Free Order on Motion for Judgment on Partial Findings - District Court of Federal Claims - federal

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In the United States Court of Federal Claims
No. 91-1204C Filed: May 3, 2007 * * * * * * * * * * * * * * * * * Navy Procurement; A-12 "Avenger"; Stealth Technology; Research & Development Contract; Termination for Default; Failure to Make Progress; Lisbon Test; Contract Completion Date; 48 C.F.R.§ 52.249-9; Termination Memo; Application of DeVito Test; Waiver of Delivery Date; Unilateral Contract Modification; Reasonable and Enforceable Schedule; Lost Profits; Loss Ratio; Contracting Officer; Notice to Cure; Adequate Assurances.

MCDONNELL DOUGLAS CORPORATION AND GENERAL DYNAMICS CORPORATION, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. * * * * *

Caryl A. Potter, III, Sonnenschein Nath & Rosenthal LLP, Washington, D.C., for plaintiff McDonnell Douglas Corporation. Elizabeth A. Farrell, of counsel. Linda L. Listrom, Jenner & Block LLP, Chicago, IL, for plaintiff General Dynamics Corporation. David A. Churchill, Donald B. Verilli, Jr., Jenner & Block LLP, Washington, D.C., of counsel. Bryant G. Snee, Patricia M. McCarthy, Alan J. Lo Re, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. Wendell A. Kjos, Mark A. Romano, Department of the Navy, of counsel.

ORDER AND OPINION HODGES, Judge. The United States contracted with McDonnell Douglas and General Dynamics to design and build stealth aircraft for the Navy, then abruptly terminated the contractors for default. The contractors sued to convert the default to termination for convenience of the Government. The A-12 contract was technically complex, as might be expected of a major new weapons system, and the parties anticipated many years of development. The projected cost exceeded $4 billion

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in the initial stages. The purpose of the Full-Scale Engineering and Development (or FSED) contract was to design, develop, manufacture, and test eight A-12 aircraft. The eighth plane would serve as a prototype for subsequent production aircraft. Upon successful completion of the FSED effort, the Government could direct plaintiffs to begin a production phase. A series of options authorized the A-12 production phase in the contract by which the Government could purchase production "Lots" of aircraft. At termination, the Navy had exercised its contractual right to order six production aircraft, known as Lot I. Almost from the beginning, the contractors encountered problems that caused them to fall behind schedule. McDonnell Douglas and General Dynamics were to deliver the first test aircraft in June 1990. It became apparent well before then that the contractors would not meet that schedule. The first test aircraft was a key milestone in development of the A-12 known as first flight. The parties were unable to agree on rescheduling first flight and the succeeding seven aircraft of the FSED phase. The Navy extended the delivery dates unilaterally to accommodate the delayed prototypes. This unilateral modification of the contract's schedule was designated P00046. P00046 lies at the heart of this dispute. The issue on remand is "whether the Government's default termination was justified." McDonnell Douglas Corp. v. United States, 323 F.3d 1006, 1014 (Fed. Cir. 2003). FAR 52.249-9 describes the Government's authority to terminate a research and development contract for default. That section authorizes the Government to terminate a contract if the contractor fails to "prosecute the work so as to endanger performance of th[e] contract." FAR 52.249-9(a)(1)(ii). We review defendant's default termination according to the "Lisbon standard." McDonnell Douglas, 323 F.3d at 1015; see Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987). The Lisbon standard permits termination for default if the Government demonstrates that the contracting officer had a reasonable belief "`that there was no reasonable likelihood that the contractor[s] could perform the entire contract effort within the time remaining for contract performance.'" McDonnell Douglas, 323 F.3d at 1016 (quoting Lisbon, 828 F.2d at 765). The Court of Appeals for the Federal Circuit emphasized the importance of "decid[ing] the actual performance that the contract requires and the amount of time remaining for performance" before making that determination. Id. at 1017 (citing Lisbon, 828 F.2d at 766). In fact, the Circuit observed: Unless the contracting officer had determined the entire effort required under the contract and the time left to complete the contract, it would be difficult, if not impossible, for him to resolve whether there was no reasonable likelihood that the contractor could perform the entire contract effort within the time remaining for contract performance. Id. (internal quotation marks and citation omitted). The parties disagree about the meaning of the Circuit's remand directing the court to apply the Lisbon test in this research and development 2

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contract. The contractors urge the court to employ a strict interpretation of the Circuit's remand. That is, "the entire contract effort" must be all-inclusive, comprising the eight FSED aircraft, the six Lot I production aircraft and years of follow-on testing, aircraft maintenance, and contractor support for the Navy. Plaintiff McDonnell Douglas argues that no contracting officer could reasonably have terminated the A-12 contract for default for failure to make progress if he did not know the work left to be done and the time left to do it. The Government offers a more flexible approach. The "entire contract effort" as used by the Circuit represents a convenient and enforceable yardstick this court can use to evaluate the contractors' progress at termination. Time was of the essence in the A-12 contract, and plaintiffs had an obligation to make enough progress to insure performance was not endangered. This court should decide whether the weight of the evidence in the record shows that the contracting officer was reasonably justified in feeling insecure about the contract's timely completion. Defendant's argument is important in that the size of the yardstick does not matter. That is, the "entire contract effort" need not include every segment of work envisaged by the contract, but may be any objective measure of the contractors' progress at termination. Defendant's suggestion that we use a reasonable yardstick to measure performance is attractive for its flexibility and its simplicity, but it may be foreclosed by earlier rulings of the Federal Circuit. The A-12 contract did not define "the time remaining for contract performance," as plaintiffs have interpreted that phrase. The contract has no "time remaining for contract performance" as in supply, service, and construction contracts. Defendant cannot prevail if the law requires an enforceable contract completion date at termination. That is, if the date we must look to in measuring the contractors' progress can occur no earlier than after completion of plaintiffs' contract requirements, we would vacate the termination for default. See Divecon Servs., LP v. Dep't of Commerce, GSBCA No. 15997, 04-2 BCA ¶ 32,656 (June 22, 2004) ("Without a . . . specific completion date, the Government could not rationally terminate for default for failure to make progress, since there was no objective against which the contractor's progress could be judged."). The contracting officer did not know in January 1991 when contract completion might occur. Defendant's burden of proof does not necessarily require the Government to provide a completion date for the entire contract effort, however. The FAR default provision does not refer to contract completion. The Circuit emphasized the importance of that requirement repeatedly, but the court also suggested other factors for consideration. Comparison of the percentage of work completed with the time remaining is only one consideration. McDonnell Douglas, 323 F.3d at 1016-17. The time remaining for performance is part of the "objective inquiry" under Lisbon. Id. Defendant's inability to establish a completion date for the A-12 contract does not compel a ruling for plaintiffs. 3

