The Department of Defense Issues Initial Planning Guidance on Sequestration
On January 10th, Deputy Secretary of Defense Ash Carter issued a memorandum, “Handling Budgetary Uncertainty in Fiscal Year 2013,” directing the services and all Department of Defense (“DOD”) components to begin planning for the budgetary impacts of the implementation of sequestration and an extension of the current continuing resolution (“CR”). The American Taxpayer Relief Act of 2012 deferred the start date of sequestration cuts to the defense budget from January 2, 2013 to March 1, 2013. Unless a second “fiscal cliff” deal is reached between the Congress and the President before then, the DOD will see up to $50 Billion in cuts to its fiscal year 2013 budget. Moreover, since Congress did not pass a regular defense appropriations bill, the Department is currently locked into fiscal year 2012 spending levels- levels which are lower than the those requested in the fiscal year 2013 President’s Budget submission- until the expiration of the CR on March 27, 2013. If Congress simply extends the CR through the end of the 2013 fiscal year rather than pass an omnibus appropriation, then Deputy Secretary Carter predicts that DOD “funds will run short at current rates of expenditure.”
In this memorandum, Deputy Secretary Carter gives authority to all defense components to begin implementing measures from an approved list in order to conserve available defense funds. According to Carter’s guidance, these measures must be “reversible at a later date” if Congress grants relief and must minimize harm to “our people and on operations and unit readiness.” This approved list contains measures that could immediately impact current service contracts such as:
- Freeze civilian hiring
- Provide authority to terminate employment of temporary hires
- Reduce base operations funding
- Curtail facilities maintenance
- Cancel 3rd and 4th quarter ship maintenance availabilities and aviation and ground depot-level maintenance activities.
This approved list also contains measure that could delay purchasing or award of production contracts.
- Curtail administrative expenses such as supply purchases, business IT…
- Clear all R&D and production contracts and contract modifications that obligate more than $500 million with USD (AT&L) prior to award.
Any proposed measure that goes beyond those on this list would have to be presented by the DOD component for approval by Deputy Secretary Carter.
In addition to authorizing immediate short term measures, Deputy Secretary Carter ordered all DOD components to submit longer term budget plans to the Undersecretary of Defense (Comptroller) by February 1, 2013. These longer term plans will have to be consistent with the guidance that Deputy Secretary Carter expressed in the memorandum. This guidance provides a window into the Department’s priorities such as:
- Exempting military personnel funding from sequestration reductions
- Fully protecting wartime operations
- Protecting investments funded in Overseas Contingency Operation if associated with urgent operation needs
- To the extent feasible” protecting programs most closely associated with the new defense strategy
- Reducing civilian workforce costs; and
- “[A]voiding penalties associated with potential contract cancellations where feasible.”
McKenna attorneys will continue to monitor how this guidance is implemented and any additional guidance from the Department of Defense on preparing for budget sequestration.
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