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Sequestration Impact on Contractors

Sequestration and How Could It Affect the Construction Industry


Sequestration is a process that will reduce spending and budgets in almost all federal government agencies. Starting on March 1, 2013 and continuing through the following nine years, the federal government will enter into an indiscriminate plant to reduce deficit and implement stringent measure to help alleviate the nation’s finances. We analyze and have come up with an idea of what will be the impact on builders and how to be prepared for it.

Sequestration Impact on Contracts

One of the most dangerous effects of the sequestration will be happening on government contracting. The sequestration will reduce the number of contracts being awarded as many agencies will be reducing their budgets and will only be awarding extremely necessary contracts. It is thought that federal agencies will be walking away from cost-reimbursement and time and material contracts. Under sequestration it is likely that agencies will be looking for firm-fixed price contracts providing cost certainty contracts. Another important contract type that federal agencies will be targeting is Indefinite Delivery/Indefinite Quantity (IDIQ) as these contracts provide the agency with the ability to individually negotiate task orders.

Another important factor that the sequestration might be bringing is that agencies might be looking to remove items from the scope of work. Although some of these contracts, have already being awarded, the agency might be looking to generate deductive change orders and in some cases be on the lookout for early termination clauses. Other opportunities that contractors are actively pursuing might be terminated or simply the agency will not be completing the bid process.

Sequestration Impact on Claims

Contracts that are forced to terminate their contracts, or simply de-scope their contracts, might enter negotiation of contracts, while others might need to submit claims in order to recoup overhead expenses. You could also expect to receive stop work orders, delays in payments, deductive change orders, and longer award process. Be sure to train your employees to understand new contractual obligations and read all addendum that could possibly be released by contracting officers presenting reduced scope of work.

Sequestration Impact on Workers

The sequestration will require enormous sacrifices from both, contractors and federal agencies. Some federal agencies will be reducing the work shifts to 32 hours per week, other could be sent home and some more will likely be asked to perform several duties at the same time. While this occurs, your company could also be looking to reduce workforce, but be aware that you might still need to be in compliance with workforce contract requirements. As a contractor you might want to consider the applicability of the Worker Adjustment and Retraining Notification (WARN) Act and its protections.

The Worker Adjustment and Retraining Notification Act (WARN) protects workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs. Generally, WARN covers employers with 100 or more employees, not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week. Employees entitled to advance notice under WARN include managers and supervisors as well as hourly and salaried workers.

Sequestration Impacts on Federal Agencies

The budgetary cuts will be happening over 1,200 different programs and extended to thousands of projects across the nation. These reductions should impact construction projects in at least two different scenarios:

  • Defense Contractors- That will likely be reducing contracts and spending by 13% and,
  • Housing, transportation and education programs.

Another close deadline to follow is March 27, date in which several federal programs should run out of funds, if a deal has not been reach at the Congress. If it occurs, then, we would face a partial government shutdown.

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