the Committee, thank you for the
	opportunity to speak today.
	My name is Susan Moser and I would like to take this
	opportunity to talk about the government's guidance on PPP
	forgiveness and its impacts on contractors today and moving
	forward.
	As was previously mentioned, the interaction between the
	FAR and PPP was first addressed in April 2020 when DoD answered
	a frequently asked question and made clear that DoD expected
	PPP loan forgiveness would result in a credit to the government
	on flexibly priced contracts. Subsequent to this guidance,
	confusion began as most companies have a mix of flexibly priced
	and firm-fixed price contracts and many contractors plan to
	only seek forgiveness of certain costs which could be a mix of
	direct and indirect costs.
	While the impact of PPP forgiveness on flexibly priced
	contracts has been made clear, the contractor community needs
	clarity around how to handle forgiven costs under other
	contract arrangements, including contracts with state
	transportation agencies. To date, agencies have issued limited
	guidance with conflicting information that contractors are
	struggling to understand and apply. DCAA did issue guidance,
	revised guidance in January of 2021 that confirmed that credits
	should be recorded based on how costs were recorded when
	incurred. DCAA also stated that a PPP loan forgiveness credit
	should be allocated to the accounting period in which it is
	received.
	The guidance is contrary to generally accepted accounting
	principles and at least two decisions by the Court of Federal
	Claims and its predecessor court. For most companies,
	forgiveness for costs incurred in 2020 will occur in 2021.
	I would also like to note that the impact of the Employee
	Retention Credit creates the same challenges for contractors.
	Much of the concern regarding guidance has come from
	architecture and engineering or A&E firms doing business with
	state transportation agencies who receive funding from the
	Federal Highway Administration. These contracts carry many FAR
	requirements. There is concern with potential draft guidance
	being considered by the Highway Administration that would
	require all PPP forgiveness credits to be applied to indirect
	costs. Accounting for credits in this way is inconsistent with
	FAR Part 31 and would result in reduced indirect cost rates for
	the year in which the credit is applied, but could also apply
	throughout the life of multiple year contracts awarded in the
	year in which the reduced rates were established, potentially
	resulting in reduced indirect rates for multiple years.
	Understandably, many A&E firms are concerned with the
	implications of this anticipated guidance. Most states'
	Department of Transportation agencies require A&E firms to have
	an indirect rate audit conducted by a CPA firm. Our firm
	performs many of these types of audits.
	State DOTs are trying to get guidance from the Federal
	Highway Administration, but absent that are advising to rely on
	existing regulations in determining credits.
	There are three areas where guidance could assist
	contractors. First, standardizing the period in which the PPP
	credit should be reported and included in any indirect rate
	audit. The credit should be included in the same year costs
	were incurred.
	Second, I recommend that any contractors that are receiving
	PPP funds disclose in the notes to their indirect rate audit
	the calculated rate both with and without forgiveness
	considered.
	Lastly, inform procurement agencies, particularly
	transportation, the rates included in indirect rate audits
	should be used in negotiations, but that final prices can and
	should incorporate consideration of the impact of PPP
	forgiveness. Specifically, while the rate including PPP
	forgiveness can be used in year one of a multiple year
	contract, subsequent years should be renegotiated using rates
	that are not impacted by the PPP credit. Contracting agencies
	should also incorporate business judgment in negotiating a
	price that is fair and reasonable to both parties.
	These recommendations, I believe, align with generally
	accepted accounting principles, the FAR Cost Principles and
	would help alleviate negative financial impacts in subsequent
	years. Further, this would reduce confusion while also ensuring
	contractors receive the benefit originally intended by the
	CARES Act but without the potential to ``double dip'' and allow
	some contractors to receive a greater benefit than companies
	who do not contract with the government.
	Thank you very much for your time today.
	Ms. SALAZAR. Mr. Mfume, you are muted.
	Chairman MFUME. I was thanking all the witnesses for their
	testimony so far and reminding people that we all have their
	written testimony. If they have it nearby I would urge that you
	hold on to it because there may be some questions, comments and
	observations that go directly back to that.
	I would like to recognize Ms. Greenleaf at the current
	moment. Ms. Greenleaf, you have 5 minutes. The floor is yours.

	STATEMENT OF ROBIN GREENLEAF

	Ms. GREENLEAF. Thank you very much, Chairman Mfume, and
	Ranking Member Salazar. Thank you for the opportunity to
	testify before the Subcommittee today.
	My name is Robin Greenleaf. I am the CEO of Architectural
	Engineers, Inc., a woman-owned engineering firm in Boston. We
	have 33 employees who provide mechanical and electrical
	engineering services to Federal, state, and local agencies and
	private companies and owners. I am also the Chair-elect of the
	American Council of Engineering Companies and I have the
	privilege of serving as National Chair starting in April. It is
	an honor to represent my colleagues here today.
	I cannot overstate how important this issue is to small
	business engineering firms across the country right now. My
	2020 experience is typical of hundreds and hundreds of my
	colleagues in the industry. We relied on the PPP loan to keep
	our entire staff on the payroll even in the face of significant
	business disruptions and revenue loss. And the program was
	successful. It met its intended objective.
