General Dynamics Corp. v. United States

• Decision Date: 18 October 1978
• Docket Number: No. 267-70.,267-70.
• Parties: GENERAL DYNAMICS CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

585 F.2d 457

GENERAL DYNAMICS CORPORATION v. The UNITED STATES.

No. 267-70.

United States Court of Claims.

October 18, 1978.

Harvey G. Sherzer, Washington, D.C., for plaintiff. Gilbert A. Cuneo, Washington, D.C., attorney of record. Sellers, Conner & Cuneo, David V. Anthony and Pettit, Evers & Martin, Washington, D.C., of counsel.

Frances L. Nunn, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant. Morris Amchan, Dept. of Navy, Washington, D.C., of counsel.

Before FRIEDMAN, Chief Judge, and DAVIS, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges, en banc.

ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

NICHOLS, Judge:

This breach of contract and Wunderlich Act case is before the court on plaintiff's request, pursuant to Rule 54(b)(3), for review of Trial Judge C. Murray Bernhardt's recommended decision and conclusion of law. Plaintiff seeks to recover certain additional costs incurred by reason of alleged constructive changes of its contracts to build nuclear submarines for the Navy. The Armed Services Board of Contract Appeals, in a decision dated May 17, 1973, ASBCA No. 13885, 73-2 BCA ¶ 10,160, held that these costs are not recoverable. In his recommended decision of May 23, 1977, the trial judge sustained the board. We agree with the conclusion reached by the trial judge, but modify and expand his analysis in order to show we have considered and do not agree with the contentions made by plaintiff concerning the liability of the government to absorb the costs at issue.

Three contracts are involved in this case. The first NObs-4355, was awarded to the Electric Boat Division of General Dynamics, on June 14, 1960, for the construction of three nuclear-powered attack submarines designated SSN 613, 614, and 615. The submarines were to be constructed at plaintiff's Groton, Connecticut shipyard, for a contract price of $59,862,606. The SSN 613 is not in dispute here.

The other two contracts were originally awarded to the Bethlehem Steel Company for the construction of nuclear submarines at Bethlehem's Quincy, Massachusetts shipyard. Contract NObs-4509 was awarded on November 30, 1961, for construction of the SSN 638. The contract price was $28,456,000. On August 22, 1962, contract NObs-4583 was awarded for the construction of the SSN 649. The contract price was $33,500,000. Neither of these contracts was awarded on the basis of competitive prices as Bethlehem had not been the low bidder. The Navy recognized that even with generous price allowances for Bethlehem's non-competitiveness, the contracts were losing propositions for the company. The awards were made in the interest of the national defense, as a means of preserving the Quincy yard for the construction of nuclear submarines.

Shortly after these contracts were awarded to Bethlehem, that company decided to sell the plant, by then a losing enterprise. On December 31, 1963, plaintiff purchased the Quincy shipyard for $5,000,000. The sale was considered to be mutually beneficial. Plaintiff's motivations for the purchase were mixed: in part to help the Navy and itself by providing additional facilities for performance under the Groton and Quincy contracts, and in perhaps greater part to enhance its own chances of participation in a prospectively ambitious program for building nuclear surface ships, a program which never materialized. For its part, Bethlehem was happy to be extricated from the submarine contracts with their promised heavy losses. Bethlehem had never build a submarine. General Dynamics had been producing them for many years. As part of the sale Bethlehem assigned its rights and interest in contracts NObs-4509 and NObs-4583 to plaintiff. On December 31, 1963, a tripartite novation agreement was executed by plaintiff, Bethlehem, and the United States, the Navy agreeing to the assignment of the contracts. At the time of the assignment some preliminary work had been done on the SSN 638 then scheduled for delivery on May 30, 1966; no work had yet started on the SSN 649, which was to be delivered by December 26, 1966.

