The Pentagon is scaling back a Covid-era program that sped up more than $8 billion in payments to top defense contractors, the department announced Monday.
After July 7, contracts issued to the major defense manufacturers will revert to pre-Covid payment schedules, the Pentagon said. The change won’t apply to existing contracts, and small businesses will continue to receive expedited payments.
Under the March 2020 policy, large companies received expedited progress 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%. 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.
Pentagon Mulls End to Covid Era’s Fast-Tracked Contractor Funds
The change was unveiled after the White House said it was declaring an end to the nation’s Covid emergency. The statement said that the gradual changes are meant “to minimize disruption to the defense industrial base.”
“Existing contracts, task orders, and delivery orders with large business contractors will retain the higher 90% rate for the life of a given contract,” it said.
The Pentagon was under some pressure to revise or end the March 2020 policy and return to the earlier rates as 2022 fourth-quarter earnings data indicated the leading defense companies spent money on $15.5 billion in stock buybacks in 2021 and $14.6 billion in 2022, according to a compilation by defense analyst Byron Callan.
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 $8 billion paid as of late December.
No. 1 contractor Lockheed Martin in an SEC filing outlining its 2022 performance said “we accelerated payments of $1.5 billion to our suppliers” as of December 31 “that are due according to contractual terms in future periods, while consistently prioritizing small businesses, which make up over half of our active supply base, as well as at-risk businesses.”
Since the March 2020 increase the company said it accelerated payments to approximately 14,000 suppliers.
Senator Elizabeth Warren of Massachusetts, who monitors Pentagon acquisition practices as a member of the Armed Services Committee, said in a statement that although she was “glad the Department of Defense is reversing the policy I remain concerned that this has benefited contractors more than it has DoD.”
(Updates 10th paragraph, with Warren quote.)