Pentagon to increase progress payments to defense firms as coronavirus hits economy

WASHINGTON (Reuters) - The Pentagon is increasing the amount of interim payments it makes to defense contractors in an effort to give them a financial boost as the coronavirus pandemic weakens the broader economy, according to a memo seen by Reuters on Friday.

The move will speed the payment of millions of dollars to defense contractors while they work to complete individual projects.

The memo stated that “effective immediately” the Pentagon will increase the rate at which it pays what are known as progress payments for large contractors to 90%.

The customary progress payment rates for Department of Defense contracts, are 80 percent for large defense contractors and 90 percent for small businesses. Small businesses will see their progress payments rise to 95%, according to the memo.

John Luddy of the Aerospace Industries Association applauded the Pentagon’s quick action in an email and said it would benefit its suppliers.

The memo from the Pentagon office of Acquisition and Sustainment was circulated to the defense department’s acquisition executives on Friday.

The Pentagon made other changes to shore up its industrial base Friday.

Earlier, it issued guidance that workers in the defense industry were deemed critical infrastructure workers amid the coronavirus pandemic. This guidance, though not a federal mandate, could be used by state and local governments to allow contractors to keep working if authorities deemed it necessary to enact widespread closures.

On Twitter, Lockheed Martin LMT.N the Pentagon's largest contractor, said it applauded the bigger progress payments and that it would "flow these funds to our supply chain partners" as a way of supporting the smaller members of its supply chain.

Other defense contractors that could benefit from this include Boeing Co BA.N, Northrop Grumman NOC.N and General Dynamics GD.N.

Reporting by Mike Stone in Washington