DOD unlikely to cancel contracts for savings

Option periods, new contracts more likely to feel the brunt of sequestration budget cuts, Pentagon controller says.

military businessman

Companies with existing DOD contracts can count on getting paid during sequestration. (Stock image)

Defense Department Controller Robert Hale said Feb. 20 he does not foresee DOD canceling contracts if sequestration takes effect. Instead, DOD is more likely to deal with budget pressures by declining to pick up contracts' option periods and simply not awarding new contracts.

"I would like to say, to reassure them, if you've got a contract with us, we're going to pay you," Hale said. Even under sequestration and with employees taking furloughs, he added, DOD will keep making payments on time.

A contract option period allows agencies to buy additional quantities of supplies or work without further negotiation between the agency and company.

Defense officials are delving into specifics on what the department really needs to buy and what projects to continue.

"It takes a lot of work to figure out what we won't do to accommodate sequestration cuts and similarly in the service-contract area," Hale said during a Pentagon press conference in which he announced plans for civilian employee furloughs.

DOD needs to cut $45 billion to $46 billion this fiscal year spending if, and when, sequestration takes effect. Workforce costs cuts, via the furloughs, could save DOD $4 billion to $5 billion. The rest of the cuts will have to come from other areas.

"There will be very substantial effects on the private sector as well," he said. As DOD officials try to find ways to save the money, the defense industry will inevitably suffer, he said.

DOD's notice issued Feb. 20 serves to start the clock on a 45-day countdown until the furloughs can begin. The next move will come in March, when a 30-day notification would be sent to all employees who may face furlough.

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