The Secretary of the Navy's Proposal To Modify the SSN-688 Ship Construction Contracts with Electric Boat Division of General Dynamics

The Secretary of the Navy has proposed to reform two contracts with General Dynamics Corporation (Electric Boat Division) for the construction of 18 SSN 688 class submarines in order to facilitate the national defense. The contractor planned to stop work on the 15 submarines not yet delivered to the Navy because of anticipated nonreimbursable costs of $843 million. The Secretary's action would increase the contract price and pay for costs incurred by unanticipated inflation and other factors. In exchange, the contractor agreed to accept an anticipated loss of approximately $359 million and to waive current and pending claims under the contracts. The proposed actions of the Secretary are within the authority conferred by P.L. 85-804; the settlement is apparently necessary to maintain the construction of the submarines, and it would appear that it could not be negotiated within the terms of the contract. Electric Boat's first major claim was for $220 million in 1975, and the second major claim was for $544 million in 1976. In addition, the contractor was reportedly preparing additional claims in the range of $750 million. It appears that every ship claim has been due to a combination of causes--partly the contractor's responsibility, partly the Government's responsibility, and partly due to factors outside the control of the contracting parties. The following alternatives have been considered by the Navy: complete construction at other shipyards, exercise the default clause in the contract, seek a court order to compel the contractor to complete the work, and buy the shipyard and hire a contractor to operate. None of the alternatives is feasible.