	But now those of us who contract for government clients are
	facing the imposition of a credit under the FAR and we think
	this is completely misguided. Congress already made clear that
	forgiven PPP loans are not to be treated as income for tax
	purposes and then further clarified that covered expenses are
	deductible. In the same way, forgiven PPP loans ought not to
	count as income under the FAR. This was emergency relief to
	support employers and businesses ought to be able to take full
	advantage of the program.
	There are numerous challenges with this policy that I want
	to highlight for you. One, if this credit is applied to reduce
	our overhead rate as opposed by the Federal Highway
	Administration, we are going to be working at a discounted
	rate, not only in the coming year but potentially for several
	years. Many of our clients lock in the indirect cost rate over
	the life of a multi-year contract. On my $594,000 PPP loan on
	which we just received forgiveness last week, I am looking at
	32 percent drop in my overheard rate resulting in the loss of
	at least $129,000 per year. Only about 15 percent of my firm's
	work is with public agencies using our FAR rate. For firms that
	do predominately DOT work, it is easy to see how the losses
	will far exceed the value of the loan.
	This leads to my second point. The impact of the credit
	will fall most heavily on small, minority-owned, and women-
	owned firms that needed the assistance the most and have come
	to perform a higher percentage of government contracting.
	I have documented a few examples in my written testimony
	and I hear from more colleagues every day. And so the basic
	outcome of this policy is that our state and local clients will
	be benefitting from the PPP, not us. We are passing the loan
	through to them through discounted billing rates. If unchanged,
	he application of this credit will create a disincentive for
	women-owned firms, minority-owned firms, DBEs, and other small
	businesses to compete for work for public agencies. It will
	derive the government of qualified engineering services and
	will hamper efforts to expand small business and DBE
	contracting opportunities.
	Let me also say that the inequity here with our
	counterparts in the infrastructure market is frustrating. Other
	contractors working on Federal aid projects are not subject to
	these same requirements. Fixed price contracts are not impacted
	by the FAR credits clause. While my rates are reduced, other
	businesses working on the same infrastructure projects have
	been able to retain the full benefit of the PPP. This uneven
	treatment does not seem fair or equitable.
	There is a real sense of urgency in the industry to get
	this issue resolved. Firms that already received forgiveness
	are starting the annual audit process and seeing the impact of
	the credit on their rates. Some business owners are already
	questioning whether they can continue to keep all their
	employees that they supported with the PPP loan. Those that
	have not yet applied for forgiveness are coming up on the 10
	month deadline to start repaying those loans. Banks are
	pressuring them to decide whether to apply for forgiveness. Our
	small business owners need to make critical business decisions
	about the impact on their rates and projected revenues and
	employment ramifications.
	At a time when the industry is very eager to work with your
	colleagues to deliver a robust infrastructure-based economic
	recovery agenda, your prospects for these opportunities are
	dimmer because of this credit holding us back.
	Thank you for the opportunity to testify.
	Chairman MFUME. Thank you very much, Ms. Greenleaf.
	Mr. Penin, you are now recognized for 5 minutes.

	STATEMENT OF CARLOS A. PENIN

	Mr. PENIN. Good afternoon, Chairman, Ranking Member
	Salazar, all congressional members of the Subcommittee on
	Contracting and Infrastructure and everyone present.
	My name is Carlos Penin. I arrived from Cuba in 1962 at the
	age of six. I think I am giving away my age. I am a proud Cuban
	American who pursued a career in engineering and ended up
	fulfilling my American dream of starting my own business. The
	company that I started, CAP Engineering is a small, minority-
	owned business that has been in operation in the city of Coral
	Gables, District 27, for almost 33 years. Today, I am
	addressing this Committee as the founder and president of my
	company representing my employees, but also as a former
	president of ACEC Florida, the organization that represents
	member engineering firms in the state of Florida.
	In Florida, we have hurricanes, and I have survived
	multiple hurricanes during our company's history, sometimes
	multiple hurricanes in the same years. The devastation from
	this pandemic has been far worse and nobody could have even
	predicted it, nobody saw it coming, and the severe impact that
	it has had.
	In the early months of the pandemic, we applied for and
	received assistance from the PPP. The assistance that we
	received was applied as intended to help keep our loyal staff
	employed so that they, in turn, could keep their families fed,
	safe, and healthy.
	The interpretation of the Federal Acquisition Regulation,
	the FAR clause, would reverse the benefits received from the
	PPP and could have a negative impact for our company and any
	company that pursues Federal or state contracting for years to
	come.
	As Robin so well pointed out, if the PPP loan forgiveness
	is unallowed and therefore subtracted from the indirect labor
	cost, then in our case our overheard rate would be reduced by
	approximately 25 percent. If we had multiple year contracts,
	the lower overhead rate would be applied for multiple years and
	for multiple contracts. This reduction would be higher than the
	original loan amount that we received, thus negating the
	original intent of the PPP loan which was to help companies
	such as ours keep our employees and thus help our families.
	I ask you to please consider our industry's request that
	this unintended consequence be eliminated. And as good
	engineers, we are supposed to finish on time and under budget
	and I yield back with 2 minutes and some seconds left over in
	my presentation. Thank you very much.
	Chairman MFUME. Thank you, and my thanks to all of the
	witnesses.
