The White House moved to prevent defense and other government contractors from issuing mass layoff notices in anticipation of sequestration, even going so far to say that the contracting agencies would cover any potential litigation costs or employee compensation costs that could follow.
Some defense companies—including Lockheed Martin, BAE Systems and EADS North America—have said they expect to send notices to their employees 60 days before sequestration takes effect to comply with the Worker Adjustment and Retraining Notification Act, which requires companies to give advance warning to workers deemed reasonably likely to lose their jobs. Companies appeared undeterred by a July 30 guidance from the Labor Department, which said issuing such notices would be inappropriate, due to the possibility that sequestration may be averted. The Labor Department also said companies do not have enough information about how the cuts might be implemented to determine which workers or specific programs could be affected should Congress fail to reach a compromise to reduce the deficit, triggering $1.2 trillion in spending cuts, half from defense, half non-defense. For 2013, that would amount to $109 billion in spending cuts.
So the Office of Management and Budget went a step further in guidance issued late Friday afternoon. If an agency terminates or modifies a contract, and the contractor must close a plant or lay off workers en masse, the company could treat employee compensation costs for WARN Act liability, attorneys’ fees and other litigation costs as allowable costs to be covered by the contracting agency—so long as the contractor has followed a course of action consistent with the Labor Department’s guidance. The legal fees would be covered regardless of the outcome of the litigation, according to the OMB guidance issued by Daniel Werfel, controller of the Office of Federal Financial Management, and Joseph Jordan, the Administrator for Federal Procurement Policy.
"This guidance does not alter existing rights, responsibilities, obligations, or limitations under individual contract provisions or the governing cost principles set forth in the Federal Acquisition Regulation (FAR) and other applicable law," said the guidance addressed to the chief financial officers and senior procurement executives of departments and agencies. "Thus, agencies may treat as allowable other costs potentially associated with sequestration, including WARN Act-related costs arising under circumstances not specified in this guidance, based on the usual cost principles of allocability, allowability, and reasonableness as set forth in the FAR."
Democrats, including House Armed Services Committee ranking member Adam Smith, D-Wash., and Senate Appropriations Committee Chairman Daniel Inouye, D-Hawaii, have also said there is no reason to needlessly alarm hundreds of thousands of workers—but many Republicans, including Sen. Lindsey Graham, R-S.C., have said that they hoped constituent concern resulting from the notices would spur compromise on Capitol Hill.