DOD says it will seek FY-20 funding to study effect of contract financing on industry

By Marjorie Censer / June 27, 2019

Following controversy over its plans to change the way it manages progress payments, the Pentagon says it will now seek fiscal year 2020 funds for a study of how its contract financing and profit policies affect the defense industry.

News of the study comes in a May 30 letter from Kim Herrington, acting principal director of defense pricing and contracting, to the Government Accountability Office. The letter was included in a GAO report that recommended the under secretary of defense for acquisition and sustainment conduct a "comprehensive assessment" of the impacts of contract financing and profit policies on the defense industry.

Herrington wrote that the Pentagon agrees with that recommendation.

In the report, issued today, GAO writes that until the Pentagon "conducts a comprehensive assessment and ensures they are done on a recurring basis, it will not be in a position to understand whether current or future contract financing policies are achieving their intended objectives."

The GAO report and DOD's response follow a flurry of activity on the issue last year. In October, the Defense Department withdrew a proposal that would have reduced contract progress payments after an outcry from the industry as well as lawmakers on Capitol Hill.

At the time, then-Deputy Defense Secretary Pat Shanahan said the changes "were prematurely released, absent full coordination."

The proposal put forth by DOD had been intended to implement a provision in the Fiscal Year 2017 National Defense Authorization Act, which established a preference for performance-based payments. Top lawmakers said the proposal went "well beyond" statutory requirements and was not consistent with the intent of Congress.

Since then, the Pentagon has held public meetings on the matter.