Lockheed Martin v. US Air Force: Analyzing a Contract Dispute

The contract dispute between Lockheed Martin Aeronautics Company and the Air Force revolves around the costs associated with repairs for specific aircraft and their cumulative impacts. This dispute stems from Contract No. FA8625-07-C-6471, which mandated Lockheed Martin to upgrade 49 C-5 Galaxy aircraft owned by the government.

Cross-Motions for Summary Judgment: Arguments and Counterarguments

Lockheed Martin intends to recover costs for "over and above" (O&A) repairs and relies on the "measured mile" legal theory to support its claim. The company is seeking an additional $143,529,290 in compensation, citing 428,482 extra production hours resulting from excessive O&A work that disrupted the fixed-price RERP effort.

To restrict claims based on the government's funding additions, Lockheed Martin classifies certain contract modifications as limitations to release claims. In response, the government refutes Lockheed Martin's eligibility for further compensation, asserting that all claims have been released through bilateral contract modifications. The government also contests the validity of Lockheed Martin's reliance on the "measured mile" approach.

Both parties have filed cross-motions for summary judgment. The government seeks summary judgment, arguing that Lockheed Martin released the claims in all three counts. Conversely, Lockheed Martin's cross-motion argues that Mod. P00301 does not bar their claims, and no other contract modifications have released them either.

It is the duty of the Board to determine whether there is a genuine issue for trial, without weighing the evidence provided.

Contract Modifications and the Framework of the Dispute

In the course of the contract dispute there have been several contract modifications. Understanding these contract modifications and the rights, obligations, and adjustments that both Lockheed Martin and the government have agreed upon is critical to establishing a clear framework for the contract dispute.

• Modification P00182 changed the payment basis for O&A work from time-and-materials (T&M) to cost-plus-fixed-fee (CPFF).
  • Modification P00182 also amends the contract to incorporate the revised special contract requirement H106 Clause “Rapid Repair and Response,” which requires Lockheed Martin to perform "Rapid Repair and Response" (R3) work for the aircraft under other Contract Line Item Numbers (CLINs).
  • H106 allows for an equitable adjustment in the event of increased costs or time required for performance.
• Contract Modification No. P00178 contains a release of claims by Lockheed Martin, which states that the Supplemental Agreement constitutes a full and equitable adjustment between the government and the contractor.
• Mod. P00301 called for a government "On-Site Representative" (OSR) and a "Government Advisory Team" (GAT). 

Steven Pilcher, the C-5 Contracts Administrator for Lockheed Martin, was directly involved in negotiating and reviewing various contract modifications. He clarifies that he interpreted the release in these modifications as a standard government release, without releasing any of Lockheed Martin's rights regarding the impacts of O&A work.

Lockheed Martin's Claim: Excessive O&A Work Changes and Restrictive Flight Acceptance Criteria

In October 2018, Lockheed Martin filed a certified claim, citing "excessive O&A work changes" as the basis for a constructive change in their contract. Additionally, the claim alleges that the government imposed overly restrictive flight acceptance criteria. 

Lockheed Martin relies on a particular type of analysis known as the "measured-mile analysis" to substantiate their claim. The measured-mile approach involves comparing the costs of performing work under normal conditions (the "measured mile") with the costs incurred during the period of disruption. By calculating the difference between these two sets of costs, Lockheed Martin aims to establish the extent of the damages suffered as a result of the claimed constructive change.

However, the government disputes the suitability of Lockheed Martin's measured-mile analysis, arguing that it fails to provide the actual costs associated with the disruption. They contend that the approach utilized by Lockheed Martin does not offer a truly accurate representation of the financial impact of the claimed changes. 

The Board overseeing the dispute has previously acknowledged and accepted the measured-mile approach as a recognized and legitimate method for calculating damages.

Counts I & II: Disruptive Impact

The government asserts that Lockheed Martin lacks sufficient evidence to support its claims for an equitable adjustment regarding the "disruption - constructive changes" and "overzealous inspection" mentioned in Counts I and II of its complaint.

According to the government, the contract does not impose any restrictions on the number of Mandatory Deficiency Reports (MDRs) it can demand for Lots 3-5. Additionally, the government argues that Lockheed Martin failed to give timely notice of any impact claims within the required 90-day period after the completion of each MDR.

In response, Lockheed Martin counters that the H106 clause in the contract explicitly acknowledges that extra-contractual work, such as O&A (Over & Above) work, entitles the contractor to damages for disruptive impact. Furthermore, Lockheed Martin asserts that it provided the government with multiple notifications regarding the disruption it was experiencing.

