FAR’s impact on PPP recipients

May 16, 2021

It’s important to keep monitoring Congressional action to ensure that the benefits of the PPP loans are equitable across the board.

On March 23, I was one of four witnesses invited to speak before the Congressional Subcommittee on Contracting and Infrastructure to discuss the interpretation given by the Federal Acquisition Rule (FAR) on the Paycheck Protection Program and the impact it would have on government contractors, like myself. I was joined by Robin Greenleaf, CEO of Architectural Engineers, Inc.; Greg Gingham, a partner at HKA; and Susan Moser, a partner at accounting firm Cherry Bekaert.

I was invited to participate by Ranking Member Maria Elvira Salazar, the U.S. Representative for Florida’s 27th Congressional District, as I am a long-time business owner and resident of District 27.

I started C.A.P. Engineering, Inc. – a small, minority-owned business – 32 years ago to fulfill my American dream of becoming an engineer and starting my own business. It was imperative for me to testify before the Committee and explain the “unintended consequences” for my company and the many other engineering firms that contract with the State and Federal governments. My greatest concern was that should the FAR interpretation stand, it would reverse the benefits received by the PPP, and it could have a negative impact for additional years for those with multi-year contacts.

In the early days of the pandemic, I was one of many business owners who applied for and received assistance from the PPP. We used this assistance to keep our staff employed with the expectation that this loan would be forgiven. However, if we are required to repay the loan, then the loan is not forgiven and the intent of the PPP to assist companies is negated.

I shared with the members of Congress that my firm faced a 25 percent reduction in our overhead rate and if we had multi-year contracts, we could lose more money in the long-term than the original loan value. This was also expressed by Greenleaf, who in addition is the Chair-Elect of the American Council of Engineering Companies. Greenleaf explained that, other businesses on the same infrastructure projects are not affected by FAR and receive the full benefit of the PPP.

As I testified to Chairman Kweisi Mfume and the other members of the Committee the easiest way to handle the issue would be to provide clarification of the FAR interpretation and allow us to benefit from the PPP, like many other participating businesses.

This is especially critical at a time when Congress and the Biden Administration are working on a major infrastructure bill. These future projects will require the participation of firms like ours to be able to deliver the infrastructure needs. If not corrected, the FAR interpretation could cause many firms to reconsider their participation in government contracts and potentially hinder the economic recovery intended by these projects.

As a result of the testimony that we offered the Subcommittee, they determined that, “it will be important to ensure consistency in the application of the credits clause across agencies.”

Subsequently, on March 24, 2021, the U.S. Department of Transportation Federal Highway Administration released a memorandum to offer guidance to clarify requirements for architectural and engineering consultants.

The DOT FHWA guidance clarified that the reduced indirect cost rate would only be applied until the rate is fully recovered and thus it is not required to reduce indirect rates for the entirety of a multi-year contract. While some consultants may need to repay the PPP loan through the reduced indirect rates, we will not need to pay more than what we received in PPP loans. This is a step in the right direction.

Finally, it is important to keep monitoring Congressional action to ensure that the benefits of the PPP loans are equitable across the board. This way, companies like mine that are eager to work for State and Federal agencies can do so. It will take the participation and willingness of the best and the brightest for us to come out of this pandemic and make a full recovery. We cannot allow ourselves to be held back by arbitrary interpretations that have a negative impact on our business and our profession. Stay alert and continue to participate.

Carlos Penin, PE, is president and CEO of C.A.P. Engineering, which he founded in 1989. Contact him at cap@capfla.com.

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