The Secretary of the Navy's Proposal To Use Public Law 85-804 To Modify the LHA and DD-963 Ship Construction Contracts with Ingalls Shipbuilding Division of Litton Systems, Inc.

The Navy Department proposed action to provide financial relief to a company under two shop construction contracts. The proposed actions are within the authority conferred by Public Law 85-804. The settlement negotiated with the company is apparently necessary to facilitate the national defense and to relieve uncertainties and cash flow demand that jeopardize the financial position of the company. The proposal followed claims by the company for price increases based on design changes and various attempts to settle the claims. The increased costs which resulted in the claims resulted partly from Navy actions and partly from the contractor's overly optimistic estimates. The proposed action would increase the ceiling for the contracts by $447 million, and in exchange, the contractor would agree, among other things: to accept an anticipated loss of approximately $200 million; that no portion of the total $133 million booked as Manufacturing Process Development costs will be invoiced against the contracts; and to release the Navy, with the exception of one minor subcontract claim, from all current claims and actions in conection with the two contracts. Among alternatives to the settlement under Public Law 85-804 are termination for default, continued litigation before the Armed Services Board of Contract Appeals, and negotiated settlement without Public Law 85-804 relief. The Navy believes that the only viable option is the negotiated settlement with extraordinary contractual relief under Public Law 85-804.