In this special episode of Acquisition Talk, we listen in on a conversation about the effects of COVID-19 on government contracting, including (1) the Defense Production Act, (2) emergency relief stimulus, (3) government contract data in response to coronavirus and business opportunities, and (4) guidance from government on navigating the crisis. It was recorded for George Mason University’s new series, the Mason Executive Podcast.
The episode features Dr. Jerry McGinn, executive director at the Center for Government Contracting, Dr. Bret Josephson, podcast host and Professor of Marketing, and myself. We discuss a recent report we released at the Center. It describes how more than $200 million has been obligated to contracts specifically for COVID-19 as of March 24. This includes $153 million for research and development, $34 million for medical equipment and services, $13 million to ventilators, $3.5 million for tests/panels, $2.5 million for personal protective equipment.
Jerry is an expert on the Defense Production Act (DPA), having overseen the program during his time in the Pentagon as Principal Deputy Director of the Office of Manufacturing and Industrial Base Policy. While the program usually has about $100 million in the fund, the new $2 trillion stimulus package that just passed the Senate includes $3 billion. President Trump delegated DPA authorities to Health and Human Services. As Jerry explained, “it gives HHS the authority to change the rating of company contracts and put the government order at the top of the line.”
The much discussed $2 trillion stimulus dwarfs the previous two packages that came in a little over $10 billion. While a great deal of that will go to direct payments to households, business loans, unemployment, and other transfers, there will be significant funding to contracting agencies including $11 billion for vaccines and therapeutics and $12 billion to the Pentagon. As I elaborated on in the podcast:
It takes some time to get these funds on contract… Over $200 million has gone out for Covid-19, and most of that — $148 million — went to a single contract to a subsidiary of Johnson & Johnson, and they were doing antiviral/therapeutic work for Covid. Why they were able to that so quickly was because HHS already had an existing contract with the company, and it was an Other Transactions contract — one of these contracts outside the Federal Acquisition Regulation, it has less regulations usually for prototyping for non-traditional contractors.
And so this was modified on March 20 for Covid, but for the most part it might take some time before we see these contract start ramping up. We’ll be trying to trace, for the contracts coming out for Covid, how long did it take for them to go from that sources sought to the presolicitation and finally award and getting money out. As Jerry was saying, it might take some time, and we want to be able to see what kinds of contracts permit you to move faster, and then how can all this new funding flow to the contracts and get things done quickly.
Note that our figures don’t include the Department of Defense, which has a standard 90-day lag on reporting contract obligations. FPDS-NG also has a report on Covid-19 contracts, but it is quite incomplete. It only picks up contracts reporting the “National Interest” area as Covid-19 — most do not.
Our report form the Center also discussed the emerging guidance coming out. Ellen Lord declared defense contractors “critical infrastructure,” asking contractors to continue working. There is OMB guidance to support that process. To bolster contractor cash flow, progress payments were increased to 90% for large companies and 95% for small. I’ll report more on this later, but basically payment for fixed price contracts isn’t made usually until delivery. With progress payments, the government pays early — during contract execution — often based on achievement. The amount paid is usually a percentage of the cost incurred.
I’d like to thank our podcast host Bret Josephson for interviewing Dr. Jerry McGinn and myself on his Mason Executive Podcast, and allowing me to re-post it here. Find out more about George Mason University’s School of Business, including my home the Center for Government Contracting. Listen to Bret Josephson being interviewed on the business of government. Here is Jerry’s piece on the Defense Production Act. Jerry was also featured on Government Matters, watch the whole interview. And again, you can find the Center’s Covid-19 report here.
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