	We are going to begin the open session of questions and
	comments with members who are present today. And I would like
	to recognize myself for 5 minutes.
	Mr. Bingham, could you go back and elaborate on what the
	credit clause is and how it is supposed to work and how a
	Federal contractor is bound by the principle clause?
	Mr. BINGHAM. Certainly. A key issue for reimbursement of
	cost and just cost accounting generally is what is the cost
	recorded on a contract. And the cost recorded on a contract is
	direct cost plus indirect cost and less any credit. So the
	issues that are being discussed here relate--when people talk
	about paying their employees, that may well be a direct cost.
	It is hard to know if there are indirect employees but it could
	well be direct cost of performance. If they talk about paying
	for facilities cost or their indirect personnel, then that
	would be, you know, part of their indirect cost. But the
	credits, wherever the credits, wherever the loan money is
	spent, that is where the credit should go. If a company uses
	the loan for a particular contract, only to reimburse employees
	on a particular cost, then the credit should go to that
	particular contract, not other contracts, not on overhead. If
	the credit went all to facility cost and overhead, then the
	forgiveness should go only to overhead.
	I hope that helps you understand that in determining the
	cost on a contract, the credit has to be reduced from wherever
	the loan was spent. That is where the reduction occurs.
	Chairman MFUME. Okay. And Ms. Moser, I am just going to
	stay on the matter regarding these credits. You mentioned in
	your testimony that DCAA issued guidance on how the credits
	should, in fact, be applied. Could you take a moment and expand
	on the major points of that guidance and how it really works in
	practice?
	Ms. MOSER. Yes. I would be happy to.
	So DCAA issued its guidance in January which had a number
	of different areas that they addressed. The first area is they
	were clear, and this is consistent with the earlier DoD
	guidance and consistent with the testimony we just heard, that
	loan forgiveness proceeds should be applied in the same manner
	in which the original cost was occurred. So just as we heard
	before, if direct salaries were used and it could be for
	commercial work or on direct cost reimbursable work, that
	portion of the credit should go back to that where it was
	originally incurred. If it was included in the overhead, that
	is where it should be incurred. So that was pretty
	straightforward and I think consistent with FAR.
	DCAA's guidance suggested or stated that--and DCAA, when
	they issue guidance, they are actually issuing guidance to
	their auditors. The general public and contractors certainly
	use that as a reference but they are issuing guidance to their
	auditors. But they also stated that when the credit is received
	is the year in which it should be applied. So that creates some
	inconsistency as companies have incurred the loan forgiveness
	of PPP during 2020 and they are going to get proceeds or
	forgiveness in 2021. That matching, that inconsistent matching,
	I believe is not correct.
	They also did address a number of other areas in their
	guidance including guidance on contractors doing forward
	pricing. So a forward pricing rate agreement is a forward
	looking forecast of rates that is used for certain types of
	contracts. It is typically used in negotiating fixed price task
	orders or change orders. So they did include in their guidance
	that consideration should be given to--2020 we have all
	acknowledged was an unusual year with unusual circumstances.
	And costs incurred and credits incurred in this year should be
	considered in looking at forward looking. Just because
	historical reference is not necessarily the prediction of what
	the future rates would be. So those were the specific areas
	they addressed.
	Chairman MFUME. Thank you very much, Ms. Moser.
	My time has expired. The Chair will recognize the Ranking
	Member, Ms. Salazar.
	Ms. SALAZAR. Thank you, Chairman.
	I think I want to use my 5 minutes. Maybe I can ask the
	same question to the different witnesses. And I would start
	with Mr. Penin and then I can ask Ms. Moser.
	I think that the main concern the government has is to
	avoid the double dipping. So if you were in our position, what
	would be your recommendation? I am sure Mr. Penin, Ms. Moser, I
	am sure that all of you do not want that happening. We do not
	want to have to pay twice. So in which way could we be able to
	be fair to you but at the same time not pay you double?
	We will start with you, Mr. Penin.
	Mr. PENIN. Thank you very much for the question, Ranking
	Member Salazar.
	That is more of an accounting function. I do not think that
	it is double dipping. We used the loan for what it was intended
	to be used, which was to save our employees, and we did that.
	When we sought the PPP funding, we looked at it as the lifeline
	to get to the other side of the pandemic and that, as we have
	heard oftentimes, that goalpost kept moving on us over and over
	again. So it was a vital opportunity for us to be able to stay
	alive, stay afloat during this last year.
	As far as the FAR and how that is used, as I mentioned in
	my testimony before, that has a negative impact on the bottom
	line because what happens is it gets applied to the indirect
	labor cost, and therefore, it pushes our multiplier down. And
	in some cases as we will experience in my company, it will put
	us at 25 percent below what we are currently doing today.
	So we see this as a loan, a forgivable loan that has
	carried us through last year. It is not reoccurring but the
	unintended consequence could reoccur for multiple years to
	come. I hope that answers your question.
	Ms. SALAZAR. Sure. Yes. Thank you.
	Why do we not then ask Ms. Moser? Ms. Moser?
