ACEC Updates on PPP Loans / FAR Credits Clause Issue

ACEC Updates on PPP Loans / FAR Credits Clause Issue

Key documents:

May 2022 ACEC PPP Fact Sheet

Questions and Answers – FHWA Guidance on Treatment of PPP Loan Forgiveness

FHWA Guidance on PPP loans and FAR credits

Update on this issue as of 7/15/22 from ACEC National:

The House of Representatives has again approved a targeted waiver of a provision in the Federal Acquisition Regulation that is forcing A/E firms to provide credits for forgiven Paycheck Protection Program (PPP) loans on contracts with state departments of transportation (DOTs) and transit agencies.  Enactment of the provision would address a significant challenge facing small firms working on State DOT and local transit projects. 

The amendment, sponsored by Representative Anthony Brown (D-MD) and co-sponsored by Representatives John Katko (R-NY), Pete Stauber (R-MN), and Brian Fitzpatrick (R-PA), was approved as part of a package of amendments to the annual National Defense Authorization Act.  This is the second time the House has approved the measure.

The Brown amendment would provide that “no cost reduction or cash refund (including through a reduced indirect cost rate) shall be due to the Department of Transportation or to a State transportation department, transit agency, or other recipient” on the basis of forgiveness of the payroll costs of a covered PPP loan.

ACEC is coordinating with lead sponsors in the Senate, Senators Mike Braun (R-IN) and Tammy Duckworth (D-IL), on securing final passage.

Update on this issue as of 12/22/21 From ACEC National:

Over the last two weeks we’ve been engaging our outside advocates and individual MO executives to build a battleplan moving forward to secure passage of ACEC’s legislation to waive the FAR credits clause and allow firms to keep their PPP loans.  As you know, we came very close to success in 2021 (Note:Braun-Duckworth amendment), and while the last minute setback was disappointing, in looking back over the course of the year we also made great progress, including a hearing before the House Small Business Committee, language in the House-passed INVEST Act, growing bipartisan support in the House and Senate, and House passage of ACEC’s legislative fix as part of the National Defense Authorization Act.  We seem to build momentum with every step we take, and that has been made possible by the continued engagement of our members and support from you.

Looking ahead to 2022, our efforts will focus on new vehicles for our legislative fix, with particular emphasis in the Senate.  There is also an urgency in this campaign for early success in 2022, as we believe that most of our members will feel the impact of the FAR credits clause to their overhead rates next Spring.  Our plan will focus on the following elements:

• The FY’22 spending package.  Congress still needs to pass the spending bills that fund various federal agencies and programs – action is expected by mid-February -- and this legislation is likely the next available vehicle for ACEC’s PPP amendment.  Right after January 1^st, we need to engage in a new grassroots effort which will target Senators on the Appropriations Committee (Note: Senator Mike Braun serves on Senate Appropriations.)  That roster can be accessed here, and we will be sending you draft language to send to each of these offices to request a meeting to discuss our issue and request their support for a legislative fix.
• Engaging Senator Rand Paul.  As we’ve discussed previously, the primary obstacle remains the senior Republican on the Senate Small Business Committee – Senator Rand Paul (R-KY).  We’re working with Russ Romine and his ACEC/KY members on new outreach to the Senator, including reiterating our request for a meeting to make our case for a waiver from the FAR credits clause.
• Outreach to the Senate Small Business Committee.  As part of our effort to engage Senator Paul, we also need to engage the Republican members on the Senate Small Business Committee to request their support for a fix.  That roster can be accessed here.  Similar to the Appropriations strategy noted above, we will be sending those of you who have Republican Senators on the Committee a sample request for meetings in January. (Note: Senator Todd Young serves on Senate Small Business Committee.)
• Communications.  The fourth pillar of the strategy will focus on communications to heighten attention to the issue and the need for a fix.  This will include re-engaging with reporters we worked with over the past year, engaging through social media, the placement of op-eds in certain states and congressional districts around the country, and letters to the editor from impacted firms.  We will be working with Jeff Urbanchuk and his team to develop sample materials that you can use, and coordinate with you on placement in key newspapers and other media platforms.

