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.