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BOEING AND GENERAL DYNAMICS FACE DEADLINE

27 Sept 02. The U.S. Navy turned up the pressure on two of its largest contractors, Boeing Co. (NYSE:BA – News) and General Dynamics Corp. (NYSE:GD – News), (See BATTLESPACE UPDATE Vol.4 ISSUE 35, September 4th 2002), to pay back $2.3bn related to a cancelled fighter-jet programme or face having payments withheld for other work, The Wall Street Journal reported.
The deadline is Monday, October 30th, The Journal reported.

“General Dynamics regards this demand as an unseemly negotiating tactic, and an apparent effort to gain advantage during settlement talks,” the company said, noting that it would seek an injunction in federal court if the settlement talks failed to reach a result before the 30-day deadline. General Dynamics, Boeing and the Navy were in intense discussions this summer to settle the matter, with one proposal calling for the companies to provide goods and services to the Navy valued at more than $2.5bn, including discounts on F-18E/F fighter jets it plans to buy in the future.

But the Navy sent the companies a letter dated Aug. 30, in which it said it would turn the matter over to the Defense Finance and Accounting Service for collection unless it received the payment within 30 days.

“In the event the negotiations do not result in settlement in the 30-day time frame, the company will seek to stay the collection effort before the Federal Circuit Court of Appeals,” Falls Church, Virginia-based General Dynamics said in a statement.

Boeing, based in Chicago, said it also received a letter from the Navy. “We are disappointed. The company has been engaged in ongoing discussions with the Navy to resolve this issue and we are continuing to work through this process,” said Boeing spokesman John Dern.

“The legal case is not over. We are preparing an appeal that could be heard later this year or next if this is not solved,” he added. The Navy had no immediate comment on the issue. In June, one industry source described a proposal to settle the matter as a “win-win situation,” freeing the companies from a nasty legal battle with the Pentagon, while giving the Navy some goods it needs anyway and discounts on weapons systems it has already committed to buying from the two companies.

But the Justice Department reportedly advised the Pentagon to reject the offer and proceed with a lawsuit to be heard by a federal appeals court in Washington.

The dispute began when then-Defense Secretary Dick Cheney cancelled the A-12 fighter jet program in 1991, arguing that it was behind schedule. The companies filed suit to force the government to pay their initial costs on the program. A federal judge initially sided with the companies, but his decision was overturned by a federal appeals court and the companies were ordered to repay $2bn to the government.

The Journal reported a spokesman for Chicago-based Boeing couldn’t be reached for comment. Neither company has said whether it will make the payment now or push ahead with the lawsuit, according to The Journal. Representatives for both companies are still attempting to negotiate a settlement of the case that would involve providing free goods and services to the Navy that the companies value at $2.5bn, The Journal reported. Senior Pentagon and Justice Department officials have refused to authorize that settlement in spite of acceptance by senior Navy officials, The Journal reported. In the meantime, an appeal by the companies of a lower-court opinion in favour of the government is pending at the U.S. Court of Appeals for the Federal Circuit in Washington.

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