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Law360 (April 20, 2020, 10:16 PM EDT ) The U.S. Department of Defense's acquisition chief said Monday that the agency is pumping billions of dollars into its industrial base to help address impacts from COVID-19, which include delays across its major weapons programs.
The DOD has made a slew of recent changes intended to help increase cash flow for its industrial base, such as making sick leave for contractor employees affected by the coronavirus pandemic a reimbursable cost and increasing spending on small business contracts by hundreds of millions of dollars, Ellen Lord, undersecretary of defense for acquisition and sustainment, said in a press conference at the Pentagon.
One notable example is a recent update to DOD regulations to allow for higher progress payments to contractors, which has been quickly incorporated into around 1,500 existing contracts, according to Lord.
"Based on submitted invoices, we expect payments at the higher progress payment rate to start this week, helping provide $3 billion in increased cash flow to industry," she said.
Lord praised the Pentagon's two largest contractors, Lockheed Martin Corp. and the Boeing Co., for making public commitments to enabling higher progress payments to quickly flow down their supply chains to small businesses most affected by COVID-19, while calling for similar announcements from other large "prime" contractors.
Lockheed CEO Marillyn Hewson announced in March that it would provide $106 million in accelerated payments to suppliers, adding another $50 million to the pledge on Apr. 9. Hewson has said she anticipates the DOD's new progress payment policy will enable a total "flow down" of about $450 million in accelerated payments to Lockheed's suppliers.
But despite efforts by the DOD and some prime contractors to support the industrial base, COVID-19 is still having a noticeable impact on defense contractors, particularly affecting the aviation industry supply chain, shipbuilding programs and smaller space launch providers, Lord said.
As a result, the department is seeing schedule delays and "inefficiencies" across its portfolio of major acquisition programs, according to the acquisition chief.
"Right now, there isn't any specific COVID penalty that we see for a specific program," she said. "However, we do anticipate about a three-month slowdown at slower rates in terms of execution than we saw before."
Part of the solution to the issue is to try to address "international dependencies" discovered by the DOD that are impacting U.S. businesses, with many major defense contractors particularly affected by business shutdowns in Mexico, according to Lord. She said she had written to Mexican Foreign Secretary Marcelo Ebrard to ask for his help in reopening Mexican suppliers.
The DOD will also call on Congress to provide additional funding for its contractor assistance programs in the next package of coronavirus-related legislation following the recent Coronavirus Aid, Relief and Economic Security Act, according to Lord.
While the details of the department's request are still being discussed with the Office of Management and Budget, it will be "billions and billions" of dollars, she said.
--Editing by Breda Lund.
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