However, the government disputes Lockheed Martin's ability to substantiate claims of "disruptive impact" and "direct costs." It argues that the contract mandates Lockheed Martin to meticulously document its actual costs. Conversely, Lockheed Martin claims that both the Board and courts have recognized that contractors are not obligated to trace each disruptive impact in the exact manner insisted upon by the Air Force.

Lockheed Martin maintains that it only needs to demonstrate that certain damages were a result of government actions. The company argues that deposition assertions of generalized disruption should be sufficient to survive a summary judgment.

Ultimately, the Board concurs with Lockheed Martin and determines that there are significant factual disputes that warrant a trial, thereby preventing summary judgment in favor of the government. This decision implies that the issues raised by Lockheed Martin merit further examination and resolution.

Count III: Good Faith and Fair Dealing

Lockheed Martin's complaint asserts that the implied duty of good faith and fair dealing has been violated by the government. This duty is breached when one party hinders the other's performance or undermines reasonable expectations. It also includes the obligation to cooperate.

The government argues that the Board lacks jurisdiction over Count III, stating that Lockheed Martin did not provide enough detail regarding the government's actions that breached the duty. Additionally, the government claims that Count III is precluded by law. However, the Board disagrees with the government's argument and asserts its jurisdiction over Count III. It acknowledges that Lockheed Martin has provided sufficient information about the alleged breach.

To support its position and favor summary judgment, the government relies on the Federal Circuit's decision in BGT Holdings LLC v. United States. The government contends that Count III should be dismissed because it is based on the same facts and seeks the same amount as Counts I and II, citing BGT Holdings as justification.

However, the Board disagrees with the government's interpretation of BGT Holdings, asserting that it does not strengthen the government's argument. Furthermore, the Board finds that the government has failed to demonstrate its entitlement to judgment on Count III.

Cumulative Impact Claim

Lockheed Martin's "cumulative impact" claim revolves around bilateral contract modification P00301, mentioned above. The government argues that the release included in this modification prevents Lockheed Martin from pursuing its claim, while Lockheed Martin argues that the release only applies to claims related to the specific changes made in the modification.

Lockheed Martin supports its position by stating that the release in Mod. P00301 is explicitly limited to claims arising from the changes introduced by that modification alone. Furthermore, Lockheed Martin cites precedent that establishes that the government cannot later claim that the release bars the contractor's claims if the government considers the claim after the release. Lockheed Martin also presents extrinsic evidence to support the notion that the parties never intended for the release to be interpreted in the way the government currently argues.

The Board aligns with Lockheed Martin's interpretation, finding the release in Mod. P00301 to be unambiguous and that it does not prohibit Lockheed Martin from asserting its claims. The Board determines that the government's interpretation is not consistent with the decision in the Bell BCI Co. v. United States case, and that their reliance on this case is misplaced. 

In light of these considerations, the Board aligns with Lockheed Martin's interpretation, finding that the release in Mod. P00301 is limited to the changes made by that modification and that it does not prohibit Lockheed Martin from asserting its claims. The Board determines that the government's interpretation is not consistent with the decision in the Bell BCI Co. v. United States case, and that their reliance on this case is misplaced. Consequently, the Board determines that the claims central to the appeal are not barred by the release in Mod. P00301.

Board's Decision Regarding Contract Modification and Released Claims

In its second cross-motion for summary judgment, Lockheed Martin argues that none of the other contract modifications released its claims. They contend that the release language in multiple other modifications is not applicable to the changes made and therefore does not prevent them from pursuing their claims. Lockheed Martin also points to the fact that the government continues to consider their claims, implying that the release was not meant to bar them.

Furthermore, Lockheed Martin asserts that the doctrine of contra proferentem should apply in cases where there is ambiguity in the release language, suggesting that any uncertainty should be interpreted in their favor.

However, the government disagrees and argues that Modification P00178 released Lockheed Martin's claims. Nevertheless, the Board finds the government's argument lacking clarity and rejects its three arguments pertaining to Modification P00178 on the grounds that they lack support or fail to persuade.

Consequently, the Board concurs with Lockheed Martin's interpretation and grants their second motion for summary judgment, concluding that no contract modification released their claims.

Conclusion

Lockheed Martin emerged with a favorable ruling in its contract dispute with the Air Force, as the Board denied the government's motion for summary judgment and granted Lockheed Martin's two cross-motions for summary judgment. This outcome is backed by the support of three administrative judges who concur with the decision. Additionally, the Board validates Lockheed Martin's motion to compel discovery.

Read more about the Contract Disputes Act.