Boeing, ULA Suing Air Force for $385 Million over Delta 4 Costs

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WASHINGTON — Boeing and United Launch Alliance (ULA), a Boeing-Lockheed Martin joint venture, are suing the U.S. Air Force, claiming the service owes the companies more than $385 million in costs incurred on the Delta 4 rocket program.

The lawsuit, filed June 14 with the United States Court of Federal Claims, says the Air Force reneged on its contractual commitment to reimburse Boeing “hundreds of millions of dollars” incurred under the Evolved Expendable Launch Vehicle (EELV) program.

“The Air Force agreed to reimburse these costs in a set of interrelated agreements designed to secure Boeing’s continued participation in the EELV program after the Air Force decided to restructure it,” the lawsuit says. The costs were incurred between 1998 and 2006, the companies said.

The plaintiffs in the lawsuit are Chicago-based Boeing and United Launch Services LLC, which is 90 percent owned by ULA, with Boeing and Bethesda, Md.-based Lockheed Martin evenly splitting the remaining shares. Denver-based ULA, which today launches the vast majority of U.S. scientific and national security satellites, was created in 2005 when Boeing and Lockheed Martin merged their struggling launch business at the Air Force’s request.

Boeing originally developed the Delta 4 as the competitor to Lockheed Martin’s Atlas 5 under the EELV program. The Air Force in 2005 proposed to restructure the EELV contract in a manner that threatened Boeing’s plan to recover Delta 4-related costs through pricing on future missions.

“Boeing clearly and repeatedly conditioned its willingness to participate in the restructured program on the government’s agreement to contract terms ensuring Boeing’s recovery of its inventoried costs, including DSC,” the lawsuit states. DSC refers deferred support costs on the Delta 4 program.

In late 2006, the lawsuit alleges, the Air Force, following reviews by auditors with the Defense Contract Management Agency and the Defense Contract Audit Agency, agreed to Boeing’s terms, the lawsuit alleges. The agreement specifically approved the methodology Boeing used to account for these costs, the lawsuit states.

But the Air Force has refused to pay any such costs since 2008 and in 2011 demanded that Boeing repay $72 million, plus interest, that the service had paid the company for costs incurred on the Delta 4 program, the lawsuit states. ULA “promptly” complied to avoid paying the interest and penalties, the lawsuit states.

The lawsuit alleges that the Air Force never said the costs in question were improperly billed or that the companies failed to meet their obligations under the EELV contract. Rather, the lawsuit says, the government maintains that the previous agreements to reimburse Boeing and ULA for the deferred Delta 4 costs are “nonbinding and unenforceable.” In making that case, the Air Force has reversed an earlier judgment that Boeing’s claim was consistent with federal cost accounting regulations, the lawsuit states.

In a written statement provided to Space News July 11 by Boeing spokeswoman Jenna McMullin, Boeing acknowledged suing the U.S. government to recover the deferred costs on the Delta 4 program. “ULA and Boeing filed the complaint to preserve their rights to recover these costs, which the government contractually agreed to pay in 2006 and 2008. These costs are legitimate, allowable costs of the Delta IV program that Boeing incurred prior to the creation of ULA in 2006.

“ULA and Boeing believe that the 2006 and 2008 agreements with the Government are appropriate recognition of legitimate, allowable costs, and that the United Launch Alliance’s recovery of these costs is fully compliant with all Cost Accounting Standards and government regulations. We believe ULA is entitled to the full amount at issue and that the agreements with the Air Force are valid and enforceable.”

 

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