Companies relying on federal contracts are likely to be warning their employees of mass layoffs whether Washington falls off the fiscal cliff or not.
The federal government currently has the task of cutting $109 billion from its 2013 spending, half of it in the Defense budget. Congress can stop the cuts, but that’s not likely to happen until after the election in November, according to media inside the beltway.
“The Congress and administration, they voluntarily put a gun to their head and are willing to pull the trigger,” said L. Michael Ross, executive director of the Franklin County Area Development Corp. “The DoD has to notify contractors that there’s not likely to be money to support those contractors and their contracts are likely to be suspended or terminated. Those contractors who may have to downsize by 50 employees will have to send out WARN notices.”
Employees would receive the notices two or three days before the election, he said.
Under the federal Worker Adjustment Retraining Notifications Act, employers with 100 or more employees are required to give 60-day advance notice of mass layoffs or plant closings to employees and state and local governments. Smaller companies will wait and see.
Many local firms do business with the federal government. Forty-six companies in Franklin and Fulton counties in 2011 had government contracts worth $223.3 million, according to a database prepared by the nonpartisan Center for Security Policy. One company makes big-eyed
binoculars for the Navy. Another mows grass at Letterkenny Munitions Center.
The county data excludes major contracts at Letterkenny. The contractors are headquartered elsewhere.
Letterkenny on Monday referred questions about sequestration to Army Aviation and Missile Command headquarters at Redstone Arsenal in Alabama. Letterkenny and its tenant agencies comprise the region’s largest employer with about 4,000 workers.
“More is unknown than is known,” said Dan O’Boyle, spokesman at Redstone Arsenal. “We’ll wait and see what happens like the rest of the country and the DoD work force.”
Decisions are being made at higher levels, he said.
Stars and Stripes reported Friday that Pentagon spokeswoman Lt. Col. Melinda Morgan said the Defense Department had not begun any planning efforts.
More than 200 contractors in the 9th Congressional District had federal contracts worth $310.6 million in 2011. JLG Industries, McConnellsburg, held 60 percent, or $187.2 million through 226 contracts.
JLG makes mine resistant ambush protected vehicles, forklifts and specialty vehicles for the military. The division of Oshkosh Corp. employs about 1,500 people at plants in McConnellsburg and Shippensburg.
JLG did not respond to a reporter’s requests on Monday.
U.S. Rep. Bill Shuster, R-Hollidaysburg, did not respond to specific questions regarding how sequestration would affect JLG or Letterkenny.
Shuster spokeswoman Gretchen Gailey issued the following statement on Monday: “The House has already passed responsible legislation that protects our troops and reduces our deficit by replacing the President’s sequester. President Obama has refused to put forth an alternative and neither has the Democratic-controlled Senate. Congressman Shuster believes that if the President opposes the House Republican plan, he should put forth an alternative that would achieve the same goals of protecting our troops, our national security, important domestic programs, and our fragile economy. It’s time for the President to lead and work with Republicans to avert this threat to our national security.”
Contractors and workers are likely to feel the anxiety and uncertainty of the political stalemate, according to Ross.
“We elect these folks to establish public policy that’s supposed to be in our best interest,” Ross said. “I think everyone is frustrated that we elected them and all they want to do is to argue back and forth.”
Nobody blinked in the game of chicken when the bi-partisan Supercommittee, or the Joint Select Committee on Deficit Reduction, failed in November to come up with a plan to reduce the federal deficit by $1.2 trillion, as required by the Budget Control Act of 2011. Automatic, across-the-board cuts kicked in as a result – more than $1 trillion over a decade.
The Obama administration on Friday released a 394-page report offering some details on where the first-year cuts would be made.
Republicans termed the report “inadequate.”
The report calls for cutting the procurement of MRAP vehicles by $314 million. JLG and Letterkenny produce versions of MRAPs.
The report also proposes operation and maintenance cuts of $6.9 million for the Army, $3.9 billion for Defense agencies and billions more for other military branches.
Trimming from the top would trickle down to small contractors.
