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Defense

Defense Contractors Casualty of Shutdown

Lockheed Martin picks 3,000 workers to be furloughed starting Monday.

Lockheed Martin's NexGen Cyber Innovation and Technology Center in Gaithersburg, Maryland.(PRNewsFoto/Lockheed Martin)

photo of Sara Sorcher
October 4, 2013

Defense workers are the next victims of Washington spending battles, and it's not just the 400,000 Defense Department civilians furloughed this week. As Washington braces for a prolonged government shutdown, defense contractors are starting to send workers on unpaid leave as the Pentagon does not have enough on-duty workers to perform inspections on progress of government contracts.

Defense giant Lockheed Martin announced on Friday it will furlough about 3,000 employees from across all its business areas starting on Monday.

Many defense contracts, technically, should not have been significantly affected by a shutdown, since the money that funds their contracts was largely obligated in prior years. However, since the Defense Contract Management Agency, which monitors those contracts, has furloughed 85 percent of its personnel during the government shutdown, companies' work has slowed since quality control and certification processes have virtually ceased in many factories.

 

"This is a domino effect. Because the Defense civilians were laid off, they can't approve production at the major military contractors," Lexington Institute chief operating officer Loren Thompson, also a consultant to Lockheed, tells National Journal. "Therefore, the contractors start [temporarily] laying off, and that impacts their suppliers."

It also jeopardizes production of weapons systems. "What would happen to the sausage industry if all the meat inspectors were laid off?" Thompson continued. "It would grind to a halt, no pun intended. That's what's happening here to the defense industry. It's gradually slowing down."

Lockheed expects the number of employees affected by the shutdown to grow, Lockheed CEO Marillyn Hewson said in a memo: "I'm disappointed that we must take these actions, and we continue to encourage our lawmakers to come together to pass a funding bill that will end this shutdown."

More companies are expected to follow suit; 1,000 contractors who work in BAE Systems' intelligence and security sectors were sent home and up to 15 percent of its workforce could be impacted. "Our Government Relations team is following this closely and is not optimistic for a near-term solution," CEO Linda Hudson said in a memo. "Just as this is disruptive to our customers... it is disruptive to everyone in our company."

Defense contractors in many cases have thousands of suppliers spread across the country to support their programs, and disruptions in production at the top of the food chain trickle down to small companies already struggling with the consequences of sequestration and program cancellations and delays. National Journal has reported previously about how the price of top weapons programs could rise as manufacturers lay off employees and costs are passed down the supply chain. The Aerospace Industries Association and the National Defense Industrial Association penned a letter on Thursday to Defense Secretary Chuck Hagel worrying that, like with sequestration cuts, "the prime contractors must pass along their reduced spending in orders to the thousands of small subcontractors that make up the industrial base supply chain."

The industry associations are also concerned about companies inability to "reconstitute critical talent in the workforce when the shutdown is over."

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