McDonnell Douglas Corporation v. United States

182 F.3d 1319 (1999)

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McDonnell Douglas Corporation v. United States

United States Court of Appeals for the Federal Circuit
182 F.3d 1319 (1999)

  • Written by Liz Nakamura, JD

Facts

McDonnell Douglas Corporation (MDC) (defendant) entered into a contract with the United States Navy (plaintiff) to develop and produce eight A-12 Avenger stealth aircraft (A-12), with the first delivery scheduled for June 1990. The contract was a fixed-price contract with a $4.7 billion ceiling, and MDC received progress payments during performance. During performance, MDC had problems meeting aircraft weight specifications and experienced delays in fabricating necessary parts. In June 1990, MDC notified the Navy that it would be unable to meet the first delivery deadline, citing costs exceeding the $4.7 billion ceiling. MDC requested that the Navy convert the fixed-price contract into a cost-reimbursement contract. The Navy refused to convert the contract and instead issued a cure notice, stating that MDC’s contract would be terminated on January 2, 1991, if MDC did not comply with contract requirements. In MDC’s response to the Navy’s cure notice, MDC admitted that it could not meet the contract requirements unless the fixed-price contract was converted into a cost-reimbursement contract and that it was unable to estimate either the final cost to complete the project or how long it would take. Subsequently, the Secretary of Defense decided to withdraw funding from the A-12 project, citing MDC’s default and inability to give the Navy an estimate of the cost and timeline necessary to complete the contract. The Navy then terminated MDC’s contract for default. MDC petitioned the Court of Federal Claims to invalidate the default termination. The Court of Federal Claims converted the default termination into a termination for the convenience of the government (convenience termination), holding that the default termination was invalid because it was issued as a result of the Secretary’s decision to withdraw project funding rather than the Navy’s exercise of reasoned discretion. The Navy appealed.

Rule of Law

Issue

Holding and Reasoning (Clevenger, J.)

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