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Tuesday, January 25, 2011

Guest Blogger Neil O'Donnell on General Dynamics and Boeing, Part I

Podonnell The Supreme Court argument in the General Dynamics case was a little surreal for someone who has spent a career practicing government contract law.  Very early on Justice Breyer referred to the appellants as "sophisticated contractors … perfectly capable of negotiating their own contract," and suggested that if the Court provided the contractors a remedy when the Government invoked the state secrets privilege "we are not just throwing a monkey wrench into the gears of government contracting, we're throwing the whole monkey."   In his argument Acting Solicitor General Katyal (pictured below, right) returned repeatedly to the idea that these sophisticated  contractors could have written a contract provision providing the remedy that they now seek, namely that a termination for default would be converted into a termination for convenience if the Government invoked the state secrets doctrine in response to a contractor challenge.  And several of the Justices engaged him in discussions that seemed to accept that the parties' negotiation of the contract was a matter of importance.

Katyal It is certainly true that the contractors here, General Dynamics and McDonnell Douglas, since purchased by Boeing, were sophisticated and experienced government contractors.  But for that reason they understood what for the most part the Justices and even those arguing the case did not seem to.  A government contract is in most respects a classic contract of adhesion, about as negotiated as the policy that we all get from our insurance companies.  The government has standard mandatory clauses, set out in the Federal Acquisition Regulation ("FAR"), for virtually any aspect of any type of contract.  Particularly where, as here, the underlying contract award is made competitively, there simply is not any negotiation of the terms of the contract.  The Government dictates the contract terms to which any competing party must bid. 

General Katyal claimed that the contractors could have written into the contract that "if the government invoked the state secrets privilege, it would automatically terminate the contract's default and convert it to – the default termination into a termination for convenience.”  But the A-12 contract contained, as it had to by regulation, a standard default clause set out in  FAR 52.249.  The contractors, General Dynamics and McDonnell Douglas, as well as the unsuccessful competing team, understood when they submitted their competitive offers for this contract that any attempt to condition their proposals on changing that or any of the other mandated government contract provisions would have made their offers non-responsive and subject to rejection.  Negotiating a standard terminations clause is simply not the way that government contracts work, no matter how sophisticated the contractor.

Justice Roberts’ questions came closest to this fundamental point.  He asked the Acting Solicitor General whether he thought that the government would accept a provision requiring an automatic conversion to a termination for convenience if the government invoked the state secrets privilege when a contractor challenged its termination for default.  General Katyal conceded that such a provision would be "very unusual."  When pressed by the Chief Justice as to how contractors were supposed to protect themselves from the effect of the state-secret privilege if the provision Katyal had suggested would solve the problem would not be accepted, Katyal replied "Well – well, I think there are other ways."  But he never was specific as to what they might be, in my view for good reason.

[Part II will come tomorrow; related posts listed below]

General introduction to the Roundtable

Professor Laura Donohue's comments

Some footnotes to Laura Donohue's comments

Links to additional comments on the case

[posted on Neil O'Donnell's behalf, by JT]

http://lawprofessors.typepad.com/contractsprof_blog/2011/01/guest-blogger-neil-odonnell-on-general-dynamics-and-boeing.html

Commentary, Government Contracting, Recent Cases | Permalink

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