DoD expects three month acquisition delays, billions in payouts to contractors

The Defense Department will suffer serious setbacks on developing weapons and pay companies billions of dollars in relief funds as a result of COVID-19.

The Pentagon expects a three-month delay across the board for major acquisition programs, putting a kink in systems like the Ford Class Aircraft Carrier, the Columbia Class Ballistics Missile Submarine and the Next Generation Operational Control System.

“Particularly, we see a slowdown in the shipyards,” Ellen Lord, defense undersecretary for acquisition and sustainment, told reporters Monday at the Pentagon. “Aviation is the most highly impacted sector that we have. Right now there isn’t any specific COVID penalty that we see for a specific program; however, we do anticipate a three-month slowdown in terms of execution.”

Lord said DoD is now starting to look at key procurement milestones that may be impacted by the delays.

Meanwhile, DoD is just beginning to take into account the amount of money in relief funds it will have to pay out to companies unable to do government work because of the coronavirus.

Lord said the Pentagon did not have a solid number on what DoD will pay, but is using the term “billions and billions” of dollars.

The stimulus package allows companies to ask for government relief to pay employees in the circumstances where businesses could not perform tasks due to government restrictions or facility closures.

Lord said the Pentagon is in discussions with Congress on providing funds in the new stimulus package to pay for that relief.

Propping up companies

The Pentagon is still worried about its industrial base and made a handful of policy changes to keep companies liquid.

Right now, 106 of the more than 10,509 prime companies are closed; 68 others closed previously, but have since reopened. For vendor-based companies, 427 of the 11,413 closed. A total of 147 closed and reopened.

As far as implementing new policies that will help businesses stay afloat, Lord said DoD expects to start paying high progress payments this week.

“This will provide $3 billion in increased cash flow to industry,” Lord said.

The Pentagon is relying on major prime companies to trickle those payments down to small businesses who do work for them.

DPA work

As all of this is happening, the Pentagon and military services are trying to put as much on contract as possible and get companies working on medical supplies as well through the Defense Production Act.

DoD plans on spending $750 million from the stimulus package on DPA needs and $250 million on industrial base security.

DoD is working with Health and Human Services and FEMA to contract $500 million in medical supplies and equipment. That includes a plan to provide 60 decontamination systems to sterilized up to 80,000 N95 masks a day.

Lord said those systems are being ordered and some have been delivered.

The Defense Logistics Agency has provided 1.8 million N95 masks, 54.8 million exam gloves, 8,000 ventilators and 275,000 isolation and surgical gowns to the services and federal agencies. DoD also ordered 3 million face coverings for troops, of which 135,000 will be delivered by the end of April and 580,000 by the end of May.

Lord said she is currently not following the pricing of those materials. However, some concerns about price gouging have arisen.

For example, the House Oversight and Reform Committee is investigating Royal Phillips N.V. for selling ventilators for prices as high as $17,000, when just months ago they cost about $3,300.

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