Government Contractors Hit Hard by Sequestration As Congress Drags Its Feet : LXBN Roundtable

By | LXBN | February 26, 2013

When the clocks strike midnight on February 28th,  the government will begin to implement a series of self-imposed, across-the-board cuts to the federal budget.  Instead of the surgical approach of policy, these cuts will take a sledgehammer to the national deficit, slashing government spending by $85 billion this fiscal year, without regard to any specific projects.  Even as the national defense budget stands to take a big hit, Republicans are standing fast in their opposition to plans from the Democrats and Obama administration.  With the clock ticking down, the LexBlog Network looks at where these cuts will hit hardest, and how agencies will adapt in the face of shrinking resources. 

It may be that with GOP approval ratings plummeting  and President Obama receiving widespread support, Republicans believe they have nothing to lose.  Considering that the sequester forces major cuts to military spending, they’re certainly acting like it.  As LXBN members poured over the Budget Control Act of 2011 (where the language authorizing the sequestration is contained), some of the first rumblings were heard from lawyers and firms whose clients are contractors.  Husch Blackwell attorneys Ike Skelton and Russell Orban wrote on the firm’s blog, The Contractor’s Perspective, in January of last year that Department of Defense contractors would be hit hard and fast:

“Should all of the expected budget cuts be put into effect, the military will have to reduce spending by $80 to $120 billion per year over the next decade. A good portion of the cuts will come from reductions in government-awarded contracts. Every contract, every major weapons program, and every installation commitment will have to be reviewed and perhaps pared down to meet the reduced spending goals. There will be fewer new ships, planes, and other major weapons systems. Existing weapons systems will have to be scrapped. Research-and-development efforts will be rolled back. Overseas bases will have to be closed, and there will have to be another round of base closings and realignments here at home.”

As Skelton and Orban write, the sequestration demands escalating cuts, with more money slashed from government budgets – and Pentagon spending – each year.

Last fall, with elections at their peak and campaign rhetoric fueling the discussion around the fiscal cliff, John W. Chierichella and Alexander W. Major reported on Shepard Mullin’s Government Contracts Law Blog that contracts awarded on or after October 1st, 2012 would be subject to these draconian cuts.  Chierichella and Major concluded that the government would ultimately lean on contractors, asking them to do their “patriotic duty,” with promises that payments would be made in full.  Here was their response:

“There is a variety of legal terms that describe this empty promise. Bunk, poppycock, and drivel are three that come immediately to mind. All too often, contractors in the past have succumbed to this siren song and lived to regret it. What makes the scenario even more problematic in relation to sequestration, however, is that the money that the agencies do not have today is not going to materialize like the proverbial manna from heaven at any time in the future.”

While the rest of their post examined how contractors could handle the sequestration, the parting paragraph suggested a more hardline approach may be neccessary if Congress fails to pay its debts:

“The bottom line is this – the Government is likely to jawbone you into “doing the right thing for the country.” The right thing here is exercise your rights. Maybe, just maybe, if the contracting community actually stands on its rights it will communicate a clear message to Congress – like Howard Beale in “Network” – that “I’m as mad as hell, and I’m not going to take this anymore,” and require the Congress to solve its own mess without riding on the backs of contractors.”

With attorneys on LXBN advising clients that sequestration was inevitable and telling government employees to prepare for the worst (including furloughs, hiring freezes, and releasing temporary employees), it’s almost comical that Congress continues to be a quagmire of partisan hackery. Almost.

In a post on Reed Smith’s Global Regulatory Enforcement Law Blog, Tom Webley was spot on when he quoted Yogi Berra’s famous saying, “It’s like deja-vu, all over again!”  As Congress approaches yet another self-imposed deadline that they appear ill-equipped to handle without resorting to name calling and public shaming, it feels like we’re stuck in an endless loop.  Why do both parties seem unwilling to budge on such an important issues?  As Webley points out, it’s all about leverage:

“The debt limit has been temporarily taken off the table, with Congress and the President agreeing to legislation that suspends the $16.4 trillion debt ceiling through May 19th (Public Law 113-3). A federal budget for Fiscal Year 2013 has not yet been enacted, with the federal government’s operations instead being funded through – March 27th – by a resolution continuing spending at Fiscal Year 2012 levels (“CR”). Sequester, in other words, is the only negotiating tool each side has.”

When the Budget Control Act was written, that leverage was supposed to be on the side of President Obama and the Democrats, but Republicans have been willing to seem like military cuts are preferable to the plans the Obama administration has put forth.  Democratic deficit reduction plans have focused on a combination of revenue increases and spending cuts, but Republicans continue to call for changes to entitlement programs like Medicare and Social Security instead of raising taxes.

Shortly after the fiscal cliff showdown passed, Dan Lesser, a Director at the Shriver Center, took a look at what the shape of those changes could be if the GOP got their way:

Those who favor large cuts in government spending can be expected to push a number of proposals that would cause grave harm to low-income people, such as:

Considering that the Congressional Budget Office has estimated the cost of Medicare at $6.1 trillion over the next eight years, it makes sense that the program would be on the negotiating table.  However, Democrats and the Obama administration have repeatedly balked at raising the eligibility age for Medicare, and appear unwilling to make major concessions on their stances for other health care programs.

The inflexibility on both sides of the aisle is a reminder that it takes two to tango.  Perhaps that’s why a recent meeting of governors for the National Governors Association provided more insight and calls for compromise in Washington, D.C. than we’ve seen over the course of the sequestration negotiations.  Congress is afforded the luxury of governing from afar, while governors are on the front lines of the sequestration battle;  a point hammered home in a report released by the White House yesterday which outlines the impact of the looming cuts on each state.  GOP governors place the blame on both parties, while Democratic governors are unified in their criticisms of GOP lawmakers, but it’s fair to say that these governors see the problem clearer than any member of Congress.  That may be because they, unlike most members of Congress, understand that their jobs – and the jobs of thousands of Americans – are on the line too.

To read more analysis from LXBN members on the sequestration, be sure to check out our page on the subject.

Photo Credit: Kevin Burkett