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The ruling in this case depends on a discrete element of contract performance used as a yardstick to measure the contractors' progress at termination. The Navy's unilateral modification known as P00046 serves this purpose. The schedule for P00046 contained benchmarks for performance and enforceable delivery dates when termination occurred in January 1991; it represents the "entire contract effort" the Circuit requires for measuring performance. This yardstick enables the court to consider the contractors' progress in light of factors that are probative of their ability and willingness to perform. This Opinion also discusses "other factors usually relied on by courts and contract boards," for determining contractors' progress. Id. The contracting officer could have concluded that McDonnell Douglas and General Dynamics had "no reasonable likelihood" of delivering the aircraft on time as measured by the P00046 schedule. We must again uphold the Government's default termination of the A-12 contract. I. BACKGROUND The Government began development of the A-12 Avenger in 1984. The agreement between the Navy and the contracting team of McDonnell Douglas and General Dynamics was an incrementally-funded, fixed-price full-scale engineering and development (FSED) contract. Its purpose was to design, manufacture, and test eight A-12 prototypes. The Navy would use the prototypes to test various aspects of the aircraft's design; it maintained options to order production aircraft later. The contract schedule required plaintiffs to deliver the first prototype in June 1990. Seven additional prototypes were due monthly through January 1991. The Navy exercised its option to purchase Lot I of the production models in May 1990, before the contractors were to deliver the first prototype. As it became clear the contractors would not make first flight in June 1990, the Navy issued a unilateral contract modification in August 1990, extending first flight to December 1991. Known as P00046, the modification extended the seven additional A-12 prototypes through February 1993. The United States terminated plaintiffs' contract for default in January 1991, nearly a year before the first flight was due. A. THE A-12 CONTRACT Plaintiffs' incentive contract had a target price of approximately $4.38 billion, and a ceiling price of $4.77 billion. The Government would pay forty percent of any costs over the contract price and below the ceiling price. The contractors would pay the remaining sixty percent, and all costs over the ceiling price. The contract required the Navy to make payments in eleven installments from the date 4

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the parties signed the contract to the last payment on November 1, 1992. The terms of the installment payments were contained in Clause H-7 of the contract, which stated, (a) This financing arrangement is necessitated by the unavailability for obligation, at the outset of this contract, of sufficient funds to cover the total target values or ceiling price of the basic FSED contract line items. (b) The Contractor agrees that the Government's obligation of funds in the amounts and by the dates set forth below will permit compliance with the contract. The Contractor acknowledges that the terms and conditions of the performance of this contract have been established on the basis that the Contractor's termination liability will not exceed the amount set forth below by the dates set forth opposite said amounts. Nothing herein shall authorize nor require the contractor to incur costs, plus a reasonable allowance of profit, in excess of the total amount obligated at any given time. . . . (c) In the event the Government fails to obligate any specified installment by the time specified, the Contractor[]will continue performance of the contract only to the extent that he shall not be required to incur obligations (termination liability) beyond that amount already obligated by the Government. . . . The Government's total obligation for payment (including termination settlement expenses) under this contract shall not exceed the total amount obligated at the time of termination. ... (e) Nothing contained in this clause shall affect the right of the Government to terminate this contract pursuant to either the "Default" or "Termination for Convenience of the Government" clauses. The A-12 Program encompassed contract phases such as Concept Formulation, Full-Scale Development, Demonstration/Validation, and Full Rate Production. The Navy obtained approval from the Defense Acquisition Board, or DAB, at each development phase. The Navy agreed to proceed with Full-Scale Development (FSED) after the Defense Acquisition Board approved the Demonstration/Validation phase in January 1988. The contract required plaintiffs to design, build, and test eight A-12 prototypes, manage the work according to the contract schedule, and provide logistical support to the Navy.1 Section B of the contract consisted of a series of Contract Line Item Numbers, or CLINs. Each was tied to a particular aspect of work. For example, CLIN 0001 was the ATA Aircraft Initial Design

The Navy's solicitation stated: "The intent of the Navy is to procure under one contract, the design, fabrication, test, and evaluation efforts necessary to qualify the ATA Full Scale Development (FSED) aircraft for production." 5

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Review (IDR). The contract contained fifty-six CLINs, numbered 0001 through 0058, at a total cost of $4,379,219,436. Lot I production CLINs ranged from 0101 through 0133. Four CLINs were deleted eventually from the contract's requirements.2 Section C of the A-12 contract contained the Work Statement. The CLINs in section C were divided among five areas of performance: design, manufacturing, testing, support, and management. 1. Design The design phase called for a series of performance reviews to ensure that the A-12 design was progressing according to contract requirements. CLIN 0001 was Initial Design Review. This review assessed whether "the selected aircraft design approach [wa]s compatible with the engineering requirements of the contract." It was "a means of determining that the contractor[s] ha[d] correctly understood all aircraft design and test requirements." CLIN 0002 was the Preliminary Design Review, which "evaluate[d] the progress, technical adequacy, and risk allocation (on technical, cost, and schedule bases) of the selected design approach and determine[d] its compatibility with performance and engineering requirements of the development specification." The contract stated that "completion and approval . . . of the final [Preliminary Design Review] w[ould] result in authorization for the contractor[s] to proceed with the design of the [aircraft]." CLIN 0003 was Critical Design Review (CDR). CDR would occur "when detail design and analysis [wa]s essentially complete (90%)." This review sought to examine "the potential of the detailed design of the [aircraft] to satisfy the performance and engineering requirements of the [aircraft's] development specifications." Review at this level would take place over a number of sessions "consistent with the completion schedule for the individual design efforts." CLIN 0004 added, "[a]t the conclusion of the incremental CDRs a final CDR of approximately four working days will be held to summarize the results of the individual CDRs. The review program would be closed upon approval by the Navy of the final CDR. This would "result in authorization for the Contractor[s] to proceed with the design of the ATA aircraft." After approval of the design, the contractors would move on to manufacture.

