Sequestration

Posted: August 22, 2012 in Uncategorized
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Lockheed Martin, the Nation’s largest defense contractor, has publicly said they will likely notify the “vast majority” of their 123,000 workers on 2 NOV (less than 1 week before the federal election) that they are at risk of being laid off. The threat, according Walters, the company’s vice president of legislative affairs, is based on the pending sequestration of $500 billion of defense spending that is scheduled to take effect on January 2, 2013, if no agreement is reached. The Company says to Greg that they are required to give at least 60 days notice of possible lay-offs under the federal WARN Act. The sequestration would require across the board, automatic cuts in the next 10 years totaling $500 billion. $55 billion in cuts is called for in 2013. Some members of the WARN Act say that Lockheed Martin would not need to notify their total workforce and that this is a move to put political pressure on Congress and President Obama to reach a deal to stop the sequestration prior to the election. (Mr. Walter’s position as VP for Legislative Affairs lends credence to this idea.) Behind the scenes other defense contractors are said to also be threatening to issue possible lay-off notices before the election.
This may also be an attempt to force a dialog among the defense contractors and the Office of Management and Budget (OMB) Lockheed Martin says that they plan to send out notices to the vast majority of employees since they do not know who could be affected since, although repeatedly asked, the OMB has not provided any guidance as to how the sequestration would be implemented. Mr. Walters told POLITICO” “We’ve wanted a dialog about what sequestration could look like but as of right now, no, we have no answers from OMB.” Many members of Congress are proposing methods to stop or at least delay sequestration and the required across the board cuts for the Department of Defense or for all federal departments that would be effected. One bill H.R3662 introduced by Chairman of the House Armed Services Committee Rep. Buck McKeon (R-CA) and companion bill, S.2065, introduced by Jon Kyle (R-AZ) in the Senate, would pay for the 1st year of sequestration by a 10 year 10% reduction of the federal civilian workforce achieved through attrition.
While many commentators saw Lockheed’s announcement as simply a political/legislative move Bloomberg Government just published a study about the pending sequestration and concluded that:
 Most companies will have to respond to sequestration by 1 OCT, if not sooner, by taking actions such as reducing workforces or cutting back on capital expenditures. Federal fiscal year 2013 begins on that date, and contract revenue may drop then if the Office of Management and Budget holds back funds in anticipation of sequestration.
 Small prime contractors and subcontractors may not have enough cash or credit to sustain operations in the hope that sequestration will be reversed or halted.
 How subcontractors respond will depend largely on what prime contractors do. The further removed a subcontractor is from the government customer, the fewer choices it may have.”
So this may very well not be a bluff or tactic, but the first step required of defense contractors. Certainly there will be more to come on this topic in the future. [Source: TREA News for the Enlisted 6 Jul 2012 ++]

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