Defense Industry to DOD: If We Send Workers Home, Will You Penalize Us?

Defense industry executives are being forced to choose between risking employees’ health by sending them into factories amid the coronavirus outbreak, or missing the delivery deadlines in their Pentagon contracts.

Initially, many contractors welcomed the federal government’s March 20 declaration that the defense industrial base is a critical part of America’s infrastructure, and that a good portion of its employees would be “expected to maintain their normal work schedule.” But just four days later, as the COVID-19 death toll rises and state after state announces stay-at-home orders, it has become clear that normal work schedules aren’t generally advisable — or even possible.

On Wednesday, Boeing will shut down its massive assembly factories in the Seattle region that build commercial airliners and military tankers and submarine-hunting aircraft. While some work can be done remotely, such as the re-engineering of the KC-46 refueling system, assembling the planes and their unique components cannot.

The Maine AFL-CIO is calling upon General Dynamics to send its 8,000 workers home from the Bath Iron Works shipyard, where an employee tested positive for COVID-19. More than 100 people in Maine are known to have contracted the virus.

“What really is critical to national security in general is not the on-time delivery of products and services, but the people who provide those products and services,” Frank Kendall, who was the Pentagon’s top weapon buyer during the Obama administration, argued in a Forbes commentary on Sunday. “The right thing to be doing now is to properly balance the health and safety of those people against the immediate needs of the government and the costs of adjustments.”

Late on Friday night, Pentagon leaders announced a measure intended to help soften the pandemic’s blow to the defense industry: paying contractors more quickly.

“[T]he department is accelerating payments through several means to prime contracts and directing prime contracts to expedite payments to subcontractors,” Lt. Col. Mike Andrews, a Pentagon spokesman, said in a March 22 emailed statement.

Lockheed Martin, the Pentagon’s largest supplier, said in a tweet that it would distribute these advance funds to the smaller companies that form its supply chain.

But uncertainties remain. State stay-at-home laws could prevent defense-industry employees from showing up to work, although that’s not widely expected.

And it’s unclear whether the Pentagon will punish companies that delay deliveries because they are trying to slow the spread of the coronavirus among their employees.

Kendell, for one, interprets the March 20 guidance as an order to keep working — virus or no virus.

“The Pentagon’s guidance is in effect telling industry that the government does not intend to pay for delays industry imposes by implementing social distancing in the workplace or, when that isn’t possible, stopping work altogether,” he wrote. “The Pentagon is also giving defense contractors a license to tell their work forces, ‘we’re sorry, but the government has told us you have to come to work, in spite of the health risk.’”

As Roman Schweizer, an analyst with Cowen & Company, put it in a Sunday evening note to investors: “These new policies provide clarity on issues companies have been concerned about, but we do not think they alleviate all of industry's concerns nor do they eliminate all the disruption. But they are positive signs that DoD will help mitigate reasonable impact.”

Still, executives are worried about their workforce and supply chains, many of which rely on the commercial aerospace sector, which is reeling as air travel plummets. At press time, Congress was close to passing a $2 trillion aid package that would bailout airlines and other industries hit hardest by the outbreak.

“Public health and safety are essential, but so are tools to help our employees and businesses bridge the gap created by COVID-19,” Eric Fanning, CEO of the Aerospace Industries Association, said Tuesday evening in an emailed statement. “It is essential for American leaders from both parties and at every level to put politics aside and take immediate action to help our country move forward. Time is of the essence, and the stakes couldn’t be higher.”

The National Defense Industrial Association, on behalf of the Pentagon acquisition and sustainment office, is surveying small businesses to get a better understanding of COVID-19’s ultimate impact.

Defense companies, especially the large ones, are less vulnerable to taking a funding hit, in the near-term because Congress has already appropriated funding for their projects.

“There’s probably some nervousness about how long this goes on and whether the politics of this shifts money away from defense and over to other priorities [like] restoring the commercial economy,” a former senior defense official said. “Right now, most of them are probably concerned about what’s going to happen to their cash flow and their ongoing business.”