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By: Aaron Mehta
Updated 3/20 at 6:45 PM EST with new comment from Bialos.
WASHINGTON — The U.S. Defense Department has declared that defense contractors are “critical infrastructure” to national security, a designation that comes with an expectation to maintain a consistent, normal work schedule amid the outbreak of the new coronavirus, COVID-19.
In a Friday memo to industry, Undersecretary of Defense for Acquisition and Sustainment Ellen Lord made it clear that she wants defense companies to continue to deliver their products and services to the Pentagon on time.
“If you work in a critical infrastructure industry, as designated by the Department of Homeland Security, you have a special responsibility to maintain your normal work schedule,” Lord wrote. “We need your support and dedication in these trying times to ensure the security of this Nation. I understand that this national emergency presents a challenge and we are dedicated to working closely with you to ensure the safety of the workforce and accomplishments of the national security mission.”
Lord also spelled out large swaths of the industrial base for which this order applies, including the aerospace sector; mechanical and software engineers; manufacturing/production workers; IT support; security staff; security personnel; intelligence support; aircraft and weapon systems mechanics and maintainers; suppliers of medical suppliers and pharmaceuticals; and critical transportation.
Included in the designation are personnel working for companies as well as subcontractors who perform under contract for the department. Contractors who perform tasks such as providing office supplies, recreational support or lawn care are not considered essential.
By designating the defense industry in such a way, companies involved may be able to get around state-directed shutdowns such as the one in New York right now. Similarly designated workers include, among many others, law enforcement, health care providers, water and power authorities, and IT support for emergency services — all of whom are still on duty in the current crisis.
In the memo, Lord noted, companies involved should “follow guidelines from the Centers for Disease Control and Prevention as well as State and local government officials regarding strategies to limit disease spread.” Some companies have instituted work-from-home policies where applicable, although in cases such as production of defense equipment or work in secure facilities, that option appears unrealistic.
Force of law?
Things may not be as cut and dry as Lord's memo makes it seem, warned Jeff Bialos, a partner with the Eversheds-Sutherland law firm and former deputy under secretary of defense for industrial affairs.
He notes that Lord's memo is based on guidance, put out the day before by the Department of Homeland Security, which does not carry with it the force of law to override decisions on work stoppage that may come from a state.
“These are guidelines only. They do not have the force of effect of law,” Bialos warned.
Bialos thinks the memo may be a useful tool for industry to turn to local governments that are eyeing a work shutdown and say they should be given an exemption. But should the local government decide not to grant that exemption, how much force the memo may have is unclear.
“Thee's no slam dunk here. Everyone is struggling with these issues. And I think what this memo does is put another arrow in the quiver of a company that wants to keep doing business to meet defense needs. And it also is a document companies can provide to localities and states, and say ‘please give us an exemption.'”
In a statement released late Friday, Lt. Col. Mike Andrews, a spokesman for Lord, said the undersecretary met today with Senate Armed Services Committee chairman Sen. Jim Inhofe, R-Ok., on the memo and other issues.
Lord “remains committed to daily communication and collaboration with the defense industrial base, especially the defense industry trade associations. In addition, she'll be contacting several state Governors to discuss state-specific critical infrastructure and essential workforce efforts,” Andrews said, adding that a daily call between members of Lord's team and industry associations continues.
Jerry McGinn, a longtime official at the department's Office of Manufacturing and Industrial Base Policy, said the move was the right one to make.
“You're essentially trying to keep that workforce engaged and supporting that customer. This is trying to give DoD organizations flexibility to reduce contract disruptions, stop-work orders, and other actions that could impact the contractor workforce” said McGinn, now executive director of the Center for Government Contracting at George Mason University.
“And that in general is a good thing. It's not something you want to do for six months, because then you might have trouble monitoring performance, but for this critical time it seems like a reasonable kind of thing to do.”
