[Congressional Record Volume 141, Number 53 (Wednesday, March 22, 1995)]
[House]
[Pages H3557-H3571]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


 CONTRACTUAL ACTIONS, CALENDAR YEAR 1994 TO FACILITATE NATIONAL DEFENSE

  The Clerk of the House of Representatives submits the following 
report for printing in the Congressional Record pursuant to section 
4(b) of Public Law 85-804:

                           Office of the Secretary of Defense,

                                   Washington, DC, March 14, 1995.
     Hon. Newt Gingrich,
     Speaker of the House of Representatives, Washington, DC.
       Dear Mr. Speaker: In compliance with Section 4(a) of Public 
     Law 85-804, enclosed is the calendar year (CY) 1994 report 
     entitled, ``Extraordinary Contractual Actions to Facilitate 
     the National Defense.''
       Section A, Department of Defense Summary, indicates that 45 
     contractual actions were approved and that 5 were 
     disapproved. Those approved include actions for which the 
     Government's liability is contingent and can not be 
     estimated.
       [[Page H3558]] Section B, Department Summary, presents 
     those actions which were submitted by affected Military 
     Departments/Agencies with an estimated or potential cost of 
     $50,000 or more. A list of contingent liability claims is 
     also included where applicable. The Defense Logistics Agency, 
     Ballistic Missile Defense Organization, Defense Information 
     Systems Agency, Defense Mapping Agency, and the Defense 
     Nuclear Agency reported no actions, while the Departments of 
     the Army, Navy, and Air Force, provided data regarding 
     actions that were either approved or denied.
           Sincerely,

                                                   D.O. Cooke,

                                                         Director,
                                    Administration and Management,
       Enclosure: As stated.


                         department of defense

 EXTRAORDINARY CONTRACTUAL ACTIONS TO FACILITATE THE NATIONAL DEFENSE 
                (Public Law 985-804), Calendar Year 1994


                                foreword

       On October 7, 1992, the Deputy Secretary of Defense 
     (DEPSECDEF) determined that the national defense will be 
     facilitated by the elimination of the requirement in existing 
     Department of Defense (DoD) contracts for the reporting and 
     recoupment of nonrecurring costs in connection with the sales 
     of military equipment. In accordance with that decision and 
     pursuant to the authority of Public Law 85-804, the DEPSECDEF 
     directed that DoD contracts heretofore entered into be 
     amended or modified to remove these requirements with respect 
     to sales on or after October 7, 1992, except as expressly 
     required by statute.
       In accordance with the DEPSECDEF's decision, on October 9, 
     1992, the Under Secretary of Defense for Acquisition directed 
     the Assistant Secretaries of the Army, Navy, and Air Force, 
     and the Directors of the Defense Agencies, to modify or amend 
     contracts that contain a clause that requires the reporting 
     or recoupment of nonrecurring costs in connection with sales 
     of defense articles or technology, through the addition of 
     the following clause.
       The requirement of a clause in this contract for the 
     contractor to report and to pay a nonrecurring cost 
     recoupment charge in connection with a sale of defense 
     articles or technology is deleted with respect to sales or 
     binding agreements to sell that are executed on or after 
     October 7, 1992, except for those sales for which an Act of 
     Congress (see section 21(e) of the Arms Export Control Act) 
     requires the recoupment of nonrecurring costs.
       This report reflects no costs with respect to the reporting 
     or recoupment of nonrecurring costs in connection with sales 
     of defense articles or technology, as none have been 
     identified for calendar year 1994.
      CONTRACTUAL ACTIONS TAKEN PURSUANT TO PUBLIC LAW 85-804 TO 
          FACILITATE THE NATIONAL DEFENSE, CALENDAR YEAR 1994

                Section A--Department of Defense Summary

           SUMMARY REPORT OF CONTRACTUAL ACTIONS TAKEN PURSUANT TO PUBLIC LAW 85-804 TO FACILITATE THE NATIONAL DEFENSE--JANUARY-DECEMBER 1994          
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Actions approved                                                    Actions denied                
  Department and   -------------------------------------------------------------------------------------------------------------------------------------
  type of action       Number             Amount requested                     Amount approved              Number                  Amount              
--------------------------------------------------------------------------------------------------------------------------------------------------------
      Department                                                                                                                                        
       of Defense,                                                                                                                                      
       total......           45                       16,016,149.00                       16,016,149.00            5                       18,459,908.00
                   -------------------------------------------------------------------------------------------------------------------------------------
Amendments without                                                                                                                                      
 consideration....            1                       16,016,149.00                       16,016,149.00            4                        3,459,908.00
Formalization of                                                                                                                                        
 informal                                                                                                                                               
 commitments......            0                                0.00                                0.00            1                       15,000,000.00
Contingent                                                                                                                                              
 liabilities......           44                                0.00                                0.00            0                                0.00
                   =====================================================================================================================================
      Army, total.            1                       16,016,149.00                    \1\16,016,149.00            0                                0.00
                   -------------------------------------------------------------------------------------------------------------------------------------
Amendments without                                                                                                                                      
 consideration....            1                       16,016,149.00                       16,016,149.00            0                                0.00
                   =====================================================================================================================================
Navy, total.......           41                                0.00                                0.00            5                       18,459,908.00
                   -------------------------------------------------------------------------------------------------------------------------------------
Amendments without                                                                                                                                      
 consideration....            0                                0.00                                0.00            4                     \2\3,459,908.00
Formalization of                                                                                                                                        
 informal                                                                                                                                               
 commitments......            0                                0.00                                0.00            1                    \3\15,000,000.00
Contengent                                                                                                                                              
 liabilities......           41                             \4\0.00                                0.00            0                                0.00
                   =====================================================================================================================================
      Air Force,                                                                                                                                        
       total......            3                                0.00                                0.00            0                                0.00
                   -------------------------------------------------------------------------------------------------------------------------------------
Contingent                                                                                                                                              
 liabilities......            3                             \4\0.00                                0.00            0                                0.00
                   =====================================================================================================================================
Defense Logistics                                                                                                                                       
 Agency, total....            0                                0.00                                0.00            0                                0.00
Ballistic Missile                                                                                                                                       
 Defense                                                                                                                                                
 Organization,                                                                                                                                          
 total............            0                                0.00                                0.00            0                                0.00
Defense                                                                                                                                                 
 Information                                                                                                                                            
 Systems Agency,                                                                                                                                        
 total............            0                                0.00                                0.00            0                                0.00
Defense Mapping                                                                                                                                         
 Agency, total....            0                                0.00                                0.00            0                                0.00
Defense Nuclear                                                                                                                                         
 Agency, total....            0                                0.00                                0.00            0                                0.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Libby Corporation requested extraordinary contractual relief under P.L. 85-804. The request for relief was approved for $16,016,149.                 
\2\Denials involved Delphi Painting & Decorating Company ($50,000); Farrell Lines, Incorporated ($87,200); Mech-Con Corporation ($2,076,082); and Truax 
  Engineering, Incorporated ($1,246,626).                                                                                                               
\3\Southwest Marine, Incorporated requested extraordinary contractual relief under P.L. 85-804. The request for relief was denied.                      
\4\The actual or estimated potential cost of the contingent liabilities cannot be predicted, but could entail millions of dollars.                      

                     Section B--Department Summary


                         department of the army

       Contractor: Libby Corporation.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $16,016,149.
       Service and activity: U.S. Army Aviation Troop Command 
     (ATCOM).
       Description of product or service: Tactical quiet generator 
     sets (TQG's).
       Background: Libby Corporation (Libby) submitted a request 
     for extraordinary contract relief under Public Law (P.L.) 85-
     804 requesting an amendment without consideration pursuant to 
     Federal Acquisition Regulation (FAR) 50.302-1. Libby asserted 
     that if it did not receive relief, it would not be able to 
     complete performance on U.S. Army Aviation Troop Command 
     (ATCOM) Contracts DAAK01-88-D-080 and DAAK01-88-D-082 for 
     tactical quiet generator sets (TQGs) which are essential to 
     the national defense.
       Justification: Libby was awarded two firm fixed priced 
     requirements contracts on August 30, 1988, for the production 
     of a new generation of tactical generators. Contract D080 
     called for the production of: 4,498-5KW, and 3,417-10KW TQGs. 
     Contract D082 called for the production of: 1,240-15KW, 
     1,261-30KW, and 2,436-60KW TQGs. A total of 12,852 TQG were 
     placed under contract. The contracts classified these TQGs as 
     Level III Nondevelopmental Items (NDI). No formal research 
     and development effort preceded the award of these contracts 
     because it was believed that contract performance would 
     require little more than the assembly/integration of existing 
     commercial components into generator sets, meeting military 
     requirements.
       Under the terms of the contracts, first article testing 
     (FAT) was set to start in February 1990, production release 
     was set for March 1991, and completion of deliveries was set 
     for May 1993 (Contract D080) and June 1993 (Contract D082). 
     Difficulties were encountered during the preproduction/FAT 
     phase of the contracts. In September 1991, Libby filed a 
     claim alleging Government delay, defective specifications, 
     Government superior knowledge, and impossibility of 
     performance. The contracting officer found
      that the Government did delay Libby during FAT and revised 
     the delivery schedule to start production in March 1993, 
     with completion by September 1995. While a new delivery 
     schedule was established, the other issues were not fully 
     resolved and a new contract amount was not definitized.
       In October 1993, Libby advised the contracting officer that 
     it could not complete production of the TQGs unless it 
     received an additional $46,000,000 beyond the $106,800,000 
     priced for the production of the two contracts. As of 
     October/November 1993, Libby had manufactured, and the Army 
     had accepted, 3,500 of the 12,852 TQGs under contract. 
     Libby's initial position was that these additional amounts 
     were due under the contract as a result of defective 
     specifications, Government superior knowledge, and 
     impossibility of performance.
       During October, November, and December 1993, a negotiation 
     team from ATCOM and the U.S. Army Materiel Command (AMC) 
     conducted a detailed evaluation of Libby's position. The 
     negotiation team reviewed the amount Libby claimed it needed 
     to complete performance of the contracts and evaluated 
     liability for the claimed amount. After intensive 
     negotiations, supported by DCAA, the parties agreed that 
     $32,047,879 was needed to complete performance of the two 
     contracts. However, of this amount, the Army 
     [[Page H3559]] was only legally liable for $16,031,748. The 
     remaining $16,016,149 reflected costs that could not be 
     attributed to the Government and, therefore, the Government 
     was not legally liable for this amount.
       On December 11, 1993, Libby submitted its formal request 
     for extraordinary contract relief to the contracting officer. 
     The Army Contract Adjustment Board (ACAB) heard the case on 
     December 22, 1993, and approved relief in the amount of 
     $16,016,149, subject to the execution of a Settlement 
     Agreement between Libby and the contracting officer which 
     reflected the understandings of the parties as to liability. 
     On February 23, 1994, a Settlement Agreement was executed.
       Applicant's contentions: Libby contended that it could not 
     complete performance of its contracts for $106,800,000. Libby 
     contended that it needed an additional $32,047,897 to 
     complete performance of the contracts. Of this amount, Libby 
     acknowledged that it was not legally entitled to $16,016,149. 
     Libby contended that if it did not receive this relief, it 
     would suffer a cash flow problem so severe that by December 
     1993/January 1994, it would have to terminate its operations 
     and, with that, stop performance of contracts essential to 
     the national defense. Libby cited FAR 50.302-1, Amendments 
     Without Consideration, as authority for relief.
       Decision: As of October 1993, Libby's TQGs contracts were 
     priced at $106,852,103. By October 1993, Libby had concluded 
     that it could not complete performance for that amount and 
     had submitted a claim to ATCOM for an additional $46,000,000. 
     Libby asserted that many of the difficulties it had incurred 
     during the early phases of the contracts entitled it to 
     additional compensation to perform the contracts. Libby 
     characterized those problems under various legal theories 
     like: Government caused delay, defective specifications, 
     Government's superior knowledge, and impossibility of 
     performance. Although the Army conceded that it had delayed 
     Libby's performance during FAT, because the contracts called 
     for the assembly and integration of existing commercial 
     components, the Army was not particularly receptive to 
     Libby's claim.
       During the period October to December 1993, Libby engaged 
     in negotiations which reached the conclusion that it would 
     take an additional $32,047,879 to complete performance of the 
     TQGs contracts. Of this amount, the Army agreed that it was 
     liable, under different contract principles, in the amount of 
     $16,031,748. Libby agreed that the Army was not responsible 
     for the additional $16,016,149 needed to complete the TQGs 
     contracts.
       Before the ACAB, Libby presented detailed financial 
     information which disclosed that without the additional 
     $16,016,149, its cash flow would not be sufficient to 
     continue performance past January 1994. This figure does not 
     include any amount for profit.
       FAR 50.302-1(a) provides that:
       When an actual or threatened loss under a defense contract, 
     however caused, will impair the productive ability of a 
     contractor whose continued performance on any defense 
     contract found to be essential to the national defense, the 
     contract may be amended without consideration, but only to 
     the extent necessary to avoid such impairment to the 
     contractor's productive ability.
       It was found to be essential to the Army and, therefore, 
     the national defense, that it receive the TQGs currently 
     being manufactured by Libby. The Chief of the Combat Support, 
     Combat Service Support & Common Systems Division, Office of 
     the Deputy Chief of Staff for Operations (DCSOPS), verified 
     the need in a memorandum dated December 22, 1993, subject: 
     ``Mission Criticality of Tactical Quiet Generators for the 
     U.S. Army.'' That memorandum detailed the impact on the Army 
     if action was not taken and Libby ceased production of the 
     TQGs. In particular, the following concerns were identified:
       (a) A large percentage of the 132,000 Army Military 
     Standard (MILSTD) generators currently in the inventory had 
     two problems impacting on readiness: one, many exceeded their 
     expected useful life of 17 years; and two, about one-third of 
     these generators operated on gasoline instead of multi-fuel. 
     The continued use of gasoline increases support costs and 
     represents a safety concern because of the volatility of 
     gasoline.
       (b) Many of the critical major components required to 
     maintain the readiness of the current fleet of generators 
     were no longer available in the supply system. The cost of 
     having to overhaul MILSTD generators was almost twice that of 
     buying comparable TQGs. Delays in fielding TQGs would result 
     in the expenditure of needed operation and maintenance funds 
     at nearly twice the amount of procurement costs.
       (c) New weapons systems that were being developed, tested, 
     and fielded depended on the timely fielding of the TQGs. If 
     the TQGs were not fielded as scheduled, these programs may 
     not have been fielded or may have incurred expensive 
     alternative costs.
       (d) Modern battlefield requirements had become more 
     sophisticated and had resulted in new needs that MILSTD 
     generators could not fulfill. Most notable was audible and 
     infrared signature suppression. TQGs provided an 80 percent 
     reduction over MILSTDS in both areas, significantly reducing 
     the vulnerability of soldiers to enemy attack. Improved 
     survivability is a high priority on the modern battlefield.
       The December 22, 1993, DCSOPS memorandum clearly 
     established the urgent need for the TQGs and the negative 
     impact on the national defense if the TQGs were not delivered 
     as soon as possible.
       Libby presented data, confirmed by ATCOM, which indicated 
     that the TQGs being manufactured met the Army's 
     specifications and would be able to meet the current delivery 
     schedule if Libby was provided the $16,016,149 requested 
     under P.L. 85-804.
       Conclusion: Under these circumstances, the Army Contract 
     Adjustment Board (ACAB) is of the belief that Libby's 
     continued performance of the TQGs contracts is essential to 
     the national defense. ACAB therefore granted Libby's 
     requested relief. This action will facilitate the national 
     defense. The contracting officer was authorized to amend the 
     TQGs contracts without consideration in the total amount of 
     $16,016,149, as memorialized in the Settlement between Libby 
     and the contracting officer, dated February 23, 1994.
                         department of the army

       Contingent Liabilities: None.
       Contractor: None.


