Back in January, we exposed how Mississippi-based defense contractor Northrop Grumman was making out in the wake of Katrina. As reporter Sean Reilly revealed for our Gulf Coast Reconstruction Watch project, of the $29 billion Katrina relief package passed by Congress in December 2005, $2 billion was earmarked for "shipbuilding and conversion":
That's good news mainly for Northrop Grumman, the giant defense contractor whose three shipyards in Mississippi and Louisiana suffered heavy damage.
The Navy defends the bailout as a way of keeping vital defense programs on track, while incidentally helping out a major regional employer. But in a report last month, the Congressional Research Service questioned whether the military was rushing to pick up expenses that might otherwise by covered by private insurance. The report also asked whether the Navy would set a precedent by reimbursing contractors for "most if not all" of the higher costs stemming from a natural disaster.
Now they're at it again, as Think Progress reveals:
This week, the Senate is set to consider a $106.5 billion "emergency" spending bill that is supposed to provide critical funds for Iraq, Afghanistan and Gulf Coast reconstruction. For Senate Appropriations Chairman Thad Cochran (R-MS) it's just another opportunity to bring home the bacon.
A two-hour Senate mark-up saw the spending bill grow by "$80 million per minute." That included an egregious $500 million giveaway to Northrop Grumman Corp.
Here's how it works. Northrop Grumman operates a naval facility in Mississippi that was impacted by the hurricane season. Northup Grumman is insured for the "business disruption" costs of the hurricane. (They are currently litigating the final payout with their insurance company.) But Cochran inserted a provision that would require the Navy to pay Northrop Grumman up to $500 million immediately. The money would come out of "$2.7 billion in appropriated funds for Katrina-related damage."
The Pentagon strongly opposes the provision. Northrop is supposed to reimburse the Navy when the insurance claim is settled, but if Northrup is paid by the Navy in advance, that might not happen:
Northrop argues it could take years to resolve the insurance claims. The Pentagon's contract office argued the provision would be "inappropriate" and could set a precedent for insurers to deny claims in the future if the government agrees to pay in advance.
Advance payment by the government "may otherwise relieve the carrier from their policy obligation," said a Sept. 28, 2005, memo from Donald Springer, a Defense Contract Management Agency executive.
Cash flow is not a problem for the company. In 2005, Northrop Grumman had over $30 billion in revenues."