September 1, 1999

Federal Circuit Round-Up

Holland & Knight Newsletter
David S. Black

The United States Court of Appeals for the Federal Circuit recently issued two opinions of interest to government contractors. In one case, the Federal Circuit reversed an award of nearly $4 billion in claims; in the other case the court affirmed a broad interpretation of the bid protest jurisdiction of the Court of Federal Claims (COFC) and the U.S. District Courts. These cases are summarized below.

$4-Billion Award Reversed

In an enormous victory for the Justice Department, the Federal Circuit reversed the award of over $3.8 billion to the contractors on the ill-fated A-12 program. The decision bolsters the government's discretion to terminate contracts for default and reopens old arguments about how classified information should be handled in public lawsuits.

The Navy launched the A-12 program in the 1980s, with the hope of building a "stealth" aircraft like the Air Force's B-2 bomber and F-117 fighter. The contract was given to General Dynamics and McDonnell Douglas (now part of Boeing), on a fixed-price basis. The program foundered within a few years, however, in large part because of the contractors' difficulty in manufacturing an aircraft that met the government's goals for "stealth." The contractors complained that if the aircraft was indeed to be "invisible" - from radar, infrared signature, sound and visual detection - the contract would have to be converted to a cost-reimbursement contract.

After intense political battles, the contract was ultimately terminated for default. The contractors brought suit, claiming that the default termination was improper, asking that the default termination be converted to a termination for convenience, and requesting award of all the contractors' sunk costs, amounting to billions of dollars. After a protracted and complex litigation, the COFC granted the contractors' claim.

On appeal, the Federal Circuit reversed. Although the COFC had found that internal pressures had effectively forced the default termination, the Federal Circuit concluded that the Navy still had the discretion to terminate the contract for default because there were predicate contractual failures. So long as the default termination was related to contract performance - was not "pretextual" - the Navy retained the discretion to terminate for default. The Federal Circuit remanded the case to the trial court to determine whether the government can show that the contractors were, in fact, in default when the contract was terminated.

The decision also threw open the question of the contractors' "superior knowledge" claim. The contractors claimed that the program failed, in part, because the government failed to share "superior knowledge" from other "stealth" programs, such as the B-2 program. The government argued that any litigation of this issue would inevitably lead to the disclosure of classified secrets. In its decision, the Federal Circuit left it to the trial court to decide whether to reopen this part of the case.

McDonnell Douglas Corporation and General Dynamics Corporation v. United States, No. 98-5096, -5122, 5123 (Fed. Cir. July 1, 1999)

Bid Protest Jurisdiction

When a contractor brings a bid protest in the General Accounting Office, the procurement is automatically stayed pursuant to the Competition in Contracting Act (CICA). This "CICA stay" can be overridden by the agency on the basis of an "urgent and compelling" need.

In RAMCOR, the contractor challenged the agency's override by seeking an injunction in the Court of Federal Claims. Although these types of challenges traditionally have been brought in the U.S. District Courts under the Administrative Procedure Act, in its decision here the Federal Circuit held that those challenges can be brought under the Tucker Act in either the Court of Federal Claims or the U.S. District Courts.

This decision carries importance far beyond overrides of CICA stays. The court's decision turned on what it termed the "sweeping" language of the Tucker Act, which (as recently amended) grants jurisdiction to the Court of Federal Claims and the District Courts in any case "in connection with a procurement or a proposed procurement." As the court noted, this gives the Court of Federal Claims and the U.S. District Courts jurisdiction over a very broad range of procurement disputes - including, of course, overrides of CICA stays. RAMCOR is a milestone in what may ultimately be a series of decisions, marking broad boundaries of judicial oversight over the procurement process under the Tucker Act's sweeping jurisdictional grant. RAMCOR Services Group, Inc. v. United States, No. 98-5147 (Fed. Cir. July 26, 1999)

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