DEFENSE CONTRACTING

COVID-19 NEWS: Defense Industry Bouncing Back as Pentagon Considers More Aid

7/13/2020
By Jon Harper
Lockheed Martin employees work on the F-35 Joint Strike Fighter production line

Defense Contract Management Agency photo

Defense contractors hampered by the coronavirus pandemic have made huge gains in opening up shuttered facilities, but the Pentagon is ready to provide more assistance where it can, according to a top official.

During the worst part of the crisis, about 130 of the companies tracked in the Defense Contract Management Agency’s database and more than 500 tracked in the Defense Logistics Agency’s database were closed, according to Deputy Undersecretary of Defense for Acquisition and Sustainment Alan Shaffer. Those numbers have now dropped to just one among the contractors DCMA is tracking, and about 30 among the firms DLA is tracking, he noted July 13 during the NATSEC 2020 virtual conference.

Hundreds of thousands of companies are part of the defense supply chain. Of those being tracked, fewer than 40 firms have laid off employees, he said. That compares favorably to other sectors of the economy where there are “major companies that are either closing or going out of business,” he noted during the conference which was co-hosted by the Navy League, the Association of the United States Army and the Government Matters television program.

Shaffer said the Pentagon deserves credit for helping keep companies afloat.

“The actions the department took to accelerate payment to our suppliers, sub-tier, actually allowed them to stay in operation,” he said. “If you ask me what the measure [of success] is, it's the number of companies that were able to continue to do their job through the pandemic and the crisis, and continue to provide product for national security.”

Since March 1, the Pentagon has taken contracting actions worth about $3.65 billion to help the industrial base. When Defense Production Act Title III activity and other assistance is taken into account, the amount of investment is closer to $4.5 billion, according to Shaffer.

Expanding progress payments provided about $3.3 billion, and about 90 percent of that went to sub-tier suppliers, he said.

However, the defense industrial base isn’t out of the woods yet.

“We're still gonna have some challenges as we go forward,” he said. “We are seeing some effect with the slowing down of some of the industrial base of increasing costs. And that's most notable in some of our industrial sectors that we've relied on for both commercial and military products.”

The aviation industry has been hit particularly hard. Projections from industry suggest that it will take two to three years for it to rebound, he noted.

“We're going to have to look at what we can do through Defense Production Act Title III [and] through other mechanisms to make sure that we remain viable” in that sector, he said.

Other areas the Pentagon is especially concerned about include everything from shipbuilding, space, soldier systems to clothing and textiles.

“Shipbuilding should be OK,” he said. “Clothing and textiles we had to shore up a little bit because so many of these are very small companies. We're watching the space industrial sector very closely because we've seen a contraction in the commercial side for space launch.”

The Pentagon is working with the Office of Management and Budget and pressing for additional funding from Congress in the next COVID-19 related stimulus package to offset about $10 billion in additional program costs stemming from the pandemic, he said. Officials want to flow that money down to sub-tier suppliers.

The Pentagon’s industrial policy office is also adding personnel to keep an eye on supply chain issues.

“Their primary job is to make sure we understand the fragility of the supply chain so that we don't have instances where we are reliant on a single fragile supplier,” Shaffer said. “When we get to that point, we will take action ... through Defense Production Act Title III” to purchase equipment and prop up critical suppliers, he added.

 

Topics: Defense Department, Defense Contracting

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