While the world did not end Friday, December 21, 2012, as some had feared, last Friday still struck terror in the hearts of many government contractors. That’s because last Friday, lawmakers and the president embarked on their recesses, leaving the budget talks unresolved, and sequestration—which mandates substantial reductions in government spending—intact. As we previously reported and given sequestration’s effective date of January 3, 2013, what was once thought of as a remote possibility now seems inevitable.

Government contractors that have previously ignored the hype about sequestration can no longer put off preparation in lieu of wishful thinking. A few key areas contractors should consider addressing now include:

  • Terminations for Convenience. Contractors, particularly defense contractors, should know and become familiar with the termination clauses in all government contracts. If a contract is terminated, contractors will have to follow the procedures of the relevant clauses, and prepare and submit detailed termination cost claims.
  • Subcontracts and Other Agreements. Cuts that impact prime contracts are inevitably going to impact subcontracts, joint ventures, etc. Contractors should review their agreements to see what their rights and duties are, as well as if modifications are necessary. For example, contractors with subcontracts that do not have termination for convenience rights should consider negotiating such a modification to the subcontract.
  • Bid Protests. As federal dollars dry up, contractors are likely going to fight more for the remaining amounts. Thus, contractors should be prepared to bring challenges on contracts lost, as another opportunity may not be around the corner. Additionally, given the strain budget cuts will have on agencies, winning contractors should consider intervening to assist an agency in defending its award.
  • Labor Issues. Drastic revenue drops as a result of sequestration may force contractors to lay off employees or shut down facilities all together. Contractors must ensure that they follow all relevant state and federal requirements, such as the Worker Adjustment and Retraining Notification (WARN) Act, which requires advance notice to workers.

With a little preparation, contractors can reduce some of the fear associated with sequestration.