DOD under pressure as contractors prep for possible disruptions triggered by vaccine mandate

By Tony Bertuca / October 27, 2021

(Editor’s note: This story has been updated to include a statement from Pentagon Press Secretary John Kirby and White House Coronavirus Response Coordinator Jeff Zients​.)

Major defense companies are bracing for workforce and supply chain disruptions related to the federal mandate requiring all government contractors be fully vaccinated against COVID-19 by Dec. 8.

Many defense contractors are seeing employee protests and walkouts on account of the mandate and the chief executive of Raytheon Technologies, Greg Hayes, said Tuesday during a quarterly earnings call the company is "expecting some level of disruption, some level of challenge in the supply chain."

"We certainly expect that there will be some disruption in both the supply chain and with our customers as a result of this, but we're going to work our way through it," he said. "Keep in mind it's not just the prime contractors, but it's also all of our subcontractors that need to follow the mandate as well. . . . As we get closer to the deadline date of Dec. 8, this could pick up, so we're monitoring it, we're out talking to all of our key suppliers, we're talking to our customers. And we're just trying to stay on top of that."

Hayes told CNBC in a Tuesday interview he expects the vaccine mandate will also cause Raytheon to lose "several thousand" employees from its total workforce of 125,000.

Still, Hayes said during the earnings call the impact is "not huge in the grand scheme of $64.5 billion of revenue."

"I just don't think that's going to be a meaningful or material impact on us for the year," he said. "We're managing it pretty well. We've got a robust team in supply chain and operations that are all over this. And we'll just keep managing through it."

Raytheon executives noted during the call the vaccine mandate would probably bolster the company's commercial aerospace work as it will lead to further increases in air travel.

Though vaccine mandates were not discussed in Lockheed Martin's earnings call Tuesday, the company's presentation slides note its fiscal projections could change for a variety of reasons, including "impacts of implementation of vaccine mandates on our workforce and business."

Some House Republicans led by Rep. Mike Rogers (R-AL), the ranking member on the House Armed Services Committee, have sent a letter to President Biden and Defense Secretary Lloyd Austin asking that the vaccine mandate for federal contractors be suspended to prevent potential schedule and cost overruns and the loss of skilled labor.

"Perhaps most concerning to us lies in the near-term," the letter states. "When the deadlines and cost estimates aren't met, who shoulders the responsibility? If a contractor loses key members of its workforce due to a post-negotiation customer demand, the customer is to blame. The Department of Defense is the customer and will ultimately be at fault when the industrial base falters at a crucial turning point in our deterrence of China."

The lawmakers say they have "from day one" supported the vaccine rollout and "battled surrounding misinformation."

"But we cannot stand idly by while the DOD makes a mistake that will inevitably compromise national security for decades," the letter states. "Those who adamantly refuse the vaccine will accept termination. We will lose critical experience in skilled labor. We will lose opportunities for mentorship and on-the-job training from veteran craftsmen. In the long-term, we will miss quality control standards. We will face endemic cost overruns and rework as decades of lessons are not passed to the next generation."

The lawmakers' letter does not ask for a response from Austin.

"We strongly urge you to reconsider the manner in which you are seeking to address this issue so as not to harm the livelihood of civilian contractors, industry partners, and strategic goals of our armed services," the letter states. "Don't miss the forest for the trees."

Sen. Tommy Tuberville (R-AL) sent Biden a letter on Tuesday asking the mandate be suspended for defense contractors.

"I share your desire to see our country through the COVID-19 pandemic as quickly as possible, and, I -- like you -- have elected to take the vaccine," Tuberville wrote. "But your administration's mandate is short-sighted, ill-conceived, and threatens our national security. . . . It is quite possible that your mandate will result in individuals leaving the workforce to avoid the vaccine, thus, resulting in increased worker absences and labor costs, and decreased efficiency. During this time of increasing worry about the technological advances of near-peer adversaries, we should focus on policies that will ensure our national security interests are protected. This order does the opposite."

It remains unclear, however, what kind of impact the vaccine mandate could have on the defense industrial base and official data is not yet publicly available to support concerns that it will be negative.

Most major defense contractors, like Raytheon and Lockheed, say they intend to fully enforce the mandate.

Pentagon Press Secretary John Kirby said Monday that he is "not aware of any pushback by defense contractors with respect to the mandate."

"I don't believe we've polled every contractor and have a sense of what they're hearing from their employees," he said. "But we obviously support the president's decision and his order that those who are working on our programs contractually are safe and secure and vaccinated."

Today, Kirby said DOD has yet to see any “tangible outcomes” on contracts or programs.

“But we are in close touch with our defense industry colleagues about this,” he said. “We're going to stay vigilant on that and stay in close touch with industry partners going forward.”

Biden announced the vaccine mandate for all government contractors in a September executive order. Possible exemptions include health and religious reasons.

While scientific evidence shows vaccines protect people and those around them from COVID-19, some U.S. workers remain skeptical or outright hostile toward vaccines and vaccine mandates. Many cite politics, health worries and ethical concerns.

Vaccine mandates, however, have proved effective at getting people vaccinated. United Airlines says it has achieved a 99.5% vaccination rate because it has made vaccination a condition of employment, though around 2,000 people have received exemptions for health or religious beliefs.

Political resistance to the vaccine mandate is especially strong in some southern states like Alabama, Florida and Texas that are home to key defense industrial base facilities. Alabama Gov. Kay Ivey (R), Florida Gov. Ron DeSantis (R), and Texas Gov. Greg Abbott (R) have all taken executive action prohibiting the vaccine mandate.

White House Press Secretary Jen Psaki has characterized Republican efforts to halt the mandate as partisan politics.

