The Defense Department yesterday announced plans to scale back an important benefit of its contractors: virtually free financing of weapons production before the arms are delivered.
Pentagon officials estimate that the move would generate $230 million for the government in the first year.
This would be done by limiting the amount of "progress payments" defense contractors are paid every month to finance weapons projects. Under current practice, the Pentagon pays 90 percent of a major contractor's monthly costs, withholding the balance as well as the contractor's profit until the weapon is delivered.
The arrangement frees contractors from having to borrow in conventional markets and pay finance charges, but the U.S. Treasury loses the interest payments it might have earned on the funds.
Under the new policy, which will apply to all contracts awarded after April 30, the Defense Department will withhold an additional 10 percent of the contractors' monthly costs. This would reduce its payments by an estimated $2 billion next year, which would generate an additional $230 million in interest until the balance is paid to the contractors when their weapons are delivered.
The change represents a return to the procedure followed for large contractors before the Reagan administration took office. The Pentagon increased the percentage it paid contractors in 1981 on the ground that interest rates were so high at the time that they put an undue financial burden on weapons builders.
Defense Secretary Caspar W. Weinberger, who ordered the change in a memo to the service secretaries, said it was prompted by the recent drop in the prime rate.
Weinberger said the change will give contractors an incentive to tighten cost controls and complete their work faster so they can recover the balance of their payments faster.
The cutback comes at a time of intense congressional inquiry into the Pentagon's management of defense contracts.