The 1978 Navy Shipbuilding Claim Settlement at Electric Boat

GAO reviewed the status of two contracts for constructing attack submarines. The review was made to ensure that funds authorized in a 1978 settlement between the contractor and the Navy are used only on the two contracts and that the prime contractor does not use such funds to realize any combined profit on the contracts.

After years of disagreement over shipbuilding claims filed by the contractor, General Dynamics Corporation's Electric Boat Division, the Navy and Electric Boat agreed to a settlement based on an estimated cost at completion of approximately $2.668 billion plus $3.9 million for change orders in process and adjudicated as part of the settlement. GAO found that: (1) the funds provided under the 1978 settlement are being used only on the specified contracts; (2) Electric Boat continues to project an overall loss and is already in an actual loss position on the combined contracts; and (3) Electric Boat has delivered 12 of 18 submarines to the Navy. Electric Boat and the Navy have resolved the outstanding issues discussed in a 1980 GAO report. Under contract modifications, Electric Boat relinquished all rights to submit a claim or insurance request for any costs associated with the weld, steel, and paint problems in the construction program. The contract modifications also established Electric Boat's previously reported estimated delivery dates as the official contract dates with no adjustment in contract price. Electric Boat suggested that congressional concurrence be requested for the discontinuance of future GAO reviews of the contracts. While GAO agreed with Electric Boat that it probably will not realize a profit on the contracts, unexpected large claims or change orders could alter this situation. As long as this possibility exists, GAO does not believe that it is advisable to totally discontinue its review of the contracts.