The Navy could have moved to the Full Rate Production phase if the contractors had built the eight prototypes. Therefore, Section B of the A-12 contract contained CLINs for the production options of the contract. Option Item 0101 was the six production aircraft in Production Option I, or Lot I. Lot I accounted for thirty-one additional CLINs. Option Item 0201 corresponded to eight production aircraft authorized by Production Option II, which contained thirty-two CLINs. Similar procedures applied to Options through Lot VI.

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2. Manufacturing The contractors began the process of manufacturing the first prototypes after the Navy approved their design. The contract called for the "manufacture and furnish[ing of] eight (8) aircraft and associated mockups, models, and test articles in accordance with the Detail Specification for ATA Weapon System, SD-574-1."3 Plaintiffs would develop Avionics Integration Laboratories "as needed to provide a technically acceptable product within schedule." The eight FSED prototypes would undergo careful ground and flight testing of nearly every aspect of the A-12's design. Each test aircraft would be more complex than the last. The ground testing requirements were set forth in an addendum to the contract, attachments 12-18. These were the "Contract Engineering and Test Requirements for the Advanced Tactical Aircraft Weapon System." Flight testing would evaluate the aircraft's propulsion systems and its ability to take off and land from carriers at sea. These and other technical aspects, would be monitored from first flight through completion of TECHEVAL. Attachments 18-22 of the contract contain detailed descriptions of these flight tests. The testing phase was sequential, in that later tests were dependent upon successful completion of earlier testing efforts. Rigorous testing procedures did not end with the eight prototypes. Production aircraft produced in Lot I would be used to test various aspects of the plane's performance as well. CLINs 0051 through 0056 were tied to Phases I through VI of the contractors' testing responsibilities. Testing Phase VI overlapped with TECHEVAL,4 the Navy's formal testing and evaluation program for the A-12. The purpose of TECHEVAL was to assure that the aircraft met technical requirements of the contract. 3. Testing The A-12 contract provided that the Navy would monitor the contractors' progress during all phases of contract performance. CLIN 0005 stated that satisfactory completion of interim requirements would not occur until the Government approved the results of tests, inspections, or analyses of such requirements. This line item established joint Navy-contractor aircraft conferences and reviews. These conferences included the First Flight Readiness Review and the SD-574-1 is the "detailed Specification for Carrier Based Advanced Tactical Aircraft Weapon System." It outlines the A-12's technical specifications, which are contained in Attachments 2-11 in Section J of the contract. CLIN 0056 required the contractors to "conduct Phase VI of testing . . . as required to the completion of TECHEVAL on all TECHEVAL aircraft." 7
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Production Readiness Review. Contract line items related to maintenance, support, and management programs were 0021, 0024, 0035, 0037, and 0049.5 The most important requirement of the contract for our purposes is schedule. Schedule is the reason the contracting officer gave for default terminating the contractors; it is the remaining basis for evaluating the contractors performance. 4. Schedule The delivery schedules are in Section F of the A-12 contract. Performance deadlines could be derived either from the Master Program Schedule, by referring to other CLINs in the contract, or from assigned calendar dates. For example, the final FSED aircraft was due initially in January 1991, an assigned date. Derived dates included Item 0001, Initial Design Review, due "[n]ot later than 6 months after contract award." Item 0002, Preliminary Design Review was due "[n]ot later than 12 months after Contract Award." Item 003, Critical Design Review, would occur "18 Months after Contract Award."6 The eight FSED aircraft provided for in Line Item 0005 were to be delivered on a schedule of approximately one per month beginning in June 1990. The final FSED aircraft would be delivered in January 1991, according to the original schedule. The FSED contract schedule originated from CLIN 0011, which stated, Section E of the A-12 contract dealt with inspection and acceptance of the work by the Navy. With respect to FSED requirements, the contract stated, Initial Design Review (IDR) under Item 0001, Preliminary Design Review (PDR) under Item 0002 and Critical Design Review (CDR) under Item 0003 are not complete until these reviews on the entire aircraft have been completed and approved by NAVAIR (AIR-05), all action items have been closed (defined, with mutually acceptable resolution plans which specify a schedule and the party who has the action), and under CDR (Item 0003) the Lot IV proposal in accordance with clause H-22 has been received. Provisional acceptance of the first aircraft under Item 0005 will evidence completion of Item 0006. . . . The Navy awarded the A-12 contract on January 13, 1988. Tying the dates in Section F to the award date meant IDR would take place no later than June 13, 1988; PDR was due by January 13, 1989, and CDR would begin June 13, 1989. Section F stated that "Critical Design Review (CDR) is not complete until CDR on the entire aircraft has been completed, all action items have been closed (defined with mutually acceptable resolution plans which specify a schedule and the party who has the action), and the Lot IV proposal in accordance with clause H-22 has been received." 8
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[t]he Contractor shall establish and maintain management activities in accordance with the Project Management Requirements for the ATA Aircraft Weapon system to satisfactorily complete the tasks required by this contract. The program management effort shall be established with authority delegated at appropriate levels. Individual assignments within the management organization shall facilitate single-points-of-contact for interface with Government Managers in a timely manner. The Contractor shall commit such resources as are necessary to accomplish the requirements stated herein. Program Management shall be accomplished in accordance with Attachment 24, the Program Management Requirements of the ATA Aircraft Weapon System, . . . and Attachment 25. The A-12 contract required plaintiffs to prepare a Master Schedule to "include all critical activities necessary to complete the work required by the contract" and the important Navy milestones defined in Attachment 25. Upon approval by the Government, the Master Program Schedule would be the "baseline schedule against which progress will be measured." Plaintiffs provided the Master Program Schedule in their Best and Final Offer, and updated the Master Schedule periodically. Their last update prior to contract termination was August 20, 1990.7

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Attachment 24 to the Contract included the following:

2.2 Master Program Schedule. The Contractor shall prepare a Master Schedule for the ATA Project. This schedule shall include all critical activities necessary to complete the work required by the contract. Critical paths shall be highlighted and sensitivity to changes in schedule or resource availability identified. Required government activities shall be included in the schedule, and any critical actions identified. Following joint Program Office and Contractor review and concurrence, this schedule shall become the Master Program Schedule, and will become the baseline schedule against which project progress will be measured. Attachment 25 identified the following critical milestones: Milestone FSED Start First Flight TECHEVAL OPEVAL BIS Trial O Level IOC Date December 1987 June 1990 April 1993 June 1993 - November 1993 June 1994 July 1994 July 1994 9

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5. Other Contract Provisions The A-12 contract contained clauses from Federal Acquisition Regulations that routinely appear in fixed-price contracts such as this. The following provisions were incorporated by reference from FAR and applied to the FSED contract, CLINs 0001 to 0058: FAR 52.232-2 FAR 52.232-16 FAR 52.232-17 FAR 52.243-1 FAR 52.249-2 FAR 52.249-9 Payments (Fixed-Price Research and Development); Progress Payments; Interest; Changes ­ Fixed-Price; Termination for Convenience of the Government; and Default (Fixed-Price Research and Development).