                         department of the navy

       Contractor: Delphi Painting & Decorating Company.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $50,000.
       Service and activity: The Department of the Navy, Naval 
     Facilities Engineering Command.
       Description of product or service: Removal and disposal of 
     paint that potentially contains lead.
       Background: The subject action is an Amendment Without 
     Consideration under FAR Section 50.302-1. Delphi submitted a 
     request for extraordinary relief by letter dated December 21, 
     1992. Delphi based the request on contractor essentiality and 
     stated that they were entitled to compensation in the 
     approximate amount of $50,000. Within the Department of 
     Defense, P.L. 85-804 is implemented by the Federal 
     Acquisition Regulation (FAR). FAR Part 50, Extraordinary 
     Contractual Actions, Section 50.302, lists the type of 
     adjustments available for relief. The only potentially 
     applicable basis for adjustment in this case is contained 
     under paragraph 50.302-1, Amendments Without Consideration, 
     subparagraph (a). Subparagraph (a) allows Amendments Without 
     Consideration if an actual or threatened loss will impair the 
     productive ability of a contractor whose continued operations 
     as a source of supply is found to be essential to the 
     national defense. The essential nature of the work being 
     performed is the essence of this exception. Upon review of 
     the nature of the work involved in this contract (the removal 
     and disposal of paint that potentially contains lead), it has 
     been determined that this type of work is not uncommon and 
     can not be considered essential to the national defense. 
     Further, the suggestion that future contracts will have to be 
     awarded on a sole source basis is unfounded.
       Decision: In conclusion, the Contracting Officer 
     determined, that pursuant to FAR 50.101, the request must be 
     denied in its entirety.
       Contractor: Farrell Lines, Incorporated.
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $87,200.
       Service and activity: The Department of the Navy, Military 
     Sealift Command.
       Description of product or service: U.S. flag ocean and 
     intermodal transportation service.
       Background: The subject action is a request for a portion 
     of the amount which was the subject of a certified claim 
     under the Contract Disputes Act, which was previously denied 
     by the Contracting Officer. Because the basis of the present 
     claim involves some of the same facts as in the certified 
     claim, a brief discussion of those facts follows.
       The SMESA contract covered U.S. flag ocean and intermodal 
     transportation services, including combination U.S. flag and 
     foreign flag services, if all U.S. flag service was not 
     available to meet Government requirements between the United 
     States, as well as other parts of the world, and areas in the 
     Middle East. The purpose of the Contract was to support U.S. 
     Gulf War operations. The Contract was solicited and awarded 
     during August 1990, on a firm fixed price basis for a period 
     not to exceed one year. The effective date of the Contract 
     was August 23, 1990. Farrell offered a combination U.S. flag/
     foreign flag service between the U.S. East Coast (USEC) and 
     the Middle East (ME), including, but not limited to, service 
     to and from Damman. Farrell offered and provided U.S. flag 
     vessel service between the USEC and the Mediterranean, with 
     connecting foreign flag service to the ME.
       The connecting service offered and provided by Farrell 
     under the Contract involved the use of a slot charter with 
     Compagnie Maritime D'Affretement (CMA) which, in turn, had 
     entered into various time charters, including one with the 
     owners of the VILLE D'OMAN, Gebr. Peterson 
     Schiffahrtsgesellschaft Westertal GMBH & Co. (Owners). 
     Farrell commenced performance under the Contract in late 
     August/early September 1990.
       On January 11, 1991, the owners of the vessel VILLE D'OMAN, 
     asserting the threat of war and reports of floating mines in 
     the Persian Gulf, gave notice of their intent not to permit 
     the vessel to proceed to Damman and discharge its Department 
     of Defense (DoD) cargo. CMA, after several unsuccessful 
     attempts to convince the Owners and crew to proceed to Damman 
     to discharge the DoD cargo under the Contract, directed the 
     [[Page H3560]] VILLE D'OMAN on January 21, 1991, to discharge 
     its DoD cargo in an alternate port. Farrell subsequently 
     arranged for the replacement of the VILLE D'OMAN by another 
     CMA chartered vessel, the TITANA, which was engaged in the 
     European/Far East trade route, to deliver the DoD cargo to 
     Damman, in accordance with the Contract. The costs associated 
     with the diversion of VILLE D'OMAN and the use of the 
     replacement vessel, the TITANA, to deliver the cargo are at 
     issue.
       Farrell's certified claim and the contracting officer's 
     final decision: On July 10, 1992, Farrell submitted a 
     certified claim for $485,978 for reimbursement of 
     unanticipated costs (the $87,200 adjustment sought by Farrell 
     was originally part of this claim). Farrell sought recovery 
     of the additional expenses incurred in shipping the DoD cargo 
     to Damman under a clause in its SMESA contract, which 
     provided for reimbursement of unanticipated costs. Farrell 
     claimed that the Contracting Officer had suggested the clause 
     as a means by which Farrell could be reimbursed.
       In support of its claim, Farrell asserted that it had 
     considered trying to invoke the Liberties Clause. However, 
     Farrell alleged that it was discouraged from doing so by the 
     Contracting Officer. Farrell further alleged that the 
     Liberties Clause, if applicable, would have relieved Farrell 
     of the duty to ship the DoD cargo to Damman, based on the 
     VILLE D'OMAN's refusal to proceed there out of safety 
     concerns for the ship and its crew, and would have allowed it 
     an equitable adjustment for its services. Farrell further 
     asserted that it was discouraged from alternately imposing a 
     special surcharge increase to the SMESA rates to cover the 
     additional cost.
       The Contracting Officer's Final Decision denied Farrell's 
     claim, concluding that the contract clause permitting 
     reimbursement for unanticipated costs was inapplicable. The 
     Contracting Officer noted that Farrell had contracted to 
     deliver cargo safely to Damman and that the performance of 
     its subcontractors were Farrell's responsibility. The 
     Contracting Officer also pointed out that the unanticipated 
     costs clause applied only to costs not otherwise covered in 
     the Contract, and that the Liberties Clause was the 
     appropriate avenue for Farrell to recover its additional 
     expense. The Contracting Officer concluded, however, that no 
     valid claim existed under that clause because the VILLE 
     D'OMAN was not justified in refusing to proceed to Damman. 
     Further, Farrell had failed to seek the Contracting Officer's 
     approval before arranging alternate delivery of the DoD cargo 
     to Damman, as required by the Liberties Clause. Finally, the 
     Contracting Officer was unable to conclude that MSC personnel 
     had discouraged Farrell from seeking relief under the 
     Liberties Clause or through surcharges.
       Request for adjustment: Farrell sought extraordinary relief 
     in the form of a contract adjustment under the provisions of 
     P.L. 85-804 for $87,200. Farrell asserted that its loss was 
     directly caused by Government action. To determine whether an 
     adjustment was appropriate, the Government had to determine 
     whether a loss occurred, whether the loss was caused by 
     Government action, and whether that action resulted in a 
     potential unfairness to the Contractor. 48 C.F.R. 50.302-
     1(b).
       Farrell claimed that when they approached the Contracting 
     Officer with the possibility of invoking the Liberties Clause 
     under the Contract because of the VILLE D'OMAN's refusal to 
     proceed to Damman, the Contracting Officer insisted they 
     perform and stated that Farrell would receive no further 
     bookings if the clause were invoked. Based on this, and the 
     Contracting Officer's subsequent demands for assurances of 
     performance capabilities, Farrell claimed they were forced to 
     abandon their rights under the Liberties Clause and were 
     required to incur additional costs to deliver the cargo to 
     Damman.
       Assuming that an $87,200 loss existed, it was not caused by 
     the Contracting Officer's actions. The viability of Farrell's 
     service under the Contract was clearly in doubt during the 
     January 1991 time frame due to Farrell's problem with the 
     owners of the VILLE D'OMAN. The Contracting Officer's 
     response to Farrell's comment about invoking the
      Liberties Clause was legitimate. It was reasonable for the 
     Government to expect Farrell to perform, as contracted, 
     and resort to the clause would have realistically 
     suggested that Farrell was incapable of performing. This 
     conclusion was bolstered by Farrell's responses to the 
     Contracting Officer's inquiries which confirmed the 
     service problems and detailed operational plans to 
     continue performance under the Contract. Considering that 
     the Contract permitted the Contracting Office to suspend 
     bookings with a carrier for its prospective inability or 
     failure to perform, the Contracting Officer's comments to 
     Farrell were entirely reasonable, under the circumstances, 
     in that they only highlighted contract rights available to 
     the Government.
       Government attempts to actively ascertain and secure 
     Farrell's commitment to continue contract performance can not 
     be construed as an unreasonable influence causing Farrell to 
     abandon its contract rights under the Liberties Clause. The 
     Government had a legitimate, real, and urgent need to 
     determine Farrell's intent and ability to provide service. If 
     Farrell was unable to perform under the Contract, then the 
     Government clearly would have been entitled to exercise its 
     rights, under the Contract, to suspend the booking of cargo 
     with Farrell for failure to perform or for the prospective 
     inability of Farrell to make good any future bookings. 
     Farrell's decision to abandon any contract rights it may have 
     had under the Liberties Clause and incur additional costs to 
     ship the cargo to Damman is considered an affirmative and 
     voluntary business decision on its part that was not induced 
     by the Contracting Officer. Consequently, any additional 
     expense incurred by Farrell was not caused by Government 
     action.
       Decision: After a careful and thorough review of Farrell's 
     case, the Navy did not find that payment of the requested 
     amount would facilitate the national defense. Further, it was 
     concluded that Government action was not the cause of 
     Farrell's loss. The Government had a right and a 
     responsibility to seek full contractor performance under the 
     terms and conditions of the Contract, particularly during a 
     contingency such as Desert Shield/Desert Storm. No 
     contractual relationship existed between the Government and 
     Farrell's subcontractor, CMA. It was Farrell's responsibility 
     to insure that CMA fulfilled its obligations under its 
     contract with Farrell. Thus, it was decided that Farrell must 
     absorb the loss resulting from CMA's failure to perform. 
     Farrell accepted the cargo under the Contract and was 
     obligated to deliver that cargo to Damman. Farrell made a 
     conscious business decision in choosing its subcontractor, 
     and must, therefore, bear the consequences of that decision, 
     not the Government. Accordingly, Farrell's request for 
     extraordinary relief under P.L. 85-804 for a contract 
     adjustment in the amount of $85,200 was denied.
       Contactor: Mech-Con Corporation.
       Type of Action: Amendment Without Consideration.
       Actual or estimated potential cost: $2,076,082.
       Service and activity: The Department of the Navy, Naval 
     Facilities Engineering Command.
       Description of product or service: Construction of the 
     Propellant Disposal Facility.
       Background: By letter of May 29, 1992, Mech-Con 
     Corporation, Pomfret, Maryland, submitted a request for 
     extraordinary relief. The Contractor's request is based on 
     alleged unconscionable and unfair acts by the Government.
       Within the Department of Defense, P.L. 85-804 is 
     implemented by the Federal Acquisition Regulation (FAR). FAR 
     PART 50, EXTRAORDINARY CONTRACTUAL ACTIONS, Section 50.302, 
     lists the type of adjustments available for relief. The only 
     appropriate adjustment in this case is contained under 
     paragraph 50.302-1, Amendments Without Consideration, 
     subparagraphs (a) and (b). Subparagraph (a) allows Amendments 
     Without Consideration if an actual or threatened loss will 
     impair the productive ability of a contractor whose continued 
     operations as a source of supply is found to be essential to 
     the national defense. A review of the file does not establish 
     that Mech-Con is essential to national defense. Therefore, 
     contractor has not met the requirements of FAR 52.302(a).
       Subparagraph (b) allows relief in instances where the 
     Government directs its action primarily at the contractor and 
     acts in its capacity as the other contracting party, the 
     contract may be adjusted in the issue of fairness. However, 
     any relief under this subparagraph is limited by paragraph 
     50.203(c), which states that no contract shall be amended or 
     modified unless the contractor submits a request before all 
     obligations (including final release and payment) under the 
     contract have been discharged.
       The Contractor claimed monies in the amount of $2,076,082 
     for legal fees, interest expenses, and other miscellaneous 
     costs under or relating to Contract N62477-74-C-0333, 
     Construction of the Propellant Disposal Facility, Naval 
     Ordinance Station, Indian Head, MD.
       A review of the contract file showed that the contact was 
     awarded to the joint venture of Mech-Con and Heller 
     Electrical Corporation on September 26, 1977. The contract 
     was awarded in the amount of $4,258,643, with a contract 
     completion date of 455 days. On June 30, 1981, modification 
     P00029 was issued which terminated the contract for the 
     convenience of the Government. On January 27, 1982, Mech-Con 
     signed a final release on the contract.
       Decision: Entitlement could not be granted under FAR 50302-
     1(b), because Mech-Con signed the final release. Contained 
     within the final release, Mech-Con agreed that for the sum of 
     $6,433,894.38, all liabilities, obligations, and claims had 
     been discharged and satisfied. However, following the signing 
     of the final release, Mech-Con alleged that the Government 
     coerced it into signing the final release. However, Mech-Con 
     did not provide any documentation to support this allegation. 
     Thus, the final release is valid. Therefore, Mech-Con did not 
     meet the requirements of FAR 52.302-1(b) and FAR 52.203(c).
       Contractor: Truax Engineering, Inc. (TEI).
       Type of action: Amendment Without Consideration.
       Actual or estimated potential cost: $1,246,626.
       Service and activity: The Department of the Navy.
       Description of product or service: Development of a low-
     cost, reusable rocket.
       [[Page H3561]] Background: The claimed potential cost 
     involved in the request is $1,246,626 as of November 1, 1993, 
     plus a claimed $50,000 per month since then. This was TEI's 
     second Government contract, for development of a low-cost 
     reusable rocket to be launched and recovered from the sea 
     (SEALAR). Funding for the program was limited from the 
     beginning. A subsequent contract modification (P00009) 
     substantially descoped the Contract by deleting all tasks not 
     specifically related to the proof-of-principle launch and 
     recovery. On June 4, 1991, a burst liquid oxygen tank damaged 
     the rocket and caused delays and additional costs. Although 
     later contract modifications increased the estimated cost, 
     the Contract was allowed to expire on its completion date 
     without the proof-of-principle launch and recovery having 
     been achieved.
       Justification: As stated, the Contractor's request was for 
     a contract adjustment without consideration. The standard, 
     set by FAR 50.302.1(b), for granting such an adjustment is 
     one of fairness to a contractor that sustains a loss (not 
     merely a decrease in anticipated profit) under a defense 
     contract because of Government action. When the Government 
     directs its action primarily at the contractor and acts in 
     its capacity as the other contracting party, the contract may 
     be adjusted. When this action increases performance cost and 
     results in a loss to the Contractor, fairness may make some 
     adjustment appropriate. A review of the facts in this case, 
     however, indicated that fairness with regard to the 
     Contractor's claimed losses had already operated under an 
     administrative provision of the contract.
       Decision: For purposes of this decision, the facts 
     regarding this case are outlined in the Contracting Officer's 
     findings and recommendation dated December 13, 1993. In that 
     document, it is noted that the Contractor's request was based 
     on substantially the same circumstances as a previously 
     settled claim, including nonbinding arbitration, under the 
     disputes resolution process of the contract. The Contractor 
     had misinterpreted the favorable recommendation by the 
     arbitrator and the subsequent negotiated settlement of the 
     earlier claim as ``proof'' that TEI was entitled to the 
     entire amount claimed under P.L. 85-804. The company's 
     approach is inconsistent with a negotiated settlement. 
     Moreover, TEI's position overstated the arbitrator's findings 
     and recommendation, as well as the role of the arbitrator. In 
     submitting its P.L. 85-804 request for relief without a 
     breakdown of actual costs incurred, the Contractor ignored a 
     provision in the contract modification which settled the 
     earlier dispute, viz., that it ``. . . agrees to forgo any 
     further claim or requests for relief . . . except that this 
     shall not preclude . . . relief under Part 50 of the [FAR] 
     for costs or losses not included in the Contractor's . . . 
     claim.''
       The Contracting Officer's statement also observed that TEI 
     further asserted it had to remain in business at continued 
     losses until its dispute and P.L. 85-804 claims were settled. 
     There was no apparent reason for this except that TEI 
     apparently anticipated further SEALAR-related business from 
     the private sector, and made a business decision to continue 
     operations albeit at a heavy loss. The Contractor calculated 
     its losses by comparing unaudited, undifferentiated balance 
     sheets from December 1991 and August 1993 and requested the 
     difference as relief under P.L. 85-804. Essentially, then, 
     TEI asked the Government to underwrite all its business 
     operations after the expiration of its only remaining 
     Government contract.
       Finally, given the facts that (1) the SEALAR program was 
     canceled, and (2) TEI's self-declared principal reason for 
     being in business was the SEALAR program, relief action under 
     P.L. 85-804 would not appear to facilitate the national 
     defense. In addition, information on the Contractor's recent 
     business activity with regard to trying to develop the 
     concept of reusable ICBM's has been evaluated and the same 
     conclusion reached in that situation.
       In light of the above circumstances, and under authority 
     delegated by NAPS 5250.201-70, the request by Truax 
     Engineering, Inc., for relief under P.L. 85-804 was 
     disapproved.
       Contractor: Southwest Marine, Inc.
       Type of action: Formalization of Informal Commitments.
       Actual or estimated potential cost: $15,000,000.
       Service and activity: The Department of the Navy.
       Description of product or service: Drydock overhauls 
     performed at Atlantic Dry Dock Corporation and Southwest 
     Marine, Inc.


