Fiscal cliff leaves contractors guessing

Fiscal cliff leaves contractors guessing

With the deadline bearing down, Congress and the White House have floated desperate plans to reach an agreement to avoid the fiscal cliff and prevent sequestration cuts from gouging the Defense Department and other federal agencies. Each day that passes means the prospect becomes more and more likely the nation goes over the cliff on Jan. 2.

The Defense Department stands to absorb a 10 percent across-the-board cut to planned defense spending over the next decade that amounts to roughly $500 billion. Every branch of the military will suffer. The individuals who might suffer the most are the contractors either working directly for the Defense Department or the ones working within the defense industry.

Industry execs like Bob Stevens, Lockheed Martin’s CEO, have stood up and warned Congress and the White House that the sequestration cuts mean his company, like many other defense firms, will have to lay off waves of employees. Those prognostications drew headlines in the presidential campaign when it appeared the defense contractors would receive notices warning of massive layoffs just days before the election.  The issue drifted when the White House informed the defense industry that they notices would not be needed.


However, the debate over the WARN Act made the prospect of massive layoffs real for plenty of employees. At conferences and in lunch rooms, sequestration has been a major topic of discussion at defense firms across the country.

Throughout the sequestration debate, Pentagon leaders have stressed that they have not begun planning for the effects of the sequestration cuts. However, on Dec. 20, Defense Secretary Leon Panetta issued a memorandum that specified what will happen should the sequestration effects occur.

In the memorandum, he tried to quell some of the fears within the contractor ranks pointing out that changes will not immediately be made the day after Jan. 2.

“I do not expect our day-to-day operations to change dramatically on or immediately after January 2, 2013, should sequestration occur,” Panetta wrote.

He went further saying he didn’t expect any furloughs immediately for the civilian ranks.

“This means that we will not be executing any immediate civilian personnel actions, such as furloughs, on that date,” the memorandum read.

This is important because most analysts suspect that Congress will allow the nation to go over the fiscal cliff, but will soon after pass an agreement that rolls back taxes and cuts down spending while eliminating the sequestration cuts. If this does not happen, Panetta warned that “we may have to consider furloughs or other actions in the future.”

“But let me assure you that we will carefully examine other options to reduce costs within the agency before taking such action, taking into consideration our obligation to execute our core mission. Moreover, if such action proves to be necessary, we would provide affected employees the requisite advance notice before a furlough or other personnel action would occur,” Panetta wrote.

No matter if the fiscal cliff is avoided or the defense industry has to wait for an agreement soon after, the defense industry has known for awhile that it will absorb massive cut backs. The hardest part of this waiting game is knowing just how much. Defense execs, as well as Wall Street, have complained most about the uncertainty surrounding the work on Capitol Hill.

Paralyzed by speculation, the lack of certainty has cost the government and private businesses even more money. At this point, most defense officials and the contractors who work in the industry just want an answer so they can move on in their new year.

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“The issue drifted when the White House informed the defense industry that [WARN Act] notices would not be needed.”

The factual reality was considerably more sordid than this tame retelling of it.

The White House explicitly told LockMart and other defense primaries to outright ignore federal law in this matter, which is what the WARN Act is: _federal law_. It’s not an optional thing. It’s not discretionary. WARN notifications are mandatory. That’s how the liberals who originally pushed to enact WARN set it up. And companies which do not send out such notices to their employees can be found civilly and criminally liable for failing to do so.

Then, suddenly, the same law which liberals had installed turned out to be a huge potential electoral liability for a liberal President trying to get re-elected. The liberals’ solution? Coerce the companies in question to completely ignore the liberals’ own duly enacted and signed law.

When the firms then protested to the White House about the potential financial and legal exposure into which this scheme was forcing them, they were told not to worry — that the federal government would reimburse them with public funds for any fines or damages which resulted from their having been instructed to deliberately break federal law!

The descent of the United States of America into a thoroughly corrupt banana republic continues apace.

Sequestration the Democratic Dream of a Life Time, Like Rahm Emanuel said “Never Let a Good Crisis Go to Waste”. The Democratic party has been trying to cut the Military since Carter. Reagan built it up again, and Clinton cut it way back. Obama wants this to happen, so don’t expect him to come to the rescue.

