DoD Planning for Budget Uncertainty

Earlier this month, the Department of Defense issued guidance to its departments on how to plan for uncertainties related to the Continuing Resolution and Sequestration. The Department is currently operating under a CR that effectively caps spending at fiscal year 2012 levels. Additionally, potential sequestration that was recently deferred from January 2 to March 1 creates significant uncertainty for managing the Department.

The strategies for dealing with budget cuts impact Government contractors, either directly or indirectly.

One of the strategies laid out by the Department is to reduce the civilian workforce by releasing temporary employees, imposing hiring freezes, authorizing voluntary separation incentives, and furloughing employees for up to 30 days. This will undoubtedly impact the procurement community, slowing down contract awards, and more delays in finishing up incurred cost audits. Since the strategies apply to all civilians, payment offices will be impacted as well.

Military personnel funding is exempt from the DoD spending cut plans and the civilian workforce cuts can only go so far. That means contracting will be cut. Specifically, the DoD plans call for

• Reduction in base operating funding
• Curtailing facilities maintenance
• Curtailing supplies and IT purchases
• Cancelling ship maintenance and aviation and ground depot-level maintenance
• Figuring out which research can be cut without impacting research priorities.

The actions taken in response to these instructions are to be structured to be reversible at a later date should Congress act to remove the risks caused by the CR and sequestration threat.