Earlier this month, the Government AccountabilityOffice (“GAO”) issued an opinion on the effects of the Office of Management and Budget’s (“OMB”) guidance on the WARN Act notice and sequestration. Last year when the Government first started to go through the sequestration debate, there was a lot of discussion as to whether contractors affected by this had to provide a WARN Act notice to employees who might be laid off. OMB said no and that if any penalties accrued due to a failure to provide this notice they would be responsible, but now GAO says that that guidance was not binding and that, at least for cost-reimbursement contract purposes, it does not change the cost allowability or the limitation of funds/limitation of cost clauses in the contracts.

See http://www.gao.gov/assets/660/657833.pdf.

Given the fact that next year’s sequestrations are right around the corner and there is a good possibility that the Government may be shut down altogether for a while if Congress and the President cannot agree on a CR before October 1, Government contractors should take notice. From a Government contract’s perspective, penalties/fines are, for the most part, generally unallowable. See FAR 31.205-15. GAO’s advisory opinions on fiscal law are given great weight by Contracting Officials.