Appeals Court Affirms Government’s Default Termination of Navy Contract for A-12 Stealth Attack Aircraft

WASHINGTON - The U.S. Court of Appeals for the Federal Circuit has affirmed a judgment upholding the Navy’s termination for default of a contract with McDonnell Douglas and General Dynamics for the A-12 stealth attack aircraft, the Justice Department announced today.

In 1988, the Navy awarded the $4 billion fixed-price contract for development of the A-12, which was to be a stealthy, carrier-based attack aircraft. The program encountered serious technical difficulties, and in 1991, after the Department of Defense refused to approve additional funding for the program, the Navy terminated the contract because it was substantially over budget and behind schedule.

The contractors challenged the termination, resulting in 18 years of litigation. On appeal for the third time on June 2, 2009, the court of appeals affirmed the 2007 judgment of Court of Federal Claims Judge Robert B. Hodges Jr., holding that the Navy had properly terminated the contract for default. In a 29-page opinion, the court of appeals explained that the termination decision was justified under the parties’ contract because the contractors’ performance history demonstrated that "the government was justifiably insecure about the contract’s timely completion" and there was no excuse for the contractors’ failure to make progress toward completion of the contract.

"We are gratified by the appellate court’s decision upholding the Navy’s decision to protect the public fisc by terminating the A-12 contract for default," said Tony West, Assistant Attorney General for the Justice Department’s Civil Division. "Today’s decision also represents a critical step toward bringing this long litigation to an end."

Under the decision, the contractors are required to repay the government more than $1.35 billion in principle funds advanced under the contract, plus interest accruing since 1991, for a total sum that currently approaches $2.8 billion.