# Petition for Writ of Certiorari — Boeing Co., The v. United States, (2009) (No. 1302) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43085015_0591%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2009 ## Text Supreme Court, U.S. FILED ie. 091302 APR 23 200 OFFICE OF THE CLERK Bn Whe Joupreme Court of the Anited tates * THE BOEING COMPANY, Petitioner, v. UNITED STATES OF AMERICA, Respondent. S On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Federal Circuit . PETITION FOR A WRIT OF CERTIORARI AND APPENDIX VOLUME I + J. MICHAEL LUTTIG CHARLES .J. COOPER Executive Vice President Counsel of Record & General Counsel MICHAEL W. KIRK GRANT M. DIXTON HOWARD C. NIELSON, JR. LYNDA GUILD SIMPSON DAVID LEHN Tue BOEING COMPANY COOPER AND KIRK, PLLC 100 North Riverside 1523 New Hampshire Ave., N.W. Chicago, IL 60606 Washington, D.C. 20036 (312) 544-2800 (202) 220-9600 (202) 220-9601 (fax) ccooper@cooperkirk.com Counsel for April 23, 2010 The Boeing Company COCKLE LAW BRIEF PRINTING CO (800) 225-6964 OR CALL COLLECT (402) 342-2831 QUESTIONS PRESENTED 1. Whether the Due Process Clause of the Fifth Amendment permits an appellate court to adopt a new legal rule, inconsistent with its own prior ruling in the same case, and then apply it retroactively to the record established in the trial court pursuant to the prior ruling, without remanding to afford the parties the opportunity to prove their case under the new rule. 2. Whether the Due Process Clause of the Fifth Amendment perinits the Government to maintain a claim while simultaneously asserting the state se- crets privilege to bar presentation of a prima facie valid defense to that claim. 3. Whether the Government may te:minate a government contract for default on the ground that a contractor has failed to make adequate progress toward timely completion of that contract where the Government has not set a valid deadline for com- pleting the contract. ii LIST OF PARTIES Pursuant to Rule 14.1(b) and Rule 29.6, the fol- lowing list identifies all the parties to the proceeding before the United States Court of Appeals for the Federal Circuit: McDonnell Douglas Corporation, appellant below, was a wholly owned subsidiary of The Boeing Com- pany prior to January 1, 2010. On January 1, 2010, McDonnell Douglas Corporation was merged into The Boeing Company, which brings this petition for a writ of certiorari as the corporate successor to McDonnell Douglas Corporation. The following publicly held companies own ten percent or more of the out- standing stock of The Boeing Company: State Street Corporation and its subsidiary State Street Bank and Trust Company as the trustee of The Boeing Com- pany Employee Savings Plan Master Trust; Evercore Trust Company, N.A. as the investment manager of The Boeing Company Employee Savings Plan Master Trust. General Dynamics Corporation, appellant below, has no parent corporation. No publicly held company owns ten percent or more of the stock of General Dynamics Corporation. The United States. ill TABLE OF CONTENTS Page LE vi OPINIONS AND ORDERS BELOW.................... 1 a csidusinweninaters 1 CONSTITUTIONAL AND REGULATORY PRO- _ 2 EEE 2 STATEMENT OF THE CASE.........................2000 6 ss cccncsccedsucosececevesees 6 B. Performance and Termination................... 6 C. The First Round of Litigation ................... 9 DD. The Second Round of Litigation................ 10 E. The Third Round of Litigation .................. 14 REASONS FOR GRANTING THE PETITION.... 18 I. The Federal Circuit’s Adoption and Ap- plication of a New Legal Rule without Remanding Violates Due Process and Conflicts with this Court’s Precedents and the Decisions of Other Circuits. ........ 18 A. The Federal Circuit’s Refusal to Re- mand Conflicts with This Court’s a EE Se a ee ee 19 B. The Court of Appeals’ Refusal to Re- mand Creates a Conflict with Other Circuits. ........ Ts atin 21 iV TABLE OF CONTENTS — Continued Page C. The Federal Circuit’s Immediate Ap- plication of Its New Test Prevents Contractors from Presenting Newly Relevant Argument and Evidence....... 23 Il. The Federal Circuit’s Rule Permitting the Government to Prosecute a Claim While Asserting the State Secrets Privilege to Foreclose a Valid Defense to That Claim Violates Due Process and Conflicts with the Decisions of this Court and of Other eee 28 A. The Federal Circuit’s State Secrets Analysis Deprives Defendants of Due Process in Conflict with This Court’s aa eeenueeie 29 B. The Federal Circuit’s State Secrets Analysis Conflicts with the Decisions ry eds 33 Ill. The Federal Circuit’s New Ad Hoc Rule for Default Terminations Will Destabilize An Important Area of the Law................... 34 1) _______ RIN See er RED RE nt ene ATS FERS ena RA ONES 40 TABLE OF CONTENTS — Continued Page Appendix Documents Volume I McDonnell Douglas Corporation v. United States (“MDC 14”), 567 F.3d 1340 (Fed. Cir. 2009)........... la McDonnell Douglas Corporation v. United States (“MDC 12”), 323 F.3d 1006 (Fed. Cir. 2003)......... 37a McDonnell Douglas Corporation v. United States (“MDC 10”), 182 F.3d 1319 (Fed. Cir. 1999)......... 74a McDonnell Douglas Corporation v. United States (“MDC 13”), 76 Fed. Cl. 385 (Ct. Cl. 2007).....106a Volume II McDonnell Douglas Corporation v. United States (“MDC 11”), 50 Fed. Cl. 311 (Ct. Cl. 2001)......... 258a McDonnell Douglas Corporation v. United States (“MDC 9”), 40 Fed. Cl. 529 (Ct. Cl. 1998)............. 299a McDonnell Douglas Corporation v. United States (“MDC 5”), 37 Fed. Cl. 270 (Ct. Cl. 1996)........... 369a McDonnell Douglas Corporation v. United States (“MDC 4”), 35 Fed. Cl. 358 (Ct. Cl. 1996)............. 4lla McDonnell Douglas Corporation v. United States, Nos. 2007-5111, 5131 (Nov. 24, 2009)......-..-.-0-.... 462a TABLE OF AUTHORITIES Page CASES Aero Mayflower Transit Co. v. ICC, 699 F.2d I, a seineieinaianen 23 Al-Haramain Islamic Found., Inc. v. Bush, 507 AG BEDS (BE Cae. BOOT). ccccccccccccsccccccsccscccesessseces 4, 29 American Sheet Metal Corp., 99-1 BCA 430,329 iia iaenttaldaealdiclaliitatianhinsiiid 37 Arar v. Ashcroft, 585 F.3d 559 (2d Cir. 2009) .............. 4 AST Anlagen-Und Sanierungstechnik GmbH, 04-1 BCA 932,558 (ASBCA 2004)..................ccceee eee 37 Austin v. United States, 509 U.S. 602 (1993) ............ 32 Bareford v. General Dynamics Corp., 973 F.2d I salen 29, 33 Boute v. City of Colombia, 378 U.S. 347 (1964)......... 19 Bowman Transp., Inc. v. Arkansas-Best Freight i ig ee es Be CR ictcinicinieninittntstnnnnnnincss 19 Boyd v. United States, 116 U.S. 616 (1886), overruled in part on other grounds, 425 U.S. EEE) SaRRSUPE REI Pcs eee oor 32 Brinkerhoff-Faris Trust & Sav. Co. v. Hill, 281 | | SEE ee eee aa nae ao Na 21 Brinley v. Commissioner, IRS, 782 F.2d 1326 ASEM ip rannede ero Urer EO naar tone eT UO 22 Darwin Constr. Co. v. United States, 811 F.2d Sea vil TABLE OF AUTHORITIES — Continued Page De Vito v. United States, 413 F.2d 1147 (Ct. Cl. aed 36 Decker & Co. v. West, 76 F.3d 1573 (Fed. Cir. RITTER es Aarne RT ELE Le. BENIN RRS EE 20, 32, 36 Divecon Servs., LP, 04-2 BCA 432,656 (GSBCA ESTEE Ate MSN EE rch vee Be ee ae EEE BE ee 37 El-Masri v. United States, 479 F.3d 296 (4th i, IO ee En oO See earls 4, 34 Fisher v. United States, 425 U.S. 391 (1976)............. 32 Gonzales v. United States, 348 U.S. 407 (1955)......... 19 Harlan Bell Coal Co. v. Lemar, 904 F.2d 1042 I 22 Hatch v. FERC, 654 F.2d 825 (D.C. Cir. 1981) ....21, 22 Hepting v. AT&T’ Corp., 439 F. Supp. 2d 974 ES ESR a ED One: 29 Hertz Corp. v. Friend, 1308. Ct. 1181 (2010)............ 19 Ideal Elec. Sec. Co. v. International Fid. Ins. Co., 129 F.3d 143 (D.C. Cir. 1997) ..............ee ee 33 In re United States, 872 F.2d 4172 (D.C. Cir. EEE DS ae TR LENE DEES AERO EE sees a nde 29, 33 Jones v. Flowers, 547 U.S. 220 (2006)......................4. 20 Kasza v. Browner, 133 F.3d 1159 (9th Cir. 1998) ...... 34 King v. United States, 37 Ct. Cl. 428 (1902).............. 36 Lachance v. Erickson, 522 U.S. 262 (1998)................ 19 TABLE OF AUTHORITIES — Continued Page Lanzen Fabricating, Jnc., 93-3 BCA 426,079 I a caasunsumieunbisiad 37 Lindsey v. Normet, 405 U.S. 56 (1972)....................... 32 Lisbon Contractors, Inc. v. United States, 828 Feed CO Cs CAR. BIT) cccesitctscecccesceveroccccsesees passim Logan v. Zimmerman Brush Co., 455 U.S. 422 SP UIIITITT iciscleccsieiaiacectasuahsipsccioetlamsiniaaeenadanmaslinadiissiueaiaeininenaaiemees 19, 32 Lyons v. Johnson, 415 F.2d 540 (9th Cir. 1969).........33 Malone v. United States, 849 F.2d 1441 (Fed. I a eee iiamioeaia Yy Marx v. Director, OWCP, 870 F.2d 114 (3d Cir. Scie ccc haadiciabisceditentseile mlacinibadegliusenenianedienmaniieiiinies 22 McDonnell Douglas Corporation v. United States (“MDC 14”), 567 F.3d 1340 (Fed. Cir. 2009) ..... passim McDonnell Douglas Corporation v. United States (“MDC 12”), 323 F.3d 1006 (Fed. Cir. 2003) ..... passim McDonnell Douglas Corporation v. United States (“MDC 10”), 182 F.3d 1319 (Fed. Cir. 1999) ............... 1 McDonnell Douglas Corporation v. United States (“MDC 13”), 76 Fed. Cl. 385 (Ct. Cl. 2007)...........0..... ] McDonnell Douglas Corporation v. United States (“MDC 11”), 50 Fed. Cl. 311 (Ct. Cl. 2001).................. I McDonnell Douglas Corporation v. United States (“MDC 9”), 40 Fed. Cl. 529 (Ct. Cl. 1998)................... 1 McDonnell Douglas Corporation v. United States (“MDC 5”), 37 Fed. Cl. 270 (Ct. Cl. 1996)...........0....... | ix TABLE OF AUTHORITIES — Continued Page McDonnell Douglas Corporation v. United States (“MDC 4”), 35 Fed. Cl. 358 (Ct. Cl. 1996) ............0...... 