Defense contractors eye cuts to jobs, plants

Sequestration could cost Pentagon $600B

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“They have an obligation to maintain the nation’s defense,” she said.

But most observers agree that, with the atmosphere on Capitol Hill mired in election-year politics, it will be impossible to reach a deal before Election Day. A lame-duck congressional session after the election appears to offer the best opportunity for a compromise.

But companies, especially technology firms, have to make decisions about investment months ahead, and they already are being affected by uncertainty over future revenues from government contracts, Mrs. Blakey said.

“We think that [avoiding the automatic cuts] after the election will be too late,” she said.

To push Congress to make a deal, Mrs. Blakey said, the defense and aerospace sectors are “for the first time ever mounting a very aggressive public campaign.”

Election-time warning

Management and unions are marching shoulder to shoulder for a change, she added. “This is strange bedfellows,” she said. “It tells you something about how serious this problem is.”

The defense and aerospace sectors are not the only ones affected, say industry executives.

Alan Chvotkin, vice president of the Professional Services Council, which represents firms that rely on federal service contracts, said that if there is no action by the fall on the automatic cuts, “at some point, every publicly traded company with significant U.S. government contracts will have to issue a warning to its shareholders” about possible lost revenue.

“Even if the government wants to pretend this isn’t happening, publicly traded companies don’t have that luxury. They have legal obligations,” Mr. Chvotkin said.

In addition to shareholder disclosures mandated by the Securities and Exchange Commission, companies also have an obligation under a federal law called the WARN Act to notify workers of possible mass layoffs, Mr. Chvotkin noted.

Because of the involuntary nature of the automatic cuts and other factors, “there’s an open question in the government contracting world” about whether the WARN Act applies, said Mr. Chvotkin.

Nevertheless, many companies have union contracts that require notification, and the penalties for violating the act are severe enough that companies would likely err on the side of caution, he said.

The required notice is 60 days, which means letters triggered by the Jan. 2 automatic cuts would have to go out Nov. 2, four days before the election.

“Sequestration is the sword on a string hanging over our heads,” said Mr. Downey.

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