Standard provisions for the production options were separate from the FSED portion of the contract. Most were the same, but the termination clause was an important exception. The contract for production lots incorporated FAR default provisions for Fixed-Price Supply and Service contracts. The parties agree that plaintiffs were to design, construct, and test the A-12, support the Navy in its tests of the aircraft, and manage work according to the contract schedule. They were to perform the work in a sequential fashion, so the projects would build on each other. The design phase came first, followed by production, then testing. The parties disagree about practically everything else.8 The Naval Air Command, referred to as NAVAIR, awarded the A-12 contract to General Dynamics and McDonnell Douglas on January 13, 1988. The contractors began work immediately. B. CONTRACTORS' PERFORMANCE Performance of the FSED contract on schedule was more difficult than expected for a number of reasons. No one had developed a stealth fighter with the A-12's flight capabilities. The science and technology required was state-of-the-art. The United States Air Force chose not to share its highly sensitive stealth information sufficiently to avoid technical difficulties and

Support
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The appeals court made reference to reopening the record, leaving that matter to the trial court's discretion. The parties agree that this court has all the information necessary to rule on the issues at hand. See infra note 54. 10

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delay.9 The Air Force eventually made much of the needed information available but it was too late in the process, according to the contractors. The plaintiffs' progress in key areas of performance prior to termination are summarized in the following sections. 1. Design The Navy conducted design reviews to assess plaintiffs' progress on the A-12 design. Critical Design Review was among the last steps in this process. Admiral John Lockard was responsible for overseeing the design reviews. He testified that Critical Design Review would "provide a sense of [whether] the requirement [would] be satisfied by the product in its detailed design state, [then] ensure that the product is producible; in other words, that [the contractors] could build them in a repetitive way such that . . . one airplane looks like the next airplane." The CDR process offered the Navy an opportunity to raise lingering concerns about technical progress through Requests for Action, or RFAs. The Navy made 433 such requests. By the close of CDR, Admiral Lockard had signed all 433 Requests for Action. Admiral Lockard stated at trial that "[e]ach [RFA] had been signed by me, indicating that as far as I was concerned, I had reached agreement with the contractor." His signature provided evidence that the parties had resolved issues represented by Requests for Action. Admiral Lockard closed the formal Design Review Board activity on October 22, 1990, and stated "[a] fair agreement has been reached, one which will provide the Navy with the product they need." He added, "[t]echnical resolution on the airplane" was accomplished as well. Admiral Lockard thought the Navy and the contractors were "in the process to a satisfactory conclusion of CDR." He wrote that the "product as defined [in the CDR activity] will meet [the Navy's] operational requirements." At the same time, Admiral Lockard reported to Navy Secretary Gerald Cann a "lingering technical concern" on some design and production aspects. Admiral Lockard noted in particular that

Compartmented "state secrets" normally belong to and are controlled by government agencies rather than "the Government." Rules for handling so-called Black Programs vary among the agencies. This tends to cause friction ­ in this case, between the Navy and the Air Force. As one example, the agencies' rules defining "need to know" are entirely different. The contractors wanted and needed highly sensitive technical information for the A-12, and the Navy wanted them to have it. This created many legal and logistical problems unrelated to the merits, and required substantial and frequent court involvement. Security personnel assigned to this court, our office of the Clerk of Court, and professionals attached to the Department of Justice, provided advice and assistance. 11

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the tooling concept that was being used to build these very complex parts was one which there was much debate about. [C]ould that [concept] really produce[?] Until we could get some consistency, it was hard . . . to make a determination that, in fact, they could do this repeatedly at a production rate sufficient to produce parts to support a production line of so many per month.10 During the Count XVII trial, Admiral Lockard described the contractors' difficulty in manufacturing the major structural components of the aircraft, termed "big bones." He explained that it was the first time anyone had built a structure of this size, with the materials being used. The "big bones" were critical to the design ­ to the integrity of the airplane, and [the contractors] were not making progress in building these. As a matter of fact, they were severely behind and going further behind in building these parts, and we couldn't assemble the first airplane until they were able to build these parts successfully. These were concerns expressed about the Admiral's findings at CDR. As termination approached, Admiral Lockard testified about almost daily meetings between Admiral Morris and myself, trying to figure out how we were going to be able to resolve this and keep this program on track. So we discussed all of the technical issues, could we get them resolved, if we could find a way to satisfy the business arrangements, to get the contractors to do the work, and we were certain that we could do it. We were unsuccessful in my discussions, though, at that point of finding a way to get the contractors to do the work. When asked his assessment of the contractors' ability to manufacture composite parts at termination, Admiral Lockard responded, there was still an awful lot of uncertainty in the ability, particularly for General Dynamics. The tooling concept that they had chosen, I was very concerned that

Admiral Lockard's message to Secretary Cann was intended to convey the Navy's "need[] to ensure that [it] worked with the contractor to improve their ability to get yield from the parts in a predictable way, and if we didn't do that, then [the Navy and the contractors] weren't ready for production." Asked why production would not occur on time, Admiral Lockard responded, "[b]ecause you couldn't predict how much the airplanes were going to cost if you didn't know how long it was going to take to get the number of parts required to build it."

