How The Pentagon Is Reaching Small Suppliers

Credit: U.S. Defense Department

The Pentagon is employing new ways to funnel and track dollars to small- and medium-sized aviation suppliers hit hard by a drop-off in their commercial business since the novel coronavirus took hold.

One way has been to accelerate up-front progress payments to prime contractors. Ellen Lord, the Pentagon’s acquisition chief, announced April 30 that in the past week alone, the Defense Department processed more than $1.2 billion out of $3 billion allocated to defense contractors for accelerated payments.

The acceleration was enabled by a March 20 memo that lifted the amount that large contractors could receive before delivering a contracted item from 80% to 90% and for small contractors from 90% to 95%. 

Lord singled out Lockheed Martin for praise for committing to speed $450 million to its supply chain. 

As those payments are being released, the U.S. Air Force is studying the needs of small suppliers and charting the flow of those progress payments through the industrial base, service officials said during an April 29 Aviation Week MRO webinar.

After the first COVID-19 stimulus package was released, Col. Kevin Nalette, vice director, 448th Supply Chain Management Wing, Air Force Sustainment Center, said his office was asked to find out how much money small companies would need to maintain a constant flow of work to continue to support the defense sector. They had two days to ask contractors—the third- and fourth-tier “mom-and-pop shops” whose work becomes an end item purchased somewhere up the stream.

The majority of defense aircraft vendors do more work—55% or more—for commercial aviation businesses. “As soon as the commercial sector shut down, we had an amazing ability. We now had their full attention,” Nalette said. “When you come to their attention with basically free cash, it’s amazing what you can get done.”

Tony Baumann, director of contracting for the Air Force Support Center, is capturing data about where the progress payments are going. And he is tracking some 2,700 contracts to find out the COVID-related constraints that companies are operating under. 

“My guys talked to all of them,” Baumann said, and they stay in contact so the Air Force knows when a supplier needs to shut down to clean a business. Then Nalette’s group is looking at whether that closure might impact deliveries of critical supplies or inventory. 

That has caused the Air Force to rewrite service contracts using new authorities granted by the CARES Act COVID-relief bill passed by Congress to keep multiple teams of service personnel on contract so that one group can work and another can be ready to backfill so that no group would experience a 14-day interruption, Baumann said. 

All of those changes are being tracked and coded based on COVID-19, he added.

Jen DiMascio

Based in Washington, Jen previously managed Aviation Week’s worldwide defense, space and security coverage.