	Ms. MOSER. Yes. So the FAR incorporates the cost principles
	into certain types of contracts. So specifically, the flexibly
	priced contracts, cost-type contracts, time and materials
	contracts. And I do not think waving the credits clause cart
	blanche related to PPP is the appropriate thing to do because
	it could lead to unintended consequences and it could provide a
	situation where contractors that have only flexibly-priced
	contracts would double dip. Basically, they are billing the
	government for all of their costs incurred and then they are
	getting the forgiveness. And so I do not think people want that
	to happen, certainly not as a tax payer. I think the challenge
	is that the cost principles are referenced in many other types
	of contracts and a lot of what we are hearing is regarding
	state transportation contracts. And so my recommendation is not
	a waiver of the FAR credits clause; it is really about issuing
	better guidance and explaining the situation so that
	contractors negotiating with state transportation agencies, for
	example, have all of the information about the impacts that,
	you know, the rate needs to be calculated as the rate is
	consistent with the FAR, but how that rate is utilized in
	subsequent years I think is really where the guidance is
	needed. So, you know, the timing of the guidance from DCAA I
	think is a problem and then I think the lack of guidance or
	concerns about proposed guidance that might be issued from the
	Highway Administration--that is really where I think the focus
	is.
	When guidance is issued by audit agencies, they do not seek
	public comments. And with lots of proposed regulations, there
	is public comment and an opportunity for people to weigh in.
	And I think, you know, that certainly could be helpful to this
	process to improve upon.
	Ms. SALAZAR. So it is not necessarily an accounting issue
	according to what you are saying but it is just clarification?
	Ms. MOSER. So I think the accounting in terms of how the
	credits clause should be applied is clear and does not require
	a change. I think it is the application of how those rates are
	utilized in subsequent years' contracts.
	Ms. SALAZAR. Thank you. I yield back.
	Chairman MFUME. Thank you, Ranking Member.
	The Chair would like to recognize Representative Golden
	from the state of Maine. Mr. Golden?
	Mr. GOLDEN. Thank you, Mr. Chair.
	I think I will start with Ms. Moser. And I wanted to ask if
	there are other examples out there in addition to the PPP
	program where we have COVID-related Federal assistance for
	which a contractor might have to provide the government with a
	credit. And if the answer is yes, could you also elaborate a
	little bit about why?
	Ms. MOSER. Yes. I would be happy to.
	I think the most immediate additional assistance is the
	employee retention credit. So when the employee retention
	credit was first incorporated into the CARES Act, companies
	that received PPP loans were not eligible for the employee
	retention credit. So for most contractors, you know, PPP was
	that lifeline, that immediate assistance that they were seeking
	so they really didn't focus on the employee retention credit.
	With the legislation that passed in December, that made
	available the employee retention credits for companies that
	also received PPP loans.
	The employee retention credit is a credit against payroll
	taxes. So it is consistent with the credits clause--so a
	company that is a contractor that has flexibly priced
	contracts, cost contracts. If they are eligible to receive an
	employee retention credit, it is a reduction against the
	payroll taxes that they pay. So it would be treated
	consistently if they originally recorded the payroll taxes say
	in 2020 when they paid them, it would go to a fringe. Usually
	that is an indirect expense considered a fringe benefit. When
	you receive the credit, it should be applied back the same in a
	similar manner. So it is a very similar situation.
	Mr. GOLDEN. Thank you. I think that is helpful.
	Ms. Greenleaf, you testified that engineering firms
	particularly have difficulty compared to other contractors that
	also do business with state departments of transportation. And
	I wanted to ask you if you could elaborate a little bit further
	on that. And secondly, I wanted to ask if you felt that should
	Congress mandate DOT to issue guidance that would ensure that
	indirect cost rates were trued up based on what a firm's real
	indirect costs were for the year impacted by the credit, would
	that address ACEC's concerns?
	Ms. GREENLEAF. To answer your first question, I think that
	the engineering firms in general, many of us work for state
	DOTs. And so the guidance, the draft guidance that has come out
	from Federal Highway at this point is taking a very hardcore
	approach to how to deal with the PPP credit. So it is one
	reason why we were pushing back so hard on this issue.
	We are part of a very narrow band of impacted professionals
	that are feeling the pressure from the FAR credit clause. It
	does not extend far beyond just those of us who work for state
	DOTs. And so based on that, that is why we are wanting to just
	see the loan be completely forgiven and not have to apply the
	credit.
	So having said that, I am going to need to ask you to
	repeat your second part of your question and then I will come
	right back to you.
	Mr. GOLDEN. Yes. If Congress were to mandate that the
	Federal Department of Transportation issue guidance that would
	ensure that indirect cost rates were more accurately reflecting
	a firm's real indirect costs for the year impacted by the
	credit, would that in any way address the concerns of your
	organization?
	Ms. GREENLEAF. I do not know that it does. The reason for
	that is that the state DOTs, and that is largely who we are
	talking about, are inconsistent across the country in their
	ability to do the truing up on an annual basis. And I can tell
	you from personal experience in Massachusetts that the work
	that I do here, we are put in what is the equivalent of multi-
	year contracts. The overhead rate does not change. It is very
	difficult to get an audit to request the change. And I think
	that based on that what we could expect is just a lot of
	inconsistency across the DOT's abilities to do the truing up
	and to do annual audits.
	Mr. GOLDEN. That is very helpful.
