Pentagon Contractors Still Get Accelerated Funds Tied to Covid

The Pentagon will continue issuing accelerated payments to defense contractors indefinitely to buffer the impact of Covid-19 on their defense workforce and on program delays after expediting $5.3 billion through June.

About $2.4 billion of that total was paid through early April to top contractors Lockheed Martin Corp., Boeing Co., Raytheon Technologies Corp., Northrop Grumman Corp. and the United Launch Alliance, the Lockheed-Boeing joint spacecraft venture, department spokeswoman Jessica Maxwell said in a statement.

Under the Defense Department program that began in March 2020, large companies have been paid as much as 90% of incurred costs, up from the usual 80% paid as progress goals are met. For small businesses, the figure climbs to 95%, up from 90%.

“The department intentionally decided not to tie this policy to a specific date or event due to the uncertainty of the Covid-19 crisis,” Maxwell said.

Asked what economic conditions justified continuing the accelerated payments, Maxwell said, “We will continue to monitor the situation and the operational and economic need for its use. At this juncture, the department cannot project when or how the increased progress payment rates will be rescinded. We will keep all parties informed via our website and industry associations.”

Even as the payments have contributed to stronger financial conditions of major defense companies, they continued in the second quarter to execute share buybacks, although generally at a slower pace than in the first quarter, according to Byron Callan, a managing director for defense and aerospace for Capital Alpha Partners.

General Dynamics Corp. executed $593 million in second-quarter buybacks compared with $759 million in the first quarter, he said. Lockheed Martin bought back $500 million, down from $1 billion in the first quarter. Northrop Grumman bought back $143 million, down from $2 billion. Raytheon increased second-quarter share buybacks to $632 million from $375 million in the first quarter, he said.

Maxwell previously said Pentagon officials have no indication that accelerated payments were being diverted to buybacks.

©2021 Bloomberg L.P.

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