Federal employees will no longer receive discretionary cash awards unless the agency is required under law to do so under new guidance issued by the Office of Management and Budget late Wednesday.

With no solution to stop cuts from sequestration in sight, OMB is instructing agencies to take specific steps to achieve the $85 billion in reduced spending by Sept. 30.

Discretionary bonuses is one of three areas OMB Controller Danny Werfel highlighted where agencies should place “increased scrutiny.” The other two areas are the hiring of new employees and new training, conferences or travel.

“In light of the reduced budgetary resources available due to sequestration, expending funds on these activities at this time would in many circumstances not be the most effective way to protect agency mission to the extent practicable,” Werfel wrote to agency and department heads. “Therefore, agency leadership should review processes and controls around these activities and ensure that these activities are conducted only to the extent they are the most cost-effective way to maintain critical agency mission operations under sequestration.”

The four-page memo is the fourth sequestration-related guidance from OMB over the last six months. The difference is this one gives agencies more concrete instructions on how to handle everything from personnel to contracts to communications with employee unions and employees.

OMB estimates that the effective percentage reductions are approximately 9 percent for nondefense programs and 13 percent for Defense programs over the next seven months.

Sequestration volleyball continues

President Barack Obama said Wednesday night at the Business Council dinner that during the first month of sequestration few businesses will feel the full impact of the cuts. But, he warned, the reduced spending would take its toll on all parts of the economy.

“[I]f you look right now at what our economy needs, taking $85 billion out of it over the next six months — indiscriminately, arbitrarily, without a strategy behind it — that’s not a smart thing to do if we’re serious about making sure that America grows and that our middle class is thriving and there are ladders of opportunity into the middle class,” Obama said.

Speaker of the House John Boehner (R-Ohio) said yesterday on CBS News that the White House and the Senate must pass “a credible plan” to replace the sequester.

The Senate will vote Thursday on a bill, S. 388, the American Family Economic Protection Act of 2013, that would end the sequester in 2013, raise taxes and among other things split $55 billion in cuts evenly among Defense and civilian agencies over a longer time frame.

Obama and lawmakers from both sides of the aisle will meet Friday to discuss how to avoid a government shutdown on March 27, when the current continuing resolution expires.

House to vote on new CR

That March 27 deadline now looms large to both Congress and the White House as a real deadline to find a compromise.

Republicans are planning for a vote next week on a bill to fund the day-to-day operations of the government through the Sept. 30 end of the 2013 fiscal year, while keeping in place the new $85 billion in cuts.

Until the two sides can come to an agreement, OMB wants agencies to make tangible progress toward the top-line reductions.

“Planning efforts should be done with sufficient detail and clarity to determine the specific actions that will be taken to operate under the lower level of budgetary resources required by sequestration,” Werfel wrote. “[A]gency heads must also ensure that their agencies have risk management strategies and internal controls in place that provide heightened scrutiny of certain types of activities funded from sequestered accounts.”

He said among the steps agencies should take is to determine which contracts or grants they plan to cancel, re-scope or delay.

“Program, acquisition, financial/budget management, information technology and legal personnel should work together to make determinations regarding contracts in light of sequestration,” Werfel wrote. “As a general matter, agencies should only enter into new contracts or exercise options when they support high-priority initiatives or where failure to do so would expose the government to significantly greater costs in the future.”

OMB also highlights the option of terminating contracts for convenience if funds are no longer available in fiscal 2013 and no other options exist to reduce costs.

Werfel said when it comes to employees, agencies should add some specifics to the furlough plan, including who would need to take time off, how many days they would need to take, when furlough notices will be issued and the implementation of furloughs.

“In some cases, agencies may not be able to ascertain all of this information prior to March 1,” he said. “However, agencies should continue to engage in intense and thorough planning activities to determine all specific actions that will be taken as soon as practicable.”

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