	I see I only have 10 seconds left so I will yield back the
	8 seconds.
	Chairman MFUME. Thank you very much, Representative Golden.
	The Chair would now recognize Mr. Stauber. Did we lose him?
	Okay, maybe he will jump back in. Okay, Mr. Stauber is out.
	Ms. Salazar, I do not see any other members from your side
	of the aisle. Am I missing someone?
	Ms. SALAZAR. Yeah, they had other Committee meetings going
	on at the same time. And myself, I have to go to Foreign
	Relations. But I am staying here with you until you have
	finished with all the testimonies.
	Chairman MFUME. Thank you. Mr. Fitzgerald is here though,
	and I would like to recognize Mr. Fitzgerald for 5 minutes.
	Thank you, sir.
	Mr. FITZGERALD. Thank you. Thank you. Just real quick to
	Mr. Carlos Penin.
	I understand today we are kind of focused on the PPP stuff,
	but in the COVID bill that recently passed it did include some
	language on section 36.10 that authorizes agencies to address
	contractor employee salaries. I was wondering if you had any
	comments on that. You know, it is kind of related to
	catastrophic events and what my understanding is. I do not know
	more than that about it. But I just wonder if you could provide
	any insight into the impact that that may have.
	Mr. PENIN. Thank you for the question, Congressman
	Fitzgerald. I am not familiar with the new legislation and I am
	not going to be helpful to you on that. I have not read it.
	Mr. FITZGERALD. Very good. Yeah, it is kind of a struggle
	and I think a lot of us have been caught off guard because of
	the legislation just signed into law. But I would urge the
	Chair and the Ranking Member, I think it is something that we
	need to probably take a look at and hopefully, because it seems
	to be boiling up right now. So thank you, and I will yield
	back. Thank you.
	Ms. SALAZAR. Chairman?
	Chairman MFUME. Yes.
	Ms. SALAZAR. I think we do have Congressman Meuser with us.
	Is that correct? So we can recognize him?
	Chairman MFUME. I see him. Yes. Yes.
	We will first recognize Ms. Newman for her 5 minutes and
	then we will come back to Representative Meuser.
	Ms. Newman?
	Ms. NEWMAN. Thank you, Chairman. And thank you, Ranking
	Member Salazar.
	This is a very timely issue in my district. Dozens of small
	businesses have come forward to talk about this with us, so I
	am so glad for the testimony today. And thank you to all the
	witnesses. It has been very helpful to dimensionalize this for
	me.
	I have a couple of questions and I think I would like Ms.
	Moser and Mr. Penin to answer them. And I will go to Mr. Penin
	first.
	So it clearly seems like there is an issue here that can be
	addressed, and I do not think it has to be brain surgery. What
	is your recommendation? Does it need to be a clarification of
	rules? Is it regulatory? Or do you think it requires
	congressional intervention? And I will go to Mr. Penin first.
	Mr. PENIN. Thank you very much, Congresswoman Newman. And
	thank you for your concerns for your district as well. I think
	that for us it is probably a clarification of the language and
	how it is being applied more so than an act of Congress. I am
	trying to keep it simplified because, you know, if you started
	getting too many people involved, you know, it starts to muddle
	the situation. But I would think that it is something that can
	be handled as long as there is a clarification of the
	interpretation. And I think that that would be the easiest way
	of handling it. And it certainly would serve our purpose on the
	industry side to have that resolved.
	I hope that answered your question.
	Ms. NEWMAN. Yes. Yes. And then I need to go to Ms. Moser.
	From a technical standpoint, or from an accounting perspective,
	what would your remedy be?
	Ms. MOSER. Yes, thank you.
	So I agree with Mr. Penin. I do not believe that there is
	legislative action that is needed to rectify this situation. I
	think that could end up with unintended consequences. I really
	think it is an issue of clarification on guidance.
	The DCAA, as I mentioned, their guidance is issued to
	auditors. So, while I disagree and I think it is an incorrect
	guidance on the timing of the application, ultimately
	contracting officers make those recommendations. The DCAA is
	making recommendations to its auditors; contractors if they do
	not agree with that, ultimately, it is up to the contracting
	officer to make a decision on that.
	I think the biggest issue, and I think what we have really
	heard here today is really related to Federal Highway
	Administration and that guidance because that does flow down
	to, as you heard, the state agencies. And I think that is
	really where the majority of the angst and the concern is that
	without additional guidance and recommendations to state
	agencies there is going to be unintended consequences longer
	term than just this year.
	Ms. NEWMAN. So just to clarify that, Ms. Moser, you are
	saying that the clarification should be some recommendation
	from Congress with regard to the PPP program but then also
	instruct the state and local agencies as such as well, both
	steps?
	Ms. MOSER. Well, I do not think necessarily that Congress
	has, other than trying to get the agencies to issue the
	guidance, I think that is really what is needed. And then
	really it is the guidance that they issue because all of the
	state agencies are looking to Federal Highway Administration
	for guidance. So I think really the guidance is needed with
	clarity from the Highway Administration.
	Ms. NEWMAN. Thank you for clarifying that.
	I yield back. Thank you, Chairman.
	Chairman MFUME. Thank you very much.
