Defense Contractors Keep Most Plants Running Despite Outbreak

(Bloomberg) --

The Pentagon’s contractors have largely avoided widespread closings or “major impacts” so far from the coronavirus pandemic, according to a running tally compiled by its contracts management office.

Of 10,509 locations tracked or monitored by the Defense Contract Management Agency, 135 had closed at some point as of Wednesday. Forty-nine of those reopened after an average of about 10 days.

“These closures have generally been short-term in order to clean facilities” or to “reduce the potential exposure of employees,” agency spokesman Matthew Montgomery said in a statement.

The agency doesn’t track how many workers are affected, he said. And the numbers on closings don’t reflect defense contractors that have cut back their operations -- or the outsized impact of Boeing Co.’s shutdowns.

Boeing, the No. 2 U.S. defense contractor, has indefinitely halted assembly of the KC-46 refueling tanker and the P-8A Poseidon maritime patrol aircraft at its facilities in Washington State, the initial U.S. center of the pandemic.

Last Friday, the company began a two-week shutdown of the Philadelphia-area factory where it manufactures military rotorcraft, including the Chinook CH-47 cargo helicopter and the tilt-rotor V-22 Osprey.

Huntington Is Open

By contrast, Huntington Ingalls Industries Inc., has had no closings to this point, according to spokeswoman Beci Brenton. With 42,000 employees, it’s the sole U.S. builder of aircraft carriers and the co-contractor of Navy attack submarines and DDG-51 destroyers.

Montgomery said the Defense Department “has worked closely with local and state governments to ensure that the defense industrial base is considered critical infrastructure to help minimize the impact of statewide closures.”

Impacts from closings “are being seen across all sectors including but not limited to clothing and textiles, aerospace, shipbuilding, and ground vehicles,” he said.

Many Pentagon contractors “are struggling to maintain a mission-ready workforce due to work site closures, personnel quarantines and state and local restrictions on movement” that can’t “be resolved through remote work,” Kim Herrington, the Defense Department’s pricing and contracting director, said in a memo Wednesday.

To support the defense industry, the DCMA has modified about 1,400 contracts to increase the rate for “progress payments” for work completed on time from 80% to 90% of costs incurred for large businesses and from 90% of cost to 95% for small businesses.

The move resulted in $3 billion being advanced to industry, according to Herrington.

That’s in addition to $882 million that the Air Force is providing to Chicago-based Boeing. The funds were being withheld until the company corrected or provided sufficient plans to correct numerous deficiencies with KC-46 tankers. Most of those flaws remain unresolved.

Also, the Pentagon issued guidance Thursday that lets military contracting officers reimburse companies for documented payments to employees who can’t work because of coronavirus facility closings or related restrictions.

©2020 Bloomberg L.P.

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