DOD looks to improve cash flow to suppliers and subcontractors

By Tony Bertuca  / July 17, 2023

The Pentagon is seeking public input for how it could potentially accelerate payments to defense suppliers and subcontractors following the release of a comprehensive contract finance study.

The study, the first of its kind since 1985, was published in April and found that, while the defense industry is generally healthy, the supply base and lower-tier contractors “generally do not receive favorable cash flow benefits as consistently or to the same extent enjoyed by defense prime contractors,” according to a notice in the Federal Register.

The finding is “crucial,” according to the notice, because the Government Accountability Office estimates that between 60% and 70% of all defense work is performed by subcontractors.

Now, the Defense Department is soliciting public comments for how it could improve the process.

“In response to the findings of the DOD Contract Finance Study, the department is investigating ways to improve cash flow and payment timeliness for the supplier base,” the notice states. “Enhancements in this area would not only improve the financial health of defense subcontractors and suppliers, but could potentially assist in attracting new entrants into the Defense Industrial Base, including at the supply chain level.”

Comments must be submitted on or before Sept. 12.

Defense contract financing has proven controversial in the past, including the high-profile withdrawal of a 2018 policy intended to tie defense contractor cash flow to performance-based metrics.

Following the release of the study, the Pentagon returned to the pre-pandemic progress payment rate of 80% for large businesses but is keeping smaller businesses at the accelerated rate of 95%.