Twitter Facebook Google RSS
 
National Defense > Blog > Posts > Sequestration Checklist: Are You Ready?

8/10/2012

Sequestration Checklist: Are You Ready?
By Sandra I. Erwin



President Obama must report to Congress no later than Sept. 6 on how federal agencies will implement $1.2 trillion in budget cuts that are scheduled to take place Jan. 2.

For many government contractors, a month is too long a wait considering that businesses need time to prepare for a possible slowdown or shutdown of operations.

“Everyone is hoping that this will go away,” says Darrell J. Oyer, a government contracts specialist who works with defense suppliers. But with Congress in recess through August, now might be a good time for contractors to contemplate what-if scenarios, Oyer says.

When Congress is back next month, pressure will continue to mount on lawmakers to act to avoid the mandatory sequestration cuts that lawmakers approved a year ago in order to defuse a debt ceiling crisis.

Beginning in fiscal year 2013, the sequestration guillotine would chop $55 billion from defense and non-defense agencies annually through 2021. For Defense, it amounts to a 10 percent across-the-board cut.

The impact of sequestration on Defense Department suppliers varies depending on whether a company has projects already under contract or if it is awaiting Pentagon decisions on yet-to-be-made awards.

Companies whose financial prospects are tied to future contract awards are simply out of luck, Oyer says in a newsletter he writes monthly for clients.

Because of the uncertainty, agencies will delay major procurements, he says. “Contractors have no control over this action.”

Another possibility is that government procurement officials might attempt to negotiate a reduction from “probable cost and price” as a hedge, he suggests. “Contractors can use discretion in agreeing to such reductions.”

Companies that are working under existing contracts face a different set of challenges.

In contracts that have a “limitation of funding” clause, government officials can decide to stop making payments. Again, vendors have no control over this action, Oyer says.

Where there is a limitation of cost clause, he says, contractors should be more reluctant to do any work “at risk.”

Agencies also would be authorized to not exercise contract options. An even more dire possibility for industry would be the rescission of contracts to the maximum extent possible where permitted by regulation, says Oyer. “Contractors should be even more diligent in compliance and be prepared to defend any allegations that would justify rescission,” he says.

Increased use of “termination for default” is another potential action that agencies might take, he says. “Contractors should even more closely monitor performance and respond quickly to potential issues of default.”

If there is “termination for convenience,” he adds, contractors have no control over this action but should analyze the cost/benefit differential between continuing performance versus termination. “A termination may result in no delivery of product but expenditure of 90 percent of the funds for a completed item,” Oyer says.

Until there is more clarity on what programs will be affected by sequestration, all contractors can do is try to anticipate government actions and be prepared, Oyer tells National Defense. 

Oyer believes it is unfortunate that the debate over sequestration has centered on how many defense industry jobs might be lost, rather than on the potential impact on national security writ large. “That’s all I have heard senior defense executives talk about [during congressional hearings], jobs, jobs, jobs,” Oyer says. “That disappointed me.”

Photo Credit: iStockPhoto
Posted at 8:29 AM by Sandra Erwin | Permalink | Email this Post | Comments (1)

Comments

Re: Sequestration Checklist: Are You Ready?

This is the first article I have read that provides concrete steps my company can take while identifying areas where we have no discretion. We welcome more such information.
Phil Spampinato at 8/30/2012 11:17 AM

Add Comment
Items on this list require content approval. Your submission will not appear in public views until approved by someone with proper rights. More information on content approval.

Name: *

eMail *

Comment *

Title

Attachments

Name: *


eMail *


Comment *


 

Refresh
Please enter the text displayed in the image.
The picture contains 6 characters.

Characters *

  

Legal Notice *

NDIA is not responsible for screening, policing, editing, or monitoring your or another user's postings and encourages all of its users to use reasonable discretion and caution in evaluating or reviewing any posting. Moreover, and except as provided below with respect to NDIA's right and ability to delete or remove a posting (or any part thereof), NDIA does not endorse, oppose, or edit any opinion or information provided by you or another user and does not make any representation with respect to, nor does it endorse the accuracy, completeness, timeliness, or reliability of any advice, opinion, statement, or other material displayed, uploaded, or distributed by you or any other user. Nevertheless, NDIA reserves the right to delete or take other action with respect to postings (or parts thereof) that NDIA believes in good faith violate this Legal Notice and/or are potentially harmful or unlawful. If you violate this Legal Notice, NDIA may, in its sole discretion, delete the unacceptable content from your posting, remove or delete the posting in its entirety, issue you a warning, and/or terminate your use of the NDIA site. Moreover, it is a policy of NDIA to take appropriate actions under the Digital Millennium Copyright Act and other applicable intellectual property laws. If you become aware of postings that violate these rules regarding acceptable behavior or content, you may contact NDIA at 703.522.1820.

 

 

Bookmark and Share