As many inside the Beltway know, the Budget Control Act of 2011 imposes automatic and wide-reaching cuts if the U.S. government fails to reach an agreement on fiscal policy (commonly known as sequestration). Unless Congress acts, the President is required to order cuts of approximately $85 billion from the federal budget on March 1, 2013. But it is not just statesmen who are feeling the pressure; agencies, too, have to decide how to interpret and implement cuts. In a memo to agency heads, OMB Deputy Director for Management Jeff Zients outlined some principles to guide agency preparation for sequestration, including hiring freezes, releasing temporary workers, creating separation incentives, and implementing furloughs.

The risk of terminations and furloughs raises the possibility that contracting officers may feel the pressure to terminate certain government contracts. The Pentagon recently issued a memo instructing DOD agencies that they are authorized to plan for furloughs and must clear with the Undersecretary of Defense for Acquisition, Technology and Logistics, all R&D and production contracts that are worth more than $500 million. Adding to the pressure to terminate contracts and contractors are calls from the unions that want agency furloughs to affect contractors before reaching federal workers. We will know in the coming days how other agencies will handle sequestration, but in the meantime, federal contractors should beware the Kalends of March.

Read our previous post on this matter here.