Sequestration is Bad for Business

To resolve the United States debt-ceiling crisis, the Budget Control Act of 2011 was signed into law by President Obama on August 2, 2011.

The President had asked the Congress to extend the debt ceiling, but they couldn’t come to a decision about how to do that. So they decided that they would go ahead and extend the debt ceiling anyway, so that we could legally afford the debt that we needed to issue.

To force themselves to eventually make a deal, they chose two huge amounts of money to be “sequestered” (removed) from their budgets if they failed to come to agreement – a Sword of Damocles, of sorts. $550 billion would be taken from the Defense budget (something very important to the Republicans – and to many federal contractors) and $550 billion would be taken from the Medicare budget (something very important to the Democrats), and these amounts would be used for eventual debt reduction.

Unfortunately, they still haven’t come to an agreement, and so these cuts are scheduled to go into effect as of January 2nd, 2013. There is hope that a special session after the November 6th election might, just might, lead to a decision. But can it wait?

According to the WARN Act (Worker Adjustment and Retraining Notification Act), employers with 100 or more employees are required to give 60 days notice of impending job loss. That means that contractors who might lose contracts as a result of the budget cuts will have to notify their employees by November 3rd, 2012, only a few days before the election.

There has been a lot of controversy over a memo issued by President Obama at the end of September, instructing Federal contractors not to warn their employees of potential layoffs that might result from sequestration.

The problem for us as contractors is that we simply do not know what’s going to happen. Will the cuts go into effect? Which programs will be affected? How will this issue be resolved?

Many agencies are responding by simply no longer committing to anything new or even to renewing existing contracts, until they see the color of the money – or a commitment to an agreement after the election.

Furthermore, the uncertainty affects contract hiring, longevity of projects and contracts, marketing and business decisions, etc. Uncertainty is definitely bad for business, and this time, it’s a bit worse, because the looming election just compounds the uncertainty.


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