The Pentagon funneled coronavirus relief funds to defense contractors

The Cares Act, which Congress handed earlier this 12 months, gave the Pentagon money to “stop, put together for, and reply to coronavirus.” But just a few weeks later, the Defense Department started reshaping how it will award the money in a approach that represented a serious departure from Congress’s intent.

The funds had been made despite the fact that U.S. well being officers suppose main funding gaps in pandemic response nonetheless stay. Robert Redfield, director of the Centers for Disease Control and Prevention, said in Senate testimony last week that states desperately want $6 billion to distribute vaccines to Americans early subsequent 12 months. Many U.S. hospitals nonetheless face a severe shortage of N95 masks. These are the sorts of issues that the money was initially meant to tackle.

“This is a component and parcel of whether or not we’ve got finances priorities that truly serve our public security or whether or not we’ve got a authorities that’s captured by particular pursuits,” mentioned Mandy Smithberger, a defense analyst on the Project on Government Oversight, a watchdog group.

The $1 billion fund is only a fraction of the $three trillion in emergency spending that Congress authorized earlier this 12 months to take care of the pandemic. But it reveals how the blizzard of bailout money was — in some instances — redirected to companies that weren’t initially focused for help. It additionally reveals how tough it has been for officers to monitor how money is spent and — within the case of Congress — intervene when modifications are made. The Trump administration has completed little to restrict the defense companies from accessing a number of bailout funds directly and isn’t requiring the businesses to chorus from layoffs as a situation of receiving the awards.

Some defense contractors obtained the Pentagon money despite the fact that they’d already dipped into one other pot of bailout funding, the Paycheck Protection Program.

Congress, at President Trump’s urging, is debating whether or not to cross one other large stimulus package deal, and the Pentagon and defense contractors have known as for a further $11 billion to be directed towards their applications.

The $1 billion fund was allotted underneath the Defense Production Act, which permits Trump to compel U.S. firms to manufacture merchandise within the nation’s curiosity.

Trump has described the legislation as a “tremendous hammer” and boasted in August that he has “used the DPA extra comprehensively than any president in historical past.” His administration was underneath intense stress this spring to use the legislation to tackle dire shortages in medical-grade masks and different provides.

But within the months after the stimulus package deal was handed, the Pentagon modified how the money could be used. It determined to give defense contractors tons of of tens of millions of {dollars} from the fund, largely for tasks which have little to do with the coronavirus response. Defense Department attorneys shortly decided that the money may very well be used for defense manufacturing, a conclusion that Congress later disputed.

Among the awards: $183 million to companies together with Rolls-Royce and ArcelorMittal to keep the shipbuilding trade; tens of tens of millions of {dollars} for satellite tv for pc, drone and area surveillance know-how; $80 million to a Kansas plane components enterprise affected by the Boeing 737 Max grounding and the worldwide slowdown in air journey; and $2 million for a home producer of Army costume uniform material.

DOD officers contend that they’ve sought to strike a steadiness between boosting American medical manufacturing and supporting the defense trade, whose well being they take into account important to nationwide safety. The Pentagon, which as of 2016 employed more than 156,000 people working in acquisitions alone, additionally has lent its experience to the Department of Health and Human Services because it seeks to buy billions of {dollars} in wanted medical gear.

Ellen Lord, undersecretary of defense for acquisition and sustainment, mentioned her workplace has labored intently with Congress and federal companies to meet the wants of each the medical and defense industries.

“We are grateful the Congress offered authorities and sources that enabled the [executive branch] to put money into home manufacturing of important medical sources and shield key defense capabilities from the results of COVID,” Lord mentioned in an announcement. “We want to at all times keep in mind that financial safety and nationwide safety are very tightly interrelated and our industrial base is basically the nexus of the 2.”

The Democratic-controlled House Committee on Appropriations has made clear that the Defense Department’s determination to funnel the DPA funding to defense contractors went in opposition to its intent in that part of the Cares Act, which was to spur the manufacturing of private protecting gear.

