Lockheed Martin has $29.4 million at stake in a Pentagon dispute that helped shape the company’s position on warning workers they may be fired under automatic defense spending cuts.
Lockheed, the world’s biggest defense contractor, waited an “unreasonable period of time’’ before notifying employees in 2009 that they could lose their jobs after the Defense Department scrapped plans for a new fleet of presidential helicopters, according to Lt. Col. Elizabeth Robbins, a Pentagon spokeswoman.
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Pentagon auditors found that Lockheed failed to act quickly enough to send workers 60 days’ notice, as required under the Worker Adjustment and Retraining Notification Act.
Company officials say the VH-71 helicopter episode contributed to their conclusion that they should give thousands of employees advance warning they may lose jobs if the cuts known as sequestration take effect starting Jan. 2.
“Experiences like that inform us in an odd way of the compelling requirement to take timely action and not allow the ambiguity of the situation to accrue against the interests of the company,’’ Robert Stevens, chairman and chief executive of the Bethesda-based company, told a House committee hearing on sequestration on July 18.
He didn’t disclose the amount in dispute over costs from the helicopter cancellation, such as worker pay, benefits and severance. Robbins, the Pentagon spokeswoman, said in an e-mailed statement that Lockheed is seeking $29.4 million.
Lockheed and trade groups have said companies don’t know exactly how weapons programs would be affected by $500 billion in defense spending cuts over a decade, including $55 billion in fiscal 2013, so they may be compelled to send the WARN Act notices to many of their workers.
‘Inappropriate’ warnings
The U.S. Labor Department posted guidance on its Web site on July 30 that sending 60-day warnings to defense workers “would be inappropriate, given the lack of certainty about how the budget cuts will be implemented and the possibility that the sequester will be avoided before January.’’
Rep. James E. Clyburn (D-S.C.) has said sending out the 60-day notices “right before the elections is very suspicious’’ and may be part of the defense industry’s lobbying push for Congress and President Obama to find a way to avert sequestration.
In 2009, the Pentagon canceled plans for the VH-71 fleet, intended to transport the president and executive branch officials, when the program’s projected cost reached $13 billion, more than twice the original estimate of $6.1 billion.
The most advanced version, which was supposed to be operational by December 2017, was running at least 24 months late.
A renewed effort to develop replacements for current helicopters, which are as much as 35 years old, was authorized Aug. 10 by Pentagon Undersecretary for Acquisition Frank Kendall. He directed the Navy, which manages the program, to begin detailed planning for competitive bidding, with the chopper to be declared operational by 2020.
Lockheed issued layoff notices on July 14, 2009, to about 600 employees working on the VH-71 at a plant in Owego, N.Y., and 500 were eventually let go, according to the company.
The Defense Contract Audit Agency concluded in November 2011 that the company waited an “unreasonable period of time’’ — about 60 days after it received a stop-work order and 45 days after it received the official contract termination — ”before providing the required layoff notification and consequently incurred additional labor costs,’’ said Robbins, the Pentagon spokeswoman.
“We believe the circumstances surrounding our questioning WARN Act costs’’ in this case “are unique,’’ Robbins said.
‘Reasonable’ costs
The company issued the notices “following detailed analysis intended to ensure we retained necessary skills, explored placing employees elsewhere in our company and identified what other jobs would be eliminated,’’ Lockheed Martin spokeswoman Jennifer Allen said in an e-mailed statement.
The audit agency “believes we should have issued these notices prior to conducting this analysis’’ since the company “had received indications of a possible termination,’’ Allen wrote.
“We believe the costs incurred — wages, benefits, severance — in this process were both reasonable and allowable, and ultimately saved the government money by finding a significant portion of employees jobs elsewhere, thus reducing layoff costs,’’ Allen wrote. “It would be inappropriate for us to comment further.’’
Lockheed’s argument that it’s best to issue WARN Act notices when in doubt may have been bolstered by the experience of Solyndra, the bankrupt solar-panel maker that received a $535 million U.S. Energy Department loan guarantee.
The company reached a $3.5 million settlement last month with former workers, who said the company failed to give notice before firing most of its 1,100 employees and seeking bankruptcy court protection last year.
“Before we make any decision about issuing WARN notices, we will carefully consider’’ forthcoming guidance from the Office of Management and Budget that is required by law, the Labor Department’s position and other “pertinent laws,’’ Allen said.
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