Implementation of Sequestration on Government Contracts

Today, the President issued a Sequestration Order that requires federal agencies to make uniform percentage reductions in each separate item in their budgets. Under that Order, the agencies will be obliged to apply a mandatory percentage cut (effective reductions of 13% from national security programs and 9% from civilian programs) to each covered line item in their budgets, resulting by September 30 in equal reductions of roughly $42.7 billion each from Defense and civilian programs.

After the drama of the announcement, the first days of implementation of the sequester will be an anti-climax. The sequestration statute does not require the agencies to take any action on March 2, March 3, or March 4, etc.. Their only legal duty is that by September 30, they must have reduced the amount of FY 2013 budget authority they obligate by the required percentage amount. The agencies can delay as long as they want in making the cuts. But the longer they wait and the more slowly they phase in the spending reductions, the larger and more abrupt the cuts would have to be in the later months of the fiscal year.

There are only three basic things the agencies can do to reduce spending – cut their outputs (fewer grants to the states, less mail delivery); furlough their employees; and delay entering into new contracts and terminate or reduce the scope of existing contracts. Two of these categories will be the subject of extensive media coverage in the days following the Sequestration Order. The White House will roll out a carefully planned strategy to emphasize the adverse effects of sequestration on the delivery of vital government services. The media also will publicize the agencies giving their workers the required 30-day notice that furloughs will be imposed. This Government Contracts Update discusses the third category – the silent killer that will not receive as much media attention – how the agencies actually will cancel or reduce government contracts.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.