Case Studies: Government Contracts

McDonnell Douglas Recovered More Than $200 Million From Federal Government Over U.S. Navy Contract Dispute

Summary
McDonnell Douglas Corporation (McDonnell Douglas) was contracted by the U.S. Navy to engineer and develop a carrier-based trainer aircraft. As the project evolved, the Navy ordered several changes to the contracted design, resulting in excess costs. McDonnell Douglas sought to recover these costs and filed a claim with the Navy which was rejected. Consequently, McDonnell Douglas appealed the Navy’s decision to the Armed Services Board of Contract Appeals.

Kenrich professionals were retained by McDonnell Douglas to determine the causes of cost increases and provide an assessment of the economic damages resulting from the Navy’s changes. They also evaluated program performance and schedule delays, and their findings were used in determining the underlying reasons for the increases in contract costs and supporting McDonnell Douglas’ claim. Kenrich’s work led to a fair and equitable settlement for McDonnell Douglas, which received more than $200 million to cover the costs of Navy-directed modifications.

Background
McDonnell Douglas, one of the world’s leading aerospace and defense contractors and now a part of The Boeing Company, signed a full-scale engineering and development contract with the U.S. Navy to design, test, and manufacture the T-45A aircraft – a carrier-suitable version of the British Royal Air Force Hawk T1 jet trainer. As the project matured, the Navy ordered a series of modifications to the base contract design, resulting in significant project delays and cost increases for McDonnell Douglas. The contractor sought to recover these increased costs and filed a claim with the Navy, which the Navy rejected. McDonnell Douglas appealed the Navy’s decision before the Armed Services Board of Contract Appeals.

Solution
With extensive prior experience on federal government contracting and job cost recovery matters, Kenrich professionals were retained by counsel for McDonnell Douglas to assist with developing a detailed claim and its supporting materials. Kenrich personnel provided an in-depth analysis of company records to reconstruct job costs. They also thoroughly evaluated program performance activities to determine the durations and causes of delays to both the testing and manufacturing schedules. The relevant schedule delays were then used to calculate McDonnell Douglas’ increased costs due to extended overhead, prolonged test support, sustained engineering, and other activities impacted by the delays attributable to the Navy.

Result
In an agreement described as “fair and equitable” by McDonnell Douglas, further litigation was averted and a settlement was reached, with McDonnell Douglas recovering more than $200 million in costs. The expert analysis, and the communication of this analysis in an understandable and compelling way by Kenrich personnel, was critical in effecting the outcome of negotiations between McDonnell Douglas and the Navy.