	I would like to at this time recognize the gentleman from
	Pennsylvania, Mr. Meuser.
	Mr. MEUSER. Thanks, Mr. Chairman. Thank you all to the
	testifiers. Appreciate it. It is an important subject, clearly.
	Very financially important situation that needs clarification.
	No question.
	So I ask, and I will start with Ms. Moser and I will also
	ask others as well, what was understood by you at the time that
	you submitted for what was described as a forgivable business
	loan? Was it understood that this was to be completely
	forgivable under the conditions of retaining your employees?
	Ms. MOSER. Hi, since you asked me to address first, so I am
	an advisor. I am a partner in an accounting firm and so I
	advise clients, so I was not applying for a PPP loan. You know,
	I think like just with most of our clients at the time, you
	know, it was a lifeline, and so I think most companies, you
	know, had no idea what was going to happen and so did apply.
	That was generally our recommendation.
	Mr. MEUSER. Right.
	Ms. MOSER. Obviously, there has been much guidance since
	then but I think that the forgiveness issue is really for
	contractors. There has been much analysis and angst, frankly,
	on whether they should or should not apply for forgiveness,
	again, depending on really their contract nicks in terms of how
	that is going to----
	Mr. MEUSER. So you advise that, yes, they should take loans
	under the understanding of the requirements for PPP and
	therefore, it would be forgivable if they met those
	requirements?
	Ms. MOSER. Yes, generally if they met the requirements.
	Yes.
	Mr. MEUSER. Mr. Penin, is that what you understood from the
	original language of the provision in the legislation?
	Mr. PENIN. Congressman Meuser, thank you very much. Yes,
	that was our understanding. And as I mentioned in my testimony,
	this was our lifeline. And then the interpretation came after
	the fact. And I think that is kind of where we are today. It
	was an interpretation given after the fact and that is kind of
	what surprised a number of us in passing the torch.
	Mr. MEUSER. And I realize there are many, many dynamics. In
	fact, there is facing a business, any business, engineering
	contract, whatever it might be, particularly with a pandemic
	coming along, particularly even in my state where outdoor
	construction was shut down for a while with state contracts,
	contracts with employees not able to come in out of fear, out
	of having COVID, out of family members, out of children at
	home. So it was a very upheaveled period. And I am certainly on
	the side of small business.
	But let me ask you this. If there is a guaranteed revenue
	stream that would be ascertained and made clear, the whole idea
	behind PPP was to sustain a small business during a loss of
	revenue period for the purpose of not losing them over the
	short term and the long term and not having them go on
	unemployment.
	Now, that being the case, is all your business by the way
	contracted this way or is it just a percentage? Is it 50
	percent of your revenue comes from the contracts that are
	affecting the potential PPP?
	Mr. PENIN. Yes, sir. I assume that question is for me. Yes,
	sir. I would say that the majority of our work comes from
	government contracting. We are a small company. Most of that is
	as a subconsultant to larger state and national or
	international companies. But it passes down to us because we
	still have to go through our FDOT in our case audit. And that
	is where this interpretation is going to be implemented. So
	yes, sir, most of our business is government-based. The long-
	term contracts are essential for small businesses because of
	the stability that it provides.
	Mr. MEUSER. Right. I am just trying to get to where the
	revenue loss--did you suffer revenue loss during this time
	period?
	Mr. PENIN. Yes. Yes, we did. Yes. We kept our employees. We
	kept our employees but we had tremendous losses in revenue
	because, I mean, we came to a screeching halt.
	Mr. MEUSER. Okay. Well, that pretty much answers my
	question then and should uncover any doubts that the original
	intent of this PPP should be upheld.
	What about the second round of PPP, did you apply for that?
	Mr. PENIN. We have not applied for that. We have not
	applied for that.
	Mr. MEUSER. Okay. Very good.
	Mr. Chairman, I do not have any more questions. I yield
	back. Thank you.
	Chairman MFUME. Thank you, Mr. Meuser.
	We are going to start the second round of questioning, and
	I will lead that off by asking Mr. Bingham if he would help put
	some context into this discussion. I think we all know what the
	purpose or the stated purpose of FAR 31 is, but can you tell me
	when the principles of FAR, part 31 kick in? Is there a certain
	requirement, number of requirements, or something else that you
	might be able to share with us in terms of its implementation?
	Mr. BINGHAM. Yes. Yes. Thank you for the question.
	The requirements of FAR 31 kick in when there is a sole
	source or when there is procurement of a cost reimbursement
	contract or a sole source procurement where it is a situation
	where the contractor has to provide cost information, you know,
	the cost estimate to the government customer. And so it is
	under circumstances of that nature. If a contractor, if there
	are sealed bids, in other words, there was adequate
	competition, then the government buyer is supposed to base its
	decisions on the price offered by various competent contractors
	and not get into what their cost history is or what their
	indirect costs are or their direct costs, any of that type of
	information. That is the way they are intended to focus it.
	And I will just add to the discussion about the indirect
	cost rates. The intended approach in the FAR with regard to
	future indirect cost rates is not that you just take the
	indirect rate for a past year and assume that it will be
	matched going forward. That would be contrary in my
	interpretation to both the FAR and the audit guidance from the
	DCAA, for example. And so the issues seem to be related to this
	idea that some agencies, some state-related agencies are just
	forcing the situation where whatever the past indirect rate
	was, that indirect rate will be all that is allowed in some
	future year.