We will hit the ground running right after January first.  As always, thank you for your help and continued engagement, and once again please accept our best wishes for a joyous holiday season!

--Update from Steve Hall, Senior Vice President for Advocacy, American Council of Engineering Companies

Update on this issue as of 12/14/21 From ACEC National:

From ACEC's President & CEO Linda Bauer Darr:

Passage of the Infrastructure Investment and Jobs Act was an enormous accomplishment for the industry and the nation, and ACEC was poised to deliver a second big accomplishment in fixing the PPP loan challenge facing many of our member firms. ACEC had language inserted in the National Defense Authorization Act to fix the PPP/FAR credits clause problem, and we had strong bipartisan support in the House and the Senate.

Unfortunately, due to the intransigence of one senior Senator—despite the bipartisan support and strong support from various House and Senate committees of jurisdiction—it appears the defense bill will move forward to final passage without ACEC’s language.  

This is a frustrating setback but we hope a temporary one, as we’re coordinating with our Capitol Hill allies and outside advocates to identify additional legislative vehicles early in 2022 to carry our legislation.

The pushback comes from Senator Rand Paul (R-KY), the senior Republican on the Senate Small Business Committee. I know it’s hard to believe that one person can have such an outsized impact on the legislative process, but the deference given to committees of jurisdiction and committee leaders of both parties is a traditional courtesy that has existed for many years. It’s designed to promote bipartisan cooperation, particularly on legislation drafted and advanced in a bipartisan manner. 

We saw this play out during the Senate’s consideration of the Infrastructure Investment and Jobs Act, where the bipartisan group of Senators that cut the deal with the White House resisted all amendments that didn’t have support from both sides of the aisle. While this process often leads to strong bipartisan vote margins, it can also occasionally work against you if a leader of a committee of jurisdiction objects. 

This is a disappointing outcome, but ACEC continues to attract more lawmakers in support of our PPP fix, which is encouraging. Moving forward, we will pursue a strategy that will both keep them engaged and enable us to enlist new supporters.   

Update on this issue as of 12/7/21 From ACEC National staff:

BLUF: The advocacy on our efforts for PPP Fairness is not over, but since the NDAA passed in the House on the night of 12/7/21 without the language that we needed, ACEC will be seeking other federal legislative opportunities. See below for the latest from ACEC National’s Steve Hall.

From Steve: I wish I had better news to report, but it appears that the National Defense Authorization Act (NDAA) will be moving forward to final passage without ACEC’s language to address the PPP/FAR credits clause problem.  Despite strong bipartisan support in both the House and Senate and various committees of jurisdiction, continued opposition from the senior Republican on the Senate Small Business Committee has prevented the inclusion of ACEC’s language in the final version of the NDAA.  This is a frustrating setback but we hope a temporary one, as we will be coordinating with our Capitol Hill allies and outside advocates to identify additional legislative vehicles early in 2022 to carry our legislation.

I know it’s hard to believe that one person can impact the legislative process to the extent we’ve witnessed in recent months, but the deference given to committees of jurisdiction and committee leaders of both parties is a traditional courtesy that has existed for many years and is intended to promote bipartisan cooperation, particularly on legislation that is being drafted and advanced in a bipartisan manner. We saw this play out during the Senate consideration of the Infrastructure Investment and Jobs Act, where the bipartisan group of Senators that cut the deal with the White House resisted any and all amendments that didn’t have support from both sides of the aisle.  While this process often leads to strong bipartisan vote margins, it can also occasionally work against you if one of the leaders of a committee of jurisdiction objects. 

While this is a disappointing outcome, but the other reality is -- with ACEC Members' help -- the list of bipartisan lawmakers supporting us continues to grow, and we want to pursue action items moving forward that will keep them engaged and enable us to enlist new supporters.  We’ll be seeking your input as we develop our strategy going forward, but in the interim, please let me know if you have any questions.

