No doubt you have heard, read or seen reports about the sequestration process. As part of the Budget Control Act of 2011, Congress passed and President Obama signed into law an automatic, indiscriminate process of across-the-board budget cuts called sequestration. Earlier this week, the Washington Post had a great blog post called The Sequestration: Absolutely everything you could possibly need to know, in one FAQ. There is a lot of doom and gloom.
Will the construction industry be affected by sequestration? Last December, the Associated General Contractors of American (AGC) released a report called Sequestration and Its Possible Impacts on Construction (pdf). According to the Report, the sequestration process directly reduces many federal construction investment accounts…which has a direct affect on the livelihood of both existing and planned projects. In a recent update about What Contractors Should Know, AGC estimates that as much as $4 billion in federal construction funding could be cut during the next seven months.
What contractors are affected? Since we are dealing with federal funding, contractors who work on public projects at all levels could be affected. First, contractors who work directly with federal agencies could experience the greatest impact. For example, with agency cuts will come employee furloughs that could affect the work by contracting officers and other acquisition personnel. Also, there will likely be requests by the agencies for contractors to hold over their bids for a period of time. Finally, there will likely be terminations and suspensions of existing contracts where appropriate.
Next, contractors who work with state and local governments on projects that involve federal monies may also experience issues resulting from sequestration. Again, the primary areas will be delays in funding, processing and review by federal employees involved in those local projects, and an overall decrease in funds available.
What can contractors do to preserve claims? If an agency or local government issues a notice of suspension or termination for convenience, then the first place you need to go is your contract. Ultimately, you may need to challenge the basis for the suspension or termination, which will largely depend on the facts of the case. If sequestration is alleged by the government to be the basis of the suspension or termination, then the question will turn on whether that event creates liability for the government.
Communication throughout this process is key. When you receive any notice from the contracting officer or government representative, make sure you respond quickly. In your response, make sure that you provide notice of claims and reserve all rights. It is important that you are working closely with your scheduling team to document the status of work in place and time for completion. You will need to use this information for identifying and proving any delays as a result of the suspension or termination.
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