After 23 years of torturous and complex legal battles, a federal court this week agreed to dismiss a contract dispute over the Navy’s terminated A-12 stealth bomber program after the Department of Justice and the two contractors responsible for developing and manufacturing the aircraft joined in seeking dismissal of their long-running legal battle.
The Justice Department on Thursday issued a statement saying that Boeing [BA], General Dynamics [GD] and the United States formally asked the U.S. Court of Federal Claims to dismiss the dispute as part of a settlement related to the Navy’s termination for default by the contractors in 1991 of the A-12 contract. The clerk’s office for the court told Defense Daily on Friday that as soon as the Stipulation for Dismissal was filed by the Justice Department and both companies, the case was dismissed.
Terms of the settlement, which was reached between the contractors and the Navy last summer, include a $400 million in-kind payment by the companies to the Navy and an agreement by the government not to seek any money from the contractors, which had filed counter claims against the United States seeking to change the termination to one of convenience for the government and obtain payment for unpaid costs incurred on the A-12.
The terms also called for dismissal of the case. Congress approved the settlement in the FY ’14 Defense Authorization Act, which was signed by President Barack Obama on Dec. 26, 2013.
GD on Wednesday announced that it took a $198 million—$129 million after-tax—charge in its fourth quarter financial results in connection with its portion of the in-kind payment. That payment is being made in the form of a credit against the September 2011 contract to build the Navy’s DDG-1002 destroyer, the third and final ship in the DDG-1000 line.
According to the Justice Department statement, Boeing will provide the Navy with three EA-18G Growler aircraft and a credit for converting the existing multi-year contract for the electronic attack aircraft into a firm-fixed-price contract. The Navy told Defense Daily on Friday that the aircraft will be part of 21 Growlers the Navy plans to purchase with FY ’14 funds for delivery in 2016.
“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,” Ray Mabus, the Secretary of the Navy, said in a statement included in the Justice Department’s announcement. “The litigation was protracted and difficult, but it saved the Navy billions of dollars.”
The Navy terminated the A-12 contract after then-Defense Secretary Dick Cheney declined to recommend that President George H. Bush grant relief to the prime contracting team of GD and McDonnell Douglas, which was later acquired by Boeing. The aircraft carrier-based aircraft was beset with schedule delays and cost overruns, due in part to changing requirements and the technical challenges in developing a stealth aircraft.
Under the default termination, the Navy sought the return of nearly $1.4 billion in progress payments it had awarded the companies. Given the length of the dispute, had the contractors ultimately lost the case, they would also have been liable for interest accrued over the years, which as of last September amounted to $1.6 billion. GD said in its third quarter filing with the Securities and Exchange Commission (SEC) last October that its pre-tax liability would be about $1.5 billion. Boeing pegged its pre-tax liability at about $1.7 billion.
In its third quarter 2013 filing with the SEC, Boeing said that if the A-12 settlement was agreed to, then it “would incur a pre-tax charge to write-off A-12 costs included in inventory in addition to costs associated with an in-kind settlement.”
Boeing will report its fourth quarter financial results on Jan. 29. The company previously established a $350 million loss provision in 1990 before the termination decision related to its potential liabilities on the A-12 program. In its SEC filing, Boeing said that as of Sept. 30, 2013, the inventories consisted of about $587 million in recorded costs on the A-12 contract.
In a statement on Friday, Boeing said it “is pleased that this decades-old litigation has come to an end. 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 long, winding A-12 litigation bounced between various federal courts, including the Supreme Court, with five trials and three appeals over two decades. Only one issue remained unresolved.