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it was going to be able to produce parts in a repeatable fashion. They had not been able to stabilize it. I thought it was critical in nature, and I was concerned that it was going to take us more time to work that tooling concept out in order to have one that could produce with certainty parts that could be used on a continuing basis. However, Admiral Lockard closed the formal Defense Review Boards because the technical problems had been resolved. He stated at adjournment that "[a] fair agreement has been reached, one which will provide the Navy with the product they need." The Admiral concluded, "technical resolution of the airplane has been reached." The contractors worked on the Program during and after the design reviews. Technical agreements between plaintiffs and the Navy caused the contractors to modify their work in some cases, often changing the agreements from original contract requirements. Officials from General Dynamics and McDonnell Douglas understood that the contract work should continue according to the agreements reached at CDR. When CDR closed, the parties had negotiated a critical path toward completion of the design and development of the aircraft. Mr. Lamers of General Dynamics made the following announcement at an "all hands meeting" in November 1990: The critical design review is completed, this is the end of the . . . three major reviews that have been taking place over the last more than two years. Thirtyeight significant issues were resolved. We've closed 433 requests for action. . . . [a]nd it does constitute the Navy's formal approval [and] ratification of the design of the A-12.11 The Navy knew months prior to the final Critical Design Review that the A-12 would not meet some of the technical specifications in the contract. Despite such knowledge, the Navy agreed that technical concerns had been addressed and resolved to its satisfaction. The Navy accepted plaintiffs' design for the A-12 in November 1990.12 The next issue was whether the The Government accepted plaintiffs' design just over a month before its decision to terminate plaintiffs for default for failure to make progress. The Government contends that the court may not use the agreements reached at CDR as waiver of nonconformance by the Government because such agreements were not signed formally. The contractors maintain that the parties considered themselves bound by the agreements at that time, despite the lack of formal signatures. The issue is not whether the agreements are legally binding documents in any event. The agreements provide additional evidence that the Government had accepted plaintiffs' design. Moreover, government officials commented at trial that these "handshake agreements" had the weight of 13
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contractors could manufacture the plane according to the designers' intent. 2. Manufacturing The contract required plaintiffs to "design, develop, manufacture and furnish eight (8) Full Scale Engineering Development (FSED) aircraft and associated mockups, models, and test articles in accordance with the Detail Specification for [the Advanced Tactical Aircraft] Weapon System . . . ." The contractors would employ a "building block" approach, building each succeeding prototype to be significantly more complex than the previous one. The first prototype would test the A-12's ability to fly. Once the Navy and the contractors knew the first aircraft would get off the ground, the contractors would address other capabilities of the plane in subsequent prototypes. For example, the second prototype would test the propulsion system. Other FSED aircraft would examine the A-12's avionics and carrier suitability. See, e.g., McDonnell Douglas Corp. v. United States, 35 Fed. Cl. 358, 362 (1996). ("Each FSED aircraft would test different characteristics of the A-12; stealth capabilities would be verified in the `fully capable, fully equipped' eighth aircraft that would serve as the basis for the production lots."). The companies monitored the A-12's manufacturing schedule carefully. Mr. A.L. Briggs was the Vice President of McDonnell Douglas for Manufacturing Operations. His December 12, 1990 report assessed the A-12's manufacturing performance, the study of which he began in March 1990. Briggs' March investigation "revealed serious differences between the program status reports and the actual conditions on the shop floor and in the tooling and detail parts fabrication." While status reports were showing first flight in December 1990, his assessment was that first flight would be at least "four to six months later" than stated. He reassessed the program again in June and found "no improvement." In fact, he believed "the program had worsened somewhat." Such assessments were grim, but McDonnell Douglas received more favorable commentary: The Technology exists and McAir Manufacturing has the ability to build the A-12 aircraft as designed. Fabrication, Assembly and Tooling are all geared up and focused on the job at hand. By creating a realistic schedule and managing to that schedule, McAir Manufacturing can deliver the major assemblies to Tulsa in accordance with the revised plan. The report on General Dynamics was ominous. Mr. Briggs said, "GD engineers designed

contractual force, and everyone intended to honor them. The Navy's relationship with plaintiffs was a solid and impressive one throughout. They worked together closely and both sides handled day-to-day affairs of the relationship honorably. 14

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an airplane that GD Manufacturing could not build." He explained, "[t]he complexity of the composite parts was far beyond manufacturing's available technology in tooling and part fabrication." If Admiral Morris had been aware of this evaluation, it would have given him reason to be concerned about timely completion.13 By December, however, Briggs had concluded that the "[m]anufacturing team is capable of building the A-12 aircraft as it is now defined. . . . The revised schedule for getting the major assemblies to Tulsa and the activity at Tulsa are energetic, but achievable." Mr. Briggs compiled a year-end appraisal of the A-12 schedule position in December 1990, discussing the progress of "McAir, GDFW, and Tulsa" in meeting the contract's revised schedule.14 He concluded that the "Tulsa effort . . . [wa]s progressing on plan." In St. Louis, the forward fuselage was "[p]rogressing satisfactorily," as was the aft fuselage, despite delays resulting from the Navy's rejection of certain parts. Work on the R/H Outer Wing "suffered severe set backs due to recently identified engineering changes" but the delivery date for the parts was "still achievable." The report also discussed General Dynamics' offload issues. The "[t]ooling and parts fabrication are progressing [but] [a]pproximately 20 critical parts are being tracked by the Navy as potential show stoppers." The center fuselage was "[p]rogressing satisfactorily" to meet delivery dates, and the L/H Outer Wing was experiencing the same problems as the right outer wing. The Inner Wing assembly, however, was "in worse condition" than when the delivery schedule was established. The report indicated that there was "[n]o known resolution at th[e] time." The delivery date was August 1991. Briggs felt the date was still achievable, but he was "losing confidence." He detected a "serious deterioration of the wing condition in the last few days." Under existing conditions, General Dynamics "probably will not be able to build the Inner Wing assemblies on or near schedule." He identified possible solutions for the situation, including integration of a joint assembly team. Mr. Briggs concluded the report as follows: I believe the March 1992 First Flight date is still achievable, but only after It may not matter whether Admiral Morris knew about such reports. The Federal Circuit ruled that so long as the information was available to the Government, the court may consider it in reviewing the contracting officer's decision. See, e.g., Empire Energy Mgmt. Sys., Inc. v. Roche, 362 F.3d 1343, 1357 (Fed. Cir. 2004). McAir, General Dynamics Fort Worth (or GDFW), and Tulsa are references to the contractors' manufacturing centers. McAir was a division of McDonnell Douglas located in St. Louis, Missouri. 15
14 13

