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A-12 Avenger II Advanced Tactical Aircraft (ATA) - 1983-1991

The US Navy Advanced Tactical Aircraft (ATA) program began in 1983 as a proposed long range, very low observable, high payload medium-attack aircraft to replace the Grumman A-6 in the carrier-based, medium-attack role. On January 13, 1988 the McDonnell Douglas and General Dynamics team was selected over a Northrop team to develop the ATA. The development contract was a fixed-price incentive contract with a target price of $4.38 billion and ceiling price of $4.84 billion. The contract included development and delivery of eight full-scale development aircraft and four test articles.

Designated the A-12 Avenger II, the unique flying wing design was to be a long-range, subsonic aircraft with a large internal weapons load including air-to-surface and air-to-air weapons. Plans for the Navy's A-12 combat aircraft called for incorporating more advanced stealthy characteristics than were used in the F-117A, as well as significantly greater payload capabilities. The Navy's A-12 Avenger II Advanced Technology Aircraft was slated to replace current A-6s on aircraft carriers in the mid-1990's.

But on 7 January 1991, Secretary of Defense Richard Cheney canceled the program, in the largest contract termination in DoD history. By one estimate the A-12 had become so expensive that it would have consumed up 70 percent of the Navy's aircraft budget within three years.

The Navy originally planned to buy 620 of the McDonnell Douglas/General Dynamics aircraft, with the Marine Corps purchasing an additional 238 planes. And the Air Force at one point considered buying 400, at an average cost that was estimated at close to $100 million each.

The A-12 was designed to fly faster and further than the A-6E, and carry a large bomb-load in internal bomb-bays to reduce drag and maintain a low radar cross-section. As with the Advanced Tactial Fighter (ATF), the A-12 was expected to have greater reliability than current aircraft (double that of the A-6E), and require half the maintenance manhours.

Since flying wings eliminate most of the fuselage, the separation drag was reduced by about 50%. The interference drag between the fuselage and wing was eliminated for the same reason. And, of course, there was no drag contribution from tail surfaces.

At first blush, the A-12's performance capabilities would have been in roughly the same class as existing aircraft. The key improvement over existing aircraft, not inherently obvious when comparing specifications, was stealth. While today's radar can detect existing naval aircraft at a range of 50 miles, the A-12 was designed to remain undetected until approximately 10 miles away. This would result in significant operational and survival benefits for the A-12 since defenders would have little opportunity to engage the aircraft once detected so close to the target. The A-12's reduced radar cross section would have been derived, in part, from carrying its ordnance internally. While the top speed of the more visible F/A- 18 and A-6 would be significantly reduced by the drag induced by external weapons carriage, the internal weapons bay on the A-12 would provide no impediment to speed.

The Navy wanted the A-12 Avenger to be a carrier-based superplane that could survive the rigors of carrier landing at sea and also evade radar. These two requirements were in conflict: the harsh landing, ocean spray, and sun damaged the plane's finish and make it less able to evade radar. The coatings that helped make planes less observable is often damaged in harsh landings. These technical risks were evident during the concept exploration stage. No one had designed a low-observable plane that can survive the harsh "controlled crash" environment of a carrier-landing.

The A-12 proved to be the most troubled of the new American stealth aircraft in large part because of problems found in the extensive use of composites in its structure. These composites did not result in anticipated weight savings, and some structural elements had to be replaced with heavier metal components. The weight of each aircraft exceeded 30 tons, variously estimated at between 10% and 30% over design specification, and close to the limits that could be accommodated on aircraft carriers.

Most of the excess weight was due to the composite material needed to support the stress and loads. The technology for manufacturing composites, especially for the complex shapes of an airplane, was state-of-the-art. General Dynamics and McDonnell Douglas had to develop the technology during full-scale development because they had limited experience in building large structures using composites.

The program also experienced problems with its complex Inverse Synthetic Aperture Radar system, as well as delays in its advanced avionics components.

The full scope of these problems were not appreciated at the time of Defense Secretary Cheney's April 1990 Major Aircraft Review, which slowed the production rate and dropped 238 Marine Corps aircraft, leaving the original total Navy buy of 620 aircraft. Cheney also decided to delay for over 5 years the Air Force buy (from 1992 to 1998), which was decoupled from the Navy project. Subsequently, the A-12 contractors revealed that the project faced serious engineering problems and a $2 billion cost overrun, which would delay the first flight by over a year, to the fall of 1991, and raised the unit cost substantially.

