The defense industrial base (DIB) in general is healthy although less so below the prime contractor level, prompting the Defense Department to ask for input on ways to improve cash flow and timely payments to the supplier base.
“Enhancements in this area would not only improve the financial health of defense subcontractors and suppliers, but could potentially assist in attracting new entrants into the Defense Industrial Base, including at the supply chain level,” DoD said in a July 14 notice in the Federal Register.
The notice is a follow-up to the Defense Contract Finance Study the department released in April describing a financially healthy DIB that has shown improved financial performance from 2010 to 2019 amid budgetary restrictions, continuing resolutions, sequestration, and decreased use of performance payments (Defense Daily, April 10). However, the study also highlighted struggles that small businesses have with cash flow to cover operating expenses and getting access to working capital.
The public input DoD is seeking to aid suppliers mirrors recommendations found mainly in Tenet 2 of the comprehensive finance study. The department wants thoughts on extending payment due date protections to subcontractors, ideas on improving payment timeliness, improving the ability of subcontractors to inform government contracting officers of payment issues, and other ideas for improving payments to subcontractors.
DoD wants feedback by Sept. 12.
The Senate Armed Services Committee in a report accompanying its version of the fiscal year 2024 National Defense Authorization Act recommends amending the Small Business Act to “improve the timeliness of payments made to Department of Defense small business subcontractors.”
The committee’s report also directs that DoD pilot a program to incentivize the progress payment rate that large contractors are eligible for by up to 10 more percentage points.
“The committee recognizes the importance of cash flow to businesses large and small participating in the defense industrial base,” the report says. “The committee believes an opportunity exists to provide additional cash flow to businesses contingent on favorable past performance on contracting goals.”