                            i. introduction

       In the early 1980s, Southwest Marine, Inc. (SWM), and 
     Atlantic Dry Dock Corporation (ADD) invested in drydock 
     facilities in San Diego, California, and Jacksonville, 
     Florida, respectively, expecting to receive more Navy ship 
     repair and overhaul contracts. Claimants asserted that they 
     added facilities because of representations of senior Navy 
     officials of more repair work if increased drydock facilities 
     were available in the homeports of San Diego and 
     Jacksonville, and because of the existing Navy homeport 
     policy, planned changes in the Navy master ship repair policy 
     to require ownership of facilities, as well as planned Navy 
     use of additional multi-ship repair contracts. SWM and ADD 
     asserted that increases in work did not materialize to the 
     extent expected due to Navy alteration of, or failure to 
     implement, these policies. In particular, claimants pointed 
     to the change in the homeport policy from all overhauls 
     performed in the homeport if adequate competition existed, to 
     one third of overhauls reserved for the homeport if adequate 
     competition existed, to later all overhauls competed 
     coastwide. SWM and ADD claimed harm because the expected 
     number of contracts were not competed only in the homeport or 
     for work restricted to the homeport, but due to high debt 
     burden/facilities costs, claimants' prices were not 
     competitive with other companies.
       Conference Report No. 103-339 (at 93-94) for the FY 1994 
     DoD Appropriations Act provides:
       The conferees are aware of a long standing dispute between 
     Southwest Marine of San Diego, California, and Atlantic Dry 
     Dock of Jacksonville, Florida, and the Department of the Navy 
     over facility investments made by these two shipyards. 
     Although [] the shipyard owners agree that there is no legal 
     remedy for a claim to be paid by the Navy, they continue to 
     believe that, in fairness, the Navy should pay costs which 
     the yards incurred in making facility investments. The 
     conferees direct the Navy to examine this issue again and 
     inform the Committees on Appropriations of the House and 
     Senate by May 31, 1994, on what course of action it 
     recommends to resolve this matter.
       Pursuant to this language, the Navy has conducted a 
     reexamination of the SWM/ADD facility investment claims, 
     making an impartial and independent review of the record. 
     This review has encompassed the Navy Report to Congress of 
     November 1992 on this matter and data considered in that 
     Report, including all SWM/ADD submissions made prior to that 
     Report. As well, the SWM/ADD joint submission of January 29, 
     1993;
      SWM 1994 submissions of May, August 8, and September 2; and 
     ADD submission of May 1994 were considered. Additionally, 
     ASN(RD&A) met with claimants on October 24, 1994, to 
     provide them the opportunity to present the issues and 
     facts of the dispute from their perspective. Also, a 
     letter from the shipyards dated October 24, 1994, was 
     reviewed.


   II. Prior Congressional Language and Navy consideration of Claims

       In 1986, P.L. 99-500, Making Continuing Appropriations for 
     FY 1987, Section 122 of the Military Construction 
     Appropriation (hereinafter referred to as Sec. 122), 
     directed:
       The Secretary of the Navy shall enter into negotiations 
     with shipyards located on Sampson Street, San Diego, 
     California, and on Fort George Island, Jacksonville, Florida, 
     to determine what liability (if any), the United States has 
     for damages suffered by such a shipyard resulting from 
     facility improvements made by such shipyard during 1982 in 
     good faith reliance on representations and assurances 
     provided to officials of such shipyards by representatives of 
     the Department of the Navy in 1981 and 1982 with respect to 
     future work of the Department of the Navy at such shipyard.
       Pursuant to Sec. 122, SWM and ADD submitted a joint request 
     for relief on October 29, 1987, totaling $59,558,447 for lost 
     profits not realized after the facility investments. In 
     response to questions from the Navy, claimants provided 
     supplemental documentation. The parties held negotiations on 
     January 24 and 25, March 14, and April 26, 1989. By a May 10, 
     1989, letter to Congress, the Secretary of the Navy 
     determined that the Navy bore no legal or equitable liability 
     to the shipyards and formally denied the request. This 
     position was supported by a 5-page Contracting Officer 
     Memorandum of Decision and a 60-page legal memorandum.
       In 1989, Conference Report No. 101-331 (at 422) for the FY 
     1990 DoD Authorization Act provided:
       The conferees desire that the Navy fully explore all 
     equitable and legal aspects of certain claims for relief 
     submitted by shipyards pursuant to section 122 of the FY 1987 
     Military Construction Appropriations Act (P.L. 99-591).
       Accordingly, the conferees direct the Secretary of the Navy 
     to reconsider actively and together with the shipyards all 
     facts and the quantum aspects of the claims and to report to 
     the committees on Armed Services of the Senate and House of 
     Representatives the results of such reconsideration with a 
     definitive analysis of such claims under section 122.
       Pursuant to this language, the parties met (first on March 
     28, 1990) and exchanged considerable documentation regarding 
     the facts and legal issues of the case. On November 2, 1992, 
     by letter to Congress, the Secretary found that the shipyards 
     were not entitled to compensation, either as a matter of law 
     or equity, and formally denied the request. This letter 
     forwarded a detailed 97-page Navy analysis conducted by the 
     Navy General Counsel of the facts, legal and equitable 
     issues, and quantum, including copies of relevant 
     documentation (87 attachments). This analysis will 
     hereinafter be referred to as the 1992 Navy Report.
                            III. Background