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Nathan Strout and Valerie Insinna Satellite communications provider Intelsat declared bankruptcy May 13, although its subsidiary which provides services to the Department of Defense is not part of the Chapter 11 proceedings. CEO Stephen Spengler spun the action as a positive move, claiming it gave the company more financial flexibility for the Federal Communication Commission's clearing of C-Band spectrum to make way for 5G uses. Major satellite communications companies, including Intelsat, saw their stocks take a massive hit last fall when FCC Chairman Ajit Pai announced plans for a public auctioning of C-Band spectrum, which C-Band holders like Intelsat had hoped to sell off directly. The company says it will need to spend more than $1 billion to meet the FCC's deadlines for clearing out C-Band spectrum, which it needs to do in order to be eligible for $4.87 billion in accelerated relocation payments. Wiping the company's significant legacy debt off the books will help it accomplish those actions, said Spengler. “We intend to move forward with the accelerated clearing of C-band spectrum in the United States and to achieve a comprehensive solution that would result in a stronger balance sheet,” said Spengler in a statement. “This will position us to invest and pursue our strategic growth objectives, build on our strengths, and serve the mission-critical needs of our customers with additional resources and wind in our sails.” Subject to court approval, the company said in a statement it had already secured $1 billion in new financing in debtor-in-position funds, giving it the liquidity to continue current operations and finance C-Band clearing costs spurred by the Federal Communications Commission. The company claims that day-to-day operations will not be impacted by the restructuring process—it will continue to launch new satellites and invest in its network with no changes planned. The Chapter 11 petitions for Intelsat and some of its subsidiaries were filed with the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division. However, Intelsat General, which provides satellite communications to the U.S. military and allied military customers, is not part of the bankruptcy proceedings. “The immediate concern (for DoD) is continuity of operations and it sounds like that is not going to be a big issue,” said Todd Harrison, director of the Aerospace Security Project at CSIS. “The longer term concern for DoD is how does Intelsat eventually emerge from bankruptcy, and is there any kind of transfer in ownership or an increase in ownership stake that would be concerning from a national security perspective.” Specifically, investment from Chinese companies could raise alarms for the military and the Committee on Foreign Investment in the United States. “I think that's something that DoD will be watching, that Treasury will be watching,” he said. “It will be a positive side from DoD's perspective if wherever the capital is coming from is from a U.S. source.” When asked about potential Chinese investment in a bankrupt Intelsat May 14, U.S. Air Force Assistant Secretary for Acquisition, Technology and Logistics Will Roper acknowledged he had concerns. “It's a topic that's harder for me to talk about, but we are mindful of adversarial tactics in this period. Every crisis is an opportunity, and with companies coming under duress it is an opportunity for predatorial tactics targeting IP that countries would not have access to otherwise," he told reporters. Furthermore, Roper noted that the decision to financially support a company like Intelsat to prevent foreign investment requires a different calculus than a traditional stimulus. “The way to engage if we risk losing IP to a nation for whom it's not in our interest to have it, it's a very different strategy (than whether we) should engage to prop up a company through stimulus," he said. "When the former appears to happen, then we need to pivot into a different gear than we would be in the latter. We simply cannot do stimulus for every company that is in duress right now.” Intelsat isn't the only major satellite company to declare bankruptcy. OneWeb—who have been building a proliferated low earth orbit constellation to provide broadband—declared bankruptcy in March. DoD had been exploring utilizing OneWeb for communications in the Arctic among other things, and Lt. Gen. David Thompson, vice commander of Headquarters Space Force, noted earlier this week that the department's new Space Acquisition Council was looking into helping OneWeb and other financially vulnerable space companies impacted by COVID-19. Intelsat noted in a statement that several of its end markets had been impacted by COVID-19. Roper said he was concerned with how COVID-19 was disproportionately affecting space and aviation companies, which rely more heavily on commercial revenue than other parts of the defense industrial base. “That's why we've taken such aggressive means to accelerate contract awards," said Roper. “We're worried about space, as well, especially microelectronics. All of the Space Acquisition Council shares that concern. And as we see the Chapter 11s being filed—we're tracking them—but our concern as an acquisition enterprise has got to be industrial base health and not picking winners or losers with specific companies. It's ensuring that we are engaging to have a healthy industrial base on the other side." Roper added that he had approved the acceleration of a major satellite award that should be announced this week as part of the department's efforts to increase the flow of funding to defense companies during COVID-19. https://www.c4isrnet.com/battlefield-tech/space/2020/05/14/intelsat-declares-bankruptcy/