By Daniel Wilson

Law360 (April 30, 2020, 8:45 PM EDT ) The Pentagon's acquisition chief said Thursday that her department is working with the U.S. Department of the Treasury to identify defense firms appropriate for a $17 billion COVID-19 loan program, noting that fewer than 20 businesses have used the program so far.

As part of the broad slate of new federal support programs for businesses impacted by the coronavirus pandemic, Congress set aside $17 billion specifically for suppliers "critical to maintaining national security." But restrictions on the program meant that fewer than 20 companies had actually taken advantage as of Wednesday, Ellen Lord, undersecretary of defense for acquisition and sustainment, said in a press conference at the Pentagon.

Treasury has limited the program to firms given DX ratings under the Defense Production Act, a designation used for programs considered to be of the "highest national priority," and to companies with Top Secret facilities.

But DX-rated companies don't seem to have a critical need for capital because their supply chains are already responding to that designation, and there are also hoops that companies need to jump through to participate in the loan program that are particularly difficult for public companies, according to Lord. Among other conditions, public companies need to offer equity to the government.

"The challenge is that this $17 billion worth of loans come with some fairly invasive kind of riders on it, and I think companies have to think very carefully about whether that makes good business sense for them," she said.

Treasury, however, has "been very open to ideas" on how to expand the loan program, and the U.S. Department of Defense intends to deliver a list of defense firms next week that might benefit from participation, Lord said. However, that will require Treasury to extend the deadline for applications, with the current deadline expiring on Friday.

Following up on her April 20 press conference on the state of the defense industrial base, Lord said that the aviation supply chain, shipbuilding programs and smaller space launch providers continued to be the defense industry sectors most affected by COVID-19.

But the trend for the industrial base more broadly is positive, Lord said. For example, of 10,509 companies that are tracked by the Defense Contract Management Agency, 93 are currently closed, down 13 from the previous week, according to Lord.

There are also 141 companies tracked by the DCMA that have reopened after closing, up 73 since the last update, she said. That is the first time since the pandemic began that reopening numbers were greater than closures, Lord noted.

About $1.2 billion of increased payments to DOD suppliers were invoiced this week under new rules increasing the amount of progress payments the department can make, from 80% of incurred costs to 90% for large contractors, and from 90% to 95% for small businesses, Lord said.

That has put the department on track to complete within the next two weeks the full $3 billion in accelerated payments it had anticipated after tweaking roughly 1,400 existing contracts to account for the new rule, she said.

Although not all of them have been as publicly vocal as Lockheed Martin Corp. — which has pledged to "flow down" $450 million in accelerated payments to its suppliers — the DOD's largest contractors have all made detailed plans to get payments to their supply chains quickly, especially small business subcontractors and suppliers that are in distress, according to Lord.

--Editing by Jill Coffey.

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