The Department of Defense braces for Sequestration.

Last week I wrote about the budget crisis and how this might affect the DCAA.  I think it is also worth while to talk about what this might mean to the entire Department of Defense and government contractors as a group.

I don't think the Department of Defense really started to make any plans for Sequestration until after the election last fall.  They did make some plans around severe budget cuts over the next 10 years but Sequestration seemed like a distant and not real possibility.  On December 20th, Defense Secretary Panetta issued a memo explaining that he felt Sequestration would not go into effect and congress would resolve the issue.  He reassured personnel that he did not expect day-to-day operations to change dramatically and things such as furloughs would not be required.  Congress acted after this by passing a continuing resolution to postpone the Sequestration issue until March 1, 2013.  On January 10th, Deputy Secretary of Defense Carter issued a memo detailing the department's position on the now real possibility of Sequestration as well as the continuing resolution that controlled funding in the department.  Deputy Secretary Carter outlined department wide guidance because of the two budget restrictions.  Some of the guidelines included freezing civilian hiring, curtailing traveling, terminating temporary employees, review existing contracts for cost-savings, curtail administrative expenses, reducing maintenance activities and requiring review and approval for all R&D and Production contracts for more than $500 Million.  

As a result of Deputy Secretary Carter's memo, each department secretary issued guidelines for their respective departments to control expenses in the near future.  Here are 3 of the biggest:

  Department of the Army

  Department of the Air Force

  Department of the Navy

What is clear is that the Department of Defense is taking these budget restrictions very serious. We recently talked to a prospect that was notified by their contracting officer in the Air Force that their contract award was on "hold" until further notice.  They had received notification of award of the contract as recently as early January. 

In an interview with Meet the Press last Sunday, Rep. Paul Ryan indicated that he felt Sequestration was going to happen.  If this indeed does happen, there will be serious repercussions in the Defense Industry as a whole and probably also to the American Economy.  We think that the SBIR programs will continue to be funded but right now there is so much uncertainty that there actually may be very little in the way of new contracts issued between now and either March 1 (when the Sequestration issue is forced to be resolved) or March 27th (when the continuing resolution expires).  Of course, congress can always "kick the can" down the road again with yet another continuing resolution.  That would only slow down further the issuance of contracts. 

So if you are a government contractor aspiring to do business with the Department of Defense, you may need a little patience and a "needed" product or service.  Right now, only mission critical expenditures or troop benefits are getting automatic approval.  Hopefully this budget crisis will get resolved by the middle of March and things can settle down a little.  In the meantime, if you are having trouble getting notification of award, you may not be alone.