DOD rule would limit up-front payments; boost progress pay

Contractor groups ask that rule not be implemented

      A controversial Defense Dept. proposed rule would limit up-front payments to contractors and instead would pay a larger share based on project benchmarks.

      Defense contractors have reacted negatively. At a DOD public meeting on Sept. 14, three contractor trade associations asked that the new rule be withdrawn.

      DOD since 2001 typically has paid a large share up front to help contractors finance their early stage costs. Under the new policy, the upfront share would drop. Instead, payments would be tied with project milestones.

      DOD said the policy initially was intended to help with vendor financing. But since interest rates have been historically low in recent years, that is no longer necessary.

      Alan Chvotkin, executive vice president of the Professional Services Council, said the proposal is inconsistent with performance-based payments guidelines in Section 831 of the National Defense Authorization Act of fiscal 2017. The rule introduces components “unrelated to contractor performance” and includes “subjective criteria for government decision-making over which a contractor has little control,” Chvotkin said in a statement.

      The National Defense Industrial Association and Aerospace Industries Association also oppose the new rule.

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