The Groton contracts (SSN 614, 615) and the Quincy contract NObs-4509 (SSN 638) were awarded as Class 593 submarines. The other Quincy contract was a Class 637 submarine. Later the first three were redesignated Class 637. In April 1963 the U.S.S. Thresher, a Class 593 submarine, was lost at sea with its entire crew. Immediate naval inquiry into the possible causes of the catastrophe prompted accelerated comprehensive safety changes in specifications for all four submarines, as well as for several others in progress at Groton. The initial format of these changes to the contract specifications was issued in December 1963 after months of conferences, and thereafter remained in flux over many months of further revision. One factor underlying the extensive changes, known as the "subsafe" program, was the inability of the Navy to pinpoint with precision the actual cause of the sinking. Of course, as the board states, the design of complex submarines such as those constructed by plaintiff normally undergoes change as construction progresses and superior solutions are developed to continuing problems.

In December of 1963, when plaintiff was acquiring the Quincy facility, and the subsafe initial format was issued, plaintiff was about halfway through completion of the SSN 614 and 615 at Groton. In April 1964 plaintiff, with the approval of the Navy, towed the SSN 614 and 615 from Groton to Quincy for completion. Both yards were concurrently busy with numerous government marine construction contracts for other vessels. As well, the subsafe changes, one of which called for the lengthening of the submarine hulls, caused disruptions in schedules, creating conflicts in availability of the facilities at Groton. A major obstacle was the unavailability of the graving dock at Groton for immediate construction. To relieve the congestion at Groton, plaintiff suggested to the Navy that the SSN 614 and 615 be transferred to Quincy to make possible earlier delivery of the submarines. The transfer also provided a safer environment for construction that was available at the overcrowded Groton facility. Plaintiff also indicated that the ships would have a high priority at Quincy, and that substantial economic benefits would accrue to all concerned. In reaching this conclusion, plaintiff believed it would be able to take advantage of a rollover of skilled Quincy installation employees from SSN 614 and 615 to the next ships, the SSN 638 and 649 originally contracted to Bethlehem. At the time the transfer was contemplated, the estimated times for completion operated to provide a meshing of the contracts which would enable a convenient rollover. The Navy consented to the move, principally reasoning that the immediate availability of a graving dock at Quincy, where the SSN 614 and 615 would not be subordinate to other contracts, would make possible an earlier delivery date. Having determined that a transfer would in no way harm the government's interest, Navy officials actually stated that under the circumstances "to deny the company opportunity to use its own facility * * * would appear to be a capricious action."

Because of the continuing modifications to the submarine designs the final delivery date on all the submarines was postponed more than once. For example, in 1963 plaintiff forecasted a nine month delay in the delivery dates for the SSN 614, 615, which had originally been scheduled for completion by February 9 and June 9, 1965, respectively. Numerous problems were encountered in construction, among these radiographic test problems, torpedo alignment corrections, and problems with construction welds. In June 1964 plaintiff was predicting a 17 month delay. Actual delivery of the SSN 614 did not occur until November 16, 1965. The SSN 615 was not delivered until January 25, 1968. The Board found that the delay was contributed to by many factors, including a constant parade of changes. Another problem was the lack of adequate skilled labor and supervisory personnel at Quincy. Plaintiff had rehired many of the Bethlehem employees, who were unskilled in submarine construction, at lower wages than Bethlehem had paid. The combination of the inexperienced labor, with numerous changes to an already complex design, resulted in many errors and the need for much rework. The rate of progress in building the SSN 614 and 615 was consequently much slower than was predicted when the transfer was effected, so that plaintiff was unable to take advantage of a rollover of the by then experienced labor from the earlier contracts to construct the submarines under the Bethlehem contracts.

Plaintiff seeks recovery from the government of what it terms the "impact" losses suffered by reason of plaintiff's inability to put into effect its rollover plan. In essence, plaintiff claims that it suffered losses, found by the board, without present dispute, to total $12,282,523, about half the total amount originally claimed by plaintiff, allegedly brought about by the government's interference with and disruption of plaintiff's "rollover" plan of sequential crew deployment to produce all four submarines as economically as possible. Unable to achieve a timely rollover of SSN 614 and 615 craftsmen to the SSN 638 and 649, plaintiff was forced to rely on "green labor" to construct the latter ships, greatly increasing costs and substantially delaying construction. Plaintiff submits that the facts of this case lend themselves to two alternate theories of recovery. One is that the numerous change orders issued by the government were so voluminous and massive as to constitute a breach of contract under the cardinal change doctrine. Under this theory, plaintiff argues it is entitled to full breach damages, which would include recovery of these losses as consequential damages. Plaintiff's...