Raytheon [RTN] on Aug. 18 said that a British arbitration panel ruled in favor of its protest of a border security contract that was terminated for default by the United Kingdom Home Office in 2010, adding the arbitration award totals $392 million.
The Arbitration Tribunal award includes $309 million for damages and other monetary relief and $83 million related to the Home Office’s wrongful retention of funds it had drawn on Raytheon UK’s letters of credit in April 2011, less than a year after the potential $1.3 billion e-Borders contract was canceled.
The Tribunal hasn’t ruled on costs related to interest payable to its U.K. business, which is also called Raytheon Systems Limited (RSL).
“The Tribunal’s ruling confirms that RSL delivered substantial capabilities to the UK Home Office under the eBorders program,” Raytheon said in a statement. The company didn’t say what impact the award might have on its third quarter financial results.
The U.K. Home Office is reviewing the Tribunal’s decision to see if there is a basis to challenge the award to Raytheon, U.K. Home Secretary Theresa May wrote in a letter Monday to Parliament’s Home Affairs Select Committee.
U.K. Home Secretary Theresa May says that fixing the e-Borders problems would have been more expensive than terminating the contract with Raytheon.
Raytheon won the e-Borders contract in 2007 over British Telecom. Raytheon’s e-Borders solution allows U.K. authorities to do watchlist checks of persons entering or exiting the country by air, sea or rail prior to boarding.
In her letter to the Parliamentary committee, May said the Tribunal didn’t pass judgment on whether Raytheon defaulted or if the Home Office was justified in terminating the contract. Instead, she wrote, the panel found that the “processes used in reaching a decision and carrying out the termination were flawed.”
“The Government stands by the decision to end the e-Borders contract with Raytheon,” May says in the letter. “This decision was, and remains, the most appropriate action to address the well-documented issues with the delivery and management of the programme.”
May also said that termination was the cheapest option available, despite the settlement in Raytheon’s favor. Continuing with the contract and fixing the problems that led to the termination would have cost another $162 million, “even with today’s settlement,” she said.
When she terminated Raytheon’s contract in 2010, May said at the time that the company had been in “breach of contract” since 2009 and that key parts of the program were a year or more late. She also said then that the program had demonstrated success.
In her letter on Monday, May said that cross-government group that reviewed the e-Borders contract in 2010 had recommended immediate termination for cause, helping lay the foundation for her cancellation.
May also said that when the e-Borders contract was canceled, it had cost British taxpayers $433.8 million to that point.