Adm. Mike Mullen: “The most significant threat to our national security is our debt.” (Aug 2010) If you are concerned about defense, this is an important thing to think about. I do not consider myself some kind of knee-jerk “defense contractors are all greedy and evil” ideologue, but I think that not all defense programs are created equal. I hope that in this new era of austerity, the gov’t and Pentagon do a good job of selecting the valuable ones.

And, as a continuation of what I just said, I have little sympathy for these companies complaining about uncertainty. Uncertainty is a part of business, whether you are an investment banker, a defense contractor, or in any other field. You have to make rational decisions to hedge against all possibilities and the likelihood of their fulfillment. That’s why these executives get paid the big bucks.

The Vast Majority of Americans believe the Country is going in the wrong direction. So, what do they do??? Elect the same guy we had for the last 4 years that has did nothing but make matters worse.….….UNBELIEVEABLE

AMERICA WAKE UP! LIBERALS SUPPORT MORE GOVERMENT THAT JUST TAXES MORE AND SPEND MORE! WHICH DOESN“T WORK! NEVER HAS!

You may think differently if the shoe was on the other foot!

Guest —

Uncertainty is a part of business, but it’s somthing all businesses work to eliminte. That which can’t be eliminated must be controlled or insured. Both create inefficiencies — and costs. Unlike our botched procurement pocess, federal appropriations should be something more predictable than a pre new year’s bout of midnight madness. Another reason why our weapons systems will cost more than they should.

Uncertainty is part of the pre-contract award process. After a contract award, business has the right to expect some certainty. When contracts become meaningless, we are no longer operating under the rule of law. We are winning the race to Third World status.

what contracts are going to be violated? i wasn’t aware of any. i thought this meant less future contracts would be signed.

well, we have been running up huge deficits for years. the mullen quote is from 2 yrs ago. it is naive to think this is a surprise to anybody — the government has to live within its means. this issue didn’t just suddenly fall out of the blue.

So I was looking at poles of Americans that are moving out of the country because of their lack of satisfaction with the direction the nation is going. The number one choice most Americans put down was Canada. Number two was Australia.

I think if it gets bad enough to a point where I want to get out I’m going to go to Australia. I like warmer weather and right now their economy is booming and largely unaffected by the current economic crisis, partially because of luck but also partially due to smart management by the Aussies. Everyone who’s American and having similar thoughts please reply to this post with your migration country of choice.

GET RID OF ALL THE CONTRACTORS..!!!!!! They are all thieves.. They do less than expected„ charge an astronomical amount of money„ use many short-cuts on the job… And they ignore instructions„, especally when it came to ths “Burn Pits” in Iraq and Afghanistan„ so now our troops are getting sick and dying.. Their contracts are just a big scam…

Australia is prospering solely for one reason: because China is currently heavily dependent on imported Australian raw materials. Once China finds other suppliers (e.g. Brazil), Australia’s “economic boom” will end immediately. They’re essentially the Russia of the southern hemisphere — without nuclear weapons.

Defense contractors don’t really have any “uncertainty.” If they did, they would be paying for their own R&D of the products they sell the U.S. government. Instead, they are subsidized 100% for ALL risk. They wouldn’t survive in the real world. If we want to “get procurement right,” we need these defense contractors to pay for their own R&D. That’s the only way to guarantee they produce and test the weapons and systems BEFORE the government buys them. Right now, the Pentagon is the biggest welfare queen of all.

The industry doesn’t pay for the R&D that goes into its contracts (for better or worse) because the DoD wants the unproven and risky in its products. In fact the DoD demands it and then changes its mind and wants the unproven plus features. If the DoD bought weapons with tested and marketable technology then you’d have a point, but when the buyer doesn’t know what he wants, then the seller will over-promise and put the onus on the buyer for expecting the almost-impossible. The industry isn’t going to spend an absolute fortune coming up with cutting edge technology and testing it without some idea that they’ll make money on it. “Normal” businesses can do it because they have a regular customer base to justify the expense and expect to get a return. Usually an industry says “here is what we have and we’re sure some of you will want it” but in the defense world the DoD says “This is what we want it to do, build it for us” whether it can be done or not. The DoD then buys that item from a single supplier (and buys only that model for an entire decade) and everyone else is just going to lose out. Try to run a business on that model.

