DoD and Congress using incentives, extra funds and other policies to keep defense companies cash positive

The Defense Department is using incentives, increased cost reimbursement and other policies to keep defense industries at work and afloat as the coronavirus continues to wreak havoc on the economy. At the same time, Congress is floating a second appropriations supplemental that will prop up defense supply lines and prime industry to respond to needs under the Defense Production Act.

Defense Undersecretary for Acquisition and Sustainment Ellen Lord said Wednesday that she formed a Joint Acquisition Task Force to respond to demands from FEMA, the departments of Health and Human Services and Homeland Security, and other agencies in need of medical equipment from the Defense Production Act (DPA). That law allows the government to require businesses to fill contracts for goods and services needed for national security, allocates resources in priority of national defense, makes scarce goods available to the government for emergencies and prohibits hoarding and price gouging.

“The task force will synchronize the DoD acquisition response to this crisis,” Lord said during a speech at the Pentagon. “It will work closely with all the services and defense agencies. The task force will leverage DoD authorities for maximum acquisition flexibility to provide resilient capability in the current health crisis.”

Stacy Cummings, DoD principal deputy assistant defense secretary for acquisition enablers and leader of the task force, will have the authority to prioritize and direct actions under DPA.

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The scope of the task force also includes building capacity in the defense industrial base, to include capability and workforce.

“There is a focus on reducing reliance on foreign sources,” Lord said.

The Senate Appropriations Committee released a bill Wednesday in response to the White House’s request for more money to deal with the coronavirus.

The $340 billion bill provides $1 billion for DPA to increase access to material necessary for national security and pandemic recovery. It provides $1.45 billion for the Defense Working Capital Funds to help the Defense Logistics Agency and military services mitigate the impact of the disease on production lines, supply chains, military depots and labs.

The bill also removes the $1 billion cap on advanced billings for the Defense Working Capital Funds and removes incurred cost limits on progress payments to improve cash flow to companies.

The bill waives restrictions on some other transaction authorities — a method of acquisition that circumvents federal acquisition rules for fast procurement — to “improve defense industrial base liquidity, particularly among small businesses, in its response to COVID-19,” a summary of the bill states.

Besides helping companies, the bill, which holds $10.5 billion for defense, provides money to expand IT infrastructure, funds the emergency deployments for the National Guard, funds medical supplies and pays for lab operations for anti-viral medications and the development of a vaccine.

Outside of additional funds and authorities, DoD is working with businesses to give them more leeway, make it easier to raise funds and providing guidance on who is considered an essential employee.

Deputy Assistant Secretary of Defense Policy Jennifer Santos said DoD is setting up three lines of effort when working with the industrial base.

The lines of effort are to: assess the impacts of COVID-19 on companies, exercising hypervigilance during economic uncertainty and promoting defense industrial capabilities to aid in a government-wide response to the virus.

“We are the help desk to industry and directing industry to the right agency in the DoD organization,” Santos said. “We have established a portal for companies to provide information on their operating status.”

DoD also created a supply chain heat map so leadership can understand where vulnerabilities lie.

“We have authorities we can leverage to help our supply chain,” Santos said. “Under DPA authorities DoD may provide economic incentives to industry partners to aid in the timely delivery of essential domestic resources.”

DoD also increased progress payments for repayment of costs incurred during a contract from 80% to 90% for large businesses and from 90% to 95% for small businesses.

“This will provide additional and immediate cash flow to industry once incorporated into the contract,” Kim Harrington, acting principal director for defense pricing and contracting, said.

Last week, Lord issued guidance on who is essential in industry so personnel can continue to work despite state guidelines to shelter in place.

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