DoD increases progress payments to contractors to shore up cash-strapped suppliers
WASHINGTON — The Pentagon has ordered contracting officers to increase so-called progress payments to suppliers amid concerns that many small businesses are running out of cash during the COVID-19 national emergency.
The progress payment rates for DoD contractors have been increased from 80 percent to 90 percent for large companies, and to 95 percent for small businesses, Kim Herrington, acting principal director for defense pricing and contracting, wrote in a March 20 memo.
Progress payments are made to contractors, usually on a monthly basis, for costs incurred and work performed under a contract. A 90 percent rate means that if $1 million in expenses are submitted on the program, DoD will reimburse $900,000.
“The move should help shore up smaller suppliers who may need assistance in March and coming months, particularly those that may also provide airlines with spare parts or commercial aerospace manufacturers,” defense industry analyst Byron Callan, of Capital Alpha Partners, wrote in an email to clients.
Pentagon spokesman Lt. Col. Mike Andrews, said DoD is working with industry groups to help “mitigate impacts from COVID-19.”
Andrews said in a statement March 22 that Undersecretary of Defense for Acquisition and Sustainment Ellen Lord is working with other DoD officials to help increase cash flow to the defense industrial base. In a memo on Friday, Lord said contractors in sectors such as aerospace, manufacturing and intelligence are part of the United States’ critical infrastructure and have to continue working during the coronavirus emergency,
With regard to progress payments, the Defense Contract Management Agency will “work on mass modifications to contracts where applicable, versus one-by-one,” said Andrews. “It is especially important to understand that during this crisis the defense industrial base is vulnerable to adversarial capital, we need to ensure companies stay in business.”
The Pentagon’s largest contractor Lockheed Martin on Twitter praised DoD for “enhanced progress payments targeted for small businesses. Lockheed Martin will do the same by flowing these funds to our supply chain partners.”