Defense Contractors Casualty of Shutdown

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

Lockheed Martin (NYSE: LMT) today opened its NexGen Cyber Innovation and Technology Center, a world-class research and development center for customer and partner collaboration located in Gaithersburg, Maryland.  (PRNewsFoto/Lockheed Martin)
National Journal
Sara Sorcher
See more stories about...
Sara Sorcher
Oct. 4, 2013, 12:24 p.m.

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.”

What We're Following See More »
‘PULLING A TRUMP’
GOP Budget Chiefs Won’t Invite Administration to Testify
15 hours ago
THE DETAILS

The administration will release its 2017 budget blueprint tomorrow, but the House and Senate budget committees won’t be inviting anyone from the White House to come talk about it. “The chairmen of the House and Senate Budget committees released a joint statement saying it simply wasn’t worth their time” to hear from OMB Director Shaun Donovan. Accusing the members of pulling a “Donald Trump,” White House spokesman Josh Earnest said the move “raises some questions about how confident they are about the kinds of arguments that they could make.”

Source:
A DARK CLOUD OVER TRUMP?
Snowstorm Could Impact Primary Turnout
11 hours ago
THE LATEST

A snowstorm is supposed to hit New Hampshire today and “linger into Primary Tuesday.” GOP consultant Ron Kaufman said lower turnout should help candidates who have spent a lot of time in the state tending to retail politicking. Donald Trump “has acknowledged that he needs to step up his ground-game, and a heavy snowfall could depress his figures relative to more organized candidates.”

Source:
IN CASE OF EMERGENCY
A Shake-Up in the Offing in the Clinton Camp?
6 hours ago
THE DETAILS

Anticipating a primary loss in New Hampshire on Tuesday, Hillary and Bill Clinton “are considering staffing and strategy changes” to their campaign. Sources tell Politico that the Clintons are likely to layer over top officials with experienced talent, rather than fire their staff en masse.

Source:
×