Judge Rules Navy Erred in Canceling A-12 : Aerospace: The decision, while limited in scope, may pave the way for settling a lawsuit filed by the contractors.
A federal judge has ruled that the Navy made legal errors in canceling the A-12 attack jet contract held by McDonnell Douglas Corp. and General Dynamics Corp. in 1991, paving the way for a possible out-of-court settlement in favor of the two defense contractors in their lawsuit against the government.
The firms have contended that government officials, including former Defense Secretary Dick Cheney, failed to follow federal acquisition rules when they terminated the A-12 contract under punitive terms, known as default.
“It sounds like the judge is egging on the government and the contractors to get this thing settled,” said aerospace analyst Wolfgang Demisch. “His preliminary finding suggests that the companies have a plausible case.”
When the Navy canceled the contract, it demanded that the firms give back $1.35 billion in government funds provided to develop and build prototypes of the stealth attack jet. (The amount sought has since grown to $1.6 billion, including interest.)
But the two firms sued the government, demanding $1.5 billion in A-12 costs that would have been covered had the Navy canceled the contract under favorable terms, known as “for the convenience of the government.”
The Pentagon canceled the A-12 when it was more than a year behind schedule and billions of dollars over budget. It claims the decision was justified because the plane was overweight and expected to cost about $100 billion, double original estimates. But the contractors said the plane was still capable of meeting the Navy’s requirements.
The case had been expected to drag on for years, but this summer, U.S. Claims Court Judge Robert Hodges Jr., who is hearing the case, said he would hold a quick trial on one of the 19 counts.
The trial in September involved the narrow legal issue of whether the government followed proper procedure in issuing the termination order. The contractors contended that Cheney illegally ordered the termination and then tried to cover it up.
Hodges did not issue an immediate ruling in the case. Then, late last week, he quietly issued an order that laid down 11 proposed findings of fact. He asked the government and the companies to file briefs assessing the legal effects of his findings.
Hodges did not find that Cheney ordered Navy officials to make an illegal termination, but he did find that neither senior Defense Department officials nor the Navy’s contracting officer, Rear Adm. William Morris, considered federal acquisition regulations in issuing the default termination order in January, 1991.
Hodges also said Morris, who issued the actual default order, had not believed such an order was necessary to cancel the program. The judge also found that Morris believed that a convenience termination would “result in a windfall to the contractors at the taxpayers’ expense.”
Whether those factors are a basis to change the termination to a convenience type, which the contractors are seeking, will be part of Hodges’ formal legal decision in the case. The briefs Hodges requires are due in January, and a legal decision could be rendered by the end of March.
But Hodges may also decide to withhold his legal determination until he holds a trial on all of the counts or until he issues a judgment covering the other counts.
Jack Modzelewski, a Paine Webber aerospace analyst, said Hodges’ order puts the government on notice that the case is not going in its favor and increases the pressure to settle.
“It is a shot across the Navy’s bow,” he said. “My sense is that this is going to come down to a negotiated settlement.”