1 Millipore Corp. v. Travelers Indem. Co., 115 ee es Ls soeuuvepmeaiininesasoen ss 22 Mohamed v. Jeppesen Dataplan, Inc., 579 F.3d 943, en banc granted, 586 F.3d 1108 (9th Cir. FREI RE RSE SS REED, SHS lire Cee oS aor eT 4 Molerio v. FBI, 749 F.2d 815 (D.C. Cir. 1984)......29, 33, 34 Motorola Computer Sys., Inc., 87-3 BCA 420,032 ER ET Ae M.V.I. Precision Machining, Ltd., 91-2 BCA | FS RS ie i eae 37 Noriega v. Pastrana, 1305. Ct. 1002 (2010)................5 One 1958 Plymouth Sedan v. Pennsylvania, te NY eI sin’ sasdcueseieessesedsncnesdaaseceeiacens 20, 32 Peabody Coal Co. v. Ferguson, 140 F.3d 634 (6th RRR Fa PS Se Ee eileen me ia nape oe ae ORE 22 Rahman v. Chertoff, 530 F.3d 622 (7th Cir. RR ae Tage ESE ES INES REN SIN D9 Sc 4 Singh v. INS, 213 F.3d 1050 (9th Cir. 2000).............. 22 Technocratica, 06-2 BCA 433,316 (ASBCA 2006)....... 37 Technocratica, 94-2 BCA 426,606 (ASBCA 1993)....... 37 Tenenbaum v. Simonini, 372 b.3d 776 (6th Cir. ERAN AL ee 2 EE REE Ao ae Ce 34 United States v. James Daniel Good Real Prop., Ue, IN isis icconsssssceserenss'cscnsslecencaces 20, 33 X TABLE OF AUTHORITIES — Continued Page United States v. Reynolds, 345 U.S. 1 SEN IN oisdikdisiiuindusiatiitendiicentidadandsdsuamiisininanbains 11, 29, 30, 31 United States v. Winstar Corp., 518 U.S. 839 RRA RAS I UE AAR AT Sa eae eRe Se ON EC) 39 Universal Fiberglass Corp. v. United States, 537 ee Ss SIE STEED tesdciniicitchinantcapiaciniinentdinnimeebsnsien 38 Upwest Corp., 01-2 BCA 931,474 (PSBCA 2001) ...... 37 Wilner v. NSA, 592 F.3d 60 (2d Cir. 2009)... 4 Zuckerbraun v. General Dynamics Corp., 935 Pe Os WE noc 33 OTHER | GS REESE eee ase a eee PRR ARS oe 2 a ee I niiisiichinbsicinsindioneristuanbeddeininchentesanebeeucis 9 Federal Acquisition Regulation (48 C.F.R.) a Sa EE SN ce a 32 Federal Acquisition Regulation (48 C.F.R.) | __REER ASIN Esaea eS oR EEN RS eo NE OD 10 Federal Acquisition Regulation (48 C.F.R.) REE Ea ee a 36 Federal Acquisition Regulation (48 C.F-R.) iis Sal aalachicd sneidadidipsodeneetvinesnennns 8 Federal Acquisition Regulation (48 C.F.R.) § 52.249-9( a 111) (1984)...............ccccccccscereees 2, 8, 35 Federal Acquisition Regulation (48 C.F.R.) FC Rea LEI De SO a oe 10 TABLE OF AUTHORITIES — Continued Page U.S. Government Accountability Office, GAO-09- 326SP, Defense Acquisitions: Assessments of Se- lected Weapon Programs 4 (Mar. 2, 2009)......... 35, 36 Donna Miles, Tanker Solicitation Seeks Fair Competition, Best Value, American Forces OS EWEN, OR. BG, BPI ccc ecesécccoscceccscccccesceseseses 35 Barack Obama, Memorandum for the Heads of Executive Departments and Agencies, Mar. 4, SE NES SCS GES SEA tr es ie an 35 1 PETITION FOR A WRIT OF CERTIORARI The Boeing Company, as corporate successor to the McDonnell Douglas Corporation (“McDonnell Douglas”), respectfully petitions for a writ of certio- rari to review the judgment of the United States Court of Appeals for the Federal Circuit. e OPINIONS AND ORDERS BELOW The opinions of the Federal Circuit (App. 74a- 105a, 37a-73a, la-36a) are reported at 182 F.3d 1319, 323 F.3d 1006, and 567 F.3d 1340. That court’s order denying McDonnell Douglas’ combined petition for rehearing and rehearing en banc (App. 462a) is unreported. Pertinent opinions of the United States Court of Federal Claims (App. 4lla-46la, 369a-410a, 299a-368a, 258a-298a, 106a-257a) are reported at 35 Fed. Cl. 358, 37 Fed. Cl. 270, 40 Fed. Cl. 529, 50 Fed. Cl. 311, and 76 Fed. Cl. 385.' . JURISDICTION The Federal Circuit entered final judyment on June 2, 2009, and denied McDonnell Douglas’ timely petition for rehearing and rehearing en banc on ' References to the appendix included with this petition are designated as “App. .” References to the joint appendix filed with the Federal Circuit are designated as “JA . 2 November 24, 2009. App. la-36a, 462a. On January 22, 2010, and March 12, 2010, the Chief Justice extended the deadline for filing this petition for a writ of certiorari, first to March 24, 2010, and then to April 23, 2010. Docket No. 09A-678. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). + CONSTITUTIONAI. AND REGULATORY PROVISIONS INVOLVED The Fifth Amendment to the United States Con- stitution provides in pertinent part: “No person shall ... be deprived of life, liberty, or property, without due process of law... .” Section 52.249-9(a)(1)(ii) of the Federal Acquisi- tion Regulations, 48 C.F_R. § 52.249-9(a)(1)(1i) (1984), states: “The Government may ... , by written Notice of Default to the Contractor, terminate this contract in whole or in part if the Contractor fails to ... |plrosecute the work so as to endanger performance of this contract.” ¢ INTRODUCTION This case arises from the Government's 1991 default termination of its contract with McDonnell Douglas and General Dynamics (“Contractors”) to design and build the A-12 “stealth” aircraft. Over the course of almost two decades of litigation, the Federal 3 Circuit has twice denied Contractors due process, created multiple circuit splits, and thrown previously settled law in a critical area of government contracts jurisprudence into complete disarray. If allowed to stand, the court’s rulings may well unjustly deprive Contractors of billions of dollars. This Court’s review is necessary to settle these important legal issues and to resolve these conflicts among the circuits. First, the Federal Circuit denied Contractors the most elemental feature of due process: fair notice of the governing legal standard and an opportunity to prove their case in the trial court under that stan- dard. After initially directing the trial court to apply its clear, long-standing rule for evaluating default terminations — a rule it expressly prescribed as the “controlling standard” in this very case — the Federal Circuit, upon next review, sua sponte embraced an entirely different, “ad hoc” approach materially indis- tinguishable from one it had expressly rejected in its previous decision. Without remanding, the Federal Circuit then adjudicated Contractors’ rights itself, applying its newly minted test to the pre-existing record, even though the case had been litigated under the very different rule it had previously mandated. The Federal Circuit’s ruling conflicts with the deci- sions of this Court and other circuits and introduces substantial uncertainty regarding the principles of due process governing appellate adjudication. Fur- thermore, the grave miscarriage of justice worked by the appellate process in this case manifestly warrants the exercise of this Court’s supervisory authority. 4 Indeed, in view of the Federal Circuit’s patent error, summary reversal of this ruling is warranted. Second, the Federal Circuit earlier worked an equally grave violation of Contractors’ due process rights in this case by allowing the Government to press its claim for default termination while simul- taneously upholding the Government’s assertion of the state secrets privilege to bar Contractors from asserting a valid defense to that claim. In addition to conflicting with bedrock principles of due process embraced by this Court’s precedents, the Federal Circuit’s ruling creates a conflict among the circuits on the effect of the Government’s invocation of the state secrets privilege. This case thus presents an important question regarding the accommodation of fundamental due process concerns with the needs of national security. Moreover, it comes to this Court at a time when the state secrets privilege is being as- serted with growing frequency, and the need for clarity and uniformity on its scope and impact could not be more compelling.” And because this case pre- sents the issue in the less politically charged context of a government contract dispute, it offers a rare op- portunity to provide clarity in a vital area of the law * See, e.g., Wilner v. NSA, 592 F.3d 60, 77 n.8 (2d Cir. 2009); Arar v. Ashcroft, 585 F.3d 559 (2d Cir. 2009); Mohamed v. Jeppesen Dataplan, Inc., 579 F.3d 943, en banc granted, 586 F.3d 1108 (9th Cir. 2009); Rahman v. Chertoff, 530 F.3d 622, 624-25 (7th Cir. 2008); Al-Haramain Islamic Found., Inc. v. Bush, 507 F.3d 1190 (9th Cir. 2007); El-Masri v. United States, 479 F.3d 296 (4th Cir. 2007). 5 “in a manner that is insulated from the pressures of the moment.” Noriega v. Pastrana, 130 S. Ct. 1002 (2010) (Thomas, J., joined by Scalia, J., dissenting from denial of petition for writ of certiorari) (quotation marks omitted). This Court should take that oppor- tunity. Finally, the Federal Circuit’s new ad hoc ap- proach for reviewing government default ter:mina- tions of fixed-price contracts represents a_ stark change in settled law, upon which public contractors have long relied in calculating the risks of doing busi- ness with the United States. The new approach is flawed and unworkable and will breed uncertainty and arbitrary outcomes at a time when the Govern- ment has publicly renewed its interest in fixed-price contracting. Indeed, the court’s new approach may produce an unexpected and grossly unjust multi- billion dollar forfeiture in this case alone. And because it is highly unlikely that any other Circuit will address the issue of government contracts law presented here, the issue is ripe for review by this Court at this time.* * Petitioner agrees that the additional issues presented by General Dynamics Corporation in its petition for a writ of cer- tiorari also warrant this Court’s attention, Petition for Writ of Certiorari, The Boeing Company v. United States, No. (April 23, 2010), and joins General Dynamics’ request that the Court review those issues, which equally affect both Petitioners. 