- The Washington Times - Wednesday, April 24, 2002

The Navy and two giant defense companies are close to settling a decade-old lawsuit that centers on the 1991 decision to terminate the Navy's next-generation attack jet, the A-12.
The decision to ax the A-12 was made by then-Secretary of Defense now Vice President Richard B. Cheney.
U.S. government officials, who discussed the sensitive negotiations on the condition of anonymity, said Defense Secretary Donald H. Rumsfeld and Deputy Defense Paul Wolfowitz favor concluding the long dispute.
The Justice Department, however, has not decided whether to accept an offer of more than $2 billion in products and cost absorption from Boeing and General Dynamics, administration sources told The Washington Times.
Mr. Cheney's office is said to be interested in how a final deal is worded. Mr. Cheney, as the first Bush administration's defense secretary, took the major step of canceling the $52 billion contract for the aircraft, which was to replace the venerable A-6 Intruder. At the time, the development program was badly behind schedule and over budget. The Pentagon was being pressed by Congress to reduce arms spending in the post-Soviet era.
Sources said the Navy and the two contractors are eager to reach a deal, but the Justice Department has not yet agreed.
"This is a big deal because it's been a 10-year court battle that has cost the taxpayers hundreds of millions of dollars in court costs," said a government source. "There has been no end in sight because the appeals process is going on forever. This deal saves the taxpayers' money."
For more than 11 years, the government has been seeking the return of $1.35 billion in unspent "progress payments" made to A-12 developers General Dynamics and Boeing. (The A-12 was orginally developed by McDonnell Douglas, which was later purchased by Boeing). The two companies refused and sued for costs totaling over $1 billion.
General Dynamics and Boeing have generally agreed on a complex combination of paying costs out pocket, providing products at no cost, and logistics support. The potential benefit to the Navy is more than $2 billion. Both companies are described as ready to settle a dispute with the Navy, one of their main customers with billions of dollars in contracts.
Settlement offers include Boeing absorbing nearly $1 billion in costs on the in-production F-18 E/F Super Hornet, the plane the Navy selected to replace the A-12.
General Dynamics would, among other offerings, absorb hundreds of millions of dollars in costs on the Virginia-class attack sub costs the Navy would otherwise pay. The company would also provide at no cost a small number of Gulfstream aircraft, including maintenance and logistics.
Administration officials who support accepting the deal described it as the two contractors making concessions to end the long legal battle.
The contractors' legal arguments weakened last summer, when the government won the latest round. A Court of Federal Claims judge ruled Mr. Cheney was correct to end the A-12 because the first production model was far behind schedule.
Judge Robert H. Hodges ruled the two contractors were not entitled to the $2.6 billion they sought in business costs. The judge said the Pentagon acted in a reasonable manner when it set an extended date for the first A-12 flight and later determined the companies could not meet that deadline.
"A contracting officer, acting with discretion rationally, could have determined that the contractors would not have achieved first flight by December 1991," the judge said.
The contractors subsequently appealed to the U.S. Court of Appeals. If the two companies ultimately lose the case, they could be liable for a $2 billion payment to the government
The contractors and the government previously have engaged in talks, but not reached a settlement, officials said.
There were three attempts during the Clinton presidency. In 1995, a senior defense official met with representatives of both companies. Each side demanded a $1 billion payment and talks ended.
A year later, Justice and the Pentagon again tried to settle, offering a payment of $150 million to $200 million. But both companies demanded $800 million and talks failed again.
In 1999, another senior Clinton administration official entered talks. That time, the companies lowered their demand to $400 million, but the government still refused.
In canceling the carrier-based A-12 in 1991, Mr. Cheney said:
"This program cannot be sustained unless I ask Congress for more money and bail the contractors out. But I have made the decision that I will not do that. No one can tell me exactly how much more it will cost to keep this program going. And I do not believe a bailout is in the national interest. If we cannot spend the taxpayers' money wisely, we will not spend it."

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