WASHINGTON D.C.: In a report to be released this week, the National Defense Industrial Association said the U.S. Department of Defense will need an extra $42 billion in the next fiscal year to make up for a shortfall caused by rising prices eating into its procurement budget.
According to the report, which was reviewed by Reuters, “significant inflation is a major challenge for the Pentagon and its thousands of contractors, adding to the challenges caused by COVID-19 and dealing with the supply-chain crisis.”
From fiscal years 2021 to 2023, the Pentagon’s total loss of buying power caused by inflation will exceed $110 billion, the report added.
Amidst rising confrontation with China, and Russia’s invasion of Ukraine, the issue of inflation risks stifling the pace of U.S. defense Modernization, noted the report.
The National Defense Industrial Association called upon Congress to provide financial support to
companies that hold long-term fixed price contracts, adding that future contracts should automatically consider price rises.
The call for relief comes as smaller U.S. defense companies holding contracts that cannot be renegotiated complain they are losing money on them due to a shortage of workers and spiking raw material prices.
While inflation has affected contracts in most sectors, the rigid nature of DoD contracts, and the fact that there is one buyer, mean firms are unable to negotiate prices with the Pentagon.
Parsons Corp Vice President Jai Spivey told Reuters the “re- evaluation of fixed price contracts is essential in this environment for mission success.”
However, industry sources warned that there may not be any inflation relief coming soon.
Pawel Chudzicki, leader of Aerospace and Defense practice at Miller Canfield law firm, noted, “I am skeptical that a sector-oriented solution will be passed this year, which fully makes up for the inflation numbers due to competing interests and election season,” as reported by Reuters.
This week the Pentagon released a memo signed by pricing and contracting director John Tenaglia on 9th September, which said that relief from schedules could be granted to contractors affected by inflation.