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significant changes which I intend to pursue immediately after the reorganization.15 My confidence in the March 1992 flight date is reduced to approximately 50% based on current conditions. Mr. Dave Cormany of General Dynamics highlighted manufacturing problems in an interoffice memorandum sent December 14, 1990. He expressed this dissatisfaction: In walking through and actually touching the two surviving [aircraft] parts this morning, I am convinced that if either makes it, it will not be near term. Therefore, we must assume that, as of today, we have NO coverage for ships 1-3 for this part. ... I was very, very dissatisfied with the lack of control we had in inspection/support areas I visited today. We either had people sitting around with no work in areas we are calling critical, or we had parts languishing in areas they had no business being, with no drive to work them or move them. Both are unsatisfactory. I believe we can produce one piece of any rib part number each eight to nine days, if we really want to. If we want an A-12 program, we had best want to do so with all our hearts. SOUND "BATTLE STATIONS"! We are in desperate trouble. Mr. Cormany sent a second memorandum on December 28, 1990: Perhaps there is some misunderstanding regarding the urgency on the subject LH rib for SWBS 3810. This rib started layup approximately 19 December. It is still not complete. Since 26 December, I have personally visited the part of each shift day during the holiday and have been told daily there are no problems and that the part should go to cure "next shift." It still sits exactly as it did on that date. Folks, we have NO PARTS for any aircraft of this part number. We are in a program day-for day side until the part reaches stock. We are currently breaching the drop-dead commitment date for the program of 31 March 1992, due to this part. I just do not understand how we can let the program critical parts sit for days and days. I am now very concerned with total out time accumulation for the part, in light of its extended layup period, and the upcoming week-end and holiday.

The phrase, "immediately after the reorganization" highlights the importance that both the Navy and the contractors placed on restructuring the contract.

15

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PLEASE get someone working on this job, and get it done! . . . Plaintiffs' own technicians were not happy with the manufacturing process. The Navy seemed at least acquiescent prior to Pentagon intervention in December 1990, if concerned about the pace. 3. Testing Ground testing was underway in December; flight testing would have begun with first flight. The Government terminated the A-12 contract for default nearly a year before first flight. Admiral Lockard described his frustration in November 1990: [No one could] predict with accuracy when we were going to fly the plane until we had, in fact, successfully built the parts for the first one. Because we were having difficulty building those parts, I could not come to a determination of when we would actually ­ with some level of certainty ­ fly the first airplane. Admiral Lockard had expressed this concern at a Design Review Briefing in November 1990. He added, "[b]usiness factors still cloud [the] technical picture." 4. Business Issues Work on the A-12 contract progressed over budget during the early stages of contract performance. Ms. Eleanor Spector, Deputy Assistant Secretary of Defense for Procurement, testified that "the contractor was spending at a rate of 120 million to 150 million per month." Admiral Morris stated that the contractors' "rate of investment on a monthly basis" was around $150 million. Ms. Spector16 explained how financial problems could affect contract performance: [W]hat generally happens when a contractor has financial problems is it's unable to do work-arounds. It's unable to do new technical approaches that may be necessary to solve a problem. That's particularly true in these fixed price development contracts where the whole contract is for development, and you have to keep trying different things if the first thing doesn't work. So when you're

Eleanor Spector's testimony was valuable. Documents produced in discovery showed that she had insight approaching prescience. For example, she opposed putting the A-12 out for bids on a fixed-price contract. She relented only with assurance that the Government would share its stealth technology with the contractors. Otherwise, she predicted, it cannot be done. 17

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having financial difficulties, it becomes difficult to do new design approaches, necessary fixes to problems that inevitably arise. Plaintiffs asserted that performing to the specifications on a fixed-price contract was impossible.17 They wanted to modify the contract terms due to impossibility of performance and nondisclosure of superior knowledge regarding stealth technology. Secretary of the Navy Lawrence Garrett asked plaintiffs' CEOs in a June 20 letter to provide detailed descriptions of the contractors' proposed options for proceeding with the A-12 Program. The contractors stated that the fundamental problem with the contract was its fixed-price structure. They proposed modifications but could not reach an agreement with the Navy. Plaintiffs warned the Navy in September 1990 that insufficient funds were obligated to the FSED portion of the contract. They asked that funding be provided at a more rapid rate "to preclude the possibility that the contractors may have to stop work under the contract." The Navy refused this request on October 3, and a similar request by the contractors in November, but obligated a scheduled $185 million installment to the contract on November 1, 1990. C. SCHEDULE Schedule problems have been an issue of paramount importance in the history of this case. They caused the Government to waive the requirement for first flight in June 1990, creating a DeVito waiver issue that is crucial to plaintiffs' case. See DeVito v. United States, 413 F.2d 1147 (Ct. Cl. 1969). Schedule problems caused the Navy to issue P00046, which overlapped the original contract schedule for Lot I and created a "nonsensical" situation. The P00046 schedule serves as the court's standard for measuring plaintiffs' performance. The Federal Circuit ruled that the trial court should determine whether plaintiffs were in default at termination. We focused on schedule because other reasons that Admiral Morris gave for terminating the contract were not valid. See McDonnell Douglas, 323 F.3d at 1011; McDonnell Douglas Corp. v. United States, 50 Fed. Cl. 311, 319-24 (2001). Schedule again appears to be a key to resolving this case. The issue is whether the Government's termination for default is justifiable. Schedule is one basis for deciding reasonableness of the Government default decision. To know whether the termination was reasonable, we must know the amount of time remaining on the contract, according to the Federal Circuit. McDonnell Douglas, 323 F.3d at 1017.

Donald J. Yockey, Acting Under Secretary of Defense (Acquisition), apparently agreed. Prior to termination, he lamented, "[w]hy did we ever go out on a fixed price contract? We should have learned long ago that you can't develop complex systems to a fixed price." 18

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1. First Flight The A-12 contract included four options that permitted the Navy to order production aircraft delivered through 1995. The Lot I option was executed by the Navy on May 30, 1990, requiring plaintiffs to manufacture six A-12 production aircraft in addition to the FSED prototypes. This meant the contractors would deliver fourteen aircraft on dates certain through May 1992. The contract contained the following schedule for delivery of prototype and optional production aircraft: Aircraft Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Delivery Date June 1990 July 1990 August 1990 September 1990 October 1990 November 1990 December 1990 January 1991 June 1991 August 1991 October 1991 December 1991 March 1992 May 1992

