DOD says new COVID-19 policies will get $3B in cash flow to defense contractors

By Tony Bertuca  / April 3, 2020

The Pentagon said today a new payment policy aimed at helping defense contractors weather the impacts of the COVID-19 pandemic is expected to provide industry with $3 billion in cash flow.

Defense Department acquisition officials on March 20 temporarily increased progress payments rates for contractors for the duration of the COVID-19 crisis, raising the rate from 80% of cost to 90% for large businesses and from 90% to 95% for small businesses.

"We estimate this will result in over $3B in cash being flowed into industry," DOD spokesman Lt. Col. Mike Andrews said in a statement.

The Pentagon, Andrews said, has "high expectations" that prime companies will ensure cash flow to the small businesses in their respective supply chains "who need it most."

Andrews said the Defense Contract Management Agency has modified about 1,400 contracts that were already receiving progress payments to show the newly increased rates.

Meanwhile, Andrews said, the Defense Finance and Accounting Service will continue to ensure that invoices are being paid in a timely manner, and that DFAS has been paying at the higher progress payment rate.

"To date, there have been no reported delays on contractor submitted invoices," he said.

Additionally, DOD, recognizing the "effects of COVID-19 will affect the cost, schedule, and performance of many DOD contracts, and that they are beyond the control of the contractor," has issued "equitable adjustment" guidance intended to shield companies from penalties if program costs and schedules are adversely impacted by the pandemic.

"The Equitable Adjustment memo states that department contracts contain clauses that excuse performance delays, when the failure is beyond the control and without the fault or negligence of the contractor," Andrews said. "This memo states that in the event of such a delay, the contractor is entitled to an equitable adjustment of the contract schedule and cost (when those costs are sufficiently supported), which means the contractor will not be in default because of an event like COVID-19. Contracting officers have the standardized guidance and are working with defense contractors."

Additionally, DOD has created several new websites where it is posting relevant COVID-19 memos and policies, including one managed by the Joint Acquisition Task Force, led by Principal Deputy Assistant Secretary of Defense for Acquisition Stacy Cummings.

Andrews said the department has obligated over $265 million related to the COVID-19 response.

"Of note, over $165 million out of the $265 million has been obligated for medical construction, mainly mobile hospitals, that will help allow civilian hospitals to free up additional space for the rising number of patients suffering from coronavirus," he said. "In addition, the remaining $100 million includes efforts to provide medical resources including masks, respirators, ventilators, gloves, gowns, fuel, food and other means of support."

The Pentagon this week released a new policy loosening restrictions on commercial procurements so products can be more rapidly acquired to respond to the pandemic.

Andrews said Deputy Assistant Secretary of Defense for Industrial Policy Jennifer Santos has led 10 calls with defense trade associations to "receive detailed insight" into how COVID-19 is impacting industry.

"These calls provide the department an opportunity to communicate with over three million companies who are members of these associations," he said. "In addition, there have been two calls focused on supporting small businesses in the defense industry, including one with Small Business Administration leadership that discussed available loans provided through the CARES Act. Providing relief for COVID-19 impacts and increasing cash flow to industry, including changing the progress payment rates were the top issues identified by industry."