       SWM and ADD claimed that, in the early 1980s, each invested 
     in certain capital improvements at its San Diego facility and 
     Jacksonville facility, respectively, with the expectation of 
     receiving increased Navy ship repair and overhaul contracts. 
     SWM began serious plans for purchase of a drydock in late 
     1981. The drydock was purchased in December 1982, with the 
     loan requirements finalized in March-April 1983 with Wells 
     Fargo Bank. SWM installed a large new floating drydock, new 
     piers, and a new warehouse. In the first half of 1980, ADD 
     began planning for 
     [[Page H3562]] the construction of a 4,000 ton marine railway 
     and made a firm decision to proceed in January/February 1982. 
     The railway was completed in October/November 1982. ADD added 
     a pier extension, begun in June 1983 and completed in July 
     1984.
       Claimants alleged that investments in these facilities 
     improvements were made in reliance on Navy policies in 1982, 
     including the Navy's existing homeport ship repair policy, 
     planned changes in the Navy master ship repair policy, and 
     planned Navy use of additional multi-ship repair contracts, 
     combined with various Navy representations of increased 
     homeport repair work if SWM or ADD invested in increased 
     drydock facilities. The following summarizes these areas.
       Navy Representations: SWM/San Diego Homeport. Prior to 
     facility improvements by SWM and National Steel and 
     Shipbuilding Company (NASSCO) in the 1980s, there was a 
     shortage of drydocking capability in the San Diego homeport. 
     The only drydock was the Navy graving dock which the Navy 
     leased to the San Diego Unified Port District, which made the 
     dock available to local ship repair firms doing Navy ship 
     repair work. The Navy dock permitted adequate competition, 
     but only one drydock in the area limited the number of 
     overhauls or other repair work that could be done in the 
     homeport in any one year.
       A March 12, 1981, letter from VADM Fowler, Commander, Naval 
     Sea Systems Command (NAVSEA), to Arthur Engel, President of 
     SWM, advised of ``* * * an increase in the size of the Navy 
     Shipbuilding Program in the forthcoming years;'' that the 
     problems caused by the increase ``* * * will be solvable if 
     the Navy and industry embark on innovative, cooperative 
     planning;'' and that one of four objectives of the Navy and 
     industry should be to ``* * * [s]trengthen the industrial 
     base and enhance the vitality of the shipbuilding industry.''
       In late 1981, NAVSEA prepared a draft report outlining a 
     business plan for overhaul and repair of Navy ships in the 
     San Diego area which provided:
       Addition of another graving dock or floating drydock would 
     enable a significant number of Naval vessels to remain in the 
     homeport of San Diego for repair and overhaul. ``In order to 
     foster a robust private sector industrial base, the Navy 
     should investigate immediately all alternatives to relocate a 
     floating drydock in San Diego.''
       An option for obtaining additional drydock capability would 
     be to provide a ``contractual means of providing incentives 
     to a contractor or contractors to
      make substantial capital improvements in a new drydock and 
     pier'' and fully explore all appropriate methods to 
     provide incentives to assist or encourage private 
     development of drydocking facilities, including multi-year 
     contracts, capital investment incentive clauses, capital 
     investment sharing, and contractor consortiums.
       ``[T]here is little the Navy can do to guarantee future 
     work to individual companies in the private sector to 
     encourage capital investment to expand facilities/
     capabilities.''
       Acknowledgment that SWM was seeking to add a 20,000 ton 
     drydock to its facilities.
       Recognition that there was a need to establish more 
     stringent qualification criteria for Master Ship Repair (MSR) 
     contract holders to ``continually glean contractors with 
     inadequate resources from the ranks of eligible bidders'' and 
     that the Navy ``should develop quantitative criteria for MSR 
     eligibility that specifies minimum, albeit substantial, 
     levels of technical, management, financial, and facilities 
     resources.''
       Acknowledgment that there was a need to provide schedule 
     stabilization of ship repair requirements to give the local 
     ship repair industry more certainly in workload demands: 
     ``There should be a commitment to retain in San Diego as much 
     depot maintenance repair work as port capability allows. . 
     .'' with multiship packages maximized, with minimum 
     concurrence in schedules, for overhauls and Selected 
     Restricted Availabilities (SRAs).
       According to a Declaration by Mr. Engel, submitted with 
     SWM's 1987 claim submission in early 1982, Mr. Engel met with 
     Mr. Lehman, then Secretary of the Navy, to discuss SWM's 
     intended capital improvements. ``Secretary Lehman indicated 
     that SWM's facilities improvements would be appreciated and 
     encouraged by the Navy.'' In early spring of 1982, Mr. Engel 
     met with ASN(S&L), Mr. Sawyer. ``We again discussed SWM's 
     improvement plans. Mr. Sawyer also indicated that facility 
     improvements would be followed by more repair work in the 
     homeport.''
       In March 1982, a cost type overhaul contract for USS HENRY 
     WILSON was awarded outside the homeport at a price nearly 
     twice that proposed by two San Diego shipyards. In relation 
     to this award, certain Government statements were reported:
       The March 31, 1982, San Diego Union reported that Mr. 
     Carlucci, then Deputy Secretary of Defense, told Congressman 
     Hunter that lack of sufficient drydock facilities in San 
     Diego was the main consideration in this award decision.
       The April 2, 1982, San Diego Union reported that ASN(S&L) 
     Sawyer stated that the award was based on a superior proposal 
     in the solicitation's higher weighted factors [presumably, 
     facilities was one of these factors] and that ``I would like 
     to encourage some of the local (San Diego) firms to invest in 
     their own facilities. The real bottom line is, if I could 
     urge something on the people of San Diego, looking at the 
     market projections for overhauls and repairs there, is to do 
     it the American way and invest in better facilities.'' Mr. 
     Sawyer
      was also reported as saying that improved repair facilities 
     in San Diego would make it easier for the Navy to adhere 
     to the homeport policies on repairs, which ``is alive and 
     well.''
       The June 7, 1982, San Diego Union reported that, in 
     response to a question regarding what was needed to get 
     overhaul contracts in San Diego, ASN(S&L) Sawyer stated: 
     ``three good shipyards.''
       In an undated and unidentified newspaper article provided 
     by SWM, it was reported that a Navy memorandum to Edwin 
     Meese, then Counselor to the President, regarding the WILSON 
     award stated that, in order for homeport firms to obtain 
     greater number of ship overhaul contracts, they should 
     increase facility investment, noting that SWM has no drydock 
     while the awardee does.
       On August 12, 1982, Chapman Cox, DASN (Installations) met 
     with San Diego business leaders and the San Diego Port 
     Commission. (This meeting is described by SWM but not 
     mentioned in the 1992 Navy Report.) He stated that the 
     homeport policy was still in effect despite the recent change 
     in policy requiring only one third of overhauls to be 
     restricted to the homeport (discussed below); the overall 
     percent of homeport repair and overhaul work would remain the 
     same; there would be an increase in the number of ships 
     homeported in San Diego there was a need for additional 
     homeport facilities and private investment to that end was 
     encouraged; and endorsed a proposal to build a drydock to be 
     operated by the Port Commission and used by local firms.
       The September 22, 1982, San Diego Daily transcript and San 
     Diego Union reported that Mr. Sawyer and VADM Fowler met with 
     San Diego contractors at a September 21, 1982, session 
     organized by the local Chamber of Commerce. Mr. Sawyer 
     emphasized the need to improve the quality of area 
     facilities, noting that with the anticipated 30 percent 
     growth in Navy work over the next two years, there was a 
     potential for $240,000,000 in assured work in the period. Mr. 
     Saywer said that these predictions depended on improved 
     facilities, adequate competition, and local contractors' 
     ability to win one third of coastwide overhaul solicitations. 
     Both Navy officials sought to encourage interest in the Port 
     District obtaining a drydock for the use of area contractors. 
     Mr. Sawyer said that there was no guarantee San Diego firms 
     would receive additional work just because the facilities 
     were there unless a public body were involved in its 
     construction. Mr. Engel pointed out the risk in private 
     investment in the absence of Navy guarantees and asked 
     whether the homeport policy would be eliminated.
       According to a Declaration by a Wells Fargo employee 
     responsible for investigating and recommending approval of 
     the drydock loan to SWM, he met with personnel from the 
     Supervisor of Shipbuilding, Conversion and Repair (SUPSHIP) 
     San Diego to discuss the future of Navy ship repair and 
     overhaul business in San Diego. ``Although the Navy would not 
     formally commit itself, SUPSHIPS personnel did indicate that 
     there would be a substantial amount of future work in the San 
     Diego homeport and that there was a need for additional 
     drydock capacity and pier capacity.'' It was the Wells Fargo 
     employee's impression that the Navy was encouraging the 
     development of improved facilities to handle future work. 
     ``The anticipation of an increase in the volume of
      overhaul and ship repair contracts in the San Diego homeport 
     was one of several major considerations in our credit 
     decision.''
       Navy Representations: ADD/Jacksonville Homeport. Before ADD 
     completed its marine railway, only one contractor in the 
     homeport, Jacksonville Shipyards, Inc. (JSI), had an adequate 
     drydock to repair Navy ships. Consequently, because there was 
     no competition for overhaul work in Jacksonville between at 
     least two sources, overhauls of ships homeported in 
     Jacksonville had to be competed coastwide. A further barrier 
     to repairing ships in the Jacksonville homeport was that JSI 
     did not actively compete in coastwide competitions.
       RADM Kinnebrew was Commander of Cruiser Destroyer Group 
     Twelve (homeported in Mayport) from February 1980 to August 
     1981. According to a Naval Sea Systems Command attorney 
     interview with RADM Kinnebrew on June 7, 1988, at some point 
     during his tenure, RADM Kinnebrew had one or two discussions 
     with Mr. Gibbs, President of ADD, in which he indicated that 
     additional ship repair capability in the Mayport/Jacksonville 
     area would be welcome because it would increase the 
     possibility of accomplishing ship repair in the homeport. 
     RADM Kinnebrew also indicated to Mr. Gibbs that the Navy 
     planned to homeport some FFG-7 Class ships in Mayport and 
     that the Navy would continue to homeport destroyers in 
     Mayport for the foreseeable future. According to RADM 
     Kinnebrew, he did not make any promises or commitments to ADD 
     regarding future work. The Admiral cannot recall what was 
     said at a particular meeting, but indicated in this interview 
     that these were the general remarks made over the course of 
     the discussions with Mr. Gibbs.
       According to a Declaration by Mr. Gibbs, RADM Kinnebrew met 
     with Mr. Gibbs in February 1980 and stated that he wanted ADD 
     to construct facilities that would enable ADD to repair and 
     overhaul destroyers and frigates and indicated that his 
     statements to ADD were authorized by his superiors. After 
     this conversation, Mr. Gibbs ``was 
     [[Page H3563]] convinced that the initiation of a substantial 
     facilities improvement program at ADD would result in 
     substantial business opportunities with the Navy.''
       As reported in Vol. 12, Number 24 of the Weekly Report of 
     the Jacksonville Area Chamber of Commerce (undated), ADM 
     Train, Commander in Chief, Atlantic Fleet, addressed a 
     session of the Jacksonville Area Chamber of Commerce in 
     Norfolk on May 2, 1980. ADM Train indicated that: if 
     Jacksonville expands its ship maintenance and repair 
     capabilities, it will be in line for more Navy work; such 
     additional capabilities in an area ensure more competition 
     which, in turn, could lead to more Navy ship repair and 
     maintenance work in Jacksonville; Jacksonville lacks the 
     drydock facilities necessary for major overhauls of Navy 
     ships; and the Navy wants major overhaul facilities to exist 
     in the ship's homeport to avoid having the crew relocated. As 
     a result of these remarks, the Jacksonville Chamber of 
     Commerce indicated they would contact local shipyards about 
     plans for expansion and help in locating additional ship 
     repair facilities in Jacksonville.
       According to a Declaration by Mr. Gibbs, in the summer of 
     1981, ADD and its consulting firm, SEACOR Associates, made 
     presentations to the Navy in Norfolk and to RADM Nunnelely, 
     Director of the Ships Maintenance and Modernization Division 
     of the Office of the Chief of Naval Operations, regarding the 
     proposed construction of the
      marine railway. The Navy audience at both sessions 
     ``responded favorably'' to the proposed improvements and 
     ``encouraged continued construction.''
       On December 18, 1981, VADM Fowler met with a group of 
     Jacksonville area Navy, business, and industrial leaders at 
     the Mayport Officers Club to discuss ship maintenance support 
     for Navy expansion at Naval Station Mayport (NAVSTA Mayport). 
     According to a Declaration by Mr. Gibbs, VADM Fowler ``... 
     reiterated the notion that, if improved facilities were 
     built, Jacksonville contractors would get work to fill those 
     facilities.''
       To prepare VADM Fowler for the December 18, 1981, talk in 
     Mayport, RADM Johnston, SUPSHIP Jacksonville, sent VADM 
     Fowler copies of background memoranda. One memorandum 
     (undated), entitled ``Growth of Support Capability in 
     Jacksonville,'' states: current ship intermediate and depot 
     level maintenance support facilities in the Jacksonville area 
     have a maximum capacity of 20,000 man-days per month, which 
     capacity will be ``overtaxed'' by the Selected Restricted 
     Availability (SRA) workloads projected in FYs 1983, 1984, and 
     1986; there is a need to expand the current ceiling of 
     industrial capacity to between 30,000 and 35,000 man-days per 
     month to meet long term needs; ``the projected maintenance 
     needs are well publicized and discussions with the industrial 
     community have been conducted by local flag officers, 
     SUPSHIPS JAX and CO, NAVSTA Mayport''; ``[a]n extensive 
     effort has been and continues in the Jacksonville area to 
     outline the programmed Navy build up and to call for 
     community support. A stable, predictable plan will enhance 
     credibility and reassure commercial activities who will be 
     investing their resources''; ADD is proposing a major 
     expansion of facilities in order to handle FFG-7 SRAs; the 
     problem of assuring adequate depot and intermediate level 
     repair capacity ``is real but solvable.'' Another memorandum 
     (undated), entitled ``Background of Current Situation,'' 
     references a request from the Commander, Naval Air Forces 
     Atlantic to review ``community planning in light of Navy 
     expansion'' in the Mayport area and develop a program to 
     encourage commercial growth for both ship maintenance support 
     and housing for personnel. It also identifies possible 
     questions for the meeting: ``What assurances can be given 
     that SRAs/RAVs [Restricted Availabilities] will be committed 
     to the Mayport area and not contracted out of homeport?''; 
     Will the NAVSEA policy of soliciting most regular overhauls 
     on a coastwide basis continue?''
       According to a Declaration by Mr. Hoepner, former President 
     of the bank (Flagship Bank, subsequently acquired by Sun 
     Bank) that provided the marine railway loan, Mr. Lehman and 
     Congressman Bennett met in Washington in January 1982 with 
     the Jacksonville Chamber of Commerce. At that meeting, Mr. 
     Hoepner ``was led to believe that existing and proposed Navy 
     policies and practices would result in greater business for 
     ADD if it were to make proposed capital improvements.'' In 
     other discussions between bank employees and Navy officials, 
     Navy officials reaffirmed the homeport policy and were not 
     equivocal about its policies or the likelihood that ADD's 
     capital improvements would result in more business.
       According to a Declaration by a former employee of Flagship 
     Bank involved in evaluation of ADD's loan application, he had 
     several discussions with Navy personnel in which the Navy 
     indicated that, ``if another company improved its facilities 
     so that there would be competition in the homeport, the Navy 
     would provide more overhaul work in the homeport.'' Based on 
     these discussions, he concluded that ADD's market
      projections were valid and that it was reasonable for ADD to 
     rely upon Navy assurances regarding future ship repair and 
     overhaul work in Jacksonville.
       A May 1982 draft report of the Jacksonville Chamber of 
     Commerce Ship Repair Facility Task Force stated that ship 
     repair awards will increase during the 1980s and 1990s as a 
     result of ADD's soon-to-be completed marine railway and JSI's 
     drydock, which will create a competitive situation in the 
     homeport, and that SUPSHIP advised that the Navy will 
     restrict overhaul and SRA work requiring drydock capability 
     when a competitive situation exists. The task force should do 
     all it can to ascertain that this work is indeed restricted 
     to the homeport to provide an opportunity for a fair return 
     on the shipyards' investments in view of the ``financial risk 
     being undertaken by these shipyards in anticipation of the 
     needs of the Navy.''
       The April 1982 Jacksonville Seafarer reported that: by the 
     end of 1984, NAVSTA Mayport will be home to 45 vessels 
     (compared to 25 in December 1981); the expansion ``could mean 
     a bonanza of repair and maintenance contracts for area 
     shipyards;'' at a March 18, 1982, meeting of local 
     subcontractors chaired by JSI, a JSI representative indicated 
     that Navy concerns expressed at sessions between Jacksonville 
     Chamber of Commerce and Navy officials was that the 
     Jacksonville area have a viable competitive base and that the 
     industrial base capacity be adequate to handle the increase 
     in Navy work; that JSI was encouraging ADD to proceed with 
     the planned marine railway to meet the competition 
     requirements in the homeport; JSI had made commitments of 
     manpower levels to be maintained to support Navy needs; 
     Congressman Bennett stated that, if the community does not 
     have the industrial capacity to meet Navy ship repair needs, 
     he will ``see that the ships go somewhere else, and not only 
     for repair, but for home basing''; the Jacksonville area 
     shipyards, business community, and Navy were ``working to 
     expand the area's capacity for repairs,'' and the Navy itself 
     was actively working to encourage capacity expansion; upon 
     assuming his command in the area, SUPSHIP cited three goals: 
     increased Navy housing in Mayport, development of ship repair 
     capacity, and development of industrial capacity in the 
     community to support that ship repair capacity.
       The May 1982 Jacksonville Seafarer reported that: the Navy 
     wants three drydock-capable yards in Jacksonville to provide 
     a guaranteed competitive situation for repair work on new and 
     existing ships homeported in the area; over $1.3 billion of 
     work is scheduled to be done on vessels homeported at Mayport 
     and Charleston during the next decade; because there are no 
     drydocks capable of performing this work in Charleston, 
     SUPSHIP Jacksonville indicated that Jacksonville yards can 
     ``expect to get much of the work from there [Charleston] if 
     the area has the drydock capacity''; ``Navy and Jacksonville 
     Chamber of Commerce Task Force have agreed that if local 
     yards cannot handle the work, it would favor having new 
     companies established in the Jacksonville area to perform the 
     work;'' and regarding doubts about the ability of the 
     projected ship repair business volume to support the new 
     shipyard facilities, the Navy ``can not guarantee in writing 
     contracts over the long-term, largely because of its 
     inability to award multiyear repair contracts because of 
     budgeting restrictions, though Johnston [SUPSHIP JAX] did 
     assure task force members that the work would be available if 
     the facilities were. . . .''
       Navy Homeport Policy. Before 1982, the Navy's homeport 
     policy required that all ship repair availabilities, 
     including overhauls (six months duration or more) or shorter 
     term availabilities (selected restricted availabilities 
     (SRAs), restricted availabilities, or technical 
     availabilities), of ships having crews attached be 
     accomplished in the homeport area when adequate competition 
     was available. The primary goals of this policy were to 
     minimize disruptive effects on Navy personnel and families 
     caused by conducting ship maintenance away from the homeports 
     and to provide industry better predictability of future 
     business opportunities.
       In testimony on March 10, 1982, before the House Armed 
     Services Committee regarding the Naval Ship Overhaul Program, 
     VADM Fowler had testified that the Navy policy is to overhaul 
     ships in or near the homeport to minimize family disruption 
     and improve crew morale. Other key factors in determining 
     where a ship will be overhauled include ship complexity, 
     fleet operations schedules and material readiness 
     requirements, shipyard workload and qualifications, shipyard 
     capacity and capability in the homeport area, and contract 
     requirements regarding competition and small businesses. The 
     following statements by the Admiral were also included in the 
     record: ``the long-term effect [of the homeport policy] is 
     expected to be an increase in private sector industrial 
     capacity near major homeport areas. In fact, the industry is 
     already increasing its capability in areas of heavy fleet 
     concentration such as San Diego, California; Norfolk, 
     Virginia; and Jacksonville, Florida.''
       On July 19, 1982, OPNAVNOTE 4700 directed that at least one 
     third of the regular overhauls of ships having crews attached 
     be reserved for the homeport, with the balance to be competed 
     coastwide and that SRAs be performed in the homeport ``where 
     feasible.''
       In 1985, the homeport policy required unrestricted 
     competition for all overhauls, a change that resulted from 
     Congressional direction (in the Conference Report on Making 
     Continuing Appropriations for FY 1985 dated October 10, 1984) 
     to terminate the policy of reserving one-third of overhauls 
     for the homeport. The direction was based on factors which 
     Congress believed would adversely affect the mobilization 
     capability of non-homeport private shipyards--namely, decline 
     of commercial ship repair workload 
     [[Page H3564]] making private ship repair firms more 
     dependent on Navy work; increased ship repair work being done 
     by shorter repair availabilities (specifically SRAs) that 
     were 100 percent reserved for the homeport area; and 
     corresponding decrease in overhauls available for coast-wide 
     competition above the 30 percent homeport reservation.
       In 1987, the homeport policy was codified at 10 U.S.C. 
     7299a by Sec. 1101 of the FY 1988/89 DoD Authorization Act. 
     This law directs the Navy to restrict to the homeport area 
     short-term repair or maintenance work if there is adequate 
     competition. Short-term is defined as performance of six 
     months or less.
       Master Ship Repair (MSR) Policy. The 1981 NAVSEA draft 
     report, mentioned above, noted that about 70 percent of work 
     awarded under MSR contracts was subcontracted and recommended 
     that MSR contract holders be required to meet certain 
     qualifications regarding technical, management, financial, 
     and facilities resources. As reported in the September 22, 
     1982, San Diego Union, at the September 21, 1982, meeting 
     between the Navy and San Diego contractors, in response to a 
     question regarding MSR
      contractors, VADM Fowler stated that the Navy had reached no 
     conclusion regarding a requirement for firms to have 
     waterfront facilities.
       In the Conference Report to the Continuing Resolution for 
     FY 1983, dated December 20, 1982, Congress directed the Navy 
     to establish a certification procedure to qualify firms as 
     MSR holders to guarantee fully qualified private sector 
     capability. This language led to the Navy's establishment of 
     a MSR recertification program on January 28, 1983, intended 
     to ensure that MSR holders had the necessary facilities, 
     management capability, and technical expertise.
       On May 27, 1983, NAVSEAINST 4280.2 was issued to revise 
     policy for MSR contracts. MSR contractors would be required 
     to have the ability to perform an entire overhaul or SRA of a 
     Naval ship of 500 tons or larger, including control 
     (possession or committed access) of facilities (piers, shops, 
     and a Navy-certified drydock), and an organization capable of 
     performing 56 percent of the work for an overhaul in-house.
       (In this respect, it is noted that SWM finalized its 
     drycock purchase negotiations in December 1982--before 
     Congressional identification of the MSR recertification 
     program and before the SR policy change in May 1983.)
       Multi-Ship Contracting Policy. In the Naval Sea Systems 
     Command Ship Overhaul Policy Statement dated January 18, 
     1982, VADM Fowler stated that multiple ship procurements will 
     be used, when appropriate, to provide incentives for shipyard 
     improvements and capital investments as well as to obtain 
     benefits of learning and economies of scale. In March 1982 
     Congressional testimony, VADM Fowler stated that multi-ship 
     and cost type contracting under negotiated solicitations 
     provided incentives for shipyard improvements and other 
     benefits. The 1981 NAVSEA draft report mentioned above had 
     recommended multi-year contracts as a possible way to provide 
     incentives to encourage private development of ship repair 
     facilities.
       A July 13, 1982, San Diego Tribune article reported an 
     internal NAVSEA memorandum indicating a NAVSEA desire for ``a 
     plan to award in one package in San Diego to the yard that 
     promises to build the biggest and best facility to support 
     this multi-ship overhaul and the Navy: 6 ships.'' This 
     article stated that Navy officials would not comment on the 
     authenticity of the memorandum or elaborate on ship repair 
     plans in San Diego.
       OPNAVNOTE 4700, issued on July 19, 1982, provided that 
     multiple ship overhaul contracts would normally be competed 
     coast-wide and that increased use of multiple ship overhaul 
     solicitations was desired to provide incentives for shipyard 
     capital improvements and to achieve improved performance 
     through greater competition. NAVSEA NOTICE 4710, issued 
     September 3, 1982, reflected the policy to compete multiple 
     ship contracts coast-wide.
       (In this respect, it is noted that when SWM finalized its 
     drydock purchase negotiations in December 1982, the multi-
     ship contracting policy provided that such contracts would 
     normally be competed coast-wide. Moreover, multi-ship 
     contracts never were in widespread use (partly because of the 
     inherent restriction on competition) and have decreased in 
     use since 1982. SWM admits
      that by 1982, the Navy had only awarded one multi-ship 
     contract in San Diego and had canceled another multi-ship 
     solicitation, repackaging the work as single ship 
     contracts.)


