UPDATE 3-Pentagon buyers authorized to discuss budget cuts with industry

Thu Feb 21, 2013 11:07pm EST

By David Alexander

WASHINGTON Feb 21 (Reuters) - The Pentagon's top weapons buyer on Thursday authorized Defense Department purchasers and program managers to begin talking to industry partners about plans for implementing $46 billion in budget cuts on March 1 and what impact it may have on business.

The directions from Frank Kendall, the under secretary of defense for acquisition, were the first time Pentagon contracting and acquisitions personnel have been authorized to consult with their industry counterparts about the upcoming spending cuts, known as sequestration.

Kendall said in a Feb. 21 memorandum obtained by Reuters that Pentagon purchasers and program managers were "encouraged" to begin making contact with industry counterparts at the discretion of their managers and chains of command.

"It is important we keep industry informed about our plans and involved in our decision-making process to the maximum extent possible, particularly when ongoing or upcoming contract awards may be affected," Kendall said in the memo.

Company officials said they had been warning of the damage sequestration could cause and had been pressing for a solution.

"For over a year, Northrop Grumman has been vocal about the negative impacts sequestration will have on national security, the industrial base, the supplier chain, the workforce, and the national economy," Northrop Vice President Randy Belote said.

An official at another company, speaking on condition of anonymity, said, "we're encouraged by any efforts, and we're working closely with our customers to understand how sequestration could impact our programs."

"Significant delays in funding for any production program could threaten the stability of our supply chains, increase costs, prolong delivery schedules and ultimately weaken our national security posture," the official said.

The authorization for Pentagon purchasing officials to begin talking to their industry counterparts comes a week before $46 billion in across-the-board spending cuts are scheduled to go into force on March 1.

Pentagon officials have issued dire warnings in recent days about the potential impact of the cuts. The cuts will be compounded by the fact that the department did not receive an appropriation for this year and is being funded by a "continuing resolution" that keeps spending at 2012 levels.

Officials say 2012 funding levels are about the same as 2013, but the budget priorities are different and much of the money is in the wrong accounts. The Pentagon, they say, has little flexibility to shift funds between accounts and is facing a significant shortfall in some areas.

Kendall said talks with industry would help both sides prepare more effectively.

"Engaging in this dialogue will allow industry to more productively make their own internal business plans to deal with potential sequestration impacts," Kendall said in the memo.

"Feedback from industry will provide valuable insights as government managers decide how best to move forward in attempting to meet the war-fighter requirements and DoD (Department of Defense) needs under severely constrained budgetary conditions."

Kendall's memorandum also encouraged program managers and grant officers to quickly notify companies and universities carrying out Pentagon research about any plans to reduce their grants or awards funding.

"Program and awarding officials ... should work together to notify recipients as soon as practicable after decisions about reductions are made so that recipients have as much time as possible to adjust their program execution plans," Kendall's memo said.

The acquisitions chief said communication would need to be more limited if proprietary information were involved or if the contract was in the process of being awarded.

"However, as a general rule, transparency with industry and academia while we plan for potential sequestration and CR (continuing resolution) is in the department's long-term best interests," Kendall said.