"I think it's pretty clear when you make a choice that's against all public health information and data out there that it's not based on what is in the interests of the people you are governing," she said Oct. 12. "It's perhaps in the interests of your own politics."

The Pentagon, meanwhile, has directed specific questions about the vaccine mandate and its potential impact on the defense industrial base to the White House Office of Management and Budget, which did not respond to a request for information.

A DOD website intended as a resource for defense contractors says federal laws regarding vaccine mandates "supersede any contrary state or local law or ordinance."

Additionally, the website notes that an "accommodation" could be made for employees who cite "a disability (which would include medical conditions) or because of a sincerely held religious belief, practice, or observance."

The website also says prime contractors are "responsible for ensuring" their subcontractors and suppliers are also in compliance with the mandate.

'Messy' without an acquisition chief

Greg Sanders, deputy director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies, said there are some "notable challenges" confronting the defense industry when it comes to vaccine mandates.

"While there have been some big moves on remote work, a lot of defense industry work does require more in-person presence both for classical industry reasons or because of classification," he said. "So, the stakes can be higher than other parts of the government organic and contracting workforce."

Sanders said it is hard to tell thus far what type of impact resistance to the vaccine mandate might have on the defense industrial base.

"It's a polarized country in a way that can link up unrelated issues," he said. "So, while I'd suspect that the [science, technology, engineering and mathematics] workforce is fairly vaccine-mandate friendly, I think it's safe to say there are a fair number of people in the defense industry with strongly developed political opinions. This might be a bigger issue in the traditional industrial base than non-traditional outreach, though presumably some objectors may see one more reason not to work with the government."

Meanwhile, DOD still does not have a Senate-confirmed under secretary for acquisition and sustainment as Biden's previous nominee withdrew from consideration in July.

Sanders said having a confirmed person in the role might create "more room for finesse while still moving towards the larger policy goal" of a fully vaccinated workforce.

A former senior defense official conceded the situation could become "messy," saying it "would sure help" to have a Senate-confirmed acquisition chief in place to deal with it.

A senior defense industry official said it would be better for defense company CEOs to meet with a Senate-confirmed Pentagon acquisition chief, rather than an acting official who does not have the ability to "push back" on or shape policy.

"Front and center is the vaccine mandate -- that is very much a White House-driven initiative," said the industry official, who requested anonymity because of ongoing business with the government.

Acting DOD officials "are not really in a position to push back at all in terms of what kind of flexibility there might be," the official said. "They are there to implement the policy."

Bill Greenwalt, a former Senate staffer who is now a non-resident senior fellow at the American Enterprise Institute, said a Senate-confirmed acquisition chief could have "been helpful" in figuring out potential defense industrial base impacts of the vaccine mandate.

"Despite the merits of the need to get more of the country vaccinated, I am hearing cases of critical employees walking off the job and defense plants around the country still operating with about 30% vaccination rates," he said. "We could see some serious supply chain disruptions coming down the pike because of the differences between requirements in the defense sector vs. the overarching economy. For those employees who for whatever reason do not want to comply, as long as there are places to work that don't require a vaccine but merely testing, they have the option to leave and the defense industry will suffer the impact. It takes a long time to train a welder."

Wes Hallman of the National Defense Industrial Association said the absence of a DOD acquisition chief is "not OK" for many reasons.

"This is a vital role," he said. "This thing is set up with senior leadership for a reason. This is the office that is essentially the largest purchasing agent in the entire world. They are the ones that are setting acquisition policy for the entire DOD. They are the ones that are providing oversight for the programs that the services are running. Having effective senior leaders in that position is important."

Acting officials, he said, are doing "yeoman's work," but are postured to execute policy, not develop strategic guidance or actively seek input from industry.

"What industry doesn't like is uncertainty," he said.

On Oct. 15, NDIA sent a letter to its members alerting them that the association is communicating with defense and OMB officials about the implementation of the vaccine mandates.

"The overarching message coming out of these calls is that the administration is willing to take the risk of companies losing some employees," NDIA said. "They believe from their data that there will be 'noise up front and compliance in the back' as this directive is implemented (they continue to use the United Airlines case as an example of that where there are around 300 holdouts out of 67K employees). Also, their stated goal is the maximum number of Americans vaccinated, so they have given guidance to departments and agencies to broadly interpret and apply the mandate. Because we know your workforce is your most valuable asset and one that is not easily replaced, NDIA does not agree unnecessarily losing employees is an acceptable risk to our companies."

NDIA said they have "asked for flexibility (testing in lieu of vaccines, remote work, etc.) to be included in the policy along with clear, consistent guidance."

The association also said it has alerted the government that "with any loss of personnel, there are going to be impacts on contract execution; so, we've asked for explicit guidance from contracting officers for equitable adjustments."

NDIA officials said they continue to seek clarification from the government.

Not a 'cliff'

White House Coronavirus Response Coordinator Jeff Zients said during a Wednesday press conference the administration does not view vaccination deadlines for government workers and contractors as “cliffs.”

“The federal worker deadline is the 22nd of November, and the federal contractor deadline is not until Dec. 8,” he said. “But even once we hit those deadlines, we expect federal agencies and contractors will follow their standard [human resources] processes and that, for any of the probably relatively small percent of employees that are not in compliance, they’ll go through education, counseling, accommodations, and then enforcement.”

Zients said the process is expected to play out “across weeks, not days.”

“To be clear, we’re creating flexibility within the system,” he said. “We’re offering people multiple opportunities to get vaccinated. There is not a cliff here. And the purpose, I think, most importantly, is to get people vaccinated and protected, not to punish them. So, we do not expect any disruptions.”