Update on this issue as of 9/24/21 From ACEC National staff:

Waiver of FAR Credit for Forgiven PPP Loans Passes House: ACEC's campaign to win passage of a targeted waiver of a provision in the Federal Acquisition Regulation that is forcing A/E firms to provide credits for forgiven Paycheck Protection Program (PPP) loans on contracts with state departments of transportation (DOTs) got a big boost this week, as the House of Representatives passed the waiver as an amendment to the annual National Defense Authorization Act.

Enactment of the provision would address a significant challenge facing small firms working on State DOT and local transit projects.

The amendment, sponsored by Representative Anthony Brown (D-MD) and co-sponsored by Representatives John Katko (R-NY), Troy Balderson (R-OH), Rodney Davis (R-IL), and Raja Krishnamoorthi (D-IL), was passed by voice vote.

The Brown amendment states that “no cost reduction or cash refund shall be due to the Department of Transportation or to a State transportation department, transit agency, or other recipient of assistance” on the basis of forgiveness of the payroll costs of a covered PPP loan.

ACEC will be coordinating with lead sponsors in the Senate on securing final passage of the amendment.

Update on this issue as of 9/22/21 From ACEC National staff:

Our PPP credits waiver was grouped together in a package of amendments to the NDAA, and that group of amendments was passed this afternoon by voice vote in the House! This means that our amendment will be part of the bill when it clears the House later this week.

On 9/21/21, Steve Hall at ACEC National reported: The US House Rules Committee made the Brown-Katko Amendment in order for the National Defense Authorization Act (NDAA), meaning the amendment has been cleared and can be offered to the bill when it goes to the House floor this week.  ACEC expects that our amendment will be grouped together with other non-controversial and bipartisan amendments and voted on as a package.  We should have additional details on next steps soon.  The NDAA enjoys strong bipartisan support overall, meaning this legislation has a very good shot at becoming law before the end of the year. We’ll keep you posted every step of the way of course, but today’s win is a huge step forward in our efforts to protect firm PPP loans! 

Update on the Issue as of 8/31/21 From ACEC National staff:

We are hopeful that we are now on a path to passage of the $1 trillion bipartisan infrastructure bill before the end of September. There’s still advocacy work for us to do, but lawmakers are one vote away from sending the bill to the president’s desk.

Last Tuesday, House Speaker Nancy Pelosi bowed to the demands of moderate members of her party and pledged to hold a final vote by September 27. The legislation includes $567.5B for transportation investments over five years, $55B to upgrade water infrastructure, $65B for the electric grid, $50B for resilience, and a host of other investments. 

We are still optimistic about securing a legislative fix to the PPP/FAR credits clause problem before the end of the year. Ten Senators signed on as co-sponsors of our legislative language to waive the credits clause for forgiven PPP loans. We came very close to inserting this language as an amendment to the bipartisan infrastructure bill, but Senators’ determination to pass the bill quickly prevented them from considering our and other amendments. We are now looking for a suitable piece of legislation to attach our amendment to. We are focusing on the upcoming appropriations bills, such as the Department of Transportation spending bill, because several of our amendment co-sponsors sit on the Senate Appropriations Committee.

Update on the Issue as of 8/10/21 From ACEC National staff:

ACEC supports a simple fix in the major US infrastructure bill outlined above to clarify that the FAR credits clause will not apply to PPP loans: Principal amounts of qualifying loans forgiven pursuant to the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. 116-136) shall not be considered income, a rebate, allowance, or other credit received by or accruing to a contractor under 48 CFR 31.201-5.

The PPP / FAR  is an important issue for some ACEC/MA Member Firms that needed PPP loans in 2020 during dire times. This issue impacts engineering and land surveying firms with PPP loans that are seeking loan forgiveness if they work on projects for MassDOT, MBTA, Massport, MWRA and certain municipalities, depending on their funding sources. ACEC/MA  strongly encourages members to advocate to their members of Congress.

