As COVID-19 swept across the United States in March and April and wreaked havoc on the daily lives of Americans, the Pentagon and defense industry were faced with an unprecedented crisis that forced them to take action to mitigate the impact on major programs and the supply chain. It's too early to tell what the long-term impact will be, officials and other experts say.
Companies are faced with two somewhat competing challenges of protecting their workers through social distancing and other measures while also meeting their obligations to the Defense Department.
"The short-term impact is a restriction on the supply chain. In many cases, an inability to deliver on a contract, deliver on capabilities, just because you're at a slower pace and you have to follow all the [safety] procedures... so you can't do things as rapidly," said Hawk Carlisle, president and CEO of the National Defense Industrial Association. "There's clearly an impact, and I think it's going to continue to be a challenge."
As state and local governments began shutting down all "non-essential" businesses in their jurisdictions to slow the virus' spread, the Pentagon was faced with the possibility that weapons makers and others in the military supply chain wouldn't be allowed to go to work. In response, the federal government declared the defense industrial base to be a critical infrastructure sector, and Undersecretary of Defense for Acquisition and Sustainment Ellen Lord sent a memo to contractors making clear what was expected of them.
"Companies aligned with the essential critical infrastructure workforce definition are expected to maintain their normal work schedules," she said. "If your contract or subcontract supports the development, production, testing, fielding or sustainment of our weapon systems/software systems, or the infrastructure to support those activities, [your efforts] are considered critical infrastructure. If your efforts support manning, training, equipping, deploying, or supporting our military forces, your work is considered critical infrastructure."
Lord later told reporters her move was driven by concerns she was hearing from industry that state and local governments had different shelter-in-place rules and guidelines, with some even issuing misdemeanor citations to employees trying to get to work.
Facilitating the flow of money to contractors has also been a concern for the Pentagon. It increased progress payment rates for contracts from 80 percent of cost to 90 percent for large businesses, and from 90 percent to 95 percent for small businesses.
The department also moved to expedite payments to prime contractors, and directed them to expedite their payments to subcontractors. Additionally, it sought to make Small Business Administration emergency loans available to firms in distress.
Nevertheless, program hiccups are inevitable, officials acknowledge.
Kim Herrington, acting principal director for defense pricing and contracting, sent a memo to acquisition executives about how to deal with the extraordinary situation.
"The effects of COVID-19 will affect the cost, schedule and performance of many DoD contracts," he wrote. "Many...