Thanks for your opinion. We are a small manufacturer; we do about 50% of our business with DoD and Homeland Security. DLA business already went off the cliff the end of Sept. with no budget in place. I’ve already cut everyone back to a 4-day week, and will likely have to move on to laying off 1/3 of our employees. I haven’t been able to cash a paycheck for 2 months. With the other half of our business in the consumer sector, that is not improving either with the economy the way it’s been.

Guest — Barb Washington: We can read you reply as soon as javascript is enabled, posting the same message wont change this.

The issue that is not stated in the article about defense industry layoffs and cutbacks is the DoD will lose capabilities that in many cases will not be replaceable. Once the workforce moves on to retirement or a new career, most will not have anything else to do with military contracts. Building large ships, submarines, and advanced aircraft are not normal commercial ventures and the skills required will not survive a prolonged period of inactivity. Russia is now learning this lesson in their military aircraft industry. The skills required simply vanished and now have to be rebuilt at great expense. They are in effect starting over.

You have skipped the fact that a huge portion of the Federal budget (around 2/3rds) is spent on entitlements and fixing the debt problem won’t happen unless those programs are also modified.

There are not all thieves but thanks for demonstrating you fanaticism and delusional state of mind.

The biggest welfare queen is…welfare, and social security and food stamps and so on. There isn’t even room on the stage for the DoD as a welfare queen.

Excellent point. The question is which capabilities should be continued and how much do we need? It’s a very complicated issue.

One can accomplish anything if one does not care who gets the blame. Do the right thing.

Israel. I’m Catholic, but a) they don’t take no guff, PC or not, and b) the women there.…

Still think were going over. House. f we dont big DoD cuts will come anyway.

I’m not going anywhere. Our forefathers fought and died for this nation, and I aint giving up that easy. Remember, even during the Revolutionary War, even as they wrote the Declaration of Independence, and our “small-government” Constitution, the population included a lot of pro-big-government British Loyalists, who dreaded the idea of living free and independent from The Crown. There will always be opposition, and it won’t always be foriegn. Hence the line in my commissioning oath to defend the constitution “against all enemies, foriegn and domestic”.

PS — I find it funny that American conservatives, upset with the current liberal tilt in the US, would head to Canada. Out of the frying pan and into the fire, as they say. A fitting destination for Michael Moore, perhaps, but not for a conservative.

Ah, yes. Pay the contractors to test their weapons systems before the government buys them. Clever solution. I don’t suppose there would be any conflict of interest, if I test my own product before selling it to you??

And, just out of curiosity, if defense contracting is such a low risk cash cow, why isn’t every company in the world heavily investing? Why isn’t everybody (from Ford to Toyota to Sears and Roebuck) divesting from their high-risk “real world” markets and investing in the low-risk, all-expenses-paid “fantasy world” of defense contracting? I mean, all you have to do is throw your hat in the ring, and it’s free lunches forever, right? — What’s that? You don’t have a clue? Yeah, that’s what I thought.

Yeah!! Who needs defense contractors? All they do is spend money and build things! Who needs that? Besides, the things they build kill people! Fire them all! If we ever need more weapons, we’ll just put our latest class of Second Lieutenants on it, and I’m sure they’ll come up with something real quick!

Not too bright are you?

Yeah, that’s why we are spending at greater than Cold War levels now. It’s all those damn politicians who are out to get the defense budget. Clearly the “let’s throw money at it” solution has worked well up to now. Why not continue until the union of states fails just like the USSR did?

The defense giant I work for is turning in record profits year after year. It must suck not to have more political clout than God.

Just because defense contractors paid for their own weapons development costs for 200 years — all the way through the Cold War — doesn’t mean it would work now. I mean, hell, look at how good our current system is working. It takes 30 years to develop a fighter jet when it used to take 3 years. We footed the bill for $50 billion in failed programs that amazingly enough just happened to die right before going into production. We have 20 B-2 bombers and 180 F-22 fighters after paying for 12 to 25 years of development of those aircraft. We can’t keep 280 Navy ships afloat when we had 600 ships in the 1980s. And a glorified PT boat, the LCS or Little Crappy Ship costs more than an Iowa class battleship to both design and build. With a success record like that, why would we ever want to change the way we currently buy weapons?