6 STATEMENT OF THE CASE A. The A-12 Contract In 1988, Contractors entered into a fixed-price research-and-development contract with the United States Navy to develop the “A-12 Avenger,” a state-of- the-art carrier-based “stealth” attack aircraft. App. 39a. The contract required Contractors first to devel- op a design for the aircraft acceptable to the Navy, and then to manufacture eight test aircraft of in- creasing complexity, with the first to be delivered in June 1990 and the remaining seven to be delivered on specified dates thereafter. App. 4a. The eighth test aircraft was to be a fully operational prototype. App. 260a. The A-12 contract also gave the Navy options to purchase four production lots of aircraft. App. 5a. The Navy exercised its first option (“Lot I”) in May 1990 for six production aircraft, which were to be delivered between June 1991 and May 1992. App. 5a. The contract also provided for six phases of testing by Contractors, to be completed by April 1993, as well as contractor support for additional Navy testing and training until June 1996. App. 4a-5a, 119a. B. Performance and Termination Performance commenced in January 1988. From the beginning, Contractors’ progress was hampered because the Air Force refused to share classified information and stealth technology from other pro- grams, contrary to the mutual expectations and under- standing of Contractors and the Navy. See, e.g., App. 7 393a & n.9. Further, as the Navy well understood, deviations from schedule and specifications are all but inevitable in research-and-development programs like this one, which seek to advance the state of the art. See, e.g., App. 124a, 117a-48a; JA 15,623, 16,541, 71,217; 48 C.F-R. § 35.002. Accordingly, the Navy and Contractors agreed early on to address technical issues as they arose, rather than attempt to adhere rigidly to contract schedule and specifications. App. 5a; JA 2,279-80. By 1989, the Navy knew that the original schedule for delivery of the eight test aircraft would not be achieved and that the aircraft would exceed the origi- nally specified weight. See, e.g., JA 2,269-70, 18,936; App. 447a. In June 1990, Contractors projected that first flight would be delayed unuil between July and Sep- tember 1991, and that there would be a correspond- ing slippage of twelve to fourteen months for the remaining contract work. Although Contractors thus missed the milestone for delivering the first test aircraft, the Navy took no action to terminate the contract. App. 5a. To the contrary, on August 17 the Navy unilaterally issued a contract modification, called “P00046,” as “a first step” toward establishing a more realistic contract completion schedule. See JA 2,368. This modification set a new schedule for de- livering the eight test planes, but did not address the schedule for subsequent stages of perforinance. App. 6a. Because the original schedule for the subsequent perforinance was irreconcilable with (and therefore 8 displaced by) PO0046, there was no longer any bind- ing completion date for the entire contract. App. 16a, 3la, 110a-lla, 243a-44a. The Navy and Contractors intended to negotiate a new schedule for the remainder of the contract effort after they agreed on the A-12 design. See, e.g., JA 1,067-68, 2,360-61, 2,368, 71,088. Contractors continued to perform, at a cost to them of $120-150 million per month. App. 7a. During the fall of 1990, the parties resolved all outstanding design issues. App. 125a-30a. Among other things, the Navy accepted Contractors’ modified weight projec- tions. App. 288a. Concluding that “technical concerns had been addressed and resolved to its satisfaction|[,] [t]he Navy accepted plaintiffs’ design for the A-12 in November 1990.” App. 130a. Rather than re-establish a reasonable completion schedule, as the parties had intended, however, the Navy abruptly issued a cure notice in December 1990 and, on January 7, 1991, terminated the contract for default pursuant to Federal Acquisition Regulation (“FAR”) 52.249-9(a)(1)(ii). That provision authorized termination for default if Contractors “failled] to .. . [p}rosecute the work so as to endanger performance of this contract.” 48 C.F.R. § 52.249-9(a)(1)Gii) (1984); App. 8a-9a.* As grounds, the Navy asserted Contractors’ * The Government also invoked FAR 52.249-8(a)(1)(ii), the analogous regulation governing the production option exercised by the Government. As relevant here, there is no material differ- ence between these two provisions. 9 projected failure to meet (1) the interim P00046 schedule, (2) the original Lot 1 production schedule (though displaced by P00046, see App. 16a, 243a), and (3) original design requirements — particularly, weight requirements — even though the Navy had accepted a modified design just weeks before (see App. 129a-30a & n.11). JA 18,297. Based on this claimed default, the Navy not only refused to reimburse Contractors for more than $1.2 billion in out-of-pocket costs incurred before ter:nina- tion, it also demanded that Contractors return ap- proximately $1.35 billion in allegedly unliquidated progress payments. App. 9a-10a. To date, approximately $1.5 billion in interest has accrued on the principal balance claimed by the Government. C. The First Round of Litigation In June 1991, Contractors sought review of the Navy’s decision in the Court of Federal Claims under the Contract Disputes Act, 41 U.S.C. § 609(a). Al- though that statute required Contractors to initiate this action, they are the plaintiffs in name only. “[A] government decision to terminate a contractor for default is a government claim,” Malone v. United States, 849 F.2d 1441, 1443 (Fed. Cir. 1988), and the Government, accordingly, had the burden of proving that its default termination, and a potential multi- billion dollar penalty, were justified, Lisbon Contrac- tors, Inc. v. United States, 828 F.2d 759, 764 (Fed. Cir. 1987). Contractors argued that the Government could 10 not satisfy its burden and that the termination should therefore be converted into one for the convenience of the Government. See FAR 49.401(b), 52.249-9(g). Con- tractors also sought their unreimbursed costs in- curred in performing the contract. After several years of litigation, the trial court held that the default termination could not be sus- tained because it had been pretextual, and the con- tracting officer had not exercised reasoned discretion in invoking this draconian remedy. App. 343a-44a. That court also expressly rejected the Government’s arguments that Contractors had repudiated the contract or otherwise failed to give adequate assur- ances of performance. App. 458a-6la. The court awarded Contractors $1.2 billion in unreimbursed costs, plus interest. App. 367a-68a. The Federal Circuit reversed, holding that “be- cause the terimination for default was predicated on contract-related issues, it was within the discretion of the government.” App. 75a-76a. The court remanded for determination of whether the Government could prove that Contractors were in default. App. 104a-O5a. D. The Second Round of Litigation On remand, the trial court sustained the default termination based solely on its finding that Contrac- tors would not have met the December 1991 “first flight” milestone set by P00046. App. 255a-75a. That court rejected all other grounds for default termi- nation the Government alleged including that 1] Contractors could not meet weight and other specifications, that Contractors’ financial condition threatened performance, and (once again) that Contractors failed to give adequate assurances of performance. See, e.g., App. 264a-65a. That court also rejected Contractors’ “superior knowledge” defense, which was premised on the Gov- ernment’s “duty to disclose critical inforimation to a contractor that is necessary to prevent the contractor from unknowingly pursuing a ruinous course of ac- tion,” App. 96a (quotation marks omitted). The court fuund that this duty extended to the Air Force’s extensive knowledge of stealth technology, and Con- tractors argued that they could have used that supe- rior knowledge to avoid the extensive, duplicative, and time-consuming efforts they expended to solve technical problems in designing the A-12. App. 38la. 82a & nn.6-7; see also App. 137a n.16 (Deputy Assistant Secretary of Defense for Procurement “relented” in her opposition to “putting the A-12 out for bids on a fixed-price contract ... only with assurance that the Government would share its stealth technology with the contractors. Otherwise, she predicted, it cannot be done.”). The Government, however, invoked the state secrets privilege to block discovery relating to its superior knowledge. App. 383a-86a. That privilege applies if “there is a reasonable danger that compulsion of the evidence will expose military matters which, in the interest of national security, should not be divulged.” United States v. Reynolds, 345 U.S. 1, 10 12 (1953). The trial court found that Contractors could “present a prima facie case based on A-12 program inforsnation alone.” App. 394a-95a, 402a; see also App. 293a-94a. But the court sustained the privilege and rejected the defense because, it concluded, the “superior knowledge issues in this case cannot be litigated safely.” App. 292a-93a. In its 2003 decision (“MDC 12”), the Federal Cir- cult vacated the judyment in favor of the Government and remanded. The appellate court “reaffirinled] . . . that the test ... adopted in Lishon [Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987)], as further explained in this opinion, controls the review of default ter:mination for failure to make progress.” App. 58a. Specifically prescribing Lisbon as “the controlling standard” in this case, App. 72a-73a, the court held that the Government — which “bore the burden of proof in justifying a default