The Pandemic Has Cost the Pentagon at Least $13.6B and Counting

The coronavirus pandemic has cost the Pentagon at least $13.6 billion over the past year and more costs are expected as the military increases its testing of civilian personnel, according to U.S. defense officials.

The current total includes an estimated $7.1 billion to reimburse defense companies for pandemic-related expenses and $6.5 billion for “other COVID-related costs,” said Pentagon spokeswoman Jessica Maxwell.

Deputy Defense Secretary Kathleen Hicks, who in July visited destroyer-maker Bath Iron Works and the Navy’s Portsmouth Naval Shipyard, said she saw firsthand how the pandemic was affecting the shipbuilding sector. 

“It's pretty clear that the pandemic has taken a toll on both the supply chain to get parts up to the shipyards and also with regard to the ability to bring the workforce together,” Hicks said Wednesday at the Defense News Conference. “We know it's had a real impact.”

Hicks would not say whether the Pentagon would continue a popular policy of paying contractors more money up front. Executives have championed the practice, which was put in place early during the pandemic, saying it has allowed them to increase cash flow to the small suppliers, especially those that have lost commercial revenue due to the decline in passenger air travel.

“We are certainly looking closely at...ensuring that [the] defense industrial base is sound for the future,” Hicks said. “Progress payments are part of how we think about looking out for our supply chain, but it's not the only tool and obviously...different parts of the supply chain are having different effects from the pandemic.”

Jim Taiclet, CEO of defense giant Lockheed Martin, has called on the Pentagon to make the increased changes permanent. Lockheed has said the increased payments have saved some of its suppliers. 

Section 3610 of the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, allowed defense companies to recoup money they used to keep assembly lines running during the pandemic. While Congress authorized those funds, it never passed an appropriations measure. A number of trade organizations are pushing Congress to extend Section 3610 benefits, which expire at the end of September, in light of the COVID-19 Delta variant. 

The Pentagon estimates about $7.1 billion of its COVID-related costs are covered by the CARES Act, according to Maxwell, the Pentagon spokeswoman.

“The Department acknowledges there are a number of pandemic-related cost impacts that are separate and distinct from the paid leave costs associated with Section 3610,” Maxwell said in an email. 

The remaining $6.5 billion is what the Pentagon calls “other COVID-related costs,” which “will delay development programs, impact production deliveries, organic industrial base operations, and contract maintenance,” she said. The figure is based on estimates received from “major defense contractors.”  

Over the past year, companies have missed key deadlines on a number of major weapons projects, which they ascribed to supply chain issues caused by facility shutdowns, sick employees, and other pandemic-related factors. For instance, Lockheed Martin delivered 21 fewer F-35 than planned in 2020 due to the pandemic, while Boeing has blamed COVID for delays in building a new Air Force One.

“As situations may differ for each company and contract, the Department handles missed delivery goals on a case-by-case basis,” Maxwell said.

The Pentagon, Hicks said Wednesday, could have some “near-term expenditures” to perform COVID-19 tests on civilian workers, which unlike the military are not required to receive the vaccine. Mandatory testing for unvaccinated civilian workers will begin in the fall, she said. Pentagon officials are encouraging contractors to get vaccinated.

“We're working closely—across the department and with the interagency colleagues—on the right approach for our contractors who are present on a routine basis on defense installations to make sure we have the right strategy for them,” Hicks said.

The United Launch Alliance, a joint venture between Lockheed Martin and Boeing, is the only high-profile defense company to mandate employee vaccinations.