Industry could wait months for COVID reimbursements from Pentagon

By: Aaron Mehta

WASHINGTON — As the defense department seeks billions in emergency funding to reimburse industry for costs incurred during the COVID-19 pandemic, the Pentagon's top acquisition official pledged not to rush that money out the door.

Speaking at the annual Defense News Conference, Ellen Lord, undersecretary of defense for acquisition and sustainment, said it will likely take five to six months before any reimbursements to industry under the Coronavirus Aid, Relief, and Economic Security (CARES) act will take place as the department seeks a “very data driven approach” to that money.

Section 3610 of the CARES act allows firms serving the federal government to seek reimbursement for pandemic-related expenses, but Congress hasn't passed corresponding appropriations. Defense officials have said they need roughly $10 billion, and that without added funding from Congress, the Pentagon would have to dip into modernization and readiness funds.

“We believe we need that appropriation to maintain readiness because if we do not get that what we are going to find is we are not going to get the number of units delivered, we are not going to maintain warfighter readiness, we're not going to move forward in modernization,” Lord said. “We would like to take the one-time hit and then see where we go from there.”

Should Congress appropriate the requested funds, the Pentagon would issue a request for proposal, with the large primes gathering data from up and down their supply chains before returning with their requests to the Pentagon. That process will likely take two to three months, Lord said.

“Then we want to look at all of the proposals at once. It isn't going to be a first-in-first-out and we have to rationalize using the rules we've put in place, what would be reimbursable, and what's not,” she added. “So overall, we think five to six months, in terms of a process.”

When the COVID pandemic struck in March, hundreds of defense subcontractors had to close up shop. As of now, only 30 remain shuttered, Lord said, although she acknowledged that the department is keeping a wary eye on the situation.

“What we are looking for is whether or not we're maintaining warfighter readiness for our production programs, and then relative to modernization, whether we are hitting key milestones relative to development programs,” she said. “We have seen some slowdowns. We are carefully monitoring, using monthly metrics, where we are.”

While the most recent round of quarterly earnings reports from public defense companies did not show a major slowdown from COVID, Lord warned that those reports “in large part don't reflect the hits that were taken by business,” warning of a “delayed response” in terms of the diseases' economic impact on the sector.

“I would contend that most of the effects of COVID haven't yet been seen, because most companies gave their employees time off, they stretched out production, paid a lot of people for working 100% when perhaps they were only getting 50% of the hours in and so forth,” she said.

“So I think the system has absorbed it up to this point in time. Now when we get to the point where we're having payments and incentive fees and award fees earned, and if we haven't done the deliveries, that's where you're going to see the hit.”

https://www.defensenews.com/smr/defense-news-conference/2020/09/09/industry-could-wait-months-for-covid-reimbursements-from-pentagon