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Venable partners John Cooney and Paul Debolt were interviewed by Signal Online for an October 19, 2012 article in which they discuss the impact of sequestration. Scheduled to take effect on January 2, 2013, sequestration is an across the board deficit reduction mandate. In fiscal 2013, domestic discretionary spending will see an 8.4 percent cut and non-exempt defense spending will be cut by 9.2 percent.

“It is impossible to exaggerate how bad sequestration will be if it happens,” warned Cooney who said the cuts apply to all programs “good or bad, effective or ineffective.” Defense contractors get hit especially by sequestration with Cooney saying they are “hostages in a showdown between two parties over fundamental fiscal policy decisions on taxes and spending.” He added, “The problem with a game of chicken is knowing when to quit.” Should sequestration occur, Cooney predicts nothing will happen on day one, but the size of agency cuts and the abruptness of their actions will increase each day. New contract awards would likely be deferred and new contracts or options would likely drop. Cooney said sequestration could be avoided if Congress agrees to $1.2 trillion in deficit reduction or a law is passed extending the Bush tax cuts and the imposition of sequestration for several months. “The worst possible scenario is that sequestration kicks in and both parties have to negotiate fiscal policy during a period of uncertainty,” Cooney added.

“There are steps contractors can take to mitigate the impact of sequestration, both at the macro and micro levels,” said Debolt offering several suggestions to contractors. He added, “even if sequestration is avoided, defense contractors will still see fewer contracts for smaller amounts, so they will have to become more competitive.”