FSED

LOT I

The contractors did not achieve first flight in June 1990. The Navy took no steps to terminate the contract.18 However, the contracting officer at the time sent a letter to the contractors in July stating that they had not delivered the first aircraft in June as required by the contract and warned of the consequences of failure.19 Negotiations for rescheduling the contract The Navy knew in Spring 1990 that the contract schedule would have to be restructured. Plaintiffs asked Captain Elberfeld, the Navy's A-12 Program Manager at the time, "[w]hen the first flight date was missed, what did you do about it?" He responded, "we all knew very well for many months before that it was not going to be achieved. I don't recall taking any specific action immediately after it passed." Contracting Officer Mutty sent a letter to the Team on July 12. He expressed "serious concern regarding [their] performance under the A-12 contract." They had "failed to deliver the first aircraft as required by the contract . . . [and that] failure could jeopardize 19
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ensued. The contractors' CEOs were John McDonnell and Stanley Pace. They presented a review of the A-12 Program to Navy officials on June 13, 1990. The major discussion points were Technical Issues, Schedule, and Cost Status. The report stated that weight of the aircraft was the top concern, but appeared to be "under control." The CEOs reported "No Major `Showstoppers'" on technical issues. Schedule was next. Management predicted first flight in the July 1992 through September 1992 period. The remainder of the FSED schedule would be twelve to fourteen months beyond the original plan. Cost estimates at completion were "still in work, [with] a large variance between estimates," according to the CEOs. They acknowledged that significant challenges remained, but announced that the Program was under control. They discussed conclusions and recommendations at the high-level meeting, using slides with the following captions: CONCLUSIONS · · · · · · System Performance is Good With Excellent Overall Operational Capability The Predicted Cost of the FSED Program Will Exceed the Ceiling by a Magnitude That the Companies Cannot Absorb The Production Lot Option Not to Exceed Prices Are Also Predicted to Exceed Those Specified in the Contract Current Schedule Does Not Match Contract Schedule Production Lot III Would Be Exercised Prior to Sufficient Testing to Demonstrate System Performance The Concurrence of the Program Will Likely Lead to Milestone IIIB Not Being Met

performance of the entire FSED effort." He continued, [n]either your letter nor afterward have you provided any basis on which I could conclude that any of your obligations under the contract should be excused. The little information you have provided is far from adequate to permit an assessment of the state of your performance under the contract. Mutty directed the contractors to inform the Navy when they would deliver first flight, their plan to meet the remaining FSED schedule, and their consideration for proposed contract modifications. He concluded with the following remarks: "[T]he Navy believes the contract is valid and enforceable on its terms. The Navy is not waiving any of its rights under the contract by affording you the opportunity to respond with detailed information." 20

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RECOMMENDATIONS · · The Program Teams, Government and Industry, Have Been Studying Various Approaches to a Restructured Program We Should Be Authorized to Complete this Study and Propose a Program and Business Arrangement That Is in the Best Interest of the A-12 Program, including: ­ ­ ­ ­ Deliveries Per Rephased Schedule for FSED and Lots 1, 2, 3 & 4 Adjusted Specification Navy Added Requirements Contractor Claims 2. P00046 Mr. Lamers of General Dynamics was the principal program manager for the contractors. He predicted they could deliver first flight in July 1991. The Government undertook an assessment of whether this goal was obtainable. See McDonnell Douglas, 50 Fed. Cl. at 317 (noting "[t]he Navy wanted a reasonable schedule, not an unachievable one. The contractors and the Navy convened a strategy board to put together a realistic schedule for first flight."). The contractors were working to an aggressive schedule, but they would not sign up for one. They did not want to become contractually bound to a new schedule because of the uncertainties of controlling weight without having the benefit of shared technical information from the Air Force. Captain Elberfeld developed a plan to restructure the A-12 contract through the Defense Acquisition Board. He testified that the DAB would serve to get the program officially rebaselined. It would be the formal approval step necessary to get the program back into something that was manageable and controllable, in the sense of having the program documentation, the contract schedules, the financial and business arrangements and so on, all in place so that cost, schedule, and technical aspects of the program could be managed more efficiently, instead of working to a contract that had milestones that had already been missed . . . Elberfeld's plan included a "path to the A-12 DAB." He issued P00046 as a step along this path ­ a modified unilateral FSED delivery schedule for aircrafts one through eight.20 According to

Captain Elberfeld testified that he was the person responsible for issuing P00046 to replace the bilateral schedule in the original contract. He approached his duty in a methodical and conscientious manner, and his schedule was reasonable. McDonnell 21

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Captain Elberfeld's plan, the parties would resolve the technical issues at CDR and the Navy would present the revised technical baseline to the DAB for a decision. The Navy issued P00046 on August 17, 1990. The modification moved the due dates for the FSED prototypes back about eighteen months; the revised schedule called for first flight in December 1991. The modification spread the remaining prototypes out as well, doubling the time for delivery between each aircraft. Instead of one per month, P00046 required delivery of one prototype approximately every two months. Aircrafts two through eight were due February, June, August, September, November, and December 1992, and February 1993. P00046 revised FSED aircraft delivery dates but left Lot I and later milestones intact. Captain Elberfeld testified that after he issued the contract schedule modification, the Navy had "no schedule for the Lot I aircraft that you would call a realistic schedule." This fact was generally accepted among Navy officials familiar with the Program. The contractors could not have delivered Lot I aircraft on the dates the parties originally intended because of an overlap.21 Douglas, 50 Fed. Cl. at 316-19. The Navy did not waive the new schedule by announcing other acceptable dates for first flight. Id. at 319. The Federal Circuit affirmed these 2001 conclusions. McDonnell Douglas, 323 F.3d at 1018-20. The following chart shows that the schedule in place required plaintiffs to show that the first prototypes could fly before or at the same time they were to deliver fully-compliant production aircraft to the Navy: Aircraft Number ORIGINAL FSED 1 2 3 4 5 6 7 8 LOT I 9 10 11 12 13 14 Delivery Date June 1990 July 1990 August 1990 September 1990 October 1990 November 1990 December 1990 January 1991 June 1991 August 1991 October 1991 December 1991 March 1992 May 1992 Aircraft Number P00046 Delivery Date
21

