Businesses with Government Contracts and a PPP Loan: The Government May Expect a Credit

Reminder for Businesses that Obtained a PPP Loan and have Government Contracts

by Connie Wilson, Esq.

July 9, 2021

Businesses that have a government contract and obtained a Paycheck Protection Program (“PPP”) loan and forgiveness of the PPP loan should consider whether any credit or reduction in billing is due under their government contract. Federal agencies have expressed the view that if money from a PPP loan that has been forgiven was used to pay employees who provided services under a government contract, then the government should not be charged for the same employee pay under the contract. Their view is that without providing a credit on the government contract, the employer is paid twice by the government for the same labor, once with the PPP loan forgiveness and once under the contract. The Department of Defense takes the position that, “to the extent that PPP credits are allocable to costs allowed under a contract, the Government should receive a credit or a reduction in billing for any PPP loans or loan payments that are forgiven.”

Pursuant to FAR 31.201.5, the amount of the forgiven PPP funds that are allocable to costs under a contract should be credited to the government either as a cost reduction or a cash refund. FAR 31.201.5 states, in part: “The applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund.” State and local rules or contracts may contain similar provision. If you have government contracts and obtained a PPP loan and forgiveness of the PPP loan, check your obligations to provide a credit or reduction in billing!

This article as well as further updates in regard to business matters and other legal implications related to Coronavirus pandemic can be found on our COVID-19 Response webpage, If you have any questions, please contact Connie Wilson, Esq. or a member of the Business Team at SkarlatosZonarich, LLC.