On January 18, 2011, the Supreme Court heard argument in the case of General Dynamics v. United States.  This case arose from the Navy’s default termination in 1991 of contracts that had been awarded (in 1988) to General Dynamics and McDonnell Douglas.  The contracts called for developing a carrier-based stealth aircraft called the A-12 Avenger.  While the A-12 never was built, what was developed was a cottage industry for some Government Contracts lawyers.  The Supreme Court case was preceded by 14 decisions at the US Court of Federal Claims and the US Court of Appeals for the Federal Circuit.  Apparently the contractors spent $2.55 billion performing the contract.  They were paid $1.35 billion.  The Navy wants the $1.35 billion back.  The contractors want to get paid the $1.2 billion in extra money they spent but never were paid.  Some of the justices asked why the parties couldn’t just leave things as they were.  That would allow the contractors to keep what they have been paid, but prevent them from getting any further payments. It is good to see the Court look at practical solutions. But in the past 20 years the case has been litigated, I’m guessing someone tried to the settle the case before.  But when Justice Scalia tells you to think about settlement, you may take more notice.

Oh yeah.  There is a legal issue that was before the Court.  Can an agency rely on the State Secrets doctrine to withhold from a contractor information that the contractor may be able to use to defend against a termination for default?  Here, the contractors argued that the Navy caused the delay that led to the termination for default by failing to disclose superior knowledge.  The Navy refused to give that information to the contractors during the litigation.  The legal issue balances the interest of the Government in protecting State Secrets with the right of contractors to defend against Government contract actions.

So what can happen? The options I see:

1. The parties can settle the case and tell the Court that the case is moot.

2. The Court can issue a decision saying no more money for the contractors and no more money for the Government.  I’m not sure how the Court would get there but some of the justices seemed to like that solution.

3. The Court can affirm the termination for default. That would create more litigation when the Navy acts to collect the $1.35 billion.

4. The Court could reverse and hold that the termination for default was not justified.  That could lead to more litigation.  Indeed, if the Navy is required to disclose the State Secrets to the contractors, a court could find that the contractors were not prejudiced by not having had the State Secrets.  The end result could still be that the termination for default was valid.

Now if I were given the chance to be Chief Mediator of the United States, my questions would be:

1. After 20 years, is the information requested by the contractors still really a State Secret?

2. Couldn’t the Navy find someone within General Dynamics and McDonnell Douglas to whom the State Secrets could be disclosed in such a way that there was no risk of improper disclosure?

3. Did someone look through the materials leaked by Wikileaks to see if the States Secrets already have been disclosed?