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Analysis: Contractors Play Waiting Game On Sequestration

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Government contractors, including many in the D.C. area are preparing for the possible effects of deep, across-the-board federal spending cuts set to go into effect in January. The billions of dollars in reductions could put many jobs at risk, and some government contractors had suggested they would send layoff notices to thousands of employees in advance of the November elections. But many have now decided to hold off on pink slips, in a move that could have economic and political consequences.

Tom Shoop, editor-in-chief at Government Executive, talks with WAMU's Morning Edition Host Matt McCleskey about why they're holding off on layoff notices. Here are some highlights: 

On why contractors were so emphatic that they would have to send out layoff notices this fall: "The practical one is that under the 1988 WARN Act, large companies are required to send advanced 60-day notice to employees of impending layoffs," Shoop says. "The second one was more political, that is these contractors, who are very opposed to the sequester going into effect, were hoping to put some political pressure on Congress and the administration on getting a deal done to prevent the sequester." 

Why they changed their minds: "It started over the summer when the labor department issued guidance saying it was unnecessary for these contractors to issue notices because it was unclear whether a sequester would go into effect or exactly what impact it would have," Shoop says. "Contractors …  went to the Office of Management and Budget (OMB) and said what if we don't do this and it turns out that we're liable. OMB then issued guidance saying if that turns out to be the case, then the government will cover your costs. At the same time, the Defense Department issued guidance saying we can tell you that these cuts aren't going to go into effect on day one so you don't have to be prepared on Jan. 2 to start laying people off."

Whether this signals better job security for contractors: "Not necessarily, because it's still very unclear exactly what effect the sequester will have," Shoop says. "What's clear i that it won't happen right away in January. But if it does go into effect, it could have a very dramatic effect on federal contracts and therefore on the people employed by contractors."

On whether contractors lost political leverage by not forcing the issue in such a public way before Election Day: "They certainly are losing some degree of leverage by not issuing these notices," Shoop says. "At the same time, the issue is even now attracting a lot of attention so they've made their point in a sense. Also I think they don't want to needlessly antagonize the administration if the administration has told them, 'hey, you don't need to do this.'" 

If contractors are feeling confident about the possibility that Congress and the administration will reach a deal before January: "Not really … I think it's hard for them to imagine a situation where it actually goes effect, but I think they're very concerned," Shoop says. 

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