Get Ready for Sequestration, Federal Government Contractors!
Sequestration is set to take effect one week from today, Friday March 1, 2013. Meanwhile, congress is on vacation. Even if they come back ready to work next week, there are no current proposals being negotiated and it seems highly unlikely that a resolution will be reached before the magic date. Meanwhile various departments within the government continue to make plans for the worst scenario. Yesterday, Defense Under Secretary for Acquisition Frank Kendall released a memo authorizing Defense Department personnel to start talking to industry about implementing $46Billion in additional cuts over the next 7 months. Meanwhile, on Wednesday, Under Secretary of Defense and Chief Financial Officer Robert F. Hale and acting Under Secretary of Defense for Personnel and Readiness Jessica Lynn Wright held a press briefing related to plans for furlough planning. Under Secretary Hale indicated that the furloughs would only account for about $5B of the $46B in cuts required by Sequestration. Combine this with protecting the war-fighters in Afghanistan and some areas of the Defense budget will come under more pressure for higher than expected cuts.
As of today, BAE Systems sent WARN Act Notices to 3,500 shipyard workers. These are notices of potential layoffs after a 60 day notice period expires. This means layoffs could start around the end of April for this contractor. Other businesses are starting to prepare for layoffs as well.
Meanwhile, over at the Health and Human Services department, the National Institue of Health (NIH) released an announcement yesterday about an NIH Operation Plan in the Event of a Sequestration. This announcement talks about preserving mission and yet reducing expenditures to 90% of planned (a 10% cut). It also outlines other actions may be required but is not specific to what that means yet.
I think it is clear that we will not avoid the Sequestration. There is still hope, especially in the DoD, that congress will somehow reach a compromise after March 1st that will restore some funding levels. I don't think we can count on that. I think the DoD will have to change current ways that they are doing things. With Sequestration and the continuing resolution in effect, the budget levels in the DoD are reportedly at the levels of FY 2006. There were major active fighting efforts in both Iraq and Afghanistan in FY2006. It will be interesting to see where this all leads. Stay tuned. This is a real political battle but it now will affect jobs, the economy and more.