Northrop Grumman had a contract with the USPS to produce massive mail sorting machines. Among other claims, Northop alleged a claim of disruption, contending the USPS breached through excessive contract administration—too many action items, too many meetings, design changes, overly long review process, etc. There is a cognizable claim for disruption, and the court did find the contract administration in this case was somewhat absurd and ended up taking on a life of its own. Nevertheless, the court denied the disruption claim, finding that Northop Grumman had not tied the disruptive behavior to any specific delays.
Northrop Grumman Systems Corporation v. United States, COFC 12-286C
Background
In 2003, the U.S. Postal Service contracted with Northrop Grumman to build a prototype mail sorting machine. Northrop Grumman produced a prototype called a Flats Sequence Systems (FSS) machine. The FSS machine was the size of half a football field. It can quickly sort thousands of pieces of mail into postal carrier bins.
Although Nothrop Grumman had only produced one machine, the USPS decided to move forward with a production contract for 100 FSS machines. After soliciting proposals, the USPS awarded Northrop Grumman an $874 million fixed-price production contract.Â
The contract required Northrop Grumman to build and install the machines and to provide technical manuals. The contract set forth a schedule with various milestones—like first article testing. The contract obligated Northrop Grumman to deliver the FSS machines by October 2010.
But this was an enormous project in which Northrop Grumman agreed to build, and the USPS agreed to buy, a product that was still not fully developed. Dozens, perhaps hundreds ,of people were involved in the administration of the contract. Indeed the parties practiced a form of collaborative agreement, which added layers of process, hundreds of meetings, and an iterative log of action items. As the court noted in its opinion, administration of the contract took on a life of its own with thousands of documents and hundreds of Power-Point presentations.
Needless to say, the performance was not seamless. The parties modified the contract several times, changing the schedule, the design, and the requirements. The initial production did not pass first article testing. The parties had disputes over software, spare parts, and manuals. All of this, of course, resulted in delay. But the delay, given the size of the contract, was not extensive. Nortrhop Grumman completed the performance about ten months late.
Northrop Grumman submitted several claims seeking (1) hundreds of millions of dollars for delay, and (2) funds the USPS retained for damage it suffered. The USPS denied the claims. Northrop Grumman filed suit with the Court of Federal Claims, alleging that the USPS caused delay, and that the agency disrupted performance through excessive contract administration. The USPS responded with counterclaims against Northrop Grumman, alleging the company had breached in various ways.
Analysis
Delay
Northrop Grumman alleged the USPS was responsible delay on the project. Northrop Grumman’s primary argument was that the USPS was responsible for the problems the company experienced passing first article testing. Northrop Grumman argued the USPS didn’t provide enough mail for the test, the mail it provided was not the right size, and the testing results were marred by calculation errors. The court, however, found there was insufficient evidence to support these claims, and that Northrop bore the responsibility for the testing issues.
Northrop Grumman also asserted that it was delayed by changes the USPS made to a part of the machine called the Carrier Automated Street Tray Rack (CASTR). The USPS did not have the CASRT functionality it desired and had directed Northrop Grumman to make fixes to the CASTR system. The government claimed that these fixes were covered by the contract. But after comparing the changes to the contract language, the court found the changes were not covered. The government was responsible for the CASTR related delay.
But ultimately, the court found that both parties were responsible for concurrent delay. Nortrhop Grumman was responsible for the first article testing delay; the USPS was responsible for the CASTR delay. The delays were tied to each other in that Northrop Grumman could not complete testing until the CASTR issue was resolved. The court concluded that the delays were attributable to both parties and that neither party could recover.
Disruption
In addition to delay, Northrop Grumman claimed the USPS had breached the contract through excessive contract administration. Northrop Grumman contended the USPS seized control of the design process, created excessive action items, held too many meetings, didn’t review things on time, and failed to approve deliverables. According to Northrop Grumman, this amounted to a breach of the duty to cooperate.
The court noted that changes to performance can have such a disruptive effect on a contractor’s performance that the contractor can have a compensable claim for costs of the disruption. But in this case, the court found that Northrop Grumman had failed to prove causation for its disruption claim. Nortrhop Grumman sought over $9 million in non-software engineering costs. While the court found there was perhaps too many action items and a lot of involvement from the USPS on non-software engineering, Northrop Grumman had not tied specific changes to the alleged disruption. Moreover, Northrop Grumman sought to recover costs associated with software engineering, but again, the court found that the link between the disruption and a specific delay period was missing. There was no direct proof as to who was at fault for the alleged disruption.
Unpaid Balance
The USPS had withheld progress payments during performance due to delays. Northop Grumman sought to recover $63 million in unpaid balance. The court found that Northorp Grumman had delivered the promised FSS machines, and they had been approved by the government. The government was no longer entitled to withhold this money.
Government’s Counterclaims
The government asserted various counterclaims against Northrop Grumman, including a breach for failure to provide spare parts, retesting costs, deficient repair specifications, buggy software, and breach of the design warranty. The court found many of the counterclaims failed partially or completely due to lack of evidence. The court did find that Northorp was responsible for some of the testing costs, some of the specifications, and for a breach of the design warrant. The government was entitled to offset the $1.2 million in breach claims against the over $60 million that Northrop Grumman received from the unpaid invoices.
Northrop Grumman is represented by John W. Chierichella, Anne B. Perry, David S. Gallacher, Christopher M. Loveland, and Townsend L. Bourne as well as Maureen Del Duca and Mark Ries. The government is represented by Cameron Cohick, Christopher J. Carney, Sarah E. Harrington, Martin F. Hockey, Jr. Rebecca S. Kruser, and Michael D. Snyder of the Department of Justice as well as Michael F. Kiely of the U.S. Postal Service.