In July 1990, the Secretary of the Navy ordered an administrative inquiry to determine the "facts and circumstances surrounding the variance between the current status of the A-12 Program and representations made to the Office of the Secretary of Defense on behalf of the Department regarding the program during the course of the Major Aircraft Review." The report was highly critical of both the process and the people involved in communicating cost, technical, and schedule problems associated with weapon system performance.

According to the 1990 administrative inquiry conducted for the Secretary of the Navy [The Beach Report, November 28, 1990], the cost performance data from the A-12 contractors clearly indicated significant cost and schedule problems. The results of an oversight review of the cost performance reports disclosed that the A-12 contract would probably exceed its ceiling by $1 billion. However, neither the contractors nor the Navy program manager relied upon this data; instead, they used overly optimistic recovery plans and schedule assumptions. The inquiry concluded that the government and contractor program managers lacked the objectivity to assess the situation and they disregarded financial analysts who surfaced the problems.

In August 1990, after unsuccessfully attempting to reach agreement with the contractors on an extended date for delivery of the first aircraft, the Navy unilaterally modified the contract to extend that delivery date to December 31, 1991. Pet. App. 3a. During the ensuing months, the Navy and the Department of Defense engaged in a comprehensive review of the issues arising from the cost, schedule, and performance failures associated with the program. In November 1990, the contractors submitted a formal proposal to restructure the contract. The contractors emphasized that, in their view, development and production of the A-12 "under the terms of the existing contractual arrangement * * * is not possible, or equitable, or authorized by law."

The contractor's lack of success on the program (alleged by the Navy to be one year behind schedule and $1 billion over ceiling price) was not elevated by the program manager to senior Department of Defense management in a timely manner. Neither the program manager, "nor the similarly well-qualified and dedicated officers in his chain of supervision, met the needs of senior civilian leaders within the Department of Navy and Department of Defense for an accurate assessment of the program's status and risk." This obfuscation contributed to the delay in the program's cancellation, and most likely, substantially increased the cost to the American taxpayer.

On December 17, 1991, the Navy issued a cure notice informing the contractor that their performance under the contract was unsatisfactory. Pet. App. 5a. The Navy explained that the contractor had failed to fabricate sufficient parts to meet the contract schedule. Ibid. In addition, the Navy stated that the contractor's "failure to meet specification requirements, such as aircraft weight, jeopardizes the carrier suitability of your design." C.A. App. 16,524. Because those conditions were "endangering performance of [the] contract," the Navy informed the contractors that it might terminate the contract for default unless those conditions were cured by January 2, 1991. In meetings with the government during the next two weeks, the contractors adhered to the position that they could not build the A-12 for the agreed-upon price, under the agreed-upon schedule, and to the agreed-upon specifications. On January 2, 1991, in their formal reply to the government's cure notice, petitioners stated that they would "not meet delivery schedules or certain specifications of the original contract, or the revised FSD delivery schedule." The contractors asserted as well that compliance with the Navy's demand to cure the schedule, weight, and other conditions was "unachievable."

On January 5, 1991, Secretary of Defense Cheney determined that he would not authorize relief from the contract under Pub. L. No. 85-804. As he later explained, "no one could tell me how much the program [would] cost even just through the full-scale development phase or when [the aircraft] would be available. Data that had been presented at one point a few months ago turned out to be invalid and inaccurate." The Secretary's decision was communicated to the Navy's contracting officer, Rear Admiral William R. Morris, by Under Secretary of Defense for Acquisition Donald J. Yockey. The Under Secretary was aware that the Navy was scheduled to commit $553 million under the contract on January 7, 1991. Under Secretary Yockey informed Admiral Morris that, in light of the Secretary's decision, no further funds should be obligated.

The U.S. Navy on January 7, 1991, notified McDonnell Douglas and General Dynamics Corporation (the Team) that it was terminating for default the Team's contract for development and initial production of the A-12 aircraft, and demanded repayment of the amounts paid to the Team under such contracts. At termination, just under $3 billion had been spent on the program. Research and development and miscellaneous support costs accounted for about $300 million of the amount spent. The remaining $2.7 billion was paid to the contractors for the full-scale development effort and two production options. The Navy demanded $1.35 billion be returned. That amount represented progress payments for work that had not been accepted as of the date of termination.

The Department of Defense terminated the contract after the contractors failed to deliver a single airplane after receiving more than $2 billion in payments. Instead, the contractors refused to continue with the contract unless they received extraordinary relief in the form of relaxed terms and extra funds. At the same time, they would or could not assure delivery of an aircraft by a time certain, specify the aircraft's performance capabilities, or commit to a specific price for the aircraft.

