Textron Defense Systems v. Widnall

Textron Defense Systems (Textron) (plaintiff) entered into a cost-plus-award-fee contract (CPAF) with the United States Air Force (government) (defendant) to research and develop an excimer laser device (EMRLD) for an anti-ballistic missile defense system. Textron’s contract provided for cost reimbursements plus award fees payable to Textron in the government’s discretion based on Textron’s performance during the contract’s seven performance periods. Each performance period had a different maximum available award fee, with the highest potential awards assigned to the backend of the contract. The contract also contained (1) a termination clause that specifically stated Textron was not entitled to future award fees if the government terminated the contract; and (2) a limitation of funds (LOF) clause, which stated that Textron bore the risk for any cost overruns. The government allocated separate funding pools for reimbursement of costs and for award fees. The government terminated the contract after Textron had completed 77.4 percent of the work and had just started work on the fifth performance period. For Textron’s work in the first four performance periods, Textron received $111 million in reimbursed costs and $2.5 million in award fees, representing less than half of the available award fees. Textron submitted a certified termination claim seeking (a) an additional $1.2 million in reimbursements for cost overruns; and (b) an additional award fee equal to 77.4 percent of the $11.4 million total award-fee pool available for the remaining unperformed performance periods. The Armed Services Board of Contract Appeals (Board) denied Textron’s claim. Textron appealed to the Federal Circuit, arguing that (i) under the contract’s termination clause, Textron was entitled to a pro-rata share of the remaining award fees based on the percentage completion of the contract at the time of termination; and (ii) under the LOF clause, money allocated for the payment of award fees should be made available to reimburse Textron for cost overruns.