Harrison said he takes Pentagon leaders at their word when they state that no planning for sequestration is taking place, because the goal is to broker a budget deal that heads it off. “But it would be wise to start planning,” he said, noting that the fiscal year ends in a little more than 30 days and that a year has passed since the Budget Control Act passed. Defense officials should begin work on a “reprogramming package to protect certain high-priority items,” he added. “I understand the reluctance to plan and let the public know. Because once you show the high and low priorities, the low-priority ones become targets.”
Defense industry contractors, Harrison said, are more affected by budgetary outlays than budget authority, and outlays roll out at different rates. The payroll rate rolls out fastest, and is spent nearly all in the first year of a program. Procurement and RD&TE account for less than a quarter of outlays in the first year, and it could take three or four years to impose the 10.3 percent cut in these areas, he said. “So there’s some cushion for the defense industry,” Harrison said.
Though sequestration would not hit as suddenly as a government shutdown, the deadline falls after the first quarter of fiscal 2013 already has elapsed. That means the civilian Defense workforce would have to be cut by 13.7 percent in the final nine months of fiscal 2013 to offload 108,000 full-time equivalents. “It would slow everything Defense does, from construction to training to peacetime operations,” Harrison said. “The longer they wait, the more they will have to lay off.”
Contractors would respond to a reduction in awards under sequestration by seeking to renegotiate older contracts, and Defense agencies “would not be in a strong negotiating position,” he added. “Unit costs would go up; they would be short-term savings with long-term consequences.”