DoD backs off reduced payment plan

A Pentagon initiative to save taxpayer funds, by paying defense contractors less up-front for large weapons’ deals, has drawn the wrath of a pair of Republican lawmakers who say the scheme will hurt the military’s technological prowess. In a Sept. 24 letter to Deputy Secretary of Defense Patrick Shanahan, House Armed Services Committee Chairman Mac Thornberry (R-Texas) and Senate ASC Chairman Jim Inhofe (R-Okla.) asked the Defense Department to not implement a proposed policy that cuts the amount of financing support contractors get in the early phases of a contract. The lawmakers’ letter called the proposal “fundamentally flawed” and saying it would cause DoD to fall behind on its national security technological dominance strategy. DoD has given contractors until Oct. 23 to submit comments on the proposal that it plans to implement year’s end. If implemented, the new rule would lower the amount of government funding defense contractors get from 80 percent to 50 percent. DoD wants to tie payments to certain performance measures, and put in new penalties for fraud. The Pentagon has been arguing for years it has been overpaying contractors because it never amended its financing rate when the Federal Reserve slashed interest rates after 2008, which would have made it easier for contractors to finance weapons development without subsidies. The new rules would save money and would reward good work more appropriately, DoD argues. Defense contractors reacted sharply to the proposal, with the three major defense industry associations unanimously opposing the rule. (Source: Washington Post 09/30/18) UPDATE: WASHINGTON - The Defense Department has backed off its proposal to reduce upfront monies paid to contractors of major weapons systems. Deputy Secretary of Defense Patrick Shanahan said Oct. 1 that the decision to withdraw the proposed acquisition changes stemmed from a lack of “coordination” inside the department. (Source: The Associated Press 10/01/18)