termination” — must show “‘reasonable belief on the part of the contracting officer that there was no reasonable likelihood that the contractor could perform the entire contract effort within the time remaining for contract performance,” App. 52a (quoting Lishon, 828 F.2d at 765) (emphasis added). The Federal Circuit further held that, under Lis- bon, the trial court’s finding that Contractors would not have met P00046's first flight date in December 1991 was “insufficient to sustain a default termina tion in this case.” App. 47a. It vacated the trial court's ruling that the default terinination was justified and remanded for further proceedings “because the 13 Court of Federal Claims did not apply the controlling standard under Lisbon to this case.” App. 72a. The court specifically directed that “on remand, once the Court of Federal Claims determines the performance required by the contract and the contract completion date, it can then decide ... whether the government has met its burden” of justifying the default termina- tion under Lisbon. App. 57a (emphasis added); see also App. 56a (“the Court of Federal Claims will first have to decide the actual performance that the con- tract requires and the amount of time remaining for performance”) (emphasis added). For, as the court ex- plained, “[uJnless the contracting officer had deter- mined the entire effort required under the contract and the time left to complete the contract, it would be difficult, if not impossible, for him to resolve whether ‘there was no reasonable likelihood that the con- tractor could perforin the entire contract effort within the time remaining for contract performance.” App. 56a (quoting Lisbon, 828 F.2d at 766) (emphasis altered). Turning to the superior knowledge defense, App. 39a-42a, 58a-72a, the Federal Circuit rejected Contrac- tors’ argument that the Government could not, consis- tent with due process, both continue to assert its claim for default termination and also invoke the state secrets privilege to foreclose Contractors’ superior knowledge defense to that claim. App. 69a-70a. Asserting that Contractors had “conflate[d] rules governing criminal and civil proceedings,” the court concluded that the trial court had not erred in 14 barring Contractors’ defense while allowing the Government’s claim to proceed. App. 69a. E. The Third Round of Litigation On remand, the trial court specifically deter- mined that “(t]he contract had no completion date at termination, seemingly leaving the court without a basis for finding a reasonable belief on the part of the contracting officer that the contractors would not complete the work on time.” App. 243a-44a. Under Lisbon’s plain language, and MDC 12’s even plainer, repeated remand instructions quoted above, the Government could not prove that Contractors had failed to make sufficient progress toward timely completing the entire contract effort if there was no valid completion date. App. 109a-lla. Rather than vacate the default termination, however, the trial court turned again to the interim, partial PO0046 schedule and used it as a “yardstick” for measuring performance under Lisbon; it concluded that the “trial record supplies reasons that a contracting officer might have deemed himself insecure if he were considering the period of performance identified as the ‘yardstick.’” App. 21la (emphasis added). Given that the P00046 yardstick “use[d] a con- tract period before the ultimate completion date” and addressed only one of more than 80 contract line items, the court had to acknowledge that its analysis showed only that “the contractors were behind sched- ule at termination according to a self-contained series 15 of milestones, not in relation to the entire contract,” App. 206a (emphasis added), as Lisbon and MDC 12 required. Indeed, the trial court openly acknowledged that its analysis could not be squared with the MDC 12 mandate if that mandate’s words were construed “to mean exactly what they appear to mean.” App. 256a n.92. The court thus defied the Federal Circuit’s specific remand instructions; readopted its prior, re- jected analysis; and conceded as much. App. 196a. In its decision in 2009 (“MDC 14”), the Federal Circuit agreed “that the contract, as modified by P00046, does not provide a definite contract comple- tion date.” App. 16a, 3la. Under the Lisbon-MDC 12 rule, therefore, it should have reversed the trial court’s decision sustaining default termination. Instead, the Federal Circuit affirmed, candidly acknowledging that it was now adopting an analysis that “may appear different from the one [it had] previously instructed the trial court to perforin.” App. 30a n.4. That court invoked supposed authority under the law of the case doctrine to justify its acknowledged “depart[ure]” from MDC 12. Id. Whereas MDC 12 identified Lisbon as the “controlling standard,” under which the trial court must determine “the performance required by the contract and the contract completion date” as a prerequisite to sustaining the default termination, App. 57a, MDC 14 ruled that “because the modified A-12 contract does not contain a fixed completion date, a Lisbon analysis cannot be strictly applied,” App. 3la; see also App. 17a (refusing to “apply the Lisbon test literally”). 16 Instead, MDC 14 created a new “ad hoc, factual inquiry,” requiring a terinination for default to be up- held, even absent a contract completion date, if the Government shows that, in light of “all relevant cir- cumstances,” “the contracting officer was reasonably justified in feeling insecure about the contractors’ rate of progress.” App. 22a, 29a (emphasis added). The court held that “[o]nce the Government has met this burden of proving that timely perforinance is beyond the contractors’ reach, the contractors have the bur- den of going forward to prove either that they were making progress such that timely completion of the contract was not endangered or that there was ex- cusable delay.” App. 3la. The court thus not only shifted to Contractors the burden of proof on what had been the ultimate question under the Lisbon- MDC 12 rule — whether “timely completion of the contract” is endangered — but also removed altogether the only objective metric — a completion date — by which that inquiry could be answered. Attempting to justify its abrupt repudiation of the Lisbon-MDC 12 rule, the Federal Circuit invoked what it characterized as “the unique facts of this case and the disadvantage [the court] faced [in MDC 12] when deciding the case without the benefit of suffi- cient fact findings from the trial court.” In particular, the court lamented that MDC 12’s “specific instruc- tion” for the trial court to determine “the contract completion date ... , if read literally, turns out to be difficult to apply.” App. 15a (emphasis added). MDC 12, however, had already considered the “unique facts of this case.” That court was fully aware 17 of the parties’ “differing views of the contract comple- tion date,” including Contractors’ position “that no such date existed.” App. 56a.” But MDC 12 never suggested that Lisbon would not apply absent a completion date; on the contrary, it specifically noted that “it would be difficult, if not impossible,” for the Government to carry its burden of justifying the default termination absent such a date. Jd. Further- more, MDC 12 had squarely rejected the Govern- ment’s arguments then: (i) that “the circumstances in this case are so different that [the court] should not seek guidance from precedent” such as Lisbon; (ii) that default termination should therefore be as- sessed solely by looking “at the contractors’ conduct in context, in all the facts and circumstances,” and (iii) that default termination “was appropriate here given the Contractors’ admitted inability to meet an interim contract milestone, the alleged impossibility for the aircraft design to meet contract specifications, and the Contractors’ request for a restructuring of the agreement.” App. 50a; JA 90,075-76 (oral argument). Yet, MDC 14 later invoked these same essential argu- ments in upholding the default termination. MDC 14 thus embraced an analysis materially indistinguish- able from that expressly rejected by MDC 12. Despite the crucial differences in proof between its new ad hoc approach and the clear rule it discarded, the Federal Circuit, incredibly, did not remand to * As discussed below, lack of a completion date at termi- nation hardly rendered this case “nique” or the Lisbon analysis “difficult to apply.” See infra, Part III. 18 require the Government to meet its new burden or to afford Contractors a chance to rebut’ the Government’s showing, to present defenses under the new standard, or to meet the burden the court had newly shifted to them. Rather, the court applied its new test to the record formed under the funda- mentally different Lisbon-MDC 12 rule. Thus, the court sustained the default termination because it believed, based on its own interpretation of the facts, that the Government “was justifiably insecure about the contract’s timely completion” and because Con- tractors neither proffered “record evidence to show ... that they could have completed the contract on any date” nor argued on appeal “that their failure to make progress could be excused.” App. 30a (emphasis added). Of course, Contractors had had neither reason nor opportunity to make either showing. ¢ REASONS FOR GRAN'TING THE PETITION I. The Federal Circuit’s Adoption and Ap- plication of a New Legal Rule without Remanding Violates Due Process and Conflicts with this Court’s Precedents and the Decisions of Other Circuits. In MDC 12, the Federal Circuit clearly directed that this case be litigated and decided under the Lisbon rule. As this Court’s precedents and the deci- sions of other circuits make clear, once the appellate court changed the applicable legal standard, the Due Process Clause entitled Contractors, as a matter of 19 basic fairness, to a remand so they could present argument and evidence made newly relevant by the Federal Circuit’s about-face. Had they been afforded that opportunity, Contractors almost certainly would have prevailed. A. The Federal Circuit’s Refusal to Re- mand Conflicts with This Court’s Precedent. “tT Jhe Due Process Clauses protect civil litigants who seek recourse in the courts, either as defendants hoping to protect their property or as plaintiffs at- tempting to redress yrievances.” Logan v. Zimmer- man Brush Co., 455 U.S. 422, 429 (1982). Due process manifestly requires “notice and a meaningful oppor- tunity to be heard.” Lachance v. Erickson, 522 U.S. 262, 266 (1998). More specifically, a “party is entitled, of course, to know the issues on which decision will turn.” Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 289 n.4 (1974). Consequently, when a court “overrules a consistent line of ... deci- sions with the retroactive effect of denying a litigant a hearing in a pending case, it thereby deprives him of due process of law.” Bouie v. City of Colombia, 378 U.S. 347, 354 (1964); see also Gonzales v. United States, 348 U.S. 407, 414 & n.5 (1955). It follows that a court must remand when it announces a rule different from the one under which the case has been litigated. This principle is so funda- mentally obvious that courts ordinarily apply it as a matter of course. For example, in Hertz Corp. uv. 20 Friend, this Court recently adopted a jurisdictional test for identifying a corporation’s principal place of business that differed materially from the standard under which the parties had litigated the case. 130 S. Ct. 1181, 1186-87, 1191-94 (2010). Even though the plaintiffs had not previously challenged the defen- dant’s declaration relating to its principal place of business, this Court vacated the decision below and remanded to afford the respondents “a fair opportu- nity to litigate their case in light of [its] holding.” Jd. at 1195. These bedrock principles of due process apply with special force here, for it is well-established that default termination is “a drastic sanction,” Lisbon, 828 F.2d at 765 (citation omitted), indeed, “a species of forfeiture,” Decker & Co. v. West, 76 F.3d 1573, 1580 (Fed. Cir. 1996). As this Court has repeatedly emphasized, the Due Process Clause is vitally im- portant in the forfeiture context. See, e.g., Jones v. Flowers, 547 U.S. 220 (2006); United States v. James Daniel Good Real Prop., 510 U.S. 43, 52, 62 (1993); see also One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 700 (1965) (“forfeiture proceeding is quasi-criminal in character”). Furthermore, MDC 12 had specifically mandated that Contractors’ challenge to the default termination be litigated under the Lisbon-MDC 12 rule. Accord- ingly, MDC 14’s failure to remand after announcing its new approach was particularly egregious. Because Contractors never had a meaningful opportunity to adduce evidence and argument mad2 relevant by 21 MDC 14’s new approach, that decision denied them due process of law. See Brinkerhoff-Faris Trust & Sav. Co. v. Hill, 281 U.S. 673, 677 (1930). B. The Court of Appeals’ Refusal to Re- mand Creates a Conflict with Other Circuits. Consistent with this Court’s decisions, many cir- cuits have held that the Due Process Clause requires remand when an appellate court announces a new controlling rule, to permit a party to present its case under the new rule. The decision below therefore cre- ates a conflict among the circuits on an important issue relating to the fundamental procedural fairness of litigation in the federal courts. Thus, in Hatch v. FERC, after the parties liti- gated before the ALJ under one standard, the Federal Energy Regulatory Commission on appeal denied petitioner’s claim by “adoptling] a stricter interpre- tation of [the relevant statutory provision] than had heretofore prevailed.” 654 F.2d 825, 830 (D.C. Cir. 1981). The D.C. Circuit observed that “when ... the change [in the controlling standard] is a qualitative one in the nature of the burden of proof so that ad- ditional facts of a different kind may now be relevant for the first time, litigants must have a meaningful opportunity to submit conforming proof.” Id. at 835. The court accordingly ruled that due process required the Commission to allow the petitioner “to submit any 22 additional relevant evidence . .. he may have in order to meet the new standard.” Jd. at 837. Similarly, in Harlan Bell Coal Co. v. Lemar, an employer initially submitted to the ALJ sufficient evidence to defeat an employee’s benefits claim under the then-controlling standard. 904 F.2d 1042, 1044 (6th Cir. 1990). After the ALJ had closed the record, however, the Sixth Circuit reinterpreted that stan- dard in another case. Jd. at 1044-45. On appeal the Board applied the new standard to the extant record, finding the employer’s evidence inadequate. Id. at 1045. The Sixth Circuit reversed because the em- ployer had “been effectively deprived of the opportu- nity to rebut evidence now supporting issues that did not exist at the time of its ALJ hearing.” Jd. at 1049. Explaining that the employer’s “night to a hearing encompasses not only the right to present evidence, but also the right to rebut the [employee’s] claims .. . under the correct legal standards,” the court ruled that “due process considerations” required that the employer “must be granted an opportunity to present evidence directed at the [newly adopted] standards as such evidence is necessary to the full presentation of {the employer’s] defense.” Jd.; see also, e.g., Peabody Coal Co. v. Ferguson, 140 F.3d 634, 637 (6th Cir. 1998); Singh v. INS, 213 F.3d 1050, 1054 (9th Cir. 2000); Millipore Corp. v. Travelers Indem. Co., 115 F.3d 21, 33-34 (1st Cir. 1997); Marx v. Director, OWCP, 870 F.2d 114, 121 (3d Cir. 1989); Brinley v. Commissioner, IRS, 782 F.2d 1326, 1336 (5th Cir. 23 1986); Aero Mayflower Transit Co. v. ICC, 699 F.2d 938, 942 (7th Cir. 1983). C. The Federal Circuit’s Immediate Ap- plication of Its New Test Prevents Contractors from Presenting Newly Relevant Argument and Evidence. Relying on MDC 12’s clear mandate, Contractors maintained in the trial court and on appeal that de- fault termination was improper because “the contract had no completion date for the ‘entire contract effort’ at termination, leaving no possibility that the con- tracting officer reasonably concluded the contractors would not complete the work on time.” App. 234a, 242a-46a, 15a-16a. So clear was the MDC 12 mandate that Contrac-tors had no reason to anticipate MDC 14’s adoption of a new, ad hoc approach closely resembling one MDC 12 had rejected, \et alone attempt to show that the Government could not meet its burden under that new approach. Nor could they reasonably have foreseen the need to proffer “record evidence to show ... that they could have completed the contract on any date,” or to argue on appeal “that their failure to make progress could be excused,” App. 30a-3la, for these issues arise under the then- controlling Lisbon-MDC 12 rule only if the Govern- ment first proves a binding date for completing the entire contract. Certainly Contractors could not have anticipated that the Government’s failure to carry its burden under Lisbon-MDC 12 would require 24 Contractors to prove that they were making adequate progress toward a nonexistent completion date. Had the Federal Circuit remanded the case after altering the governing standard, Contractors almost certainly would have prevailed. Instead, the appellate court drew its own factual conclusions out of a gar- gantuan record, making findings directly contrary to those of the trial court — seemingly, without even realizing that it had done so. In concluding that “the contracting officer was reasonably justified in feeling insecure about the Contractors’ rate of progress,” App. 29a (emphasis added), MDC 14 relied on (1) Con- tractors’ projected failure to meet the P00046 delivery schedule for the first eight test aircraft, (2) supposed concerns about Contractors’ financial ability to per- forin the contract, and (3) Contractors’ statements made while negotiating for an equitable contract restructuring and resisting unwarranted attempts to hold them to waived or superseded milestones and specifications. App. 25a-29a. Although the trial court had found, based on these matters, that Contractors might not have met the interim milestones imposed by P00046, that court had expressly disclaimed the con- clusion that they endangered timely performance of the entire contract. See, e.g., App. 206a, 212a-13a. On the contrary, that court found: ¢ the contracting officer was “not par- ticularly concerned” about the projected “fail- ure to meet the [P00046) delivery schedule.” App. 218a n.73; 25 ¢ the Navy saw a projected nine-month delay in first flight as “realistic and ac- ceptable,” App. 18la n.44, 276a-77a n.11; ¢ Contractors’ “financial condition was not endangering performance of the A-12 contract,” App. 28la-82a; * “lelvidence at trial established that plaintiffs’ financial ability was not a concern” of the contracting officer, App. 282a; ¢ “(tjJhe contractors’ requests to re- structure the contract were not declarations of financial inability or unwillingness to per- form,” App. 225a; ¢ the contracting officer “did not be- lieve that the contractors would not per- form,” App. 