Government contractors have sucked the life out of this country. When NASA designed their own rockets we were able to land men on the Moon. Since contractors started designing NASA’s rockets, NASA can’t even repeat what John Glenn did in 1962. We used to have a Navy that was 600 ships strong in the 1980’s when the Navy designed them. Now we can’t even keep 280 rust buckets afloat, and a ship that’s little more than a glorified PT boat costs more than an Iowa class battleship. Fighter jets that used to take 3 years to design now take 30 years and cost tens to hundreds of billions to design. We pay contractors to put our fighting men’s lives in as much danger in their base as they were when engaged in a fire fight with the enemy. We pay contractors to house them in crappy, falling down houses. We pay contractors to let them die of substandard care in our VA hospitals. Damn, my heart just bleeds for these poor government contractors that might suffer a 10% reduction in the increase of defense spending if we fall off this alleged “fiscal cliff” we are told every day to fear.

Remember Obama thinks he does not have to follow the LAW

You think it is smarter for the DoD to pay for a pig-in-a-poke instead of paying for a real, working weapon? What world do you live in? Did you pay Apple to develop their latest phone for you specially, or did you wait until they developed the phone, read up on it, try it our for yourself and then make up your mind on whether or not to buy it? Why shouldn’t the DoD buy weapons the same way? When we did, not that many years ago, we had the best military hardware bar none. Now our soldiers use crap that’s older than they are because any new weapons program takes decades and delivers little if anything. What a brilliant system that is.

The US Air Force designed the X Planes that broke the sound barrier. Why didn’t the contractors design those planes? Too much risk, not enough reward. There’s a place for government and a place for contractors in this defense game. We have the places screwed up. The contractors are doing what the government should do and we are all losing. When is the last time you heard of anyone in the free market getting a contract to make a $1.10 for every $1.00 they spend? Only the government can afford to waste money like that, because its not their money. It’s ours!

Because the defense industry is a self-consolidating oligarchy with no room for outsiders who don’t know the right people. Even companies like Lockheed do a hell of a lot more than integrate components and deliver aircraft: there isn’t room for any single specialist company anymore.

Australia is prospering because they have hefty tariffs in place to guard against China dumping goods in their country and destroying all their industries. We used to have the same thing, then China bought all our government officials and our tariffs went away. The funny thing is, we used to buy their government officials and do the same thing to them. Now which one of us is a 3rd world country?

It’s kind of hard to guess which giant you work for, considering all the weaklings keep getting bought and merged out. Pretty much any defense entity is part of a larger entity, unless it is the entity in question.

For instance, NG is somehow in the shipbuilding business…groan.

But tariffs are evil and comparative advantage is wonderful!

Won’t be long before they can make our aircraft for us on dimes to our dollars, and at that price, who could say no?

They might let you keep most of your guns in Canada.

Dunno about Australia or Europe. Even Israel has stricter conditions on civilian firearms ownership, and they have mandatory military service with the average Israeli probably knowing more about guns than the average American.

They’re all the same. Only the names are different.

We’ve already outsourced the manufacturing of our ships and cars, why not our aircraft too? After all, what could possibly go wrong? The producer needs the consumer much more than the consumer needs the producer, so let’s just keep borrowing money from the producer countries and go on consuming forever. It’s just like perpetual motion.

Please show me the vast numbers of American Conservatives who are headiung to Canada.

I don’t think that there are many

Actually, NG is not in the shipbuilding business. They were for some time but have sold that business off.

Rechecked, and yes they are out. They still do some maritime business, but spun off the shipbuilding business I was thinking of in 2011. Thanks for the catch.

Using the debt ceiling and the “fiscal cliff” as leverage to extract additional concessions from the other party may be clever hard-ball politics, but at what cost to the rest of us? In http://​www​.thewordenreport​.blogspot​.com/​2​0​1​3​/​0​2/t… at the Worden Report, I argue that the high-stakes political poker game may reflect a weakness in democracy itself. In short, self-governance does not confront hard problems very well.

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