Were the A-12 Program's cost overruns exceptional when compared to other major acquisitions? Prior research indicated that most major programs experience some degree of cost variance. To determine if the A-12's overruns were exceptional, in a 1996 Master of Science in Management thesis compared the A-12 Program to 58 other contracts for developmental work. The conclusion of the research was that the A-12's overruns were exceptional. The cost overruns in the A-12 Program, at termination, exceeded 97 percent of other programs examined. To complete the Program may have cost between $9 and $11 billion. The required budget adjustment to complete the A-12 Program was greater than 91 percent of other programs. The research found no difference between cost variances of fixed-price contracts and cost-type contracts. The assertion that the use of a fixed-price contract contributed to the failure of the program was not proven. There was also no statistical difference between the cost overruns of aircraft programs and other types of programs. The Government's decision to terminate the A-12 Program for cost overruns was justified, based on the sample of programs examined.

Litigation on the A-12 program termination was in progress for a decade since 1991. As a consequence of the termination for default, the Navy demanded that the contractors repay $1,352 in unliquidated progress payments, but agreed to defer collection of the amount pending a decision by the U.S. Court of Federal Claims on the contractors' challenge to the termination for default, or a negotiated settlement. The A-12 contractor team filed a legal action to contest the Navy's default termination, to assert its rights to convert the termination to one for "the convenience of the Government," and to obtain payment for work done and costs incurred on the A-12 contract but not paid to date.

On December 19, 1995, the US Court of Federal Claims ordered that the Government's termination of the A-12 contract for default be converted to a termination for convenience of the Government. On December 13, 1996, the Court issued an opinion confirming its prior no-loss adjustment and no-profit recovery order. In an early 1997 stipulation, the parties agreed that, based on the prior orders and findings of the court, plaintiffs were entitled to recover $1.071 billion. Furthermore, on January 22, 1997, the court issued an opinion in which it ruled that plaintiffs are entitled to recover interest on that amount.

The United States Court of Federal Claims decided against the Government on 20 February 1998. On March 31, 1998, a final judgment was entered in favor of the contractors for $1.2 billion plus interest. The government filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. The Department of Defense believed that the court's decision in favor of the contractors was wrong and provided unwarranted relief from a failure to produce the aircraft for which the contractors were fully responsible. The Federal Claims Court decision was fully expected based upon earlier rulings by the trial judge; the government had made clear its belief that those earlier rulings were fundamentally flawed. The court's decision concluded the protracted trial phase of this case and allowed the appellate phase to begin.

On July 1, 1999, the Court of Appeals found that the trial court erred in converting the termination for default to a termination for convenience without first determining whether a default existed. The Court of Appeals remanded the case for determination of whether the government's default termination was justified. The Court of Appeals stated that it was expressing no view on that issue, and it left the parties the opportunity to fully litigate that issue on remand.

The parties agreed to explore the possibility of an out-of-court settlement of the litigation. Warren Christopher, former U.S. Secretary of State, served as a neutral mediator. The parties agreed that they would not comment on negotiations during the mediation process. In October 2000 Mr. Eugene P. Angrist, the deputy general counsel for the Department of the Navy, was awarded the Distinguished Civilian Service Award [the Department of Defense's (DoD) highest honor for career service] for his efforts to resolve disputes involving the A-12 "Avenger" contract through the alternative dispute resolution (ADR) process. He selected a credible and skilled negotiator to preside over the process while securing the participation of diverse parties to work together to resolve the conflicts.

As of April 2001 a trial of the case was scheduled to begin on or about 01 May 2001. The contractors continue to believe that the government's default termination was improper, both as to process (the basis relied upon by the trial court) and because the contractors were not in default. The contractors continue to believe that at a full trial they will be able to demonstrate that the default termination was not justified and that the termination for default will be converted to a termination for convenience. If the contractors are successful in such a new trial, it could result in the same, a lesser or a greater award to the contractors.

The U.S. Court of Federal Claims ("COFC" or "Court") on August 31, 2001 held that the Navy's default termination was reasonable and dismissed the contractors' complaint. McDonnell Douglas Corp. v. United States, No. 91-1204C (Fed. Cl. Aug. 31, 2001) (decision released September 6, 2001). Following a six-week trial on remand, the COFC concluded that the Government proved that the contractors were in default and that the default termination therefore was valid. The COFC's opinion focuses on the contract's delivery schedule. The contract originally required delivery of the first aircraft ("first flight") in June 1990; however, the contractors were unable to meet this schedule and the Navy waived the date. Because agreement between the parties on a revised schedule could not be reached, the Navy unilaterally established a revised first flight date of December 31, 1991. The COFC concluded that this revised schedule was reasonable and that the Navy's subsequent determination that the contractors would not meet it was rational.



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