283a; ¢ the senior Defense Department offi- cial spearheading the A-12 contract termina- tion “had no concern that the contractors were incompetent or otherwise unable to handle the A-12 contract,” App 171la n.35; and ¢ the contractors “were committed to performing the A-12 contract until the date of termination,” App. 227a. These undisturbed findings, amply supported by the evidentiary record, alone appear to preclude a finding under MDC 14 that “the contracting officer was reasonably justified in feeling insecure about the Contractors’ rate of progress.” App. 20a (emphasis added). Had they been afforded an opportunity on 26 remand, Contractors could have further negated any such conclusion by tailoring their arguments and evidence to the new, ad hoc approach. They could also have established both “that they were making pro- gress such that timely completion of the contract was not endangered,” and “that there was excusable delay,” either of which would have provided a complete defense to default termination under MDC 14’s new approach. App. 30a. While it is unclear what might constitute “timely completion” of the entire contract absent a valid com- pletion date, Contractors could have proved that they would have met any reasonable completion schedule. In late 1990, Contractors and the Government had similar internal projections of the entire schedule leading to contract completion. JA 26,307; 92,112-13. These internal schedules, which were satisfactory to the Government, would have extended all milestones by roughly the same amount of time that PO00046 had extended delivery milestones for the first eight test aircraft. Jd. At termination, Contractors were on track to meet the later milestones these schedules projected. Indeed, the Navy itself estimated just before termination that the flight test program had a reserve of more than 40 aircraft months, as long as first flight occurred by the fourth quarter of 1992, which was a conservative projection at the time of termination. JA 26,6348; App. 178a n.44” Further, * The Federal Circuit noted that Contractors projected test- ing and evaluation to be completed 27 months after the orivinal contract specified. App. 26a. The original testing-and-evaluation (Continued on following page) 27 Contractors could have shown that the Government caused much of the delay early on by directing Contractors to focus on weight reduction rather than schedule compliance. App. 447a. In short, Contractors almost certainly would have prevailed if given the opportunity to prove their case under MDC 14’s new ad hoc test. Bedrock principles of due process thus required the court to remand for further proceedings. Indeed, so glaring is the Federal Circuit’s departure from fundamental canons of due process set forth in this Court’s controlling precedents that summary reversal, with a remand to the trial court for further proceedings, may be warranted as ax! alternative to plenary review. milestone did not, however, survive P00046’s extension of the earlier milestones on which it depended, cf. App. 15a-16a, and Contractors’ projection closely aligned with P00046, which extended by up to 25 months the delivery milestones for the first eight test airplanes. See JA 15,657. Had the parties believed the extra two-month delay was significant, Contractors easily could have compressed the lengthy contract testing period, as evidenced by the ample flight-test program reserve. 28 il. The Federal Circuit’s Rule Permitting the Government to Prosecute a Claim While Asserting the State Secrets Privilege to Foreclose a Valid Defense to That Claim Violates Due Process and Conflicts with the Decisions of this Court and of Other Circuits. Fundamental fairness does not permit the Gov- ernment to assert a multi-billion-dollar claim against a defendant while refusing to disclose secret informa- tion that would dei. at that claim. Here, the Govern- ment asserted a default ter:mination claim and then invoked the state secrets privilege to bar Contractors from proving their prima facie valid superior knowl- edge defense to that claim. By allowing the default terinination claim to proceed, MDC 12 violated ele- mental due process and created a conflict with this Court’s decisions and those of every other circuit that has addressed the issue. Tellingly, the Government has embraced these due process principles when the shoe is on the other foot and it is attempting to defend against a claim. Indeed, earlier in this very case, the Government insisted that, if the court converted the termination for default to one for convenience, Contractors’ claim for contractual payments should nonetheless be de- nied because a potential government defense to that claim would depend upon privileged state secrets. The Government argued: “As a matter of law, ‘if the privilege deprives the defendant of information that would otherwise give the defendant a valid defense to 29 the claim, then the Court may grant summary judg- ment to the defendant.’” Def.’s Br. Regarding Effect of State Secrets and Mot. for Reconsideration 11 n.2 (Mar. 28, 2001) (quoting Bareford v. General Dynam- ics Corp., 973 F.2d 1138, 1141 (5th Cir. 1992)); see also App. 373a-80a, 394-98a. The Government has repeatedly taken the same position in other cases. See, e.g., Al-Haramain Islamic Found., Inc. v. Bush, 507 F.3d 1190, 1197 (9th Cir. 2007); Hepting v. AT&T Corp., 439 F. Supp. 2d 974, 985-86 (N.D. Cal. 2006); In re United States, 872 F.2d 472, 477 (D.C. Cir. 1989); Molerio v. FBI, 749 F.2d 815, 819 (D.C. Cir. 1984). This is exactly Contractors’ position: their prima facie valid defense to the Government’s default termi- nation claim cannot be litigated because the Govern- ment asserted the state secrets privilege. Private parties defending against a Government claim are entitled to at least the same due process protections as the Government. Indeed, it is especially unfair to permit the Government to use the state secrets privilege both offensively and defensively in the same case, always to Contractors’ disadvantage. A. The Federal Circuit’s State Secrets Analysis Deprives Defendants of Due Process in Conflict with This Court’s Precedents. Invoking this Court’s decision in United States v. Reynolds, 345 U.S. 1 (1953), and circuit court decisions following it, the Federal Circuit ruled that 30 Contractors were precluded from asserting their su- perior knowledge defense to the Government’s default terinination claim because, “when a properly invoked claim of State Secrets privilege undercuts a civil litigant’s opportunity to prove its case, the interests favoring protection of the state secret always prevail.” App. 66a-69a, 71a. But Contractors did not dispute that genuine state secrets must always be protected; rather, they argued that permitting the privilege to preclude their prima facie valid defense requires, as a matter of due process, dismissal of the Government’s default termination claim. The Due Process Clause will not permit the Government both to assert a claim and then to ensure its own victory by asserting the privilege to preclude its opponent from raising a valid defense. In Reynolds, the plaintiffs sued the Government in tort and sought disclosure of a classified report withheld under the state secrets privilege. 345 U.S. at 3-5. Upholding the Government’s assertion of privi- lege, the Court distinguished a criminal defendant from a civil plaintiff asserting a claim for monetary relief against the Government: “[I]n the criminal field, ... the Government can invoke its evidentiary privileges only at the price of letting the defendant go free,” for “it is unconscionable to allow [the Govern- ment] to undertake prosecution and then invoke its governmental privileges to deprive the accused of anything which might be materia! to his defense.” Jd. at 12. But this “rationale has no application,” the Court held, “in a civil forum where the Government is 31 not the moving party, but is a defendant only on terias to which it has consented.” Jd. Relying on this discussion in Reynolds, the Fed- eral Circuit held that Contractors had “conflate[d] rules governing criminal and civil proceedings, ele- vating this civil contract dispute into the consti- tutional territory of a criminal] prosecution.” App. 69a. Concluding that “(t]he Contractors are not at jeop- ardy from an attack on them by the government,” the court ruled that due process did not foreclose the Government from proceeding with its default termi- nation claim, even as Contractors were barred from presenting their prima facie valid superior knowledge defense. App.70a. In fact, however, this Court’s decisions in Rey- nolds and other cases show that the Government’s default ter:nination claim here must be denied. Con- trary to the Federal Circuit’s decision, Contractors are at jeopardy — from a staggering multi-billion dollar forfeiture claim asserted against them by the Government — and due process entitles them to dismissal of that claim because the Government’s invocation of the privilege bars them from raising a valid defense. Reynolds did not specifically address the situa- tion here, where the Government is the moving party asserting a civil penalty claim. But Reynolds’ ration- ale concerning criminal defendants nonetheless plain- ly applies: just as in the criminal context, it is clearly unconscionable to allow the Government both to assert 32 a multi-billion dollar civil penalty claim against Contractors and also to “invoke its governmental privileges” to bar them from presenting a valid de- fense to that claim.’ Indeed, other decisions of this Court unambigu- ously hold that due process guarantees a civil de- fendant “an opportunity to present every available defense.” Lindsey v. Normet, 405 U.S. 56, 66 (1972); see also Logan, 455 U.S. at 429. The underlying risk in civil and criminal cases involving the state secrets privilege is the same: if the Government can both assert a claim and invoke the privilege to bar a defense to that claim, it can distort the court’s fact- finding process to its advantage. As this Court has explained, “(t]he purpose of an adversary hearing is to ensure the requisite neutrality that must inform all governmental decision-making. That protection is of particular importance here, where the Government * Indeed, termination for default is a “species of forfeiture,” Decker & Co., 76 F.3d at 1580, and settled law holds that a “forfeiture proceeding is quasi-criminal in character.” One 1958 Plymouth Sedan, 380 U.S. at 700 (applying the Fourth Amendment's exclusionary rule in forfeiture proceeding); see also, e.g., Austin v. United States, 509 U.S. 602 (1993) (finding that forfeiture constituted punishment for purposes of the Ex- cessive Fines Clause of the Eighth Amendment); Boyd v. United States, 116 U.S. 616 (1886) (applying the Self Incrimination Clause of the Fifth Amendment in forfeiture proceeding) (overruled in part on other grounds, Fisher v. United States, 425 U.S. 391 (1976)). And default termination can have other quasi- criminal consequences as well, including debariuent from public contracting. See FAR § 9.406-2(b)(1). 33 has a direct pecuniary interest in the outcome of the proceeding.” James Daniel, 510 U.S. 55-56. The Fed- eral Circuit’s state secrets ruling thus violates due process and directly conflicts with this Court’s clear precedents. B. The Federal Circuit’s State Secrets Analysis Conflicts with the Decisions of Other Circuits. Consistent with this Court’s civil due process precedents, “[mJost courts that have discussed the state secret privilege have adopted the position that, if privileged information would establish a valid de- fense, then the court ought to dismiss the plaintiffs’ case.” Bareford, 973 F.2d at 1143 (citing Zuckerbraun v. General Dynamics Corp., 935 F.2d 544, 547 (2d Cir. 1991), In re United States, 872 F.2d at 476, 481 (D.C. Cir. 1989), and Molerio, 749 F.2d at 821, 825).* In Molerio, for example, the plaintiff claimed that the FBI, its director, and its former personnel officer had illegally refused to hire him. 749 F.2d at 819. Then- Judge Scalia, writing for the court, held that two of the counts were “properly dismissed” because the * Moved by similar concerns about fairness, courts have likewise not allowed civil plaintiffs to assert other types of privileges to foreclose a valid defense. See, e.g., Ideal Elec. Sec. Co. v. International Fid. Ins. Co., 129 F.3d 143, 151-52 (D.C. Cir. 1997) (attorney-client privilege); Lyons v. Johnson, 415 F.2d 540, 542 (Sth Cir. 1969) (Fifth Amendment privilege against self- incrimination). 34 Government’s assertion of the state secrets privilege with respect to evidence of “the genuine reason for denial of employment” prevented the defendants from asserting a “valid[] ... defense.” Jd. at 825-26. In- deed, other than the Federal Circuit here, all of the circuits addressing this issue have — often building on Molerio — made clear that a civil claim should be dismissed if the state secrets privilege forecloses a valid defense. See also El-Masri v. United States, 479 F.3d 296, 309 (4th Cir. 2007); Tenenbaum v. Simonini, 372 F.3d 776, 777 (6th Cir. 2004); Kasza v. Browner, 133 F.3d 1159, 1166 (9th Cir. 1998). The point of these cases is this: if the state secrets privilege requires a defendant to lay down its shield, due process requires the plaintiff to lay down its sword. By embracing a contrary approach, the decision below creates a conflict among the circuits on an im- portant question regarding the accommodation of fundamental due process concerns with the needs of national security. This Court’s review is thus urgently needed to correct the decision below and restore clar- ity and uniformity in this critical area of the law. Ill. The Federal Circuit’s New Ad Hoc Rule for Default Terminations Will Destabilize An Important Area of the Law. The Federal Circuit’s new, ad hoc approach to default terminations is unworkable, unfair to contrac- tors, and potentially very costly to the Government. It will have significant adverse consequences for the 35 Government’s extensive contracting programs. See U.S. Government Accountability Office, GAO-09- 326SP, Defense Acquisitions: Assessments of Selected Weapon Programs 4, 6 (Mar. 2, 2009) (“GAO Report” ]. The Government’s renewed emphasis on fixed- price contracts, which are directly governed by FAR § 52.249-9 (at issue here) and analogous default termination provisions, renders the Federal Circuit’s novel interpretation especially momentous. See, e.g., Barack Obama, Memorandum for the Heads of Execu- tive Departments and Agencies, Mar. 4, 2009; Donna Miles, Tanker Solicitation Seeks Fair Competition, Best Value, American Forces Press Service, Feb. 24, 2010. Because the Federal Circuit has exclusive appellate jurisdiction of challenges to such terinina- tions, the decision below effectively creates a national rule implicating all future government contracts of this kind. Clarifying the standard for terminating such contracts is thus an issue of exceptional im- portance that warrants this Court’s attention. Given the special rules that already apply in this area, the approach adopted below is unnecessary to protect the Government’s interests and will create perverse incentives for arbitrary governmental ac- tion. Unlike a private party, the Government may terminate a contract for convenience at any time and for virtually any reason, without liability for breach, simply by paying for work already perforined plus limited settlement costs. But if the Government ter- minates for default, it is not liable even for work the contractor already has performed. On the contrary, 36 this “drastic” remedy may entitle the Government “to the repayment of advance and progress payments” that have not been liquidated. Decker & Co., 76 F.3d at 1580; FAR § 49.402-2. Absent bad faith, the only consequence to the Government if a court rules that the “default decision represented an abuse of dis- cretion” is that termination is converted “into one for the convenience of the Government.” Darwin Constr. Co. v. United States, 811 F.2d 593, 597 (Fed. Cir. 1987). These rules incentivize the Government to ter- minate for default and take its chances in subsequent litigation. To temper the consequences of such a “drastic sanction,” which effects a forfeiture of con- tractors’ rights, courts have long insisted upon clear, strict standards to guard against arbitrary default terminations. See, e.g., De Vito v. United States, 413 F.2d 1147, 1153 (Ct. Cl. 1969); King v. United States, 37 Ct. Cl. 428, 436 (1902). Lisbon and MDC 12 struck a “praymatic,” care- fully calibrated “balance” between “the judicial aver- sion to default terminations” and the Government’s right “to receive that for which it contracted” by adopting clear, fair rules for deter:mining when sched- ule delays warrant the drastic sanction of default termination. App. 50a-51la. In complex contracts where delays are commonplace, see GAO Report 6, 10-11, the requirement that default termination be based on the contracting officer’s reasonable belief that there is no reasonable likelihood that the contractors will perform “the entire contract effort” by the “contract 37 completion date” provides a rule that is both work- able and fair. Contrary to the court’s assertions below, nothing about the lack of a valid contract completion date renders Lisbon “unworkable” or unsound. In fact, without clear guidance for when a contract must be completed, it is not only unreasonable, but also logic- ally impossible to conclude that there is no reason- able likelihood of timely completion. App. 55a. Nor does the Government’s inability to meet its burden under Lisbon without a valid completion date make that decision “difficult to apply.” Indeed, the Boards of Contract Appeals — “whose specialized expertise with government contracts is entitled to respect,” App. 52a-53a n.2 — have had no difficulty applying Lisbon to contracts lacking a “reasonable and_ specific completion date,” repeatedly holding that in such circumstances “the Government could not rationally terminate for default for failure to make progress, since there was no objective against which the contractor’s progress could be judged.” Divecon Servs., LP, 04-2 BCA 932,656 at 161,634-35 (GSBCA 2004).” * See Technocratica, 06-2 BCA 933,316 at 165,190 (ASBCA 2006); AST’ Anlagen-Und Sanierungstechnik GmbH, 04-1 BCA 132,558 at 161,043-44 (ASBCA 2004); Upwest Corp., 01-2 BCA 731,474 at 155,393 (PSBCA 2001); Amerwan Sheet Metal Corp., 99-1 BCA 430,329 at 149,994-95 (GSBCA 1999): Technocratica, 94-2 BCA 926,606 at 132,370 (ASBCA 1993); Lanzen Fabricating, Inc., 93-3 BCA 426,079 at 129,609 (ASBCA 1993); M.V.I. Precision Machining, Ltd., 91-2 BCA 923,898 at 119,741 (ASBCA 1991); Motorola Computer Sys., Inc., 87-3 BCA 420,032 at 101,416 (ASBCA 1987). 