As Congress debates whether the Pentagon needs more money to cope with the coronavirus outbreak, Huntington Ingalls Industries' chief financial officer said the Defense Department will certainly need additional funding to cover the increased costs of delayed programs -- even if it opts not to help contractors.
In an interview with Inside Defense Wednesday, Chris Kastner said HII is in the process of evaluating the delays to its program schedules. The company has seen employee attendance at 70% to 75% of normal levels.
"We do think that as the states open up and childcare resolves a bit where people can make sure their kids are taken care of, they should be coming back to work," he said. "So we're watching that very closely over the next couple weeks, and that will allow us to have a better forecast of our labor situation such that we can evaluate the impact on our ships and our programs."
"From a cost standpoint," he added, "it's a bit too early for that."
"There's clearly an intent to deal with the cost impact and the schedule delays on the ships," Kastner said, referring to the Pentagon's intent. But "there's no contractual or legislative means to do that right now."
Last month, Pentagon acquisition chief Ellen Lord told reporters she expects the COVID-19 outbreak to delay major programs by about three months and require a supplement of "billions and billions" of dollars to reimburse contractors. She said at the time that she hoped the money would be provided in a congressional stimulus package.
But, since then, the latest stimulus legislation, which doesn't include funding for the industrial base, has stalled, and the chairman of the House Armed Services Committee has said the Pentagon doesn't require more money for contractors.
Kastner said the legislation approved thus far has made needed changes to cost allowability and other issues.
"That's all great stuff, but that pales in comparison" to the impact of schedule delays, he said.
Kastner said the company's contracts mean the government is going to share in the additional costs.
"I don't want to comment on the specific number, and we're going to come through that over the next quarter or so, but there's no doubt that there is a significant amount of funding required -- even if there's not equitable adjustments to contracts," he said. "Just the government share is a significant amount of funds required."
If equitable adjustments are made to help contractors, the required funding would increase, Kastner added.
Meanwhile, Kastner said Huntington Ingalls is keeping a close eye on suppliers. He said the contractor has accelerated more than $50 million in payments to suppliers to help with cash flow.
"We are broadly looking at the supply chain," he said. "There are vendors that are single-source, critical vendors that are smaller in nature that we need to be closer to."
He also said the company has been in close communication with the Navy about how to prioritize.
"We want to ensure that we're focusing on the ships that are nearest delivery," Kastner said.