	I hope I answered your question.
	Chairman MFUME. You did, but I am going to ask you to step
	out on a limb and tell us how you would fix this if you had the
	ability to do so overnight.
	Mr. BINGHAM. Yeah, I think I agree with Ms. Moser in the
	idea of guidance. I think if the state departments of
	transportation, if they did more what the Federal government
	auditors do, the DCAA auditors do looking at the guidance
	there, you know, it is in FAR 42 and 44, I believe, and then
	not this recent DCAA memorandum to regional directors but back
	to the DCAA's contract audit manual on how you audit indirect
	rates and how you audit forward pricing rates, these indirect
	rate that are going into the future. If they follow that type
	of guidance, my impression is that would solve a lot of this. I
	do not think they are following that type of guidance right
	now. I think it sounds like they are imposing that the same
	past indirect rate must be used going forward. So that would be
	my ``I am out on a limb.'' That is about as far out on the limb
	as I will go. Thank you.
	Chairman MFUME. Well, thank you, sir.
	I want to yield to the Ranking Member, Ms. Salazar.
	Ms. SALAZAR. This question is for Mr. Bingham and for Ms.
	Moser as well and Mr. Penin, three of you.
	If by any chance this interpretation of the FAR stance and
	the DoD does not change, they cease the way that they do
	business with you, in which way not only will it affect your
	decision to continue working with the government, or will you
	then decide to seek other work in the private sector alone? How
	will this change your future is basically what I would like to
	hear from you?
	And we will start with you, Mr. Penin.
	Mr. PENIN. thank you very much for the question.
	If the interpretation of the FAR stands, it will adversely
	affect our multiplier and therefore, our ability to continue to
	work on government contracts.
	I mentioned earlier, in our case, in our particular case it
	would be approximately 25 percent of our multiplier would be
	affected. We would go from 1.25 to 1.0 and that is a huge
	impact on our business. The minority companies and small
	businesses rely on the government because of the long-term
	contracts that we can obtain from government. In this case, if
	this rate were to go on for further years then we would be
	punished by the same percentage for multiple year contracts and
	in some cases it would impact multiple contracts. So for us
	that would be a deterrent from pursuing government contracts.
	The private sector is on a rebound. Whether we would
	concentrate on that alone would have to be a financial decision
	that I am not 100 percent sure right now that I can make but we
	see that if we cannot rely on one. You know, we have to be
	resilient. That is what makes us survive. I told you we have
	been in business for 32 years. So we will look for whatever
	opportunity we can to get to next year and the next year and so
	forth and so on. But I would say that it would certainly impact
	our ability to, and our desire to contract with government
	under those conditions. Thank you.
	Ms. SALAZAR. Ms. Moser?
	Ms. MOSER. So again, I do not contract directly with the
	government. I just advise companies that do. So I am really not
	in a position to address the issue.
	Ms. SALAZAR. What would be your advice to those clients?
	What would be your advice?
	Ms. MOSER. So, again, I really think the issue, if the
	Federal Highway Administration issued guidance, each of the
	state agencies, and our firm does these indirect rate audits
	for many engineering firms and deals with many state auditors,
	the state DOT agencies are looking for guidance. We have
	reached out to all of them. They are asking for guidance from
	Federal Highway Administration so I think absent any guidance
	then they feel like they do not really have a choice on what
	they do. So I really think Highway providing guidance and
	recommendations on what is the purpose of the indirect rate
	audit and how should it be used going forward into future----
	Ms. SALAZAR. I am going to interrupt you so I can give the
	opportunity to Ms. Greenleaf, which I did not recognize and
	then to Mr. Bingham.
	Ms. GREENLEAF. Thank you for the----
	Ms. SALAZAR. You have 2 minutes. Yeah.
	Ms. GREENLEAF. Thank you for the opportunity to respond.
	I think the one point I would like to make is when I took
	my PPP loan, it was really under enormous duress. Our business
	was disrupted. We had to work remotely. And the idea that we
	would end up as part of a very, very small sector of the entire
	PPP universe that would not be able to take full advantage of
	the PPP loan and the original intent is what is driving my
	being here today. So, I agree with what Ms. Moser is saying
	about good guidance coming from a possible [inaudible] step in
	the right direction, but I think for ACEC, what I would like to
	drive home is that we would like to be treated like every other
	company that took a PPP loan out.
	Ms. SALAZAR. Just 1 minute 35 seconds to Mr. Bingham.
	Mr. BINGHAM. Thank you for this opportunity to respond. I
	will just say, and I am an advisor to companies as well, but I
	think the guidance in FAR 42-7 and the DCAA's guidance on this
	point about the indirect rates, that you do not blindly accept
	their past year as the future year and forecast that into the
	future. I think if a government entity was telling me that they
	were going to force me to have the same rate in the past as the
	future, I think I may be able to read them passages from FAR
	42-7 in the DCAR manual to show them why that is inappropriate.
	Thank you.
	Ms. SALAZAR. Thank you. And I would like to recognize
	Member Stauber. He just joined as Chairman.