                         iv. claim submissions

       The following discusses the SWM/ADD claims by addressing 
     the claimants' submissions made since the last Navy analysis 
     and decision regarding the facility investment claims--the 
     Navy's November 2, 1992, Report to Congress--in relation to 
     the prior record. As noted above, all the claimants' 
     submissions have been reviewed, considered and analyzed as 
     well as prior Navy reports.
       January 29, 1993, Submission. Claimants submitted a joint 
     document entitled ``Claimants' Response to Navy Report to 
     Congress,'' Dated January 29, 1993, (forwarded to Congress on 
     February 1, 1993) in response to the Navy's November 2, 1992, 
     Report to Congress which concluded that there was no legal or 
     equitable basis to compensate SWM and ADD for their claims.
       In arguing that it is essential that an equitable 
     settlement be achieved and that Congress, if necessary, 
     should give further direction/clarification to that end, 
     claimants include various statements. Claimants identify 
     ``Navy barriers'' to equitable resolution of the claims, 
     namely: Navy placed a significant burden on claimants to 
     draft a statement of facts, only to subsequently unilaterally 
     draft a Navy statement of facts which raised a ``whole host 
     of new issues'' and, thereby, delayed agreement on a 
     statement of facts; Navy refused to give weight to sworn 
     statements submitted by claimants or to provide any sworn 
     evidence to contradict these statements; and Navy placed 
     undue reliance on written versus oral exchanges, which denied 
     claimants access to top-level Pentagon personnel and resulted 
     in entitlement analysis being delegated to NAVSEA officials. 
     Claimants also take issue with certain factual and legal 
     conclusions of the Navy Report, which are discussed below; 
     maintain their position that Sec. 122 creates Navy liability, 
     with quantum being the only item to be determined; argue that 
     P.L. 85-804 provides a ``mechanism'' to provide monetary 
     settlement under formalization of informal commitment or 
     residual powers authority; state that promissory estoppel 
     represents a basis to provide monetary relief; argue that the 
     doctrine and sovereign immunity is not a defense to Navy 
     liability; and take issue with Navy conclusions regarding 
     quantum.
       This submission does not provide new facts or legal 
     theories to support the claims but rather primarily consists 
     of rebuttal arguments to conclusions made in the 1992 Navy 
     Report. Those rebuttal arguments are discussed below.
       May 1994 Submissions. SWM submitted in May 1994 a revised 
     quantum proposal as a ``resolution'' to the claim, seeking a 
     $15,000,000 cash payment in 1994, to be repaid $2,500,000 
     annually over a six-year period (1995-2000) by reducing SWM's 
     depreciation cost pool allocated to current/future Navy cost 
     contracts. This submission does not provide new facts or 
     underlying legal theories to support the claim. Relative to 
     the 1992 Navy Report, SWM's quantum request after discussions 
     with the Navy was $18,600,000 in reliance damages for 
     unrecovered depreciation and facilities capital cost of 
     money, plus profit, from the time of the investment through 
     1987.
       ADD also submitted in May 1994 a revised quantum proposal 
     as a ``resolution'' to the claim. ADD and North Florida 
     Shipyards (NFS) would form a third company (X Co.) to receive 
     a 10 year lease of Navy AFDM 7 at NAVSTA Mayport for $1 rent 
     per year, in return for yearly drydock operation/maintenance 
     at X Co. expense, and ADFM 7 use dedicated to Navy ship 
     repair. Use of AFDM 7 would be limited to ADD and NFS, which 
     would compete for its use for specific Navy work. This 
     submission indicates a different quantum than previously 
     requested; ADD's request addressed in the 1992 Navy Report 
     was for $6,900,000 in reliance damages. It does not provide 
     new facts or underlying legal theories to support the claim.
       August 8, 1994, Submission. SWM requested that the Navy 
     provide SWM a $15,000,000 payment in 1994 pursuant to P.L. 
     85-804 to formalize an informal commitment or pursuant to 
     exercise of residual powers. SWM asserted that the Navy 
     should ``report to the [appropriations] committees the amount 
     of relief that it views as appropriate, in view of the Navy 
     officials' inducement of Southwest's facilities 
     investments.'' A legal memorandum provided arguments to 
     support its conclusion that ``relief along the lines proposed 
     by Southwest would be an appropriate exercise of the Navy's 
     discretion under P.L. 85-804, and in particular its 
     discretion to formalize informal commitments by Navy 
     officials.''
       This submission contains no new facts or underlying legal 
     theories but, expands on the May 1994 submission by providing 
     additional legal argument that P.L. 85-804 authority is 
     available to make the $15,000,000 payment and rebuts P.L. 85-
     804 statements in the 1992 Navy Report. The relief requested 
     is also different in quantum and type from that addressed in 
     the 1992 Navy Report. See discussion above regarding the May 
     1994 SWM submission.
       Sepember 2, 1994, Submission. In response to an Assistant 
     General Counsel (Research, Development & Acquisition) letter 
     of August 24, 1994, requesting that SWM submit any additional 
     ``facts and information, or theories of relief'' in support 
     of its request for relief, SWM reiterated its request for 
     extraordinary contractual relief in the form of a payment of 
     $15,000,000 in 1994, with the following conditions: SWM will 
     enter into an advance agreement providing for repayment by 
     reduction of the depreciation cost pool allocated to SWM's 
     Government contracts by $2,500,000 annually for the six-year 
     period 1995-2000; SWM will reduce remaining long-term debt 
     associated with the capital asset expenditures that gave rise 
     to the dispute; SWM will provide a written release of any 
     further Government liability for this claim. Alternatively, 
     the $15,000,000 could be forgiven in equal increments over 
     six years. According to SWM, because tax obligations relating 
     to payment arise in the year of loan forgiveness rather than 
     in the year of payment, more of the proceeds of payment would 
     be applied to long-term debt reduction. SWM's request, 
     certified in accordance with the Contract Disputes Act by Mr. 
     Herbert Engel, SWM's President, seeks relief under P.L. 85-
     804 based on formalization of informal commitments or 
     residual powers.
       The narrative factual background of this submission 
     essentially repeats the text in 
     [[Page H3565]] the January 29, 1993, submission, with minor 
     changes. The discussion of P.L. 85-804 essentially repeats 
     the text in the August 8, 1994, submission, with additional 
     allegations that SWM's financial position is ``far worse now 
     than it was last April'' when the Department of 
     Transportation Board of Contract Appeals denied SWM's request 
     for
      extraordinary relief; SWM will soon run out of credit and 
     that, absent some financial relief, will ``probably be 
     insolvent within a matter of weeks.'' September 2, 1994, 
     Submission at 40. A ``1994 Consolidated Forecast'' is also 
     provided.


           V. Specific claimant arguments and relevant facts

       The following summarizes those SWM/ADD arguments that take 
     issue with the 1992 Navy Report as well as sets forth 
     corresponding facts and Navy conclusions. (Cites are to the 
     January 29, 1993, submission; as the other two submissions 
     are repetitive, they are not specifically cited.)
       Claimants were denied access to top-level Pentagon 
     decision-makers. January 29 Submission at 9-10.
       Facts: The negotiations and analysis of the claims 
     undertaken for the 1992 Navy Report were handled by the 
     General Counsel of the Navy, at the request of the Secretary 
     of the Navy, with the exception of certain quantum issues 
     when the General Counsel was unavailable and the Deputy 
     General Counsel (Logistics) acted in his stead. Claimants 
     were not denied access to senior Navy decision-makers.
       The process of jointly drafting an uncontested statement of 
     facts was arduous and unfair. January 29 Submission at 7-9.
       Facts: More important than the length of time or difficulty 
     in compiling a statement of facts is that the Navy fully 
     considered claimants' views on all issues. When agreement 
     could not be reached on certain issues, the 1992 Navy Report 
     noted the claimants' differing views so that Congress would 
     be able to consider all sides of the matter.
       The Navy failed to give proper weight to sworn statements 
     provided by claimants or to obtain sworn statements from 
     relevant former Navy officials.
       Facts: Claimants raised this argument, and the navy fully 
     considered it, before issuance of the Navy 1992 Report. The 
     Navy did not (and does not) consider that claimants' 
     declarations, even if accepted as entirely accurate on their 
     face, provide a factual basis for recovery on legal or 
     equitable principles. Therefore, there was no need to 
     substantiate or refute the facts asserted by claimants.
       In the years following the facilities expansion programs, 
     both ADD and SWM failed to realize the promised levels of 
     work, which result is attributable to the Navy's refusal to 
     issue homeport-restricted solicitations. SWM and ADD suffered 
     a competitive disadvantage over other overhaul contractors 
     due to the debt incurred by the facilities investments. 
     January 29 Submission at 35.
       Facts: The shipyards were independently contemplating 
     facility improvements in the 1981-82 period and the 
     investments were made after independent market analysis and 
     business risk assessment. The investments were planned and 
     initiated, in part, before Navy representations and, in part, 
     based on expected increases in commercial work. The 
     improvements resulted in benefits to each shipyard: an 
     increase in Navy ship repair business and valuable operating 
     asset improvements which enabled the shipyards to bid on and 
     perform contracts for which they would otherwise have been
      unable to compete. From FY 1983-87, total overhaul work 
     increased and total dollar volume of ship repair business 
     in each homeport increased. The shipyards realized profits 
     on most fixed priced Navy contracts performed during the 
     relevant period. ADD was profitable during this time. SWM 
     did not recover $2,600,000 of costs of performance. 
     However, there is no evidence that this loss was 
     attributable to purchase of the drydock. Instead, other 
     factors could have caused the loss, such as SWM's loss of 
     its small business size status just before its workload 
     started to decrease, the general decline of the commercial 
     ship repair industry during the period in question, SWM's 
     decision to purchase a drydock with more than twice the 
     capacity necessary for the vast majority of Navy 
     homeported ships, or SWM inefficiencies in performance. 
     SWM represented to its bank when obtaining the loan that 
     SWM would lease the drydock to competitors when it was not 
     using the drydock itself, but has not done so.
       Furthermore, the shipyards do not offer any credit for cost 
     recoveries realized under Navy fixed price and commercial 
     contracts. SWM received over $80,000,000 in Navy payments for 
     fixed price repair work performed in FY 1984-87 and asserts 
     that none of this $80,000,000 represents recovery of its 
     costs of performance. SWM also received over $50,000,000 in 
     payments for commercial work during this time, but offers no 
     credit for use of the drydock or recovery of drydock costs 
     from this work. ADD received over $60,000,000 in Navy 
     payments for fixed price repair work performed in FY 1983-87 
     and asserts that none of this $60,000,000 represents recovery 
     of its costs of performance. ADD also received over 
     $48,000,000 in payments for commercial work and non-Navy 
     government work during this time and offers no credit for use 
     of the marine railway or recovery of marine railway cost from 
     such work.
       Additionally, Navy policy is to not grant use of government 
     drydock facilities to perform ship repair contracts if there 
     is adequate competition in the homeport between private yards 
     with dedicated access to privately-owned drydocks. This 
     policy has benefited the shipyards. For example, in San 
     Diego, because there is such competition between SWM and 
     National Shipbuilding and Steel Company (NASSCO), the Navy 
     does not make available its graving dock to offerors. As a 
     result, offerors without dedicated access to private drydock 
     facilities are ineligible to compete for phased maintenance 
     multi-year/multi-ship solicitations.
       The Navy attributed the decline in overhaul work in 
     Jacksonville and San Diego to the trend to perform shorter 
     repairs rather than overhauls, but the examples cited by the 
     Navy do not prove that there was an inadequate supply of 
     overhauls work for the Navy to honor its representatives. 
     January 29 Submission at 33-41.
       Facts: The Navy 1992 Report identified other trends in ship 
     maintenance that ``affected Navy ship repair planning[]'' and 
     that led to a decrease in the percentage of overhauls 
     solicited only in the homeport. In particular, more complex 
     ships meant that the length of time to perform an overhaul 
     increased. Therefore, to maintain fleet operational 
     requirements, a greater number of SRAs vice overhauls were 
     scheduled. The Navy describes these trends as part of the 
     factual background to the claims and does not argue that the 
     increasing preference for SRAs somehow gave an excuse to not 
     ``honor its representations.''
       The Navy's correlation between SWM's loss of its small 
     business size status and a subsequent loss of revenue does 
     not take into account that, during ``large parts'' of FY 
     1984, SWM's facilities were unavailable for Navy work because 
     the company was in the process of installing and testing its 
     new drydock and SWM ``expected some disruption of normal 
     operations,'' and the new drydock changed SWM's business from 
     primarily top-side work and small drydock availabilities to 
     larger jobs beyond the capacity of most small businesses. 
     January 29 Submission at 42-43.
       Facts: SWM lost its small business size status in December 
     1983, causing a significant loss of business because of an 
     inability to bid on the many small business set-asides 
     offered in the homeport. SWM had ranked first or second in 
     Navy homeport repair business in FYs 1981, 1982, and 1983, 
     but fell to fourth in FY 1984 and fell further to eighth in 
     FY 1985 before beginning to recover in FYs 1986 and 1987. The 
     Navy noted in its Report, the SWM rebuttal to this issue--
     specifically, that SWM in a November 25, 1991, letter 
     asserted that it expected a decline in its FY 1984 business 
     volume due to installation and testing of the drydock which 
     is inconsistent with an earlier SWM statement that it is 
     entitled to the award of numerous FY 1984 repair 
     availabilities. Finally, where the new drydock gave SWM the 
     capacity to perform larger jobs, the choice was with SWM to 
     continue bidding on set-asides if it so desired; the loss of 
     its size status took that choice away from SWM.
       Contrary to the Navy's position, Congress should not be 
     blamed for the change in homeport policy, because 
     Congressional language on homeport policy only established 
     ``short-term, expedient measures designed to alleviate 
     problems experienced by non-home port yards during a 
     recession.'' The Navy must take responsibility for its role 
     in reversing the homeport policy; the Navy had a 
     ``disposition toward the elimination of all homeport 
     restrictions on overhaul solicitations'' and never advised 
     Congress of the SWM or ADD facility investments made in 
     reliance on Navy representations. January Submission at 43-
     47.
       Facts: See discussion above of homeport policy. In addition 
     to direction to terminate the policy for reserving one-third 
     of overhauls to the homeport in the Conference Report on the 
     FY 1985 Continuing Appropriations Acts, the Conference Report 
     for the FY 1984 DoD Appropriations Act added five additional 
     overhauls, above the number included in the President's 
     budget, to be awarded to private shipyards--two to be 
     competed on the West Coast and three to be competed on the 
     East Coast. The Navy 1992 Report notes SWM arguments similar 
     to those in the January 29, 1993, submission and finds that 
     there is no evidence to support that the Navy was, off the 
     record, advocating to Congress that the homeport policy 
     should be abandoned. Also, Congress was aware of Navy public 
     statements regarding the need for additional drydock 
     facilities in San Diego and Jacksonville at the time Congress 
     directed relaxing the homeport policy. Members of the Florida 
     and California Delegations were aware of those statements and 
     actively participated in conveying many of them to 
     constituents. In October 1984, Congress directed abandonment 
     of the policy to restrict one-third of the homeport overhaul 
     contracts to the homeport, and the Navy thereafter 
     implemented that direction.
       The principles of statutory construction dictate that Sec. 
     122 be interpreted to recognize Government legal liability 
     for the claim. The words ``if any'' in the statute mean that 
     Congress made no determination as to quantum of damages; 
     Congressional interpretations of Sec. 122 after its enactment 
     are relevant. Furthermore, Sec. 122 is like a Congressional 
     reference case where the Court of Claims has previously ruled 
     that equity demands compensation. January 29 Submission at 
     58-69.
       [[Page H3566]] Facts: These arguments were fully addressed 
     in the Navy 1992 Report. Sec. 122 provides, in pertinent 
     part, that ``[t]he Secretary of the Navy shall enter into 
     negotiations * * * to determine what liability (if any) the 
     United States has for damages suffered by such a shipyard * * 
     *.'' After the Navy originally denied the claim in 1990, 
     Congress, in again addressing the matter, did not direct 
     entitlement, but rather reconsideration of the claims. 
     Conference Report accompanying the FY 1990 DoD Authorization 
     Act. In the Conference Report for the FY 1994 DoD 
     Authorization Act, Congress again only directed 
     reconsideration--not entitlement. Special reference cases are 
     generally enacted either to waive a Government affirmative 
     defense or to provide an admission of liability by the 
     Government, leaving to the courts the factual and legal 
     questions relating to damages. These cases are strictly 
     construed, and a Congressional confession of liability must 
     be clearly expressed. Sec. 122 and its progeny have no 
     expression of liability and is not a Congressional reference 
     case. Post-enactment interpretations by Members of Congress 
     are given legal effect only where not inconsistent with the 
     statute and legislative history.
       The Navy's conclusion that the Secretary will not exercise 
     residual powers under P.L. 85-804 because such action is not 
     ``necessary and appropriate'' or would not ``facilitate the 
     national defense'' runs counter to the record, Sec. 122, and 
     the post-enactment Congressional letters of clarification. 
     P.L. 85-804 is authority for the Navy to provide equitable 
     relief on the basis of formalization of informal commitments 
     or residual powers authority. Federal Acquisition Regulation 
     (FAR) 50.302-3 and FAR 50.401, respectively.
       Facts: The Navy in 1992 denied relief under P.L. 85-804 on 
     both formalization of informal commitment and residual powers 
     grounds based on the facts. The Navy did (and does) recognize 
     that the residual powers authority could be utilized but was 
     (and is) not appropriate on the facts of the case. Both 
     shipyards were never precluded from ship repair competitions; 
     the facility improvements enhanced the ability to receive 
     future Government contracts; and the shipyards received 
     benefits from the capital improvements, including an increase 
     in Navy ship repair work. Regarding the requirement to 
     determine that granting relief will facilitate the national 
     defense, the Navy found no evidence that the shipyards' 
     continued viability was endangered. See also discussion 
     below.
       Although claimants now concede that they could not prevail 
     if they sued the Government in the Court of Federal Claims on 
     a claim of promissory estoppel, they assert that all elements 
     of promissory estoppel essentially are present which 
     ``indicates why Congress felt a moral or honorable obligation 
     to compensate the shipyards.'' Sec. 122 permits application 
     of the ``tenets of promissory estoppel to the matter.'' 
     January 29 Submission at 74-75.
       Facts: Statements by Navy representatives were opinions and 
     predictions that an increase in homeport drydocking 
     capability would increase the amount of Navy ship repair work 
     which could be solicited within the homeport. The statements 
     were reasonable predictions about future Navy ship repair 
     business and expressed legitimate goals for enhanced 
     competition and a stronger national industrial mobilization 
     base. While the Navy desired and encouraged facility 
     improvements in the two homeports, it disavowed any 
     guarantees that future work would follow (and in fact 
     expressly rejected making guarantees of work prior to the 
     investments being made) and did not unfairly induce these 
     investments. The Navy also did not urge specific improvements 
     which were rather chosen by the shipyards.
       There is no evidence that the Navy misled the shipyards by 
     misrepresenting or concealing material facts. When the Navy 
     statements were made, they were accurate and reasonable in 
     light of the expanding 600-ship Navy and existing policy, and 
     the Navy in 1981-82 did not know Congress would later direct 
     changes in the homeport policy or that other later changes in 
     policy would occur to reflect changing requirements. Navy 
     officials never promised specific contracts or a specific 
     amount of future repair work. The Navy representations were 
     too indefinite and uncertain to support a claim of promissory 
     estoppel. The record also shows that others (e.g., the 
     Jacksonville Chamber of Commerce Ship Repair Facility Task 
     Force) made representations and inducements to encourage 
     homeport investment.
       These shipyards were aware that Government policies 
     affecting contractors are subject to change and, to the 
     extent that they based their business decisions on certain 
     existing Navy policies, they assumed the business risks that 
     those policies could change.
       Sec. 122 effectively waives sovereign immunity. The analogy 
     of Congressional reference cases applies because Sec. 122 
     must be interpreted as a determination of liability. January 
     29 Submission at 76-78.
       Facts: The Navy changes in homeport, master ship repair, 
     and multi-ship policies were actions taken by the Government 
     in its sovereign capacity. They were actions with a public 
     and general application that affected all Navy ship repair 
     contractors, all Navy ships, and ships' crews and their 
     families, among others. These actions were not directed at 
     SWM and ADD. The Government is immune from liability for its 
     sovereign acts. The arguments regarding interpretation of 
     Sec. 122 and the applicability of Congressional reference 
     cases were found legally unpersuasive in other sections of 
     the Navy Report. Furthermore, the case law on reference cases 
     requires that the Government be guilty of wrongful or 
     negligent acts in order to have liability on broad equity 
     grounds. There is no evidence that the Navy acted wrongfully 
     or negligently in making any representations or in changing 
     contract or homeport policies.
       Claimants repeat their disagreement with the Navy on 
     various quantum issues--e.g., what facility investments can 
     be considered ``drydocking capacity'' investments; propriety 
     of ADD's inclusion of facilities capital cost of money; 
     propriety of claimants' inclusion of imputed profit; and 
     propriety of ADD's application of a discount to proposed 
     change order prices. Claimants state that they did not 
     recover investment costs from the fixed price contracts 
     awarded in the claim period because, in order to win 
     competitions, they could
      not raise prices to a level that would result in cost 
     recovery for facility investments. January 29 Submission 
     at 97-112.
       Facts: Claimants have not presented any evidence to 
     demonstrate that any alleged unrecovered facility investment 
     costs are attributable to decreased levels of work competed 
     in the homeport or to below-cost bids for fixed price ship 
     repair contracts rather than other causes (such as 
     inefficiencies). Furthermore, each shipyard realized 
     increased Navy work after the facility investments. From FY 
     1983-87, the dollar volume of Navy ship repair business in 
     Jacksonville doubled and ADD experienced a significant 
     increase in Navy work following the investment. From FY 1983-
     87, San Diego Navy ship repair business increased 
     substantially. SWM Navy work significantly increased in FY 
     1987 and after. Prior to FY 1987, SWM sales did not increase 
     due, in large part, to SWM's loss of small business status in 
     February 1984. The damages suffered are highly speculative. 
     ADD/SWM have not acknowledged any recovery of investment 
     costs in $60,000,000 and $80,000,000, respectively, of fixed 
     price Navy and commercial ship repair work in the claim 
     period. The companies may have already recovered more than 
     the booked depreciation costs of the investments. During the 
     October 24, 1994, meeting with ASN(RDA), both claimants 
     admitted that they have been profitable for the last few 
     years, with the exception of loss years in 1993 and 1994 for 
     SWM.