Update as of 8/9/21: Like many other important amendments, the provision address PPP loan forgiveness and FAR credits was not able to move forward in the Senate version of the bill that passed on August 10, 2021.  ACEC continues to stress the following in advocating for a Congressional fix to this issue:

• First and foremost, the PPP program was an extraordinary response to a national emergency that was created to save jobs.  It doesn’t fit in the FAR, and the decision to apply it to PPP loans without consulting Congress or giving stakeholders the chance to comment is flawed;
• Some US Senators view this as double-dipping. It’s also unfair to apply a double-dipping standard to one industry while other businesses working on the very same infrastructure projects – such as construction contractors and other firms – are allowed to keep their loans;
• The Senate Homeland Security and Government Affairs Committee (HSGAC) asked for modifications to the amendment to narrow the waiver of FAR credits clause to situations where the PPP loan was used to save jobs, while not waiving the clause for other PPP-allowable expenses like rent and utilities.  This is a fair compromise that ACEC supports and ensures that the waiver only applies to the most important part of PPP, which was to keep people employed;
• Finally, the federal government cannot guarantee fair treatment for engineering firms, which run the very real risk of losing more than what they took in PPP loans if this policy is allowed to proceed.  Many engineering and land surveying firms work for multiple State DOTs and local agencies that use the FAR rate, where firms will be required to lower their rates for each contract with each agency client to “credit” back the value of the PPP loan.  There is no requirement or mechanism in place to ensure coordination among DOTs to prevent firms from crediting more than what is appropriate, nor is FHWA equipped to oversee and manage this process to ensure that firms aren’t harmed. 

House Bill Background: In the House, ACEC won a partial fix to the PPP/FAR credits clause issue in the bill, limiting the FAR credit to federal dollars in contract payments and thereby preventing state DOTs from applying the FAR provision to state-funded contracts. Click here to learn how you can take action on the credits clause.

The amendment sponsors are already thinking about next steps on alternative legislative vehicles for the PPP fix, and there may even be an opportunity on this legislation in the House.  We'll keep you informed as this campaign continues.

Update on the Issue as of 7/28/21 From ACEC National staff:

The White House and a bipartisan group of Senators announced an agreement on a bipartisan infrastructure deal on 7/28/21.  Attached is a summary from the White House – highlights include $550 billion in new investment overall, including $110 billion in new funding for roads, $39 billion in new funding for transit projects, over $100 billion for water projects and resiliency, $73 billion in clean energy, as well as funding for airports, rail, waterways, electric vehicles and other priorities. It’s possible that the Senate could work through the weekend and/or into next week to complete the process.  We’ll provide you with updates and more information as this process moves forward.

On the PPP issue, we appear to be very close to have at least two Senators take the lead on an amendment to waive the FAR credits clause as it applies to PPP loans.  Staff with Senator Tammy Duckworth (D-IL) are talking to the staff with Senator Mike Braun (R-IN) and they may be close to agreeing to partner on an amendment.  We’re still uncertain whether there will be an amendment process or whether we can secure our language into the base text of the bill, but having Senators making the ask on our behalf takes this campaign to a new level. 

Update on the Issue as of 7/6/2021 From ACEC National staff:

Update on the Issue as of 6/9/2021 From ACEC National staff:

    ACEC’s advocacy continues to focus on finding an equitable resolution to the PPP/FAR credits clause issue. Over the past months, our Advocacy team and state Executive Directors have been lobbying Members of Congress in Washington, D.C. and in their home districts to highlight this critical issue and to build support for a legislative fix that would exempt engineering firms from being subject to the clause.
    This is a priority issue for our member firms—especially those that relied on PPP loans to help navigate the uncertainty of the pandemic. We should never forget that when the economy shutdown, the need for our essential work continued.
    The good news is that we find ourselves with several near-term opportunities to influence policy in our favor. The less-than-good news is that the policy environment in Congress is moving fast and is ever changing. To win, we will need to double down on our advocacy and implement an “all of ACEC” campaign to fix the FAR.
    This week, we launched a new communications advocacy campaign on this all-important issue. The campaign involves traditional and social media from ACEC and our allies spreading the message about PPP Fairness to the audiences that matter to our industry. We will advertise in leading Capitol Hill news outlets. We will leverage our digital marketing capabilities to reach influencers online. And we will take our message to the states through our federation.
    Our core message has one unifying theme: Engineering firms shouldn’t be singled out and penalized for acting in the best interests of their employees and clients. It’s time for real PPP fairness.
I urge you to join us. Our ability to convince Members of Congress to act on this issue depends on telling them why it is so critically important to firms. There is no better advocate than a constituent, especially a constituent business owner. I invite you to visit our campaign website at www.acec.org/ppp. While you are there, use the email template to reach out to your Member of Congress, or the Twitter template to tweet out a message of support with the hashtag #PPPFairness. Use our template for a letter to the editor to tell your local paper what this issue means for your business. If you need further assistance, contact your state’s Executive Director for resources to make your voice heard.
    Together, we can make a difference and fix the FAR once and for all.
--- Linda Bauer Darr, ACEC President/CEO

