• The inclusion of more than $8 billion for military equipment in a Republican-proposed coronavirus-relief bill sparked immediate backlash.
  • But rather than a giveaway to defense contractors, that money helps keep vulnerable businesses afloat and able to provide vital components to the military in the future, writes Mackenzie Eaglen, a resident fellow at the American Enterprise Institute.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider’s homepage for more stories.

Congressional Republicans unveiled their fourth stimulus bill, the HEALS Act, to help the nation recover from COVID after the House passed its bill, the Heroes Act, in May. Hardly before the paper was printed were there howls of dissent across Washington for including over $8 billion for military equipment in a pandemic bill.

Contrary to popular perception, this is not a classic case of “pork for primes.” A healthy defense industrial base helps protect those in uniform and the US economy. Yet the effort is presented as a binary choice of guns vs. butter — or, in this case, personal protective equipment, unemployment checks, and “hungry children.”

The military doesn’t stop needing platforms and weapons, and the people to build them, during difficult times. Those employees include engineers, welders, inspectors, mechanics, plumbers, electricians, riggers, and solderers. Many of them possess security clearances that would take years to get approved for a new hire.

Lockheed Martin GPS III satellite

GPS III satellites being built in a clean room at Lockheed Martin’s complex south of Denver, September 2, 2016.

Pat Corkery/Lockheed Martin via AP


Further, these 2 million highly skilled workers have been designated as “essential” by the Department of Homeland Security and must keep working through a pandemic. This is important since, early in the crisis, production pauses combined with quarantine restrictions to affect program schedules.

To that end, Pentagon leaders moved quickly to increase cash flow to prop up their suppliers and vendors — particularly the third- and fourth-tier and with an emphasis on small and vulnerable businesses.

Lockheed Martin, for example, flowed all of its more than $1.1 billion in accelerated payments to its supply chain. These funds have gone to 7,235 unique suppliers and 4,399 small business suppliers in all 50 states, Washington, DC, and Puerto Rico, and in 37 countries.

Pentagon officials and defense companies acted quickly and smartly to stave off the worst effects of COVID-19 on the defense industrial base. These same parties shouldn’t be punished now for doing the right thing and, as a result, having real unmet needs.

Vulnerable businesses and fragile supply chains

Workers from Northrop Grumman Newport News shipyard prepare the port side anchor to be installed on the Nimitz-Class aircraft carrier USS Carl Vinson (CVN 70)

Northrop Grumman Newport News shipyard workers prepare the port side anchor to be installed on the aircraft carrier USS Carl Vinson.

U.S. Navy photo by Mass Communication Specialist 3rd Class Refugio Carrillo


Previous analysis has found the aerospace and defense supply chain is unique. This industry has “a notably high rate of subcontracted work flow and systems with high component volumes, driving job loss directly to program partners and the supply chain.”

So while virtually all of the Pentagon’s missiles are built by two primes, 98% of the subcontractors making parts for US munitions are the only source for these items.

If these unique small business fail, there may not be any replacements, and the supply chain could be damaged permanently. This would also increase costs later. The Project on Government Oversight found as small and midsize vendors go out of business and large companies merge, it weakens competition, reduces innovation, and makes weapons more expensive.

A study last year by George Mason University found “contractor workforce challenges have a direct impact on the government’s ability to ramp up quickly.” Budget fluctuations are particularly hard on small companies that “do not have large enough portfolios to shift people between projects. The contractor workforce loses skills or move on.” These firms operate with “thin margins and low lines of credit.”

Boeing P-8A Poseidon radar

A Boeing and a Raytheon employee install an APY-10 radar antenna on P-8A Poseidon test aircraft, November 2009.


Boeing



While there is money for equipment in the bill, there is more for other priorities to protect the aerospace, shipbuilding, and defense industrial base, including:

  • $11 billion to reimburse contractors or employees’ paid or sick leave (CARES Act Sec. 3610 reimbursements).
  • $5.3 billion for emergency purchases under the Defense Production Act.
  • $2.6 billion to build temporary facilities to isolate military personnel deploying to or returning from other countries.
  • $705 million for the Defense Health Program to manufacture therapeutic drugs and acquire medical PPE.

The $11 billion for the Defense Industrial Base Resiliency Fund provisions to reimburse all defense companies for the paid leave they spent to keep their workers employed are key but only half the effort.

The procurement items requested have been scrubbed by Hill and Pentagon leaders. Some of these dollars backfill money taken for the southern border wall and others are from the services’ unfunded priorities lists. They were chosen because they are needed but also because this is an important way to mitigate the loss of liquidity in the system.

made in america trump press

Trump at a “Made in America” event on the South Lawn of the White House, July 15, 2019.

AP Photo/Alex Brandon


Primes and subcontractors alike have begged Congress for funds to cover other COVID-19 costs, including travel restrictions, facility closures, social distancing within facilities, enhanced cleaning measures, the purchase of personal protective and sterilization equipment, and supply-chain disruptions. None of these additional costs were part of the original contracts the companies are currently performing for the Pentagon.

If the Pentagon had to take the pandemic payments out of hide, that would disrupt the military’s plans to implement the National Defense Strategy. There would be consequences for the military’s competition with China and Russia, which in turn could further hurt America’s economic power as our influence wanes and access to the global commons decreases.

A recent Pentagon report found that over the last decade China has emerged as the second largest purchaser of military goods and services, nearly tripling its spending from $86 billion in 2008 to $250 billion in 2018.

Even if the entire $30 billion for the Pentagon in the HEALS Act is approved, the cumulative total in federal COVID-19 assistance for defense will be at most 1% of Congressional stimulus. The US’s persistent security interests demand preservation of the capabilities required to execute the defense strategy and protect the industrial base.

Mackenzie Eaglen is a resident fellow at the American Enterprise Institute, where she works on defense strategy, defense budgets, and military readiness.



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