[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
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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
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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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