Update on the Issue as of 5/25/21 From ACEC National staff:

I wanted to provide an update for you and for your members on the status of ACEC’s efforts to resolve problems related to the FAR credits clause and its impact on firms with PPP loans.  As you know we continue to attack this challenge on two fronts, through the regulatory process with FHWA and legislatively with Congress. 

On the regulatory side, ACEC recently concluded an effort to supplement FHWA’s March guidance with an FAQ document that was developed by a group of affiliate ACEC CPA firms and State DOT representatives from Arizona, Georgia, Ohio, and Utah.  The FAQ document isn’t the complete fix we want, but until we have a legislative solution in place it’s a step forward to ease compliance for firms, a tool to assist you in engaging with your DOT on implementation (and we’re working on an additional summary document to help you discuss the key points in the FAQs), and a blueprint for achieving uniformity in how the various DOTs and transit agencies implement the policy.  While FHWA has not yet officially endorsed or adopted the FAQs, the agency did indicate that it’s consistent with their own implementation guidance, and our DOT partners are promoting it to their colleagues around the country.  ACEC is organizing a webinar for member firms on the FAQ document and we will notify you once that’s scheduled.

However, FHWA’s implementation process – and the whole idea of applying the credits clause to PPP loans -- has fundamental flaws that cannot be fixed by regulation:

• It fails to limit the application of the credit to the appropriate amount to be recovered.  We don’t believe FHWA and State DOTs will be able to establish guidelines and safeguards to avoid the application of the PPP-credited billing rate beyond what is appropriate.  No single agency is managing this process, leaving firms essentially to fend for themselves.
• The decision by State DOTs to apply the credit to state-funded contracts.  This goes beyond the scope of FHWA’s guidance and puts firms at risk of not only losing their entire loan but potentially even amounts greater than their original loan.

For these reasons ACEC continues to pursue a legislative fix.  As you may recall, in March the House Small Business Committee held a hearing where ACEC Chair Robin Greenleaf and ACEC member Carlos Penin of Florida testified, and we also received help from the Chairman of the House Transportation & Infrastructure Committee, Rep. Peter DeFazio (D-OR) in outreach to DOT Secretary Pete Buttigieg.  We’ve done extensive meetings with House and Senate offices since then, in addition to the regulatory engagement described above.  Our focus this week has been on the Senate with the surprise release over the weekend by the Senate Environment & Public Works Committee of their 5-year $303 billion highway bill.  We’ve asked for language to waive the credits clause as it applies to PPP loans for engineering firms and sent the Committee legislative text, and we’re doing more outreach to members of the Committee to build support for an amendment as the bill goes to the Senate floor.

The House T&I Committee should take up their version of the bill in June, and we’ve sent them the same waiver language, which for your reference is below:

SEC. ___.  Treatment of Paycheck Protection Program Loan Forgiveness under Highway and Public Transportation Project Cost Reimbursement Contracts.

1. Notwithstanding 48 C.F.R. 31.201-5 Credits, for the purposes of any cost-reimbursement contract initially awarded in accordance with the requirements of 23 U.S.C. 112 or 49 U.S.C. 5325, or any subcontract under such a contract, no cost reduction or cash refund shall be due to the Department of Transportation or to any State transportation department, transit agency or other recipient of assistance, on the basis of the forgiveness of a covered loan pursuant to the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. 116-136).

