Defense Undersecretary for Acquisition and Sustainment Ellen M. Lord said the department is on the hook for billions of dollars in COVID-19-related costs, saying the Pentagon already has submitted its request to cover the claims to the Office of Management and Budget.
Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act, which passed in March, states that federal agencies can reimburse contractors for additional expenses required to keep work moving through the outbreak. Defense companies have reported billions in added costs for things such as protective equipment, cleaning, infrastructure changes, and paid leave as the new coronavirus outbreak spreads.
Lord told reporters on June 22 that OMB is now reviewing the Pentagon’s request, which is in the “lower double digits” of billions and was tallied by the Defense Contract Management Agency and the Defense Contract Audit Agency. These organizations are also vetting the claims to avoid fraud, Lord said.
“We do things in a very deliberate way in DOD, so we are working through defense pricing and contracting, along with DCMA, DCAA, the comptroller to make sure we have clear mechanisms to identify the data that substantiates those 3610 claims, so we will have a very substantive data set by which we will make recommendations,” she said.
Lord raised the issue in a June 10 House Armed Services Committee hearing, during which she said the COVID-19 outbreak has had such an impact that one company alone was planning to submit a claim for more than $1 billion. Lawmakers need to provide supplemental funding to cover the costs, or the Pentagon will have to use readiness and modernization funds to pay, Lord said during the hearing.
As most of the country has been reopening following months of lock down measures, Lord said she is seeing improvements in the defense industrial base. While this varies depending on location and the type of work being performed, companies have made “enormous progress” in coming back. For example, there are just two companies tracked by the DCMA that are closed, out of 10,509 total, and three tracked by the Defense Logistics Agency that are closed, out of 11,413.
In April, Lord forecasted about a three-month delay to defense acquisition across all major programs, and as of June 22 she said that prediction still holds.
While much of the industrial base has been teleworking, “obviously for manufacturing we need people on the line, so we’re doing things differently in terms of following CDC guidelines and so forth,” she said. “We’re getting back up to speed. We don’t know what that new normal on speed [is], but we see an enormous amount of recovery and we think there’s roughly a three-month impact, but we’ll continue to monitor.”