Unlike the HEROES Act, DoD support for defence industry not in doubt

19 June 2020 (Last Updated June 19th, 2020 17:02)

Unlike the HEROES Act, DoD support for defence industry not in doubt

In the US, key lawmakers have expressed doubt regarding the necessity of further Covid-19 aid, following positive employment data from May 2020. The US economy added 2.5 million jobs in May, bringing the unemployment rate down from 14.7% to 13.3%. This positive development has led lawmakers to speculate whether the economic impact of the Covid-19 pandemic has peaked, eroding the political incentive to pass further aid.

Prior to this report, it had been estimated that unemployment would reach as high as 20%, and the passage of a second aid package had appeared likely. However, Harry Boneham, Associate Analyst at GlobalData comments: “Despite the possibility of not receiving further aid from a second aid package, it could be argued that the Department of Defense has effectively managed funds provided within the CARES Act. This will allow for the continued support of the US defense industry regardless of whether further funds are allocated.”

The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act consists of a further $3tn in aid to the US economy. It had been anticipated that the HEROES Act would contain additional support for defence contractors. For example, it had been reported that a regulatory change would be enacted, allowing the DoD to compensate contractors for the financial impact incurred of keeping workers employed during the Covid-19 crisis, including fees, and general and administrative expenses.

However, it was reported by Democratic Senators on the 28 May that only 23% of the funds allocated to the Department of Defense within the first-aid package, the CARES Act, have been obligated, nine weeks after allocation. Furthermore, this limited funding has been effective in supporting the defence industry within the US, with 98.99% of prime contractors and 94.79% of suppliers being empowered to continue working throughout the Covid-19 crisis. It could be argued that, with the majority of the CARES Act budget remaining, the DoD is positioned to continue to support the defence industry in absence of additional HEROES Act allocations.