“The Committee’s expectation was that the Department would tackle the necessity for PPE industrial capability moderately than execute the funding for the [defense industrial base],” the committee wrote in its report on the 2021 defense invoice.

Pentagon officers counter that they’ve been absolutely clear with each Democrats and Republicans in Congress about their plans for the money.

Defense officers say the Pentagon’s funding priorities had been influenced closely by an industry study drawn up in 2018. The examine, prompted by an early govt order from Trump and by financial adviser Peter Navarro and carried out in shut session with defense trade associations, pointed to a number of hundred provide chain shortfalls that might hamper the U.S. navy’s means to compete with China.

The Pentagon receives funding underneath the Defense Production Act every year to shore up firms it deems important, however in a lot smaller quantities — the 2020 allocation was about $64 million. The money is disbursed by the Pentagon’s industrial coverage workplace underneath the legislation’s Title III, which supplies the president broad authority to mobilize home trade.

The pandemic funding “grew to become a possibility for the Department to take what is sort of a windfall and use it to attempt to fill what are some very important industrial base wants … however which might be solely tangentially associated to COVID,” mentioned Bill Greenwalt, a visiting fellow with the conservative American Enterprise Institute who oversaw defense acquisitions within the George W. Bush administration.

The virus-related funding got here at a time when U.S. navy spending was already close to all-time highs. The $686 billion defense finances for fiscal 2019 is comparable to a typical 12 months in the course of the Cold War or the interval shortly after Sept. 11, 2001, though it has declined considerably as a proportion of the financial system. Major defense contractors reminiscent of Lockheed Martin, General Dynamics and Northrop Grumman have remained financially wholesome regardless of some pandemic-related disruption, and have continued to pay inventory dividends to buyers.

Defense trade teams argue that the DOD awards are essential to making certain that essential area of interest producers don’t wither away in the course of the financial shock brought on by the pandemic. Companies that promote plane components for each navy and business jets, for instance, have been financially wrecked by a world slowdown in air journey.

“As you lose a few of these capabilities, a few of them are gone perpetually, and it comes at a really excessive worth to reconstitute them,” mentioned Wes Hallman, vp for coverage on the National Defense Industrial Association, a commerce group.

More than a 3rd of the awards had been for lower than $5 million and went to smaller companies such because the American Woolen Co. in Connecticut, which obtained $2 million to assist make Army costume uniforms. Executives on the firm didn’t return voice mails and emails. A batch of small awards went to firms engaged on drone know-how.

“At the basis of this was an infinite unprecedented disaster we had been going through, and the necessity for presidency to transfer shortly, which it did,” mentioned Eric Fanning, a former Army secretary who’s president of the Aerospace Industry Association.

But tons of of tens of millions of {dollars} additionally flowed to a number of giant, established firms, reminiscent of GE Aviation, a subsidiary of General Electric, which obtained two awards value $75 million in June. A subsidiary of Rolls-Royce received $22 million to improve a Mississippi plant.

Rolls-Royce didn’t reply to particular questions concerning the award.

“This funding pulled deliberate work on present signed contracts between GE Aviation and the U.S. Government ahead and is a crucial approach to assist guarantee our engineering actions and provide chain, which incorporates many small and medium-sized firms, can proceed to ship for the Armed Forces, maintain jobs and help the financial system,” mentioned Perry Bradley, a GE Aviation spokesman.

Critics say it’s unclear why the defense trade ought to have gotten what quantities to a devoted bailout fund when few different sectors of the financial system acquired the identical therapy.

And authorities knowledge reveals that a minimum of 10 of the roughly 30 firms identified to have obtained the Defense Department DPA funds additionally obtained loans by means of the Paycheck Protection Program, one other relief package deal created by the Cares Act. That program, overseen by the Small Business Administration, supplied tens of millions of companies forgivable loans in the event that they used the lion’s share on payroll.

