Scrapping of A-12 Jet Pits Top Contractors, Pentagon : Defense: McDonnell Douglas and General Dynamics claim Cheney overstepped authority. Trial begins today.

The nation’s two biggest defense contractors will square off against the federal government in court this morning over the 1991 cancellation of the A-12 attack jet program--the largest legal dispute in defense industry history.

McDonnell Douglas and General Dynamics claim that former Defense Secretary Dick Cheney overstepped his authority when he canceled the A-12 contract under punitive terms and schemed to cover up the error. The government asserts that Cheney’s actions were proper and that the firms simply mismanaged the A-12 program.

The two contractors are demanding $1.5 billion from the government, while the Pentagon wants a refund of $1.4 billion. The government has an estimated 50 attorneys on the case, pitted against the companies’ 40. The two sides have exchanged nearly 10 million documents.

The case marks one of the last chapters of the Ronald Reagan Administration’s defense buildup, in which billions of dollars were spent on failed programs like the Navy’s A-12, the Army’s Sgt. York gun and the “Star Wars” missile defense system.

And the case is a measure of the acrimony between the defense industry and the Pentagon as they fight over the table scraps left after six years of budget cuts. The Navy is in no position to swallow a $1.5-billion loss.

“This case is the biggest of its kind,” said LeRoy J. Haugh, a procurement and finance expert at the Aerospace Industries Assn., a trade group. “There is a lot of money at stake here, and the government doesn’t feel inclined to negotiate.”

The trial, expected to take two weeks, will feature an elite cast, including Cheney and Gen. Colin L. Powell, several admirals and other top officials from the George Bush Administration, according to court records.

The A-12 attack jet was intended to replace the Navy’s A-6 Avenger, a 30-year-old aircraft that is restricted from flying at top speed because its wings are cracking apart. The A-12 was to be the Navy’s first Stealth jet, flying from an aircraft carrier deep into enemy territory without being detected by radar.

But in 1990, the contractors began having major cost overruns and schedule delays. By the time the program was canceled on Jan. 7, 1991, it was estimated to be anywhere from $2 billion to $9 billion over budget. The two contractors were fired for “defaulting” on the contract.

Amid the controversy of the program, Cheney fired several senior Navy officials. Undersecretary of Defense John Betti was forced to resign. And eventually Navy Secretary H. Lawrence Garrett III resigned.

McDonnell and General Dynamics filed suit in U.S. Claims Court in 1991, asking that the punitive terms of the default termination be converted to a standard cancellation, known as “for the convenience of the government.” Such a change would require the government to pay the $1.5 billion.

Judge Robert Hodges earlier this year temporarily put aside the bulk of the case and declared he would hold a trial on a single issue--the claim that Cheney improperly ordered the termination.

Hodges gave no rationale for his decision, but it was a clear blow to the government. If the contractors lose, they can still contest the other counts.

Aerospace analyst Wolfgang Demisch of BT Securities in New York speculated that if the judge finds in favor of the contractors, it would short-circuit years of litigation on the rest of the suit and head off possible political controversy.

When the trial opens today, McDonnell and General Dynamics will play a videotape of Cheney testifying to Congress in 1991 that “the A-12 I did terminate.”

Cheney’s assertion to Congress will be used by the contractors as evidence that he ordered the termination. Cheney did not technically have the authority to terminate the firm’s contract for default. Only Rear Adm. William Morris, a Navy contracting officer, had that authority. Cheney and Morris declined to comment.

McDonnell and General Dynamics say that Cheney decided in December, 1990, that the contract would be terminated for default, a full month before Morris was ordered to fire the contractors, according to court records.

The two firms also will introduce a memo that Cheney sent to Bush on Jan. 5, 1991, saying that he intended to terminate the program and find the contractors in default. The government is expected to dismiss the importance of that memo by saying that it was part of private weekly communication between the defense secretary and the President.

The companies will also try to show that Pete Williams, the Pentagon’s former chief spokesman, began drafting a press announcement even before Morris wrote the default order.

Morris was told of Cheney’s decision on Jan. 6, giving him just one day to draft a complex legal order, the two contractors claim in court documents. With so little time, he and a Navy attorney used the termination order for the Lockheed P-7 aircraft to draft the A-12 order. The officials changed P-7 to A-12, among other wording changes.

The reason for the rush was that on Jan. 7, the government was required to add $550 million into the A-12 program or itself breach the contract. The government wanted to put the program to a quick death to avoid spending any more on it.

The Justice Department contends that Cheney’s view about the A-12 had no bearing on Morris. And the government has always maintained that the two contractors were in default because the program was behind schedule, the aircraft weight was over the specification and a number of other specifications could not be met.

The big case has taken on a life of its own. Both sides have established offices about the size of large law firms, with elaborate security, in the Washington area to prepare their cases.

The government office, in a complex known as Crystal City in suburban Virginia, has a brass name plate on the door: “A-12 Litigation Team.”