In an effort to spur cash flow during the coronavirus pandemic, the Pentagon will boost percentages paid to contractors for the time being, The Washington Post reported.
For now, percentages for contracts for large businesses will rise from 80 percent to 90 percent, while percentages for small businesses will rise from 90 to 95 percent, according to Lt. Col. Mike Andrews, speaking for the Pentagon this week.
The Pentagon hopes the change will help un-clog the cash flow amid the economic slowdown, speeding up payments to prime contracts and asking those contracts to hasten payments to subcontractors. The agency managing contracts will also work with the Pentagon to keep invoices going through at normal rates.
The idea behind the easing of rates is for bigger contractors to help smaller ones, according to Byron Callan, defense industry analyst with Capital Alpha Partners. And unlike in the past, the industry could risk public ire if the companies' increased payments are used to do things like generate share buybacks. Callan said management would likely be “tarred and feathered” in that case.
Mandy Smithberger with the Project on Government Oversight, a watchdog group, said the Pentagon should commit to ensuring that the extra cash won’t be used for stock buybacks, dividends and other benefits that wouldn’t reach most workers.
Shay Assad, who worked with the Pentagon on pricing and contracts financing until retiring last year, said the boosted percentages were a ripoff for the taxpayers, and that the cost of borrowing from banks wasn’t great enough to warrant changing things in that way.
Employees at the Pentagon are considered essential under the coronavirus pandemic, which, according to acquisition head Ellen Lord, means they’ll need to keep their normal work schedules insofar as they’re also following guidelines from the Centers for Disease Control.
The news comes as one U.S. Department of Defense contractor died after being infected with the virus. The contractor, who worked for the Defense Security Cooperation Agency in Crystal City, Virginia, tested positive for the coronavirus recently and died on Saturday (March 21), according to the Pentagon.
Talks of assistance for industries crippled by the impact of the coronavirus have been happening across the board as of late, with the Fed unveiling an aid package of billions for a range of businesses and Congress still figuring out how to approach its own such package, still not decided as of March 23.