For occasion, Weber Metals, a California-based subsidiary of German agency Otto Fuchs, obtained between $5 million and $10 million by means of PPP in April to help 412 jobs, after which acquired an additional increase by means of a $25 million DOD relief award in June. Weber officers didn’t reply to requests for remark.

Defense Department spokeswoman Jessica Maxwell mentioned the 2 bailout applications are usually not “in battle or duplicative,” as a result of a PPP mortgage doesn’t make any directive with respect to supporting nationwide defense.

ModalAI, a small California firm that builds drone flight controllers and computing platforms, obtained $three million by means of the Pentagon program for an 18-month effort to develop a brand new flight controller. In April, it obtained a PPP mortgage of between $150,000 and $350,000.

Chad Sweet, chief govt and co-founder of ModalAI, mentioned the corporate’s proposal was long-planned — it began making use of for the Pentagon funding final summer time, a number of months earlier than the pandemic hit. The course of gained steam in March and April.

The Defense Department requested ModalAI for documentation on how its enterprise was affected by the pandemic, in addition to info on different relief funding it has obtained. The Pentagon then made the choice unilaterally that ModalAI’s award would come out of the Cares Act funding.

“I don’t know how they made that call,” Sweet mentioned. He mentioned his agency has been ready to rent about 5 to seven workers on account of the DOD award.

The Pentagon did initially plan to spend the majority of the $1 billion fund on medical provides. In April, Lord told reporters that three-quarters would go towards medical sources, and the remainder to defense contractors.

But in June, she informed lawmakers throughout a congressional hearing that the division quickly realized that defense contractors had “important wants as properly.”

So DOD attorneys authorized an association whereby some $17 billion in HHS funding could be used for the medical trade as an alternative, releasing up extra money for defense contractors.

“So it expands the pool, and permits us to use much more money whereas taking the steadiness of the $1 billion that got here by means of for DPA Title III, and use a portion of that for the defense industrial base,” Lord mentioned on the listening to. Ultimately, within the spending plan that the Pentagon offered to Congress in June, it put aside $688 million for the defense trade.

Thomas Spoehr, director of the Heritage Foundation’s Center for National Defense, mentioned Pentagon officers contend that they’ve thrown all of the money they will on the effort to produce the medical provides wanted to fight the pandemic.

“Their perception is that any funding that may very well be made to enhance the manufacturing of covid-19 gadgets has been made,” he mentioned.

One midsize firm that benefited from the DOD awards was SolAero Technologies, an Albuquerque agency that makes satellite tv for pc solar energy programs and employs about 320 folks.

When the pandemic hit, the agency was squeezed between the massive firms it provides, which slowed down manufacturing, and the smaller, usually cash-based companies that make up its personal suppliers, which it was making an attempt to help, chief govt Brad Clevenger mentioned.

Around March, the corporate heard from Lord’s workplace, which was contacting defense contractors to perceive how the pandemic was affecting them. SolAero labored with the Pentagon to discover out whether or not the corporate was eligible for different relief applications, which it was not, Clevenger mentioned.

In late May, the Pentagon announced a $6 million award to SolAero to develop manufacturing. Clevenger praised the method, which he mentioned concerned a number of layers of evaluation however nonetheless delivered wanted assist in two months.

In its information launch saying the deal, the Defense Department mentioned the funding would “allow SolAero to retain important workforce capabilities all through the disruption brought on by COVID-19 and to restore some jobs misplaced due to the pandemic.” Clevenger estimated that the award saved the roles of 25 SolAero workers.

But the Pentagon didn’t impose any requirement that SolAero chorus from layoffs as a situation of receiving the money, solely that it ship on the agreed challenge, Clevenger mentioned.

“How we try this, with what workforce, is up to us,” he mentioned.

Neena Satija and Alice Crites contributed to this report.

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