Lockheed CEO Urges Pentagon to Enshrine COVID-Era’s Bigger Upfront Payments

The Pentagon should make permanent its pandemic-era policy that pays contractors more money up front to speed cash to small suppliers and shore up the defense supply chain, the head of America’s largest defense contractor said.

“I can't see why there's a reason to unwind that,” Lockheed Martin CEO Jim Taiclet said in an interview. “It's better cash management for the entire supply chain...and whether it's disruptions from COVID, or it's going to be microprocessors next, or a recession or any kind of financial market turbulence. There's no reason to put the supply chain on a more vulnerable footing...when we know this works so well as a policy.”

Collectively, the six largest defense companies forwarded billions of dollars in early payments throughout their supply chains over the past 15 months. Lockheed said it averaged $430 million per week to its vulnerable suppliers in April alone.

“We definitely accelerated more than we received in an accelerated fashion from the government to our supply chain,” Taiclet said.

The policy boosted individual payments for large companies by 80 to 90 percent and those for small ones by 90 to 95 percent.

The CEO of M2 Global Technology, a supplier to several of Lockheed’s aeronautics projects, including the F-35 stealth fighter, told Defense One in May the accelerated payments allowed the company to speed up its raw materials buys, which are taking much longer to receive due to the pandemic. 

Said Lockheed’s Taiclet: “There's no reason to make our very large, complex and diverse supply chain...more vulnerable to a future disruption. So I would say it should be a permanent adjustment in the policy just from a risk management perspective.”