1980s-Era Navy Agreement With Planemakers Terminated For Default

Boeing, General Dynamics, and the United States petitioned the United States Court of Federal Claims to dismiss the 23-year-old disagreement with the Department of the Navy’s termination for default in 1991 of a $4.8 billion contract awarded to Boeing’s predecessor, McDonnell Douglas Corporation, and General Dynamics.

The contract was for development of the A-12 carrier-based stealth aircraft but during work on the contract, the contractors had significant schedule delays and cost overruns. When the secretary of defense refused to recommend extraordinary relief for the contractors, the Department of the Navy terminated the contract for default and wanted the return of $1.33 billion already paid.

The contractors filed suit in Federal Claims court to challenge the default termination, to retain the money already paid, and to assert a claim for an additional amount over $1 billion for purported performance costs.

Five trials, three appeals, and twenty-plus years of litigation later, only one issue remained. The parties agreed to a settlement and seek to have the one remaining unresolved issue dismissed.

The terms of the settlement stipulate that Boeing and General Dynamics will each provide about $200 million in aircraft and services to the military, and the government will not pay anything related to the contractors’ claims. The settlement was authorized as part of the National Defense Authorization Act for Fiscal Year 2014.

Specifically, General Dynamics will provide a credit against a contract to build the DDG-1002 guided missile destroyer, and Boeing will furnish three EA-18G aircraft and a credit for converting the existing multi-year contract to a firm-fixed price contract.

Secretary of the Navy Ray Mabus said, “We are closing a 23-year-long chapter in the annals of naval aviation and further strengthening, through the contractors’ in-kind payment, the Navy’s capabilities and capacities. The litigation was protracted and difficult, but it saved the Navy billions of dollars. We thank the Justice Department for its superb representation over these many years.”

FMI:  www.justice.gov/