Supreme Court Hears Arguments in $2 Billion Contract Dispute

This morning the Supreme Court heard arguments in a testy dispute between defense contractors and the U.S. government. In the late 1980s the government signed a contract with General Dynamics and Boeing to design a stealth aircraft for the Navy, but after several missed deadlines, the government cancelled the contract. That much is uncontested.

General Dynamics said that the government’s demands on them were impossible and that the government withheld information it already had about stealth technology, forcing the contractors to reinvent much more than they had expected.

The case became more interesting when, after General Dynamics sued, the government refused to turn over documents relating to the stealth technology, claiming they were state secrets. General Dynamics has argued that the government’s refusal prevents General Dynamics from defending itself against the government’s claim that the contract was violated.

In the Supreme Court today, the lawyer for General Dynamics argued that it was unfair for the government to hold General Dynamics responsible for violating the contract and then refuse to let them defend themselves.

The government’s lawyer countered that General Dynamics knew the law when it signed the contract, so fairness is irrelevant.

Complicating matters is federal law that states that when a contract is voided because of a default by one of the parties, the defaulting party must repay any money it has already collected on the contract. In this case, that means General Dynamics must pay the government the $1.35 billion it had already collected.

General Dynamics, arguing the government cancelled the contract because it simply no longer wanted the planes, is asking the Supreme Court to say that the contract was cancelled “for convenience,” in which case the government would have to pay General Dynamics an additional $1.2 billion for costs incurred during the aircraft design.

Several Justices, including most loudly Justice Antonin Scalia, tried to find a middle ground where General Dynamics could keep the money it had already received but would receive no more. Neither party seemed willing to compromise, though, and both argued that there were only two options, and both involved a further exchange of money.

It was clear that a majority of the Justices thought that it was impossible to know which party was in the right, due to the government’s refusal to show key evidence. The Supreme Court, therefore, must decide the most fair way to allocate the money.

The case is General Dynamics v. US, and it will likely be decided in the late spring.