Pentagon rescinds controversial progress payment proposal

By Tony Bertuca / October 1, 2018

The Pentagon, beset by congressional opposition and industry outcry, is backing off a controversial proposal that would have reduced defense contractor progress payments, according to a statement from Deputy Defense Secretary Pat Shanahan.

"The Department of Defense is fully committed to reform, a pillar of the National Defense Strategy," Shanahan said. "With a reform mindset, the department is changing acquisition rules and regulations. Recently, proposed amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) were prematurely released, absent full coordination."

To that end, Shanahan said, DOD will rescind its proposal intended to implement a provision in the Fiscal Year 2017 National Defense Authorization Act, which established a preference for performance-based payments. DOD's specific plan called for lowering the current progress payment rate of 80 percent to 50 percent, while establishing "opportunities for recognizing contractor behaviors" that could increase the payment rate.

Defense industry groups have opposed the proposed change on the grounds that it would hurt companies' cash flow. Industry advocates enlisted House Armed Services Committee Chairman Mac Thornberry (R-TX) and Senate Armed Services Committee Chairman Jim Inhofe (R-OK), who wrote a Sept. 24 letter to Shanahan voicing "significant reservations" about the new progress payments proposal, contending it "goes well beyond" statutory requirements and "is not consistent with the intent of Congress as expressed in the FY17 NDAA."

Going forward, Shanahan said, "the department will continue to partner closely with Congress and industry to examine all reform opportunities, ensuring we provide the best value to taxpayers and critical capabilities to military personnel who defend this great nation."