If we can’t persuade lawmakers to waive the credits clause completely, we will seek legislative language to restrict the ability of DOTs to apply the credits clause to state funded contracts.  That amendment language is below:

To be or remain eligible for federal matching funds for State highway programs, a State shall not consider any amount of loan forgiveness obtained under the Small Business Administration Paycheck Protection Program as “income, rebate, allowance, or other credit” within the meaning of 48 C.F.R. 31.201-5 Credits,” except in such case as the Credit is due against a prior payment from Federal funds.

We’ll continue to keep you posted as this develops.  

Update on the Issue as of 5/19/21:

A group of AASHTO and ACEC members, including several CPAs who do extensive amounts of FAR audit work, worked to develop a set of Questions and Answers (Q&As) regarding PPP loan forgiveness.

The results of the discussions are captured in the attached document, which presents a set of recommended best practices for use by state DOT auditors, A/E firms, and CPA auditors regarding the treatment of loan forgiveness granted through the operation of the Paycheck Protection Program (PPP), as authorized by the CARES Act and administered through the Small Business Administration (SBA). Although these recommendations do not have the effect of law or regulation, they are encouraged for use to promote fairness and consistency, with the understanding that some flexibility in application is necessary to accommodate the unique contracting policies and procedures of each state DOT, as well as the professional judgment of auditors.

The working group released this document to the FHWA for comment, and FHWA advised that, generally, the content is consistent with FHWA guidance.  However, FHWA cannot endorse or approve the Q&As, as they get into a level of detail outside the FHWA’s purview.

Accordingly, the working group is circulating the Q&As to the AASHTO Audit Committee members and to ACEC state organizations, as the document was developed by our working group and is intended to provide additional guidance to supplement the FHWA memo issued on March 24. 

Update on the Issue as of 3/31/21 From ACEC National staff:

There is a great deal of attention on infrastructure this week in Washington, but ACEC's focus also remains on the PPP/FAR credits clause issue.  ACEC met with FHWA officials earlier this week to gain a better understanding of the agency’s intent and next steps as they work to apply their new guidance on the FAR provision to firms with PPP loans. 

It’s clear that FHWA is trying to do this the right way and limit the impact to firms as much as possible.  As noted last week, FHWA confirmed that the guidance would only apply the FAR credits clause to contracts that include federal funds – which has logic as there is a clear nexus between the PPP assistance and federal dollars in contract payments. FHWA indicated that they will develop a Q&A document to provide more detailed guidance on implementation, and invited ACEC to organize a working group of CPAs and selected State DOT representatives to help with drafting the guidance.  Matt Reiffer and Dan Purvine will be connecting with some Member Organizations as they identify the right DOTs to partner with in this effort. 

There are concerns however: Some State DOTs are making it clear that they will impose their own requirements on firms for state-funded engineering contracts – forcing firms to provide the agencies with discounts in their rates in return for the federal assistance they received under the PPP program.  We understand there may be some states that will demand a return of the entire PPP loan, regardless of whether it was allocated to a DOT project. Finally, if this regulatory approach were to continue unchanged – where both the feds and the states are demanding rebates for forgiven PPP loans – there doesn’t appear to be an agency at this time that will manage this process to ensure that firms credit back only the amount of the PPP loan that overlapped contract payments on federal-aid projects.

Putting aside the question of whether the FAR credits clause should even apply to PPP loans – ACEC continues to advocate that it should not apply -- we do believe FHWA is trying to do this the right way.  As stated above, the challenge remains if the DOTs are permitted to impose their own requirements relative to a federal assistance program outside of the FHWA rules. This, coupled with the clear difficulties state and federal agencies will have in managing implementation fairly, may help to bolster our arguments in favor of a waiver of the credits clause or some other workable solution.

The leaders of the House Transportation & Infrastructure Committee continue to be engaged on our behalf. Committee counsels for both Chairman DeFazio and Ranking Republican Sam Graves (R-MO) are also meeting with FHWA this week to discuss implementation and next steps, and we’ve shared the insights above with them in advance of those meetings. ACEC GA staff will be meeting with committee staff next week to recap and discuss next steps.

