The Pentagon said on Thursday it would expect hundreds of thousands of layoffs across the defense industry if lawmakers did not take action to avert an additional $500 billion in defense budget cuts that could take effect in January 2013.

Frank Kendall, the Defense Department's acting undersecretary for acquisition, technology and logistics, said the cuts would force the Pentagon to break many hard-won contracts with industry, including a multibillion dollar deal with Boeing Co for development of a new refueling plane.

The Navy's contracts with Lockheed Martin Corp and Australia's Austal Ltd for littoral combat ships would also be vulnerable if the mandatory cuts, known as sequestration, took effect as planned, Kendall told the Senate Armed Services Committee at a confirmation hearing to stay in the job.

Kendall said the defense industry would face fairly deep cuts applied indiscriminately, rather than on a targeted basis, given the way the Budget Control Act was worded.

The Pentagon last month unveiled a budget proposal for fiscal 2013 that would begin to implement $487 billion in spending cuts that the White House and Congress agreed to make, spanning the next decade. If lawmakers did not come up with $1.2 trillion in other deficit-reducing measures, the Pentagon would have to cut its proposed funding by another $500 billion.

Kendall said there was a good chance that President Barack Obama would use a legal clause to exempt the personnel accounts from the cuts -- which would increase the burden that would fall on spending for new weapons, research and development programs and upgrades for older weapons.

A lot of the work that we're done over the last couple of years to try to make more efficient acquisition decisions and get better contract structures would be broken, he said.

Kendall said the cuts would ripple through all tiers of the defense industry, hitting small and medium-sized businesses particularly hard.

He said some of the biggest companies in the sector had already approached him with concerns about having to provide advance notice of potential layoffs given the uncertainty caused by the current budget situation.

Committee Chairman Carl Levin asked Kendall to provide a report by May 10 on the impact of the current budget cuts on small and medium-sized businesses.

The Pentagon has been studying the defense industrial base on a sector by sector, tier by tier basis to better understand the impact of budget decisions on those companies.

In written responses to questions from the committee, Kendall vowed to focus heavily on reining in cost overruns on many major weapons programs, and said he would do everything in his power to eliminate them.

The committee said nearly half of all major weapons programs had exceeded cost growth standards established by the Nunn-McCurdy law. Kendall conceded that nearly all programs had some cost growth.

He said the department had been setting affordability targets for major programs for the past year as another tool to ensure that programs remained focused on costs.

(Reporting By Andrea Shalal-Esa; Editing by Gerald E. McCormick)

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