                      vi. reexamination summarized

       In its 1993 and 1994 submissions, SWM/ADD did not submit 
     any new facts, issues, legal theories, or supporting 
     documentation relating to Navy actions during the relevant 
     claim period that were not analyzed as part of the 1992 Navy 
     Report. Also, SWM's P.L. 85-804 request at that time was the 
     same as the present request--formalization of an informal 
     commitment or residual powers. The only new data submitted 
     relates to SWM's P.L. 85-804 request for payment of 
     $15,000,000--specifically, data on its current financial 
     position and its 1993/94 ship repair workload. The 1992 
     Report fully and completely documented the facts, substantive 
     differences of opinion between the parties, legal and 
     equitable issues and analysis, including supporting 
     documentation. The Navy's 1992 Report fully analyzed 
     claimants' claim on legal entitlement and on certain 
     equitable or ``fairness'' theories: P.L. 85-804, broad moral 
     responsibility, equitable estoppel, and promissory estoppel. 
     The Navy cannot find a basis to reach conclusions different 
     from those in the 1992 Navy Report.
       Based on the Navy's independent review of the record--that 
     existing for the 1992 Navy Report and all additional 
     information submitted after the 1992 Navy Report--the Navy 
     finds no legal entitlement for the claims and no reason to 
     grant relief to the claimants based on fairness.


                            vii. p.l. 85-804

       As mentioned above, SWM has requested payment of 
     $15,000,000 to allow SWM ``to reduce the long-term debt 
     resulting from its facilities investment, which is 
     contributing to its current serious cash flow problems,'' 
     September 2 Submission at 4-5, pursuant to P.L. 85-804 
     (formalization of an informal commitment or residual powers).
       Formalization of an Informal Commitment. FAR 50.302-3 
     provides: Under certain circumstances, informal commitments 
     may be formalized to permit payment to persons who have taken 
     action without a formal contract; for example, when a person, 
     responding to an agency official's written or oral 
     instructions and relying in good faith upon the official's 
     apparent authority to issue them, has furnished or arranged 
     to furnish supplies or services to the agency, or to a 
     defense contractor or subcontractor, without formal 
     contractual coverage. Formalizing commitments under such 
     circumstances normally will facilitate the national defense 
     by assuring such persons that they will be treated fairly and 
     paid expeditiously.
       No informal commitment shall be formalized unless the 
     contractor submits a written request for payment within six 
     months after furnishing, or arranging to furnish, supplies or 
     services in reliance upon the commitment and the approving 
     authority finds that, at the time the commitment was made, it 
     was impracticable to use normal contracting procedures. FAR 
     50.203(d).
       The 1992 Navy Report determined that these two conditions 
     were absent. The Report stated that the facts ``do not 
     involve an urgency, emergency or other situation that 
     [[Page H3567]] precluded use of normal procurement 
     procedures'' (at 64) and that SWM and ADD submitted their 
     request for relief years after the investments and changes to 
     Navy policies (at 95).
       SWM argues that it would be unfair to hold it to the six 
     month period because it believed that payment for facilities 
     investments would occur in the future by being awarded 
     additional contracts pursuant to the homeport and other 
     policies. Only years later did SWM realize such contracts 
     were not going to be awarded. However, the Navy does not have 
     authority to waive this regulatory limitation or allow the 
     six months to run from when SWM knew, or should have known, 
     that the facts upon which it relied had changed. In any case, 
     SWM knew years before 1987, when it first submitted its 
     claim, that the ship repair policies had substantially 
     changed. Therefore, there is no basis to find that SWM acted 
     promptly under any reasonable standard.
       Regarding the impracticability of normal contract 
     procedures, SWM argues that the Navy does not normally 
     contract for private shipyards' facilities improvements and 
     there is no requirement to find an emergency or other urgent 
     situation. However, FAR 50.203(d)(2) requires that the agency 
     must make a finding that, at the time the commitment was 
     made, it was ``impracticable to use normal contracting 
     procedures.'' The subject matter of the informal commitment 
     in question (e.g., private facility investments) is 
     irrelevant to this regulatory limitation on formalization of 
     informal commitments. While there is no specific regulatory 
     requirement to find an emergency or other urgent situation, 
     such time-sensitive situations are typical examples that can 
     justify the impracticability of going through the often 
     lengthy steps required to award a contract.
       Residual Powers. Residual powers to enter into, amend, or 
     modify a contract, or indemnify a contractor for unusually 
     hazardous or nuclear risks, may be used ``when necessary and 
     appropriate, all circumstances considered.'' FAR 50.401.
       The 1992 Navy Report found that the circumstances of this 
     case did not warrant finding that extraordinary contractual 
     relief was necessary and appropriate or that such relief 
     would facilitate the national defense. The Report found that 
     there was no liability on a theory of promissory estoppel 
     because Navy representations were too vague and uncertain, 
     were merely projections of anticipated future work in the 
     homeports, and never promised specific contracts or 
     guaranteed additional work. There was no liability under an 
     equitable estoppel theory because the Navy did not mislead 
     the claimants by misrepresentations or by concealing material 
     facts. Navy representations in the nature of predictions of 
     future homeport workload were reasonable and true, at the 
     time, based on existing policies, and the claimants' 
     investments resulted in valuable capital improvements that 
     led to additional ship repair work. Finally, the Report found 
     that there was no basis for relief on a theory of broad moral 
     responsibility because there was no wrongful or negligent 
     Government conduct.
       The only new circumstances presented by SWM in its new 
     submissions is its alleged cash flow problems, i.e., that it 
     will soon run out of credit; absent relief, SWM will probably 
     be insolvent within ``a matter of weeks''; and insolvency may 
     impact SWM's ability to complete Government contracts and 
     ``may require drastic actions to protect the company's 
     assets.'' September 2, 1994, Submission at 40-41. In support 
     of its financial situation, SWM submitted a ``1994 
     Consolidated Forecast'' (Attachment 19), ``Projected Impact 
     of $15,000,000 Relief Payment on Cash Flows For the Period 
     1994-1997'' (Attachment 52), and a Port of San Diego 
     breakdown of workload from October 1, 1992, to September 30, 
     1993, (Attachment 49).
       SWM states that its financial position is ``far worse'' 
     than last April when its P.L. 85-804 request for losses under 
     four Maritime Administration (MARAD) contracts was denied by 
     the Department of Transportation Contract Adjustment Board 
     (DOTCAB). SWM's request to DOTCAB was for a $5,500,000 
     amendment without consideration, on the basis that it may 
     lose sufficient working capital and have to cease operation 
     before it can process its claims pursuant to the Contract 
     Disputes Act.
       DOTCAB solicited the positions of affected agencies 
     regarding SWM's essentiality to the national defense and 
     whether granting relief would facilitate the national 
     defense. The Coast Guard responded that SWM was not essential 
     and its continued viability would not facilitate the national 
     defense. MARAD responded in the negative to both issues. The 
     Navy stated that it cannot conclude that SWM is essential to 
     the national defense and:
       The company provides a significant source of competition 
     for depot level availabilities that require drydocking of 
     Navy ships homeported in San Diego. The loss of Southwest 
     Marine's drydocking capability could have an adverse effect 
     on Navy ships homeported in San Diego from a cost and time 
     standpoint as well as on the quality of life for the ships' 
     crews and their families.
       The Navy is mindful that ``[w]hether appropriate 
     [extraordinary relief] action will facilitate the national 
     defense is a judgment to be made on the basis of all the 
     facts of the case.'' As we are not in possession of all 
     pertinent facts and, equally important, because the matter is 
     before the Maritime Administration and
      not the Navy, we offer no comment as to the advisability of 
     granting Southwest Marine's request.
       DOTCAB interpreted the Navy's letter as withholding an 
     opinion on the question of whether granting relief (versus 
     the continued viability of SWM) would facilitate the national 
     defense; conveying that SWM is not essential to the national 
     defense; and stating that the continued viability of SWM does 
     aid and assist (i.e., facilitate) the national defense, 
     because avoiding the adverse impact identified makes the 
     Navy's tasks easier.
       DOTCAB, in analyzing whether granting or withholding relief 
     will affect SWM's ability to continue operations, found that 
     SWM's actions have impaired its financial situation. SWM paid 
     bonuses in 1993 to senior executives who, as a group, 
     represented the four major stockholders (while aware of 
     substantial losses being incurred under the MARAD contracts) 
     and wrote off almost $5,000,000 in loans made to 
     subsidiaries, both of which contributed to losses leading to 
     default of the credit agreement with Wells Fargo Bank. SWM 
     made a loan of $5,000,000 to its Chief Executive Officer for 
     personal investment in another business, obtaining the funds 
     in a transaction with its bank secured by SWM property--an 
     impairment of SWM's ability to borrow further against its 
     assets.
       DOTCAB concluded that SWM was not essential to the national 
     defense; that granting relief under P.L. 85-804 at that time 
     would not facilitate the national defense; that SWM did 
     suffer losses under the four MARAD contracts (although there 
     is no finding as to the cause of the losses); and that it 
     does not find that relief under the Contract Disputes Act is 
     unavailable in sufficient time to continue SWM's viability.
       Facilitation of National Defense. A prerequisite to 
     granting relief under P.L. 85-804, including the use of 
     residual powers, is the agency's determination that granting 
     relief will facilitate the national defense. FAR 50.301 
     provides that ``[w]hether appropriate action will facilitate 
     the national defense is a judgment to be made on the basis of 
     all of the facts of the case.'' Therefore, it is appropriate 
     to consider the impact on the Navy if SWM's operations were 
     to cease due to financial difficulties.
       Uniqueness or Essentiality of SWM's Capabilities. Based on 
     Navy projections of ship repair requirements in San Diego 
     through the year 2000, the Navy needs at least two drydocks 
     and sufficient pier space to conduct up to 12 depot 
     maintenance availabilities at any one time. NASSCO and SWM 
     are the only two private shipyards in San Diego that have the 
     capability to drydock all Navy ships, with the exception of 
     the largest (CVs/LHA/LHDs). If SWM were to go out of 
     business, the Navy would be able to meet the foregoing 
     facility requirements in San Diego. The drydocking facilities 
     of NASSCO and the Navy in San Diego are adequate to meet Navy 
     projected repair requirements. NASSCO has a Navy-certified 
     floating drydock (20,750 LT capacity). The Navy has the Naval 
     Station graving dock (33,000 LT) and the Steadfast floating 
     drydock (9,700 LT). In addition to this drydock capacity, 
     four other contractors (apart from NASSCO and SWM) hold 
     Master Ship Repair Agreements (MSRA) and three contractors 
     hold Agreements for Boat Repair (ABR). Therefore, the 
     continued viability of SWM as a ship repair company in San 
     Diego is not essential for Navy operations or for industrial 
     mobilization considerations.
       Consequences if SWM Goes out of Business. If SWM were to 
     cease operations, the Navy would lose the services of a ship 
     repair firm with good facilities and performance record. The 
     quality of SWM's piers and Navy-certified drydock is good. 
     SWM's performance record, both past and current performance, 
     on Navy ship repair contracts has been good. SWM is the San 
     Diego shipyard with the most experience on AEGIS cruisers and 
     destroyers. Unlike NASSCO, whose primary focus is on ship 
     construction, SWM devotes its business to ship maintenance 
     and modernization. Other examples of its experience include a 
     successful completion of a major cruiser New Threat Upgrade, 
     selection to support the USS John Paul Jones (DDG 53) shock 
     trials, and award of the major amphibious ship (LPD/LSD) 
     phased maintenance contracts in San Diego for the past five 
     years.
       Other effects should SWM cease operations include a 
     decrease in competition and facilities available to perform 
     homeport maintenance. There would remain only one private 
     shipyard (NASSCO) with its own Navy-certified drydock capable 
     of drydocking most Navy ships homeported in San Diego. 
     Furthermore, if SWM's certified drydock were no longer 
     available, the drydock capacity in San Diego would be 
     significantly reduced. The Navy would have to award certain 
     work sole source to NASSCO, if justifiable on a case by case 
     basis; make the Navy's drydock or pier facilities available 
     for purposes of achieving competition; or expand the 
     solicitation area to include more distant facilities. The 
     capacity of Government drydocks in San Diego is limited and 
     making them available for competition would reduce their 
     availability for emergent voyage repairs. Expanding the 
     solicitation area could lead to contracts outside the 
     homeport, with attendant costs of moving the ship and crew 
     and negative affect on personnel quality of life. This could 
     also cause a violation of Personnel Tempo (PERSTEMPO) Program 
     Turn-Around-Ratio criteria, which could disrupt operations.
       [[Page H3568]] The following ships are, or soon will be, 
     undergoing maintenance availabilities at SWM:
     Contract No., ship, and completion date
       N00024-89-C-8507, Denver (LPD-9), 10/28/94.
       N00024-89-C-8507, Duluth (LPD-6), 1/06/95.
       N00024-94-C-0057, John Young (DD-973), 12/16/94.
       N62791-94--0103, LCM's (3), 10/14/94.
       N62791-94-C-0108, Peleliu (LHA-5)\1\, 12/09/94.
       N00024-92-C-2802, John Paul Jones (DDG-53), 11/14/94.
       N62387-93-C-3001, San Jose (T-AFS-7), 11/01/94; Curtis 
     Wilbur (DDG-54), 12/19/94; Fort McHenry (LSD-43), 4/21/95; 
     Rushmore (LSD-47), 4/21/95; Cleveland 4/28/95.

