Government Settles for 30 Cents on the Dollar

After 22 years, Boeing and General Dynamics are finally going to pay-off their $1 billion debt to the Navy by providing about $400 million in in-kind products; three aircraft and a ship deckhouse, hanger, missile-launching system. Not a bad deal for the Companies, not so good for the taxpayers. The settlement is conditional upon passage of the 2014 NDAA (National Defense Authorization Act) as its currently constructed.

Back in 1988, the Air Force was flying around in stealth aircraft. The Navy was jealous and wanted its own stealth attack jet. So, it awarded a firm fixed-price contract to a consortium of McDonnell Douglas (a company that has since been bought by Boeing) and General Dynamics to buy eight planes for $4.7 billion. Deliveries were scheduled for January 1991. The contract also had an option for purchasing another 850 or so aircraft.

By June 1990, the program was in serious trouble. The airplane was 30 percent heavier than specifications and there were a host of other technical issues as well. The companies notified the Navy that they could not deliver the aircraft on time and more importantly, the cost of completing the eight plane contract had grown from $2 to $5 billion.

In 1991, then Secretary of Defense Dick Cheney terminated the contract for default (T for D) and the Navy demanded that the contractors return the $1.35 billion already advanced under the contract.  The companies refused so the matter has been in the courts ever since. In 2011, the Supreme Court ruled that the Navy was justified in terminating the contract but the matter went back to lower courts for decisions on other issues where it has remained.

Congress feels justified with the settlement. It felt the settlement was good for the Navy at a time of tight budgets and "incredible fiscal challenges" and good for the taxpayers because there's no guarantee that the government will ultimately prevail in the ongoing litigation. Also, it will end decades of litigation. Think about that for a moment - 22 years of litigation - there's probably attorneys and others that have spent entire careers on this one issue.