16 April 2015

BAE Systems Settles with US for the Refurbishment of PAF C-130

16 April 2015

BAE Systems filed suit to recover costs for the refurbishment of a Philippines Air Force C-130 under a U.S. FMS (photo : Ken Hackman) 

BAE and government settle contentious lawsuit over ‘decrepit’ C-130 aircraft

The U.S. government and BAE Systems Inc. settled a contentious lawsuit last month that alleged the Pentagon set a contract cap for repairs to an aging aircraft — one that proved more of a lemon than either the Pentagon or the company realized.

The settlement, which resulted in a dismissal of the case April 10 by the U.S. Court of Federal Claims, comes after nearly three years of negotiations.

"After BAE Systems filed suit to recover costs for the refurbishment of a Philippines Air Force C-130 under a U.S. Foreign Military Sales contract with the U.S. Air Force, we entered into mediation with the U.S. Air Force and were able to settle the matter amicably," said a BAE spokesman.

Details of the settlement were not released. But details of the case are fascinating, and reflect the challenges that can emerge between government and contractors when cost controls conflict with work requirements.

It was almost five years ago that a 1974 Philippine C-130 aircraft arrived at a BAE Systems hanger in Mojave, California, under a contract to provide maintenance, after only a high-level inspection. According to a 2012 complaint filed by the company in the U.S. Court of Federal Claims, the aircraft was in "decrepit condition": it was badly leaking fuel and hydraulic fluid, it had no pressurization and was forced to fly below 10,000 feet, and its navigation instruments were broken.

Here’s the problem: The government set a ceiling price on the job of $4.2 million. The actual cost was going to be far more than that, according to the complaint. The contract did allow BAE Systems, once it was able to examine the aircraft more thoroughly, to file discrepancy reports that noted additional repairs required. And it did — 2,400 of them to be exact. As it moved forward on the work, more and more issues were discovered — thanks in large part to aircraft defects and discrepancies that could not have been discovered by the mandated government inspections.

According to the lawsuit, “it was nearly impossible to accurately forecast an estimated cost and schedule to complete the contract work, and BAE Systems had to request repeated increases in funding and extensions of performance.”

For more than a year from there, BAE would perform work, then ask for additional funds to move forward. Eventually they reached a crossroads — BAE said it needed a total of almost $12 million to complete the aircraft, which the government couldn’t provide in time to prevent a work stoppage. The government then refused to pay the costs associated with that work stoppage, claiming BAE had not provided adequate warning of the depletion of funds and had caused delays in negotiations on funding. They're claims BAE denied.

From there, government and BAE continued attempts to find common ground; while disputes continued over pricing, BAE did restart work. On October 2012, the company finished work on the aircraft, which departed for the Philippines. By then, the total funding allocated to the contract had grown to $14.7 million, the government had approved more than 2,400 discrepancy reports for additional repairs, and BAE estimated that the total costs — without profit — had risen to $18.33 million. The lawsuit sought to recover $6.45 million to account for the difference and provide some profit.

So was this a case of cost and schedule overruns or poor contract planning and management? With no access to the settlement, which was executed March 25, it’s impossible to say. But as the government leans more toward fixed pricing, even for weapons systems, one has to wonder whether this type of situation might play out again and again.

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