Yesterday, when testifying before the Defense Subcommittee of the Senate Appropriations Committee, Secretary of Defense Chuck Hagel told Senators that DoD contractors will share the burden of spending cuts, including the furloughs facing the Department's civilian workforce.
The DoD Comptroller, Robert Hale who testified at the same hearing told the Senators that the 700 thousand defense contractors who work throughout the Department "...are in for some changes".
The Department of Defense is taking a $37 billion sequestration spending cut this fiscal year. While about $2 billion is coming out of furloughs for civilian workers, the majority of that cut will be coming out of contracts. That means a "sharp drop" in the number of contracts in the department.
The hearing also touched on the high cost of contract employees in general. One Senator cited a recent study that concluded contractors, on average, were twice as expensive as civilian employees. Contractor employees make up 22 percent of DoD's workforce but represent 50 percent of its personnel related costs. Evidence of a problem in this area comes from Edward Snowden's (the NSA employee who leaked classified information) revelations that was making $200 thousand per year, living in Hawaii, while performing relatively little work (his employer said he was making $122 thousand, not $200 thousand).
Government contractors, and Defense contractors in particular, have already been feeling the effects of sequestration because a lot of contracting actions are suspended or cancelled. We've had contractors tell us about specific cases where solicitations have been cancelled because of sequestration. If the Secretary's testimony comes to fruition, the impact will be felt even more directly as existing contracts are terminated in whole or in part due to funding limits.