Two firms move to block defense repayment actions

The Boeing Co. and General Dynamics Corp. both filed motions Dec. 3 with the U.S. Court of Claims to block a Pentagon move to withhold payments totaling $2.3 billion to the two companies on current government contracts.

The companies' actions come the day after the Defense Department announced that Comptroller Dov Zakheim instructed the Defense Finance and Accounting Office to begin offsetting payments due on existing contracts against the disputed $2.3 billion.

The money in dispute arises from the 1991 termination of the A-12 stealth attack aircraft contract. The project was canceled after years of costly development without the plane ever reaching the production stage.

General Dynamics and McDonnell Douglas Corp., which was later bought by Boeing, have been entangled in legal wrangling with the Defense Department ever since.

"This is an 11-year-old case, and books literally have been written about it," said Boeing spokesman John Dern. "Boeing feels like it has a very strong legal case, and any collection action contemplated by the government is unwarranted and unjustified. We've got a date in the Court of Appeals for arguments Jan. 9, the next significant legal twist [in this story]."

Dern said Boeing does not know when the judge in the case might rule on the request for a stay, or whether the Defense Department would file a response to the request. A Pentagon spokesman did not return phone calls seeking comment.

According to the Pentagon news release, the move to withhold payments on other government contracts was not without warning.

In August, the Navy issued a demand letter to the two companies seeking repayment as a result of the termination for default of the A-12 development and production contract. The letter informed the companies that if they failed to pay the amount owed, the government would initiate collection of the debt.

The departments of Defense and Justice continued settlement negotiations with the companies, so no action was taken to collect the money between August and November. Zakheim's decision to begin the collection process came after the government concluded that "it now appears that an equitable settlement will not be reached in the near term," according to the press release.

Spokesmen at both companies did not know which defense contracts the department might be targeting for withholding of payments. General Dynamics said it believes the Defense Department is looking to deduct $66 million per month from payments to each company, for the next 18 months.

"What is important to know is what we've said all along: We're a $14 billion company. We believe in the merits of our case, first of all, but we have sufficient resources to handle this should we not prevail," said General Dynamics spokeswoman Norine Lyons.

Chicago-based Boeing employs more than 171,000 people, and is projecting revenue of approximately $54 billion in 2002. General Dynamics, headquartered in Falls Church, Va., employs about 54,000 people and anticipates 2002 revenue of $14 billion.

Boeing's shares closed Dec. 4 at $33.93, down 31 cents. General Dynamics' shares rose 89 cents to $82.89.

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