Zullinger Brenise Outdoor Design and Maintenance, Orrstown, has cut the grass in the ammunition area of Letterkenny for four years. The contract comes up for bid next year.
“It’s almost 20 percent of our business,” Brock Brenise said. “There would be guys out of a job and equipment for sale.”
The company employs more than 20 people in landscaping. According to the Center for Security Policy, the mowing contract was worth nearly $270,000 in 2011.
“It will probably hurt us a little bit, but it’s hard to tell,” said Gary Olson, co-owner of Atlas Instrument Co., Chambersburg.
The company manufactures backup navigation systems that include magnetic compasses, gyroscopic compasses and optics for the Navy and Coast Guard. The company employs fewer than 10 people. The devices are essential for large ships, Olson said.
“We’ve had good years and bad years, no matter what president is in there and what they’re doing with the military,” Olson said. “Ships come directly to us. We do get government contracts, but they’re few and far between lately.”
The Atlas contract in 2011 was worth $206,000.
Cuming-Lehman Chambers, Chambersburg, had four federal contracts worth $892,000 in 2011. The company currently contracts with major Defense contractors, so government works accounts for about 60 percent of the company’s business, according to Steve Barnes, sales and marketing director.
“We’ve had a doggone good year,” he said.
If Washington fails to sidestep sequestration, the military contractors like Lockheed Martin and Raytheon would react.
“That’s going to impact us greatly if they lay off a bunch of people,” Barnes said.
Cuming-Lehman employs eight. The company makes rooms that absorb electromagnetic radiation. The military as well as private firms, such as Sony and Apple, use them for testing equipment.
Martin’s Famous Pastry Shoppe Inc., Chambersburg, likely could absorb a cut in business with the federal government, according to Scott Heintzelman, Martin’s vice president of finance.
“If it dropped by 10 percent, I don’t know it would affect us,” Heintzelman said. “It’s not something we’re concerned about.”
He doubts the $1.9 million federal contract for 2011 cited by the Center for Security Policy. The amount would make Martin’s the second largest Defense contractor based in Franklin County.
“I don’t know where that number comes from,” Heintzelman said. “I just don’t think it’s that big.”
Deliveries to military bases on the East Coast by all Martin’s distributors could account for the amount of business, he said. Martin’s continues to grow and sells more rolls in the U.S. on a weekly basis than any other company.
Nova Corp., Chambersburg, in 2011 was the largest federal contractor based in Franklin County with 19 contracts worth $27.6 million. The information technology company did not respond to a reporter’s e-mail on Monday.
Contracting with the government changes from year to year, even without the threat of sequestration.
Celf Services, Chambersburg, has a contract to make custom crates for Letterkenny, but the five-year contract expires at the end of this month, according to owner Eric Forrester.
“It’s been a real bummer,” he said. “During BRAC (base realignment and closure) we wrote letters on behalf of Letterkenny and they changed the way they purchase. They went through DLA (Defense Logistics Agency).”
Celf currently is a subcontractor to major Defense contractors, such as Northrop Grumman.
Robert Bourne Jr. of Blue Ridge Summit had a $192,000 contract in 2011 to clean Site R. He said he was not allowed to bid for the job the following year when the contract was given to a Native American company in Oklahoma.
“It was very disappointing,” he said. “They hired my help.”
Many of the workers are members of his family, he said. His family had fulfilled the contract since 1981, except one year when the contract went to someone who bid less, according to Catherine Bourne, who retired from the business. Bourne operates a one-man business whose customers are in the private sector.
Major Defense contractors will be erring on the side of caution when issuing WARN notices, Ross said. Lockheed Martin was taken to task for failing to file when the government agreed that a contract dispute was likely to be resolved. It wasn’t and the case is still in the courts.
Two contractors providing temporary labor to the shops at Letterkenny filed WARN notices in 2011 before their contracts expired. Another company won the contract. The WARN filings made for headlines, confusion and headaches, but no overall job loss.
That could be the case this time.
“I think all parties believe it’s going to get resolved, but they don’t know how,” Ross said.
This article can be read here: http://www.publicopiniononline.com/news/ci_21565310/federal-contracts-jeopardy-across-franklin-county