	Chairman MFUME. Yes. Yes. I will do that in his turn. He
	actually, for the record, was with us earlier and stepped away
	so we are glad that you are back, Ms. Stauber.
	The Chair at this point will recognize the gentlewoman from
	Illinois, Ms. Newman, for the second round.
	Ms. Newman? Are you back with us?
	Okay, so let's do this. I will go to the gentleman from
	Minnesota, Mr. Stauber.
	Mr. STAUBER. Thank you, Mr. Chair. And thank you for all
	the witnesses. I really appreciate your time.
	You know, at a time when our small businesses are trying to
	recover from the crisis, for small contractors, the continued
	changes in guidance and memorandums from government agencies
	have caused a lot of headaches and confusion.
	Mr. Penin, what is your reaction or your thoughts to the
	government's motive of prevention of double dipping?
	Mr. PENIN. Thank you very much, Congressman.
	I do not believe that double dipping applies, and I say
	that simply because when we applied for the PPP loan and we
	processed our paperwork for forgiveness, we consider that as a
	self-standing item and not something that we were going to be
	penalized for later.
	Mr. STAUBER. Okay. Thank you.
	My next question is for Ms. Greenleaf. Given your position
	with ACEC, what are you seeing from this particular group of
	businesses? Are many of them seeking loan forgiveness or not?
	And have any of your members decided to forgo forgiveness or
	even give the loans back due to this confusion?
	Ms. GREENLEAF. Yeah, I think that is a great question, and
	thank you for asking it.
	I think our members are waiting to see what comes out of
	Federal Highway for final guidance. For me, I did apply for
	forgiveness and my firm did receive it, but I have been
	checking with colleagues and it is a very inconsistent
	approach. People would like to apply for forgiveness. They
	would like to understand the ramifications if they do. Some of
	the smaller firms like mine, I may have to make some business
	decisions about who my clients might be for the next year or
	two and point out that on top of the need to really reach a
	conclusion that we can all make decisions from is the fact that
	the administration is trying to push a very, very large and
	serious infrastructure bill out over the summer and we are the
	firms that will be hopefully having a part in designing all of
	these new transportation projects that may come out. And yet,
	if what we were trying to do is knowing that we are getting
	into these at a potentially greatly reduced rate. It is a very,
	very difficult position to be in.
	Mr. STAUBER. Thank you. And then Ms. Greenleaf, again,
	could you speak to how this could impact small businesses
	working on state and local transportation projects?
	Ms. GREENLEAF. So a firm like mine, we have already done
	the math. I know what the reduction in overhead rate and
	corresponding hourly rates will be if I choose to continue to
	work for our state DOT. And you know, for me they are a very
	valued client and I want to find a way to continue supporting
	them. Many of the larger projects at the state level are
	comprised of very large teams, so it could have very large
	engineering firms that are driving the projects. The team is
	very diverse and there might be, you know, 10 firms just like
	mine that are all seeking to gain experience on large projects.
	So it is a big impact.
	Mr. STAUBER. You know, I look forward to discussions on the
	infrastructure project. I certainly hope it is bipartisan and I
	certainly hope that the minority has input on it because I
	think it has a potential to be really good legislation. We know
	that it has been needed and we just want to have input on it.
	So Mr. Chair, thank you very much and I yield back to you.
	Chairman MFUME. Thank you very much, Mr. Stauber.
	I am going to attempt to go to Ms. Newman again. I do not
	know if she has her speaker system on. I have seen her go by
	her camera a couple of times. And Ms. Newman are you there?
	I guess she is not.
	The Chair recognizes Mr. Fitzgerald.
	Mr. FITZGERALD. Thank you, Mr. Chair. I have no further
	questions at this time. I would yield back. Thank you.
	Chairman MFUME. Okay. And Ms. Salazar, any further comments
	from you?
	Ms. SALAZAR. I think that we have gathered a lot of
	information between you, we definitely will fit and figure out
	how we can make this work for the private sector with more
	clarification as some of them have said and with the accounting
	process having been reviewed. And I think that is our duty and
	our job to make it easy for them, for the private sector and at
	the same time avoid any type of double dipping which that is
	what we are here for.
	So I am looking forward to working with you, Mr. Chairman.
	I yield back.
	Chairman MFUME. Well stated, and the feeling is mutual.
	I want to thank you again. I want to also thank all of our
	witnesses who have made time to be with us. Your expert
	testimony, in my opinion, has been invaluable and given the
	members of this Subcommittee a greater understanding of how
	this complex issue impacts small businesses. Small contractors
	as we all know have been devastated by this pandemic. And so it
	is important that we ensure that they are not inflicted with
	any further harm, and at a minimum we must ensure consistency
	in the application of the rules that govern Federal
	contracting.
	So I look forward to working with today's witnesses and
	Subcommittee members to find a path forward so that we might be
	able to come up with an equitable solution for these small
	businesses.
	And I would ask, as I have mentioned earlier, unanimous
	consent that members have 5 legislative days to submit
	statements and supporting materials for the record.
	Without objection, it is so ordered.
	If there is no further business to come before the
	Committee, we officially stand adjourned. Thank you all. Have a
	good day.
	[Whereupon, at 1:21 p.m., the subcommittee was adjourned.]

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