     \1\The U.S.S. Peleliu is located at a Navy pier.

       If SWM were to file for protection under Chapter 11 of the 
     Bankruptcy Code, work on these ships would be affected and 
     operating schedules delayed. The work would be delayed until 
     the Bankruptcy Court approved either an assumption of these 
     contracts by SWM or Navy terminating the contracts. Although 
     there would be delay and
      perhaps additional cost in completing these contracts, the 
     negative impact on Navy operations could be accommodated.
       Therfore, as concluded in the Navy response to DOTCAB (a 
     conclusion that remains valid), ``loss of [SWM's] drydocking 
     capability could have an adverse effect on Navy ships 
     homeported in San Diego from a cost and time standpoint as 
     well as on the quality of life for the ships' crews and their 
     families.''
       SWM Viability. SWM has not demonstrated that it cannot 
     obtain further lines of credit to support its cash flow 
     requirements. There is no substantiation that SWM will cease 
     operations any time soon. SWM merely stated that it ``will 
     probably be insolvent.''
       DCAA Audit Report No. 4221-94J17600001 of January 26, 1994, 
     which analyzed SWM's financial condition in relation to its 
     P.L. 85-804 request before MARAD, found ``no adverse 
     financial conditions which would preclude SWM from performing 
     on its government contracts. Our audit disclosed relatively 
     insignificant financial distress, and no indications of 
     significant long-term problems.'' A basis for this opinion 
     included audited 1994 business volume forecasts and projected 
     cash flow resulting from this business volume. An updated 
     financial capability audit of SWM, DCAA Audit Report No. 
     4151-94J17600007 of November 1, 1994, discloses ``no adverse 
     financial conditions which would preclude it [SWM] from 
     performing on its government contracts,'' and ``relatively 
     insignificant'' financial distress with no ``indications of 
     significant long-term problems.'' Regarding SWM's line of 
     credit, SWM entered into an amended loan agreement with Wells 
     Fargo Bank in June 1994. Although SWM may now be noncomplaint 
     with the amended loan agreement's covenants on profitability 
     and cash flow coverage, the bank has indicated that it will 
     probably restructure the loan agreement. Accordingly, the 
     audit concludes that SWM has demonstrated that it can work 
     with the bank in resolving its needs.
       Moreover, even if SWM's allegations of financial straits 
     were accurate, granting the requested $15,000,000 relief 
     would not necessarily result in SWM remaining a viable entity 
     in San Diego. There is no evidence demonstrating that the 
     amount and type of relief requested will satisfactorily 
     resolve the alleged cash flow problems. There is no evidence 
     to demonstrate that the amount requested related to SWM's 
     financial viability. SWM has provided no explanation of the 
     basis for requesting the $15,000,000 amount, i.e., how was it 
     calculated? Nor is there any guarantee that SWM will not 
     continue certain actions that DOTCAB found to have at least 
     partly caused SWM's financial difficulties, such as granting 
     bonuses to stockholders and writing off loans to 
     subsidiaries.
       Conclusion Regarding P.L. 85-804. Based on all of the 
     foregoing considerations, it is not considered necessary to 
     make a finding regarding ``facilitation of the national 
     defense,'' and, although SWM's operations in San Diego are 
     beneficial to the Navy, the Navy cannot find that granting 
     the requested P.L. 85-804 relief to SWM is appropriate in 
     this case.


                            VIII. conclusion

       the Navy finds no legal entitlement for the SWM/ADD claims 
     and no reason to grant relief to the claimants based on 
     fairness. Moreover, the Navy cannot find that granting the 
     requested P.L. 85-804 relief to SWM is appropriate in this 
     case.
       Contingent Liabilities: Provisions to indemnify contractors 
     against liabilities because of claims for death, injury, or 
     property damage arising from nuclear radiation, use of high 
     energy propellants, or other risks not covered by the 
     Contractor's insurance program were included in these 
     contracts; the potential cost of the liabilities can not be 
     estimated since the liability to the United States 
     Government, if any, will depend upon the occurrence of an 
     incident as described in the indemnification clause. Items 
     procured are generally those associated with nuclear-powered 
     vessels, nuclear armed missiles, experimental work with 
     nuclear energy, handling of explosives, or performance in 
     hazardous areas.

Contractor:                                                      Number
  Hercules, Inc.......................................................1
  Rockwell International Corp.........................................2
  Interstate Electronics Corp.........................................1
  Unisys Systems Corporation..........................................1
  Westinghouse Electric Corporation...................................4
  Honeywell Incorporated..............................................2
  Lockheed Missiles & Space Co., Inc..................................3
  Raytheon Company....................................................4
  Kearfott Guidance & Navigation......................................4
  Hughes Aircraft Company.............................................4
  Martin Marietta Defense Systems.....................................8
  General Dynamics Corps., Electric Boat Division.....................3
  Newport News Shipbuilding and Drydock Co............................3
  Hughes Missile Systems Company......................................1
                                                               ________

    Total............................................................41
                      department of the air force

       Contractor: Various.
       Type of action: Contingent Liability.
       Actual or estimated potential cost: The amount the 
     Contractors will be indemnified by the Government can not be 
     predicted but could entail millions of dollars.
       Service and activity: Civil Reserve Air Fleet (CRAF).
       Description of product or service: FY 1994 Annual Airlift 
     Contracts.
       Reference: ``Definitions of Unusually Hazardous Risks 
     Applicable to CRAF FY 1994 and FY 1995 annual airlift 
     Contracts'' are described on pages 50 and 51.
       Background: Twenty-six contractors have requested 
     indemnification under P.L. 85-804, as implemented by 
     Executive Order 10789, for the unusually hazardous risks (as 
     defined) involved in providing airlift services for CRAF 
     missions (as defined). In addition, Air Mobility Command 
     (AMC) has requested indemnification for subsequently 
     identified contractors and subcontractors who conduct or 
     support the conduct of CRAF mission. The contractors for 
     which indemnification is requested are those to be awarded as 
     a result of Solicitation F11626-92--R0030 and future 
     contracts to support CRAF missions, which are awarded prior 
     to September 30, 1994. The 26 contractors requesting 
     indemnification are listed below:


       contractors to be indemnified and proposed contract number

       Air Transport International (ATN), F11626-93-D0037.
       American Int'l Airways (CKS), F11626-93-D0038.
       American Trans Air (ATA), F11626-93-D0035.
       Arrow Air (ARW), F11626-93-D0039.
       AV Atlantic (AVA), F11626-93-D0040.
       Buffalo Airways (BVA), F11626-93-D0041.
       Continental Airlines (COA), F11626-93-D0042.
       Delta Air Lines (DAL), F11626-93-D0043.
       DHL Airways (DHL), F11626-93-D0044.
       Emery Worldwide (EWW), F11626-93-D0036.
       Evergreen International (EIA), F11626-93-D0036.
       Federal Express (FDX), F11626-93-D0035.
       Hawaiian Airlines (HAL), F11626-93-D0045.
       Int'l Charter Xpress (IXX), F11626-93-D0046.
       Miami Air (MYW), F11626-93-D0047.
       Northwest Airlines (NWA), F11626-93-D0035.
       Private Jet (PVJ), F11626-93-D0048.
       Rich International (RIA), F11626-93-D0036.
       Southern Air Transport (SAT), F11626-93-D0035.
       Sun Country Airlines (SCX), F11626-93-D0036.
       Tower Air (TWR), F11626-93-D0051.
       Trans World Airlines (TWA), F11626-93-D0050.
       United Parcel Service (UPS), F11626-93-D0051.
       US Air (USA), F11626-93-D0052.
       World Airways (WOA), F11626-93-D0036.
       Zantop International (ZIA), F11626-93-D0053.
       Note: The same contract number may appear for more than one 
     company because in some cases the companies are providing 
     services under a joint venture arrangement.
       Desert Shield/Storm showed that air carriers providing 
     airlift services during contingencies and war require 
     indemnification. Insurance policy war risk exclusions, or 
     exclusions due to activation of CRAF, left many carriers 
     uninsured--exposing them to unacceptable levels of risk. 
     Waiting until a contingency occurs to process an 
     indemnification request could result in delaying critical 
     airlift missions. Contractors need to understand up front 
     that risks will be covered by indemnification and how the 
     coverage will be put in place once a contingency is declared.
       Justification: The specific risks to be indemnified are 
     identified in the applicable definitions. The Government will 
     not incur a contingency liability as an immediate direct 
     result of this advance indemnification approval; however, if 
     the air carriers suffer losses or damages, exclusive of 
     losses or damages that are within the air carriers' insurance 
     deductible limits are not compensated by the contractors' 
     insurance, the contractors will be indemnified by the 
     Government. The amount of this indemnification can not be 
     predicted, but could entail millions of dollars.
       All of the 26 contractors are approved DoD carriers and, 
     therefore, considered to have adequate, existing, and ongoing 
     safety programs. Moreover, AMC has specific procedures for 
     determining that a contractor is complying with government 
     safety requirements. Also, the contracting officer has 
     determined that the contractors maintain liability insurance 
     in amounts considered to be prudent in the ordinary course
      of business within the industry. Specifically, each 
     contractor has certified that its coverage satisfies the 
     minimum level of liability insurance required by the 
     Government. Finally, all 
     [[Page H3569]] contractors are required to obtain war hazard 
     insurance available under Title XIII of the Federal Aviation 
     Act of 1958 for hull and liability war risk. All but one 
     contractor has obtained this coverage with the Federal 
     Aviation Agency. The remaining firm will obtain it before 
     receiving an Air Force CRAF contract. Additional contractors 
     and subcontractors that conduct or support the conduct of 
     CRAF missions may be indemnified only if they request 
     indemnification, accept the same definition of unusually 
     hazardous risks as identified, and meet the same safety and 
     insurance requirements as the 26 contractors currently 
     seeking indemnification.
       Without indemnification, airlift operations to support 
     contingencies or wars might be jeopardized to the detriment 
     of the national defense, due to the non-availability to the 
     air carriers of adequate commercial insurance covering risks 
     of an unusually hazardous nature arising out of airlift 
     services for CRAF missions. Aviation insurance is available 
     under Title XIII for air carriers, but this aviation 
     insurance, together with available commercial insurance, does 
     not cover all risks which might arise during CRAF missions. 
     Accordingly, it is found that incorporating the 
     indemnification clause in current and future contracts for 
     airlift services for CRAF missions would facilitate the 
     national defense.
       Decision: Under authority of P.L. 85-804 and Executive 
     Order 10789, as amended, the request was approved on June 2, 
     1994, to indemnify the 26 air carriers listed above and other 
     yet to be identified air carriers providing airlift services 
     in support of CRAF missions for the unusually hazardous risks 
     as defined. Indemnification under this authorization shall be 
     affected by including the clause in FAR 52.250-1, entitled 
     ``Indemnification Under P.L. 85-804 (Apr 1984),'' in the 
     contracts for these services. This approval is contingent 
     upon the air carriers complying with all applicable 
     government safety requirements and maintaining insurance 
     coverage as detailed above. The AMC Commander will inform the 
     Secretary of the Air Force immediately upon each 
     implementation of the indemnification clause.
       Approval was also granted to indemnify subcontractors that 
     request indemnification, with respect to those risks as 
     defined.


    department of the air force, headquarters air mobility command 
                   memorandum dated october 11, 1994

       Findings: By Memorandum of Decision dated June 2, 1994, SAF 
     granted indemnification to contractors for unusually 
     hazardous risks involved in providing airlift support for 
     CRAF missions. A CRAF mission means airlift services ordered 
     pursuant to CRAF activation or directed by Commander AMC for 
     missions that are deemed to be substantially similar to, or 
     in lieu of, those ordered under CRAF activation.
       Contracted civil air missions in support of possible 
     military operations in Haiti could expose contractors to 
     unusually hazardous risks, specifically war risks, because of 
     the hostile environment they will encounter. AMC is 
     requesting the Federal Aviation Administration (FAA) to 
     provide Title XIII insurance for contractors flying missions 
     in
      support of potential Haiti operations. Based on experience 
     with past contingencies, AMC/DOF advises that commercial 
     insurance may not be available at reasonable rates. 
     Consistent with the SAF approval, indemnification will 
     apply to the extent that the risks are not covered by 
     Title XIII insurance or other insurance. Participation of 
     civil air carriers is essential to successful completion 
     of the mission. Contractors can not be expected to absorb 
     the liability for loss that could arise while performing 
     operations in Haiti. Without indemnification, the ability 
     to support the airlift mission will be jeopardized.
       Determination: On September 14, 1994, it was determined 
     that missions in support of possible military operations in 
     Haiti will be in lieu of CRAF activation and that 
     indemnification under P.L. 85-804 is necessary to protect 
     contractors against unusually hazardous risks associated with 
     such missions.


  air mobility command determination supporting indemnification under 
                           public law 85-804