Update on the Issue as of 3/24/21 From ACEC National staff:

FHWA Guidance on PPP loans and FAR credits

ACEC received the guidance above from U.S. DOT on 3/24/21. ACEC is reviewing it and has asked our group of CPA experts for their analysis and feedback as well.  They have also requested a meeting with DOT/FHWA to discuss the guidance and its potential impact on the industry. 

The guidance appears to be largely consistent with the draft that FHWA put out in January, with a few new components.

The following elements remain the same as the earlier draft guidance:

• If the PPP loan proceeds are applied to costs (direct or indirect) within the scope of a federally funded contract and the PPP loan is forgiven, appropriate adjustments are necessary to comply with 48 CFR part 31 (the cost principles).
• A&E consultants cannot use PPP loan proceeds to pay for the direct costs on a Federal-aid or Federal lands highway program funded contract.
  • A&E consultants cannot bill direct costs and use PPP loan proceeds to fund the compensation costs of direct labor and other direct costs dedicated to federally funded contracts. This practice results in an improper payment for billing the Federal government twice.
  • PPP loan proceeds cannot be used to pay the direct project costs even if those costs are not billed to the federally funded contract. This is essentially a donation to the project, which was not authorized and conflicts with the terms and conditions of the contract. A&E consultants should continue to allocate and invoice both direct and indirect costs in accordance with contract terms.
• A&E consultants may use PPP loan proceeds to pay for indirect costs, but an adjustment to the indirect cost rate is required in accordance with 48 CFR § 31.201-5 (the credits clause).  A&E consultants must adjust their indirect cost rates for PPP funds forgiven to provide the corresponding credit to the Federal government. All credits to indirect costs should be reflected in the subsequent adjusted indirect cost rate. If an A&E consultant can apply the appropriate indirect cost credit on existing contracts, the contracting agency may allow the consultant to do so.

The following provisions are new:

• “All applicable credits (or loan recoveries) are to be applied based on an equitable allocation to all benefiting costs objectives in accordance with 48 CFR § 31.201-4.”
• “The indirect cost rate credit should only be applied until the credit is recovered fully.”
• “If adjustments to an A&E consultant’s indirect cost rate has no bearing on the award or contract type (e.g., firm fixed price or lump sum contract), adjustment to that contract would not be required.”

ACEC is assessing whether these additions provide any protection or relief for firms. That first bullet may allow firms to allocate some of the PPP to private/commercial or other non-FAR covered work, thereby reducing the amount of the credit required, but that is not clear. The second bullet acknowledges the concerns we have raised about locking in a lower indirect cost rate and then applying that rate to new contracts, including multi-year contracts, thereby losing more revenue than the amount of the loan. However, it’s not clear how that condition would be implemented by the State DOTs or the firms to ensure that it is effectively applied. The last bullet limits the scope to cost-reimbursement contracts, not fixed price, which is good.

Lastly, the guidance is clearly directed at only federally funded contracts.  That also narrows the scope.  But again, the key will be how states implement this.

Chairman DeFazio’s staff reached out to ACEC's Steve Hall on the morning of March 24 to discuss the guidance noted above. Here is the substance of that conversation:

First , they confirmed what we assumed – that the guidance came out on March 24 because the Chairman has engaged the agency on our behalf. They have conveyed specific concerns we expressed over the draft guidance, as well as our concerns that State DOTs are moving forward with developing their own implementation rules in absence of federal guidance. This, coupled with the fact that the Secretary is appearing before the Committee on March 25 where this issue might be raised prompted the agency to release the guidance today.

Chairman DeFazio's committee counsel emphasized that they have been working with the agency on this issue and will remain engaged going forward, including the potential of following up with the Secretary after tomorrow’s hearing. ACEC let Chairman DeFazio’s counsel know that the guidance remains very broad and leaves many questions unanswered -- for example what do these various provisions mean, will there be additional guidance and detail for implementation and what role does industry play in helping to craft that guidance, and other questions. Depending on the meaning behind various provisions in the guidance – for example, if the credits clause applies only to engineering contracts that have federal funds included – the new guidance could be a significant step forward, but again it depends on how FHWA will interpret the rules. The guidance came directly to ACEC's Matt Reiffer and Steve Hall from the Office of the Secretary and they have requested a meeting with agency staff to discuss these and other questions. 

