After more than two decades and numerous attempts at a settlement, the U.S. government finally agreed to accept $400 million from and in the dispute over the Navy's cancellation of the $4.8 billion A-12 Avenger II program.
The settlement is a fraction of what the government sought when the lawsuit began, demanding $1.3 billion in restitution ($2.2 billion in 2014 dollars) for money spent on the stealthy carrier-based aircraft program that had yet to deliver an aircraft. And it is even smaller when compared with an agreement for $2.9 billion that was nearly negotiated in 2003.
On Jan. 24, the U.S. Court of Federal Claims dismissed the case, as requested by the Navy and contractors involved. Late last year, the government reached an agreement with Boeing and General Dynamics.
The Navy will receive threeGrowlers that will be delivered on top of the 21 Boeing aircraft that were funded by Congress for fiscal 2014 and are expected to be delivered in 2016, according to the Navy.
General Dynamics will provide $198 million in credits to the Navy toward the design, construction and delivery portions of the Zumwalt-classdestroyer.
“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,” said Navy Secretary Ray Mabus.
“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.”
Contractors also expressed relief. “Boeing is pleased that this decades-old litigation has come to an end,” said spokesman John Dern in an e-mail. “We appreciate the efforts of the Navy and the Justice Department to resolve this matter, once and for all, on terms acceptable to all parties.”
The dispute began in 1991, when then-Defense Secretary Dick Cheney canceled the $4.8 billion stealth attack aircraft, run by General Dynamics and McDonnell Douglas, which has since been acquired by Boeing. It was terminated in part due to the government's conclusion that contractors were not meeting cost and schedule targets. The Navy demanded that contractors repay $1.3 billion to the government.
The prime contractors sued the government, arguing the government should make penalty payments because the contract was canceled for “convenience,” not a failure to perform. The case festered in the court system, eventually reaching the Supreme Court.
In 1999, as the case was bound for federal claims court, Michael Mancuso, who was General Dynamics's chief financial officer at the time, said he was “optimistic that a settlement could be reached soon.” That settlement never came to be.
Fourteen years later, another opportunity to resolve the case presented itself. At that time, all three parties had been shackled with significant legal costs for more than a decade. The Pentagon was budgeting $10 million annually for legal fees in this case alone. Contractors were prepared to agree to a deal for nearly $2.9 billion, involving Virginia-class submarines, Joint Direct Attack Munitions and savings on the F-18E/F and C-37 aircraft.
The deal was ultimately nixed by Pentagon leadership, according to John Young, who attempted to negotiate the compromise as the Navy's acquisition chief at the time. Young maintains that proved to be a missed opportunity.
“I consider this productive in terms of getting this off the table, but disappointing given there had been a deal for more than $2 billion, including aircraft,” says Young, who went on to become the Pentagon's top acquisition official. “Now thehas settled for an insignificant amount. But, again, this gets the issue off the table.”
In 2011, 20 years after the start of the dispute, the Supreme Court considered the case. The Navy argued that the contractors had not completed the work they had promised. The contractors argued that the government held back classified information about stealth technology that hampered their effectiveness. Ultimately, the Supreme Court sent the case back to the U.S. Court of Federal Claims, where it remained until now.
The first signs in the most recent thaw in negotiations came last spring, when the Obama administration asked Congress to allow an agreement to move forward. Language blessing such an agreement later turned up in defense legislation, and it was passed as part of the 2014 National Defense Authorization Act.