       Memorandum for SAF/OS dated October 11, 1994, from AMC/CC, 
     subject: Indemnification of Contractors and Subcontractors 
     for Unusually Hazardous Risks Involved in Providing Airlift 
     Support for Civil Reserve Air Fleet (CRAF) Missions (SAF 
     Memorandum of Decision, June 2, 1994).
       As the June 2, 1994, memorandum requires, on October 11, 
     1994, AMC/CC provided notice of implementation of the 
     indemnification clause for civil air missions supporting 
     military operations in Haiti. The AMC staff provided verbal 
     notice to SAF/AQCO during the week of September 12, 1994. The 
     clause was implemented only after air carriers requested 
     indemnification, and after it was determined these missions 
     would be in lieu of CRAF activation and would require 
     indemnification to protect carriers against unusually 
     hazardous risks as defined in the June 2, 1994, memorandum. 
     The indemnified missions began September 19, 1994.
       AMC has implemented the indemnification clause for five 
     contractors. Four of them (American Trans Air, Tower Air, 
     World Airways, and Sun Country Airlines) are on the original 
     list of 26 air carriers approved in the June 2, 1994, 
     memorandum. Three additional contractors (Express One, US Air 
     Shuttle, and North American Airlines) received FY 1994 
     contracts containing the indemnification clause. The 
     indemnification clause was implemented for one of them--North 
     American Airlines.
       Contractor: Various.
       Type of action: Contingent Liability.
       Actual or estimated potential cost: The amount the 
     Contractors will be indemnified by the Government can not be 
     predicted, but could entail millions of dollars.
       Service and activity: Civil Reserve Air Fleet (CRAF).
       Description of product of service: FY 1995 Annual Airlift 
     Contracts.
       Reference: ``Definitions of Unusually Hazardous Risks 
     Applicable to CRAF FY 1994 and FY 1995 Annual Airlift 
     Contracts'' are described on pages 50 and 51.
       Background: Twenty-nine contractors have requested 
     indemnification under P.L. 85-804, as implemented by 
     Executive Order 10789, for the unusually hazardous risks (as 
     defined below) involved in providing airlift services for 
     CRAF missions. In addition, Headquarters Air Mobility Command 
     (HQ AMC) has requested indemnification for subsequently 
     identified contractors and subcontractors who conduct or 
     support the conduct of CRAF missions. The contractors for 
     which indemnification is requested are those contracts 
     awarded as a result of Solicitation F11626-94-R0001, and 
     future contracts to support CRAF missions through September 
     30, 1995. The 29 contractors requesting indemnification are:


           contractors to be indemnified and contract number

       Air Transport International (ATN), F11626-94-D0026.
       Alaska Airlines (ASA), F11626-94-D0033.
       American Airlines (AAL), F11626-94-D0029.
       American Trans Air (ATA), F11626-94-D0026.
       Arrow Air (ARW), F11626-94-D0030.
       Atlas Air (GTI), F11626-94-D0031.
       Buffalo Airways (BVA), F11626-94-D0034.
       Continental Airlines (COA), F11626-94-D0035.
       Delta Air Lines (DAL), F11626-94-D0036.
       DHL Airways (DHL), F11626-94-D0037.
       Emery Worldwide (EWW), F11626-94-D0027.
       Evergreen International (EIA), F11626-94-D0027.
       Express One (LHN), F11626-94-D0038.
       Federal Express (FDX), F11626-94-D0026.
       Int'l Charter Xpress (IXX), F11626-94-D0026.
       Miami Air (MYW), F11626-94-D0040.
       North American Airlines (NAO), F11626-94-D0041.
       Northwest Airlines (NWA), F11626-94-D0026.
       Rich International (RIA), F11626-94-D0027.
       Southern Air Transport (SAT), F11626-94-D0026.
       Sun Country Airlines (SCX), F11626-94-D0027.
       Tower Air (TWR), F11626-94-D0044.
       Trans World Airlines (TWA), F11626-94-D0043.
       United Air Lines (UAL), F11626-94-D0045.
       United Parcel Service (UPS), F11626-94-D0046.
       US Air (USA), F11626-94-D0047.
       US Air Shuttle (USS), F11626-94-D0048.
       World Airways (WOA), F11626-94-D0027.
       Zantop International (ZIA), F11626-94-D0049.
       Note: The same contract number may appear for more than one 
     company because in some cases the companies are providing 
     services under a joint venture arrangement.
       Desert Shield/Storm showed that air carriers providing 
     airlift services during contingencies and war require 
     indemnification. Insurance policy war risk exclusions or 
     exclusions due to activation of CRAF left many carriers 
     uninsured--exposing them to unacceptable levels of risk. 
     Waiting until a contingency occurs to process an 
     indemnification request could result in delaying critical 
     airlift missions. Contractors need to understand up front 
     that risks will be covered by indemnification and how the 
     coverage will be put in place once a contingency is declared.
       The specific risks to be indemnified are identified in the 
     definitions. The Government will not incur a contingent 
     liability as a direct result of this advance indemnification 
     approval; however, if the air carriers suffer losses or incur 
     damages as a result of the occurrence of a defined risk, and 
     if those losses or damages, exclusive of losses or damages 
     that are within the air carriers' insurance deductible limits 
     are not compensated by the contractors' insurance, the 
     contractors will be indemnified by the Government. The amount 
     of this indemnification can not be predicted, but could 
     entail millions of dollars.
       All of the 29 contractors are approved DoD carriers and, 
     therefore, considered to have adequate, existing, and ongoing 
     safety programs. Moreover, HQ AMC has specific procedures for 
     determining that a contractor is complying with Government 
     safety requirements. Also, the contracting officer has 
     determined that the contractors maintain liability insurance 
     in amounts considered to be prudent in the ordinary course of 
     business within the industry. Specifically, each contractor 
     has certified that its coverage satisfies the minimum level 
     of liability insurance required by the government. Finally, 
     all contractors are required to obtain war hazard insurance 
     available under Title XIII of the Federal Aviation Act of 
     1958 for hull and liability war risk. All but one contractor 
     has obtained, and is required to maintain, this coverage 
     under the Federal Aviation Act. The remaining firms will 
     obtain it before receiving an Air Force CRAF contract. 
     Additional contractors and subcontractors that conduct or 
     support the conduct of CRAF 
     [[Page H3570]] missions may be indemnified only if they 
     request indemnification, accept the same definition of 
     unusually hazardous risks as defined, and meet the same 
     safety and insurance requirements as the 29 contractors 
     currently seeking indemnification.
       Without indemnification, airlift operations to support 
     contingencies or wars might be jeopardized to the detriment 
     of the national defense, due to the non-availability to the 
     air carriers of adequate commercial insurance covering risks 
     of an unusually hazardous nature arising out of airlift 
     services for CRAF missions. Aviation insurance is available 
     under Title XIII for air carriers, but this aviation 
     insurance, together with available commercial insurance, does 
     not cover all risks which might arise during CRAF missions. 
     Accordingly, it is found that incorporating the 
     indemnification clause in current and future contracts for 
     airlift services for CRAF missions would facilitate the 
     national defense.
       Therefore, under authority of P.L. 85-804 and Executive 
     Order 10789, as amended, the request to indemnify the 29 air 
     carries and other yet to be identified air carriers providing 
     airlift services in support of CRAF missions for the 
     unusually hazardous risks, as defined, was approved on 
     September 30, 1994. Indemnification under this authorization 
     shall be affected by including the clause in FAR 52.250-1, 
     entitled ``Indemnification Under P.L. 85-804 (Apr 1984),'' in 
     the contracts for these services. This approval is contingent 
     upon the air carriers complying with all applicable 
     Government safety requirements and maintaining insurance 
     coverage as detailed above. The HQ AMC Commander will inform 
     the Secretary of the Air Force immediately upon each 
     implementation of the indemnification clause.
       Approval was also granted to indemnify subcontractors that 
     request indemnification, with respect to those risks as 
     defined below.


definitions of unusually hazardous risks applicable to craf fy 1994 and 
                    fy 1995 annual airlift contracts

       1. Definitions:
       a. ``Civil Reserve Air Fleet (CRAF) Mission'' means the 
     provision of airlift services under this contract (1) ordered 
     pursuant to authority available because of the activation of 
     CRAF, or (2) directed by Commander, Air Mobility Command 
     (AMC/CC), or his successor for missions substantially similar 
     to, or in lieu of, those ordered pursuant to formal CRAF 
     activation.
       b. ``Airlift Services'' means all services (passenger, 
     cargo, or medical evacuation), and anything the contractor is 
     required to do in order to conduct or position the aircraft, 
     personnel, supplies, and equipment for a flight and return. 
     Airlift Services include Senior Lodger and other ground 
     related services supporting CRAF missions. Airlift Services 
     do not include any services involving any persons or things 
     which, at the time of the event, act, or omission giving rise 
     to a claim, are directly supporting commercial business 
     operations unrelated to a CRAF mission objective.
       c. ``War risks'' means risks of:
       (1) War (including war between the Great Powers), invasion, 
     acts of foreign enemies, hostilities (whether declared or 
     not), civil war, rebellion, revolution, insurrection, martial 
     law, military or usurped power, or attempt at usurpation of 
     power;
       (2) Any hostile detonation of any weapon of war employing 
     atomic or nuclear fission and/or fusion, or other like 
     reaction or radioactive force or matter;
       (3) Strikes, riots, civil commotions, or labor disturbances 
     related to occurrences under subparagraph (1) above;
       (4) Any act of one or more persons, whether or not agents 
     of a sovereign power, for political or terrorist purposes, 
     and whether the loss or damage resulting therefrom is 
     accidental or intentional, except for ransom or extortion 
     demands;
       (5) Any malicious act or act of sabotage, vandalism, or 
     other act intended to cause loss or damage;
       (6) Confiscation, nationalization, seizure, restraint, 
     detention, appropriation, requisition for title or use by, or 
     under the order of, any Government (whether civil or military 
     or de facto), public, or local authority;
       (7) Hijacking or any unlawful seizure or wrongful exercise 
     of control of the aircraft or crew (including any attempt at 
     such seizure or control) made by any person or persons on 
     board the aircraft or otherwise acting without the consent of 
     the insured; or
       (8) The discharge or detonation of a weapon or hazardous 
     material while on the aircraft as cargo or in the personal 
     baggage of any passenger.
       2. For the purpose of the contract clause entitled 
     ``Indemnification Under P.L. 85-804 (APR 1984),'' it is 
     agreed that all war risks resulting from the provisions of 
     airlift services for a CRAF mission, in accordance with the 
     contract, are unusually hazardous risks, and shall be 
     indemnified to the extent that such risks are not covered by 
     insurance procured under Title XIII of the Federal Aviation 
     Act of other insurance, because such insurance has been 
     canceled, has applicable exclusions, or has been determined 
     by the government to be prohibitive in cost. The government's 
     liability to indemnify the contractor shall not exceed that 
     amount for which the contractor commercially insures under 
     its established policies of insurance.
       3. Indemnification is provided for personal injury and 
     death claims resulting from the transportation of medical 
     evacuation patients, whether or not the claim is related to 
     war risks.
       4. Indemnification of risks involving the operation of 
     aircraft, as discussed above, is limited to claims or losses 
     arising out of events, acts, or omissions involving the 
     operation of an aircraft for airlift services for a CRAF 
     mission, from the time that aircraft is withdrawn from the 
     contractor's regular operations (commercial, DOD, or other 
     activity unrelated to airlift services for a CRAF mission), 
     until it is returned for regular operations. Indemnification 
     with regard to other contractor personnel or property 
     utilized or services rendered in support of CRAF missions is 
     limited to claims or losses arising out of events, acts, or 
     omissions occurring during the time the first prepositioning 
     of personnel, supplies, and equipment to support the first 
     aircraft of the contractor used for airlift services for a 
     CRAF mission is commenced, until the timely removal of such 
     personnel, supplies, and equipment after the last such 
     aircraft is returned for regular operations.
       5. Indemnification is contingent upon the contractor 
     maintaining, if available, non-premium insurance under Title 
     XIII of the Federal Aviation Act and normal commercial 
     insurance, as required by this contract or other competent 
     authority. Indemnification for losses covered by a contractor 
     self-insurance program shall only be on such terms as 
     incorporated in this contract by the contracting officer in 
     advance of such a loss.
       Contractor: Boeing Defense and Space Group, Seattle, WA.
       Type of action: Contingent Liability.
       Actual or estimated potential cost: The amount the 
     Contractor will be indemnified by the Government can not be 
     predicted, but entail missions of dollars.
       Service and activity: Department of the Air Force, AFMC/CC.
       Description of product or service: Inertial Upper Stages 
     (IUS) Program.
       Background: Boeing Defense and Space Group, Seattle, WA, 
     has requested indemnification for themselves and their major 
     subcontractors, United Technologies Chemical Systems Division 
     (CSD), and Lockheed Missiles & Space Company (LMSC), under 
     P.L. 85-804, as implemented by Executive Order 10789, for the 
     unusually hazardous risks as defined below. This 
     indemnification request is applicable to performance of 
     contract F04701-91-C-0011. An accident resulting from launch 
     or landfall of the IUS or its components could be 
     catastrophic.
       The Administrative Contracting Officer (ACO) has reviewed 
     Boeing's safety program and deemed it to be in compliance 
     with the applicable safety requirements and acceptable for 
     performance of this contract. In addition, Boeing currently 
     has insurance coverage in force, and complete details of the 
     exclusions and deductibles are contained in the schedule 
     attached to their request. The cognizant ACO has reviewed the 
     insurance policies and found them satisfactory and reasonable 
     under normal business conditions. No significant changes in 
     these insurance coverages are expected to occur during the 
     course of this contract, except for annual updates of 
     insurance in force and monetary limits. If the dollar value 
     of coverage varies by more than 10 percent from that stated 
     in the schedules provided, the contractor shall immediately 
     submit to the contracting officer a description of the 
     changes. It was found that the insurance coverage identified 
     in the schedules represents an appropriate level of financial 
     protection to permit indemnification.
       Justification: The specific risks for this indemnification 
     of Boeing have been identified below. No actual cost to the 
     Government is anticipated as a result of the actions to be 
     accomplished under a memorandum signed by the Secretary of 
     the Air Force on November 4, 1994. However, if the contractor 
     suffers losses or incurs damages as a result of the 
     occurrence of a risk as defined below, and if those losses or 
     damages, exclusive of losses or damages that are within the 
     contractor's insurance deductible limits, are not compensated 
     by the contractor's insurance, the contractor will be 
     indemnified by the Government. It is recognized that the 
     amount of this indemnification can not be predicted, but 
     could entail many millions of dollars.
       Aside from their importance to the IUS program, Boeing is a 
     prime contractor for other major programs. A catastrophic 
     financial impact on Boeing could have implications on their 
     ability to produce launch vehicle upper stages, and 
     ultimately on the existing defense system. Accordingly, it 
     was found that the incorporation of an indemnification clause 
     in this contract would facilitate the national defense.
       Decision: Therefore, under the authority of P.L. 85-804 and 
     Executive Order 10789, as amended, the indemnification of 
     Boeing against those unusually hazardous risks, as defined 
     below, to the extent claims arising thereunder are not 
     covered by self-insurance or compensated by insurance 
     coverage, facilitates the national defense was approved. 
     Indemnification under this authorization shall be effected by 
     including the clause at FAR 52.250-1, entitled 
     ``Indemnification Under P.L. 85-804 (Apr 1984)'' and 
     Attachment 1 in contract F04701-91-C-0011. This approval is 
     contingent upon Boeing maintaining their aggressive safety 
     program and current insurance coverage.
       Boeing has requested indemnification be extended to their 
     major subcontractors, United Technologies Chemical Systems 
     Division (CSD), and Lockheed Missiles and Space Company 
     (LMSC), with respect to the same 
     [[Page H3571]] risks as defined below. Approval to indemnify 
     these subcontractors was granted exclusive of any insurance 
     coverage amounts provided the contracting officer approves 
     inclusion of the clause in each subcontract. This approval 
     may only be granted in the case where the contracting officer 
     determines that the subcontractors' insurance coverage 
     represents an appropriate level of financial protection, and 
     that, based upon a safety inspection, the subcontractors 
     adhere to good safety practices.


   DEFINITION OF UNUSUALLY HAZARDOUS RISKS CONTRACT F04701-91-C09911 
  (APPLICABLE TO BOEING DEFENSE AND SPACE GROUP, UNITED TECHNOLOGIES 
  CHEMICAL SYSTEMS DIVISION, AND LOCKHEED MISSILES AND SPACE COMPANY 
                                 ONLY)

       For the purpose of contract clause entitled 
     ``Indemnification Under Public Law 85-804 (APR 1984),'' it is 
     agreed that all risks resulting from, or in connection with:
       a. The burning, explosion, or detonation of launch vehicles 
     or components thereof during preparation, casting, and 
     testing of Solid Rocket Motor (SRM) propellant, shipment of 
     SRMs, launch processing liftoff or flight, abort landing or 
     subsequent return of the Inertial Upper Stage (IUS) to the 
     launch site; and
       b. The landfall of launch vehicles or components or 
     fragments thereof, are unusually hazardous risks, unless it 
     is proven that the contractor's liability arose from causes 
     entirely independent of the design, fabrication, testing or 
     furnishing of products or services under this contract.
     

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