Why Pretend Sequestration Won’t Mean Contractor Layoffs?

Danger Thin Ice sign

Sequestration-induced layoffs and whether contractor employees are warned about them – it’s an issue that threatens to undermine the essential trust between government and industry that’s already a little shaky. It’s worrisome whenever contracting appears to get caught up in the politics of the moment, regardless of which party happens to be doing it.

Recall that Lockheed Martin wanted to notify its employees a few months ago about the possibility of layoffs under the WARN Act, a federal law which requires companies to give 60 days’ notice of possible mass layoffs. But the Labor Department had a warning of its own – don’t do it. Labor’s reasoning was that sequestration is too much of an uncertainty to trigger WARN Act warnings.

Lockheed withdrew plans to offer WARN notices. This caught the notice of some Republicans on Capitol Hill wondering why the Labor Department would seemingly interfere with what appears to be a company’s statutory obligation.

But then the Office of Management and Budget offered what in my experience is an unprecedented deal. It told companies that if:

  1. They do not issue WARN Act warnings related to sequestration and
  2. They later do lay off people and are sued – say, by a union – because they failed to act in accordance with the WARN Act,

then the government is prepared to pay their legal costs and whatever back pay they are liable for.

So is the government making a safe bet, or do OMB insiders actually expect contracting actions from sequestration to cause layoffs?

Now big contractors are diffidently announcing that, no, they won’t issue layoff warnings. After Lockheed withdrew its WARN warnings, BAE Systems, Boeing and General Dynamics joined the bandwagon saying they, too, would not issue them.

Besides offering financial incentives to skip layoff warnings, the Office of Management and Budget and the Defense Department also offered assurances that no major contract actions would take place in January should the sequester budget cuts go through as they are now on schedule to do. Lockheed CEO Bob Stevens told employees, “…DOD anticipates no contract actions on or about January 2, 2013, and that any action to adjust funding levels on contracts as a result of sequestration would likely not occur for several months after” January 2.  Meaning the deal expires and companies are free to issue layoff warnings safely after Inauguration.

That by itself seems to hold the companies’ contracts over their heads to gain compliance with the administration’s desire to avoid widespread layoff notices ahead of the national elections.

Predictably, this whole episode has touched off a lot of controversy, with conservative columnists and Republicans on Capitol Hill questioning the legitimacy of the whole arrangement. California Rep. Darryl Issa wrote a letter to Acting OMB chief Jeff Zients and Defense Contract Audit Agency Director Patrick Fitzgerald.  “The guidance seems intended to invite federal contractors to flout the law, and in so doing places a large contingent of financial liability on the shoulders of American taxpayers in order to indemnify those contractors who follow the Administration’s direction,” he wrote.

Democrats on the House Appropriations Committee issued a detailed public memo on where they think sequestration cuts would fall on DOD, program by program.  Not that DOD offered them any additional detail that I’m aware of.  It looks more as if they took the across-the-board 8 percent cuts outlined in the administration’s earlier report to Congress and simply applied them to certain programs.  They predict cutbacks in Lockheed’s F-35 program among forms, and Boeing helicopters.  Plus they see a concomitant need for lower levels of support and maintenance contracting.

Bottom line: The sequester would certainly result in layoffs in some defense contractors, whether employees get advanced notice or not.

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About the author

Tom Temin has written 486 posts for Fedinsider.com

Thomas R. Temin - Editor in chief of FedInsider and brings 30 years of publishing experience in media and information technology. Tom is also co-host of The Federal Drive with Tom Temin and Amy Morris, a weekday morning news and talk program on WFED AM 1500 in Washington D.C.

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