In July, Sikorsky signed an $8.5 billion contract with the U.S. Army and Navy for 653 UH-60 Black Hawk and MH-60 Seahawk helicopters to run through the end of 2017. The multi-year agreement was approved by Congress in fiscal 2012.
Such large-quantity contracts typically have a minimum and maximum buy per year. It is possible a 10% reduction in the requested amount could still cover the minimum and avoid renegotiation. If sequestration causes the Pentagon to miss that minimum, however, penalties would result, says an industry official.
Harrison cautions that multi-year programs with limited quantities, such as the one granting the Navy the ability to make two Virginia-class submarines per year, could be even more difficult. “[The Navy] won't have the money to obligate the money on those contracts for two subs,” Harrison says. “And you can't buy 1.8 subs.”
Yet a Congressional Research Service (CRS) report on “government procurement in times of uncertainty,” indicates the Pentagon may be able to do just that by slowing work on certain awards. Many government contracts include “changes clauses” that allow the government to reduce the scope of its contracts, the report points out.
A separate CRS report on the Navy's Virginia-class submarine program outlined both the benefits and the risks of the upcoming multi-year request. The Pentagon estimates it could save $3.8 billion or about 13.8%. But the report, issued in April 2012, notes that “skeptics could argue that in light of current uncertainty over future levels of defense spending, it would be risky to enter into a commitment to procure a certain minimum number of Virginia-class submarines over the next five years,” writes CRS analyst Ronald O'Rourke. “Annual contracting, although more expensive than using [a multi-year program] arrangement, would give policymakers more flexibility for making changes in Virginia-class procurement rates in response to potential future reductions in defense spending.”