Friday, April 3, 2009

TSSAM Settled, Is A-12 Next?

TSSAM Settled, Is A-12 Next?: "The long-running legal saga over the Pentagon’s cancellation of the TSSAM stealthy cruise missile is over. Could it pre-sage a settlement for the A-12?

Northrop Grumman has announced the end to two cases between it and the government over the Tri-Service Standoff Attack Missile, which the Pentagon announced Dec. 9, 1994 would be cancelled. Northrop began the development program in1986 under a fixed-price, incentive fee contract.

The decision was part of a slew of program adjustments the Clinton Administration made on that day, including restructuring the RAH-66 Comanche helicopter, which has since been cancelled as well, and a decision to reduce F-22 and V-22 procurement. The cuts, the Pentagon promised, would save $7.7 billion. The TSSAM cancellation alone was promised to yield $2.1 billion in savings.

The docket over the TSSAM court case is voluminous. Due to the classified aspects of the stealthy missile, lawyers at one point argued the case could be bigger and more complex than the one over the Defense Dept.’s 1991 decision to cancel the U.S. Navy’s A-12 Avenger II stealthy attack aircraft program.

In the end, the TSSAM settlement is somewhat anti-climatic. Northrop Grumman wins one round, and loses another. The awards cancel each other out.

Northrop Grumman claimed that the cancellation for convenience by the government meant it was owed more money. The Justice Dept. determined that was the case, awarding Northrop Grumman $325 million. However, the Justice Dept. also upheld the government’s claim concerning problems with microelectronic parts from missile supplier TRW, which has since become part of Northrop Grumman, also to the tune of $325 million.

Northrop’s earnings will actually show a positive outcome from the case, since it took a provision in 2006 for the microelectronics claim. Although the outcome may be financially positive for Northrop, TSSAM also effectively drove the company out of the standoff missile business and the Perry, Georgia, facility where TSSAM was to be built was closed.

blog post photo

TSSAM was initially supposed to be a missile for the U.S. Air Force and Navy for air-launched applications (the AGM-173A), and Army for ground-launched applications (the MGM-137B). There would actually be four versions, two for precision attack and two to dispense submunitions. At one point, production was planned to reach 6,650 missiles. There were even plans to see if the U.K. would buy into the program.

The Army was the first to jump-ship, followed by the Navy. The Air Force, which led the program, remained with the TSSAM until the bitter end.The development and production program was estimated at $14.5 billion at the time.

The Navy, to fill the capability gap, eventually opted for the Boeing Standoff Land-Attack Cruise Missile - Expanded Response. The Air Force launched the Joint Air-to-Surface Standoff Missile program. When the Lockheed Martin missile started encountering development problems and cost growth, there was concern it could become another TSSAM in the making; in that case, however, the Air Force managed to see the program through into production.

The TSSAM case and A-12 situation are far from identical, but there are parallels. TSSAM was cancelled for convenience, not for cause as happened with the A-12. Although it was never said so explicitly, it was the legal battle over the A-12 that convinced the government to cancel TSSAM for convenience, not for cause. At cancellation, the missile's unit costs had ballooned to over $2 million per copy from a target of around $720,000.

There have been on-again, off-again talks between the Pentagon and Boeing and General Dynamics, the industrial partners legally responsible now for the A-12, to settled the case that stems from the 1991 cancellation of the program under then-Defense Secretary Dick Cheney. He asked for the program to be killed for cause after finding the program was behind schedule and over cost. But the contractor team (General Dynamics and McDonnell Douglas, now a part of Boeing) insisted the program was canceled for ‘convenience,’ entitling them to termination fees.

There are major financial issues at stake. If the court sides with the government, the industry team could be forced to pay more than $2.7 billion.

Boeing, in a recent annual filing with the Securities and Exchange Commission, says that it is on the hook for more than $1.6 billion. That includes half of $1.35 billion in progress payments and half of $1.4 billion in interest, as well as another $275 million Boeing would write down in inventory costs. General Dynamics has put its total at risk at around $1.4 billion.

But if the court sides with the contractors, Boeing says it stands to receive $1.1 billion, which includes interest.

The legal battle has been waging for some time, now. The latest round in the appeal was argued in December. The first ruling in the case came in 2001, when the court sided with the government’s default termination. But that outcome was set aside in 2003 by the U.S. Court of Appeals for the Federal Circuit because of apparent mistakes made by the lower court.

On May 3, 2007, the lower court again ruled in favor of the government, with the contractors filing their renewed appeal the next day.

At times it seemed the high dollar amounts involved and the complexity of the deal would mean a government-industry agreement would be out of reach, but perhaps TSSAM indicates that’s not the case.

[Picture: Pentagon]


(Via Ares.)

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