The Pentagon is reviewing whether to end a policy that sped up more than $8 billion in payments, much of it to the nation’s top defense contractors, with the intent that the dollars would flow to subcontractors coping with disruptions from the Covid pandemic.
(Bloomberg) — The Pentagon is reviewing whether to end a policy that sped up more than $8 billion in payments, much of it to the nation’s top defense contractors, with the intent that the dollars would flow to subcontractors coping with disruptions from the Covid pandemic.
The nation’s top three defense contractors — Lockheed Martin Corp., Raytheon Technologies Corp. and Boeing Co. — each have received more than $1 billion in such “expedited progress payments” of the total paid as of late December.
Acquisition officials are weighing a return to pre-Covid payment methods after President Joe Biden reassured the nation that “we’ve broken Covid’s grip” even though infections continue.
The policy’s intention was to get money to subcontractors more quickly to mitigate the pandemic’s effects, keep firms solvent and bolster cash flow. Under the policy, large companies received expedited payments for as much as 90% of incurred costs in billings, up from 80% previously. The figure climbed to 95% for small businesses, up from 90%.
Adding to pressure to return to normal schedules, fourth-quarter earnings data indicate the leading defense companies spent money on $15.5 billion in stock buybacks in 2021 and $14.6 billion in 2022, according to defense analyst Byron Callan. But there’s no evidence that any of the $8 billion has been diverted to those buybacks or share repurchases.
The Defense Department is continuing to review the progress payment rate and any changes “will be assessed in relation” to the Presidential National Emergency Declaration for the pandemic, Pentagon spokesman Jeff Jurgensen said in a statement. That March 2020 Declaration is scheduled to end May 11.
Lorenzo Williams, senior director of acquisition policy for the Aerospace Industries Association, said in a statement that “now is not the time to reduce cash flow to the defense industrial base” because “increased progress payments remain an important lifeline for the supply chain and a key tool for supporting industry’s capacity to surge.” He cited inflation and the need to help arm Ukraine as it fights back against Russia’s invasion.
But Callan, a defense analyst with Capital Alpha Partners, said the key issue is whether money going to defense giants helps “third and fourth-tier contracts invest and recruit and retain people.”
Lockheed Martin spokesman Trent Perrotto said in a statement that since March 2020 the corporation has accelerated $1.5 billion in payments to about 14,000 suppliers “while consistently prioritizing small businesses.” Spokespersons for Raytheon and Boeing declined to comment.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.