OMB would allow payment of sequestration-related contractor employee compensation costs

Tuesday, October 2nd, 2012

Government agencies would pay contractor employee compensation costs resulting from terminated or modified contracts due to sequestration, according to the Office of Management and Budget (OMB). 

The guidance was issued to agency Chief Financial Officers (CFOs) and procurement executives in a memo last week from Daniel Werfel, Controller of the Office of Federal Financial Management, and Joseph Jordan, Administrator for Federal Procurement Policy.

Under the guidance, agencies would pay costs incurred by contractors “for a WARN Act liability as determined by a court.”  Covered costs under the guidance include severance pay and other related compensation costs, attorney’s fees, and other litigation costs.

The Worker Adjustment and Retraining Notification (WARN) Act requires companies to provide employees with 60 days notice before they make mass layoffs.  Some defense contractors, citing the WARN Act, have said they would begin issuing layoff notifications next month unless Congress acted to avoid sequestration, set to occur on January 2, 2013. 

However, the administration has disputed to need to issue such notices.  In July, the Department of Labor (DOL) issued a letter stating that notification months before a possible sequestration “would be inappropriate, given the lack of certainty about how the budget cuts will be implemented and the possibility that the sequester will be avoided before January.” 

The OMB memo, citing the DOL letter, states sequestration-related costs are only allowable if a “contractor has followed a course of action consistent with DOL guidance.” 

Lockheed Martin, which had earlier warned that it would send out layoff notices soon, was quick to respond to the OMB guidance.  The company issued a memo to its employees stating that because of the additional information provided in the OMB memo it “will not issue sequestration-related WARN notices this year.” 

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