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Slower payments from Pentagon have defense contractors on edge

Many defense contractors will wait longer to receive payments because of a Pentagon decision to suspend a “quick pay” or “accelerated payment” program to save money with automatic federal spending cuts set to start Friday.

With $46 billion in anticipated cuts and hundreds of thousands of upcoming civilian employee furloughs planned through September, the Department of Defense has authorized program managers to talk with defense companies about the funding status of acquisition contracts, officials said Wednesday.

Area defense contractors that rely on rapid cash flow may feel a financial pinch if they aren’t paid as quickly, some company representatives said. The decision means Air Force Materiel Command, headquartered at Wright-Patterson Air Force Base, would revert to a 30-day payment schedule to prime contractors, but attempt to continue to pay small businesses as quickly as possible, according to Ron Fry, an AFMC spokesman.

Dale J. Kirby, president of Dayton Area Defense Contractors, said slower payments could financially strain companies accustomed to getting paid faster but without a substantial cash reserve.

“It would be like missing a whole month’s paycheck for a business,” he said.

The action to slow payments may eventually cost the government more money, one defense contractor said.

Companies may decide to add “pass-through” costs if payment delays are sustained, said Kerry Degener, mid-Atlantic regional manager for Carlisle Syntec Inc., which has sold roofing systems to Wright-Patterson and other bases nationwide.

Roy Anderson, president of Defense Research Associates Inc. in Beavercreek, said the Pentagon has an incentive to make payments within 30 days to avoid interest penalties “so I can’t see them spending more money.”

Dayton Research Associates has a $7.5 million government contract to develop sense-and-avoid technologies for unmanned aerial vehicles. Anderson said the company’s government contract revenue remains secure for this year, but he’s concerned what the next fiscal year might bring.

“Our funds are pretty well secured funding wise through the middle of next fiscal year, but ’14 is not looking good at all,” he said. “There’s major cuts that do concern me.”

Mary Brandstetter, chief executive officer of TAC Enterprises in Springfield, said a 30-day payment timetable should be “workable,” but weeks longer could hurt meeting payroll at the company that manufactures and repairs cargo nets for the Air Force and employs more than 300 developmentally disabled adults. The company typically receives Defense Department payments within seven to 10 days, she said.

Delays in quick payments are just the latest Pentagon action that has left the company facing “lots of unknowns,” according to Brandstetter.

TAC Enterprises recorded a more than 80 percent drop in Air Force orders for new cargo nets, but has notched about a 30 percent jump in the service branch’s orders for cargo net repairs.

“We actually do not have a contract so far for 2013 and latest word is we won’t have that for months to come,” Brandstetter said.

Workers continue to labor on other contracts and $3.5 million in prior Air Force orders. No one has been laid off, she said.

“We’re just trying to regroup and go on,” she said.

Columbus-based Advancing Reading Concepts has had four contracts put on hold with the Air Force, Army and Marine Corps, said Bob James, company vice president of business development. He said he has no indication if or when those contracts to train intelligence specialists will be reinstated. Four part-time company employees remain in limbo for now.

“It’s really put a wet blanket on our business,” he said.

Amidst the ongoing budget uncertainty, the Pentagon has given the go-ahead to program managers to talk with companies about acquisition contracts with sequestration and the expiration of a continuing budget resolution pending, according to Lt. Col. Melinda Morgan, a Pentagon spokeswoman.

“Feedback from industry will provide valuable insights as government managers decide how best to move forward in attempting to meet the warfighter requirements and (Defense Department) needs under severely constrained budgetary conditions,” she wrote in an email.

Miami Valley defense contractors said they were actually encouraged by that decision because they want to know how the funding reductions could impact purchase agreements for equipment and services.

“I’m actually very pleased with that because it’s very, very important for us to talk” to understand what’s happening, said Michael Bridges, president of Peerless Technologies, a Fairborn defense contractor that provides services from cyber security to systems engineering.

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