1 2 3 4 22

December 1991 February 1992 June 1992 August 1992

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Captain Elberfeld testified that the purpose of the unilateral modification was to serve as "a first step in achieving [the] overall delivery schedule . . . ." The lack of new delivery schedules for Lot I "was not meant to imply that there was any intent or any thought that those aircraft could . . . be delivered earlier than the FSED aircraft."22 The ultimate contract completion date sought by the remand order would be a moving target, if it exists at all. See McDonnell Douglas, 323 F.3d at 1017 (stating the Government must put forth "`direct evidence on the time which it estimated it would take [the contractor] to complete the contract'") (quoting Lisbon, 828 F.2d at 766). In fact, if contract completion as envisioned by the Circuit should be a definite date by which plaintiffs were to complete entire contract performance, this contract did not provide such a date. Captain Elberfeld explained the expectations of performance with a research and development contract: The schedule for ­ completing contracts is something that takes sometimes years. Some contracts . . . [take] ten, fifteen years before they're closed out, even after the last aircraft is delivered. . . . I don't know what the schedule is to close out the contract. We had a schedule for delivering aircraft, we had a schedule for other milestones, like critical design review, preliminary design review, other major program milestones. But I don't recall the contract saying . . . [it] will be completed and closed out on this date, as one of the requirements of the contract. Captain Elberfeld's recollection was correct; the contract did not provide a close-out or completion date. Later he observed, with a research and development contract, "[u]ntil you get to the end, you don't know what the last step is."23 5 6 7 8
22

September 1992 November 1992 December 1992 February 1993

Additional testimony from this witness confirms that it was "no one's idea to [deliver aircraft nine before aircraft one]." We had the impression during trial that the overlap was a clerical error or oversight. This enabled the ruling that the unilateral schedule was reasonable and therefore enforceable. See McDonnell Douglas, 50 Fed. Cl. at 318-19. It appears likely that the parties did not consider Lot I then; it was an oversight. They assumed the contract would be restructured before Lot I became an issue. Captain Elberfeld was asked what level of contractor performance signified completion of the contract; i.e., what was the final act. Captain Elberfeld responded, "[i]t depended on what they were doing and what they were having problems accomplishing . . . . Until you get to the end, you don't know what the last step is." Captain Elberfeld testified 23
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During the months leading to termination, the contractors' internal schedules were showing that first flight would not occur in December 1991. Their projections showed first flight delivery three months later, in March 1992. Navy officials testified that defendant could not predict when the contractors would deliver first flight. D. EVENTS LEADING TO TERMINATION The Pentagon took over management of the A-12 Program in December 1990. Decisions regarding when and how to issue the notice to cure and other notices required by FAR originated from OSD. This development, along with the Government's need to obligate over one-half billion dollars to the A-12 program in January, marked the beginning of the end for the aircraft and for the contractors and their employees. 1. Department of Defense The Department of Defense initiated a Major Aircraft Review during 1990 to investigate pending weapons systems. Its purpose was to determine whether proposed new aircraft were needed in the post-Cold War environment. The A-12 Avenger fell under that review. The Secretary of Defense visited the McDonnell Douglas plant in March 1990, as part of the government evaluation of national defense needs in response to changing world situations and reduced national security threats. He learned of concerns about the Program, but remained confident the Navy and the contractors could deliver the aircraft. He expressed confidence in the A-12 Program, and he assured Congress that the Navy's need for the aircraft persisted. The Navy would continue pursuit of its development. The Defense Secretary reported results of the Major Aircraft Review to Congress in April 1990.24 His comments about the A-12 Program were reassuring. Secretary Cheney told the Committee that the A-12 was "one of our most urgent requirements." He testified about the Navy's need for the Program and its smooth course of development.

that he had "certainly not" established a schedule for contract completion with modification P00046. The Secretary of Defense discussed the Major Aircraft Review before the House Armed Services Committee on April 26, 1990. He faced mounting concerns about the federal budget deficit, however, and congressional demands for military budget reductions. He recommended continued funding for the A-12, but at reduced levels. The planned purchase of 858 aircraft with a maximum production rate of forty-eight per year would be reduced to 620 aircraft with a maximum production rate of thirty-six per year. This had a significant impact on the per-unit cost of the planes. 24
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Weeks after testifying to Congress, the Secretary became aware of problems containing costs in the Program and maintaining the schedule. He was troubled because his report only weeks earlier had not reflected these concerns. He had testified in glowing terms about the aircraft and the contributions that it would make to the Fleet. The Defense Secretary was embarrassed and annoyed that he had to return with a different assessment for the Committee so soon. He had to report that the Program was seriously behind schedule and the projected cost of completion exceeded earlier estimates. The Secretary met with the contractors during the Summer of 1990 to address his concerns. He reiterated to the contractors his belief that the A-12 was a high-priority Navy program, however. Two reports published in November 1990 had an impact on the A-12 Program. Both were critical of the Pentagon's part in the Major Aircraft Review. The Beach Report criticized the Navy's finding that the contract could be completed within its ceiling price, concluding that the program manager should have anticipated the extent of schedule risk. It criticized other Navy officials close to the Program as well. The other report, from the Department of Defense Inspector General, found that the Major Aircraft Review had not been conducted properly and otherwise was handled poorly.25 The Secretary of Defense signaled in December 1990 that he no longer supported continuation of the A-12 Program. He wrote a classified memorandum to the President expressing his disappointment in the A-12 Program, the Navy's handling of production, and the Major Aircraft Review. He stated that he would take corrective action promptly. The Under Secretary of Defense for Acquisition resigned.

The Secretary of Defense stated during his pre-trial deposition, "[t]he [Inspector General] has generally done good work for the Department of Defense. I don't always agree with them, but sometimes they produce good results. In this particular case, they recommended termination for default, which is what I ultimately did." DOD counsel advised that the quoted excerpt from the deposition should read, "[i]n this particular case, we recommended termination for default which is what we ultimately did." (emphasis added). Government counsel presented the Secretary an errata sheet before trial. The Defense Secretary agreed that counsel's suggestions of error reflected more accurately what he believed occurred. If so, the decision presented by Admiral Morris on January 7, 1991 may have been removed yet another level, to the Inspector General's office. The Inspector General did not testify; his or her name did not arise during trial. The errata sheet was provided to plaintiffs' counsel and the court the morning of the Defense Secretary's trial testimony.

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Citing "serious shortcomings" in the A-12 Program, the Secretary directed his Deputy to evaluate the A-12 and report back in ten days. OSD instructed the Navy to "show cause" by January 4, 1991, why the Defense Department should not cancel the Program. The show cause letter stated: The A-12 Program is in serious trouble. The apparent schedule slippage, cost growth, and management deficiencies in this Program are intolerable. If we cannot spend the taxpayers' money wisely, we will not spend it. Accordingly, I direct you to sh