National Defense:

A-12 Default Termination Issues

T-NSIAD-91-14: Published: Apr 9, 1991. Publicly Released: Apr 9, 1991.

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GAO discussed the termination of the Navy's A-12 aircraft development and procurement program, focusing on: (1) potential government liability; and (2) alternatives to the A-12 aircraft. GAO noted that: (1) the Navy demanded that the contractor reimburse it for $1.35 billion of the $2.69 billion it paid to the contractor for the full-scale development effort and design and management reviews; (2) government liability would increase substantially if the termination was for convenience instead of for default; (3) the Department of Defense granted a deferral to the contractor for repayment of its debt to the government, but did not provide GAO with information that supported its decision; (4) at the time of the review, the government had title to work-in-process, materials, tools, and similar items included in the unliquidated progress payment of $1.35 billion; (5) on December 31, 1990, the contractor filed a claim of $1.4 billion for equitable price adjustment, citing the Navy's failure to disclose vital information, delays and disruptions resulting from Navy conduct, the Navy's flawed acquisition strategy, and the commercial impossibility of performance; (6) subcontractors had no contractual rights against the government upon the termination of a prime contract; and (7) as a result of the termination, the Secretary of the Navy directed that alternative plans be developed to modernize Navy tactical aircraft.

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