By Seth Locke, Alexander Canizares, Paul Korol
Defense contractors’ costs resulting from the COVID-19 crisis are projected to be in the “lower end” of the “double-digit of billions of dollars,” according to Ellen Lord, Undersecretary of Defense for Acquisition and Sustainment, who testified before Congress on June 10, 2020.
Ms. Lord told the House Armed Services Committee that COVID-19–related costs facing the defense industrial base include paid leave costs as well as costs related to stop work orders, purchases of personal protective equipment, cleaning and sterilization, and scheduling delays.
Ms. Lord said that, without additional appropriations from Congress, the Department of Defense (DoD) will likely be unable to meet the costs of reimbursing contractors for paid leave under section 3610 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Section 3610 has been a key area of focus for industry, as it allows agencies to reimburse contractors to keep their employees in a “ready state” during the pandemic.
Ms. Lord noted that the statute authorized reimbursement but did not appropriate funding, and that “the cost for 3610 is likely well beyond” DoD’s current resources. Ms. Lord testified that DoD has not yet received any requests for reimbursement under section 3610. She indicated that contractors may be holding off on seeking reimbursement due to the lack of appropriations. She noted that one major prime contractor has estimated that Section 3610–related cost impacts for itself and its suppliers could reach $1.5 billion. She testified that, due to COVID-19, there have been 960 cumulative closures and 859 reopenings, leaving 101 companies closed. She said the most significant impacts have been in the aviation, shipyard, and satellite launch industries.
Ms. Lord testified that DoD has been reviewing comments from industries related to Section 3610 and expects to publish additional guidance in the next 30 days.
Ms. Lord also addressed DoD’s efforts to help procure critical supplies to combat the spread of COVID-19 under the Defense Production Act (DPA) of 1950, which grants the president authority to expand the production of critical materials and goods in support of the national defense. According to Ms. Lord, DoD is using the DPA to allocate $312 million funded under the CARES Act toward capital investment and purchases for national security and pandemic recovery. DoD plans to use an additional $688 million funded under the CARES Act to make purchases under Title III of the DPA, including $150 million for shipbuilding and $171 million for aircraft propulsion.