McCain Threatens to Block Contractor Payments From Pentagon

The top Republican on the Senate Armed Services Committee said today he would move to block Pentagon payments to defense contractors facing layoff-related expenses from automatic budget cuts set to begin in January.

Senator John McCain of Arizona faulted guidance from the Office of Management and Budget last week saying the government would cover legal and compensation costs of contractors facing spending cuts and held liable for not giving enough notice of layoffs. He accused President Barack Obama of “telling contractors to ignore the law” so that layoff notices wouldn’t be delivered before the Nov. 6 election.

“Companies have a choice whether to rely on OMB’s politically-motivated guidance or to comply with the law,” McCain said in an e-mailed statement. “But I can assure them that I will do everything in my power to ensure that taxpayer dollars are not used to compensate contractors who do not comply with the law.”

The automatic spending cuts, known as sequestration, would take effect Jan. 2 if U.S. lawmakers and Obama fail to agree on a long-term plan to reduce federal deficits. Military spending would be reduced by as much as $500 billion over the next decade, including as much as $54.7 billion in fiscal 2013.

Defense contractors, led by Lockheed Martin Corp. (LMT), have said they might be compelled to warn thousands of workers their jobs might disappear. Under the 1988 Worker Adjustment and Retraining Notification Act, most employers with 100 or more workers must give 60 days’ notice of plant closings or “mass layoffs” --cutbacks affecting 500 or more workers, or at least 33 percent of the workforce for companies with fewer than 500 employees.

No Warnings

The OMB said government contractors shouldn’t issue blanket 60-day notices to workers who might lose their jobs, citing “uncertainty about whether sequestration will occur.” The White House budget office instructed agencies to cover liabilities incurred by contractors for failing to comply with WARN Act requirements.

The OMB’s guidance “ensures that, if contract actions due to sequestration were to occur, our employees would be provided the protection of the WARN Act and that the costs of this protection would be allowable and recoverable,” Bethesda, Maryland-based Lockheed said in an Oct. 1 statement announcing it would not issue layoff advisories.

McCain said today he was requesting that the Defense Department notify Congress of all costs associated with sequester-related layoffs at least 30 days in advance of reimbursing contractors for those costs.

“Furthermore, I have advised the Secretary that I intend to deny any transfer of funds among defense accounts to pay for these costs,” McCain said in the statement. It’s not clear how McCain would block any transfers if the Senate remains in Democratic hands after next month’s election.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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