ACEC National has a working group of CPAs looking at the guidance and they will continue to advise us going forward as we engage the agency.  We’ve also heard from the House Small Business Committee and individual lawmaker offices asking for our input on the guidance, as they were also contacted by the agency.  We will keep them apprised of the situation, and we will also be asking Congress to stay engaged on this issue until we achieve a worthwhile resolution. 

- - - - -
March 23, 2021: House Small Business Committee – and specifically the Subcommittee on Contracting and Infrastructure – held its hearing on the impact of the FAR credits clause on small engineering firms that have PPP loans and qualify for forgiveness. 

Information on the hearing is here.   Access the Press statement released by Subcommittee Chairman Kweisi Mfume (D-MD) here, Access the Recording of the hearing here.  

ACEC's Matt Reiffer thanked ACEC’s witnesses at today’s hearing – ACEC Chair-Elect Robin Greenleaf of Architectural Engineers in Boston and Carlos Penin of CAP Engineers in Coral Gables, Florida.  Both Robin and Carlos did a terrific job of highlighting the challenges facing engineering firms in their testimony if they are forced to return their PPP loans, as well as handling numerous questions from lawmakers. The hearing also featured testimony from an attorney/FAR expert and a CPA to provide lawmakers with technical guidance on the FAR and contracting issues, and while neither went as far as to support a waiver of the credits clause as it applies to PPP loans, both acknowledged – particularly the CPA – the need for better guidance from FHWA on implementation.  Copies of everyone’s testimony are available on the hearing link above.

The need for better guidance from FHWA was actually a common thread in all of the testimony, and we will be working with Subcommittee Chairman Kweisi Mfume (D-MD) and Ranking Member Maria Salazar (R-FL) on potential action items to enlist Congress’ engagement and support to that end.  We are also engaged in preparing for a second hearing on Thursday at 11:00 am EDT with the House Transportation & Infrastructure Committee featuring testimony from US DOT Secretary Pete Buttigieg, where we understand that Chairman Peter DeFazio (D-OR) may raise our PPP issue with the Secretary.  Here is the link to the March 25, T&I Hearing    ACEC has connected with every lawmaker on the T&I Committee with background information on the PPP issue, and we’re coordinating with a number of individual Executive Directors on additional outreach to lawmakers to urge them to weigh in with supportive comments to the Secretary.

In ENR 3/23: Design Firms Tell Congress of Financial Harm From Credits for PPP Loans: Engineering firm executives, including ACEC Chair-Elect Robin Greenleaf, PE (Architectural Engineers Inc) and others told a House small business subcommittee about the negative financial impact their firms have experienced because some federal agencies are recognizing Paycheck Protection Program loans as credits under the Federal Acquisition Regulation.

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12/2/20: Today ACEC national launched an Action Alert on two important fixes to the PPP loan forgiveness program: the tax deductibility of covered expenses and the expectation of a credit from government contractors and the resulting impact on firm overhead rates.

This is for firms with less than 500 employees total.

Click here to access the ACEC Action Alert, including tools to help you craft an email to your 2 US Senators and your US Representative.  

ACEC Fact Sheet on PPP Loans / FAR Credits Clause issue.

Once you log in to the system, you’ll be able to access a sample email to send to your US Representative and 2 US Senators based on where you live/vote.  Please do personalize the message if you can. This is especially important in this case, as every firm will have a specific financial impact that will be compelling. Otherwise, if you don't want to edit the message, you can send it as written.

Right now, there is no specific legislation to support or bill number to cosponsor.  The tax provision has been included in various economic relief packages, and we know there is strong bipartisan support in Congress to address it.  We also want to continue to educate lawmakers on the impact of the FAR credits clause and ask for a correction there as well, but right now there is no specific bill introduced.

Thanks for your continued engagement on this.  ACEC will send ACEC/MA updates as things develop in Washington, and please contact us if you have questions.