38 Applying Lisbon in this way does not disadvan- tage the Government. Unlike a private party, the Government always possesses the power unilaterally to impose a reasonable completion date against which to measure a contractor’s progress. App. 60a. Re- quiring the Government to impose a clear completion date before penalizing a contractor for failing to make progress toward timely completion is just what basic fairness requires. further:more, courts have recog- nized a narrow exception to the requirement for a completion date in the exceptional case, unlike this one, where a contractor is “making no progress at all,” and the evidence shows that progress will never resume. Universal Fiberglass Corp. v. United States, 537 F.2d 393, 397 (Ct. Cl. 1976). These rules, as well as the government-friendly rules governing default and convenience terminations discussed above, more than suffice to protect the Government’s legitimate interests. Unlike Lisbon, it is the ad hoc approach ordered by the court below that is unworkable and unfair. At best, the new approach is arbitrary and un- predictable, turning on any conccivable subjective circumstance, apparently including failure to meet milestones and specifications that the Government previously waived. Compare App. 25a-27a, with App. 60a-6la. At worst, the new approach is circular and incoherent, requiring an ungrounded prediction of whether “timely” performance is endangered, despite the absence of an enforceable completion date. By replacing the Lisbon test with this flawed ad hoe approach, the decision below will increase the 39 Government's already substantial incentive to default terminate, regardless of whether that remedy is jus- tified. Moreover, the new approach reverses the Gov- ernment’s incentive to forthrightly reset waived or superseded schedules: while the Government cannot prevail under Lisbon absent a valid completion date (unless the contractor is making no progress whatso- ever), the new approach holds the Government to a less-demanding standard when there is no contract completion date than when there is one. Without a definite deadline, contractors will be unable to know whether their progress is adequate, and courts will lack an objective basis for judging the reasonableness of a Government claim that it “feel/s/ insecure about the contractors’ rate of progress.” App. 24a-3la (emphasis added). The result will be an inevitable decrease in pre- dictability, with a concomitant increase in unwar- ranted default ter:ninations and litigation disputing them. And while the ruling below will inure to the Government’s benefit here, over time it will most likely harm the Government, as contractors either refuse to enter fixed-price contracts or demand a preminm to compensate for the heightened risk of arbitrary or unjustified forfeitures. See United States v. Winstar Corp., 518 U.S. 839, 913 (1996) (Breyer, J., concurring). Contrary to the Federal Circuit's suggestion, see App. 35a-36a, its decision will not be limited to the facts of this case or rare cases. Schedule waivers and realignments are typical of Government contracts, especially complex R&D contracts such as this one. 40 And default terminations of contracts lacking a valid completion date are not particularly unusual, either, as indicated by the numerous Boards of Contract Appeals cases cited above. Further, the frequency of such default teriminations undoubtedly will increase now that the Government’s incentive to re-establish a valid completion schedule has been replaced with an incentive to leave the completion date undefined. ¢ CONCLUSION For the foregoing reasons, this petition for a writ of certiorari should be granted. As an alternative to plenary review, this Court may wish to consider sum marily reversing the judyinent below, with instruc- tions to remand the case to the trial court to afford Contractors an opportunity to satisfy the Federal Circuit’s new test for reviewing a default termination. April 23, 2010 Respectfully submitted, J. MICHAEL LuwiiG CHARLES J. COOPER executive Vice President Counsel of Record & General Counsel! MiIcHABL W. KikkK GRANT M. DIXTON Howakb CC, NIELSON, Jk LYNDA GUILD SIMPSON DAVID LEHN THE BOEING COMPANY COOPER AND KIKK, PLLC 100 North Riverside 1523 New Hampshire Ave , N.W. Chicago, IL 60606 Washington, D.C. 200386 ($12) 544-2800 (202) 220-9600 (202) 220-9601 (fax) ccooper@cooperkirk.com Counsel for The Boeing Company la MCDONNELL DOUGI.AS CORPORATION, Plaintiff-Appellant, and GENERAT. DYNAMICS CORPORATION, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee. 2007-5111, 2007-5131 UNITED STATES COURT OF APPEATS FOR THE FEDERAT. CIRCUIT 567 F.3d 1340; 2009 U.S. App. LEXIS 11716 June 2, 2009, Decided COUNSEL: Charles J. Cooper, Cooper & Kirk, PLLC, of Washington, DC, argued for plaintiff-appel- lant. McDonnell Douglas Corporation. With him on the brief were Michael W. Kirk, Howard C. Nielson, Jr. and D. John Sauer. Of counsel on the brief were Caryl A. Potter, III, and Elizabeth A. Ferrell, Sonnen- schein, Nath & Rosenthal, LLP, of Washington, DC; and J. Michael Luttig, The Boeing Company, of Chicago, Illinois. Donald B. Verrilli, Jr., Jenner & Block, LLP, of Wash- ington, DC, argued for plaintiff-appellant General Dynamics Corporation. With him on the brief were David A. Churchill; and Linda L. Listrom, of Chicago, Illinois. Bryant G. Snee, Deputy Director, Commercial Liti- gation Branch, Civil Division, United States De- partment of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief were Jeanne KE. Davidson, Director, and Patricia M. 2a McCarthy, Assistant Director. Of counsel was Kirk T. Manhardt, Deputy Director. Of counsel on the brief were Wendell A. Kjos and Mark A. Romano, Office of the General Counsel, United States Department of the Navy, of Arlington, Virginia. Gregory A. Smith, Cooley Godward Kronish LLP, of Reston, VA, for amicus curiae National Defense In- dustrial Association. With him on the brief was David E. Fletcher, of Washington, DC. Of counsel on the brief was Ralph C. Nash, Jr., George Washington University Law School, of Washington, DC. JUDGES: Before MICHEL, Chief Judge, MOORE, Circuit Judge, and HUFF,* District Judge. OPINION BY: MICHEL OPINION MICHEL, Chief Judge. This case arises from the government’s default terinination in 1991 of a contract between the United States Navy (“the government”) and two contractors, McDonnell Douglas Corporation (“MDC”) and Gen- eral Dynamics Corporation (“GD”) (collectively “con- tractors”) to develop a carrier-based stealth aircraft, the A-12 Avenger. The contractors challenge the * Honorable Marilyn L. Huff, District Judge, United States District Court for the Southern District of California, sitting by designation. 3a judgment of the Court of Federal Claims in favor of the government. McDonnell Douglas Corp. v. United States, 76 Fed. Cl. 385 (2007) (“McDonnell Douglas XIII”). We heard oral argument on December 3, 2008. Because the overall evidence of record supports a conclusion that the government was justified in terminating the contract for default, we affirin. I. BACKGROUND This American version of Jarndyce and Jarndyce has entered its eighteenth year of litigation. The de- tailed facts have been repeated many times pre- viously. See, e.g., McDonnell Douglas XIII; McDonnell Douglas Corp. v. United States, 323 F.3d 1006 (Fed. Cir. 2003) (“McDonnell Douglas XII”); McDonnell Douglas Corp. v. United States, 50 Fed. Cl. 311 (2001) (“McDonnell Douglas XI”); and McDonnell Douglas Corp. v. United States, 182 F.3d 1319 (Fed. Cir. 1999) (“McDonnell Douglas X”). As we are writing what necessarily will become “McDonnell Douglas XIV,” we will only provide a summary of relevant facts here. A. The A-12 contract In January 1988, the Navy awarded the contrac- tors a fixed-price research and development contract for the A-12 stealth aircraft. The full-scale engineer- ing and development (“FSD”) contract was structured as an incrementally funded, fixed-price incentive contract with a ceiling price of $4,777,330,294. The con- tract incorporated by reference Federal Acquisition 4a Regulation (FAR) 52.249-9 Default provision (Fixed- Price Research and Development), which provides in relevant part: (a1) The Government may ... by written Notice of Default to the Contractor, terminate this contract in whole or in part if the Contractor fails to — (ii) Prosecute the work so as to en- danger perforinance of this contract (but see paragraph (a)(2) of this clause); (2) The Government’s right to termi- nate this contract under subdivisions (a)(1)(ii) and (iii) of this clause may be exercised if the Contractor does not cure such failure within 10 days (or more, if authorized in writing by the Contracting Officer) after receipt of the notice from the Contracting Officer speci- fying the failure. 48 C.F.R. § 52.249-9 (1984). Under the contract, the contractors were to de- sign, manufacture, and test eight A-12 prototypes ac- cording to a specified schedule, with the first aircraft to be delivered in June 1990 (the “first flight” date) and the remaining seven to be delivered monthly through January 1991. The contractors were to con- clude their testing of the aircraft by April 1993, the completion time of the Navy’s technical evaluation program (“[T'CHEVAL”). The contractors would also 5a support the Navy’s evaluation of the aircraft and further provide training support for three years after delivering training equipment to the Navy in June 1993. In addition, the contract gave the Navy the option to purchase four production lots of aircraft. In May 1990, the Navy exercised its option on Lot I for six aircraft to be delivered between June 1991 and May 1992. B. Modification of the A-12 contract From the start, the contractors encountered diffi- culties in performing the contract, including meeting the contract schedule and keeping the aircraft weight within specifications. McDonnell Douglas XII, 323 F.3d at 1011. Two weeks before the first flight date, the contractors reported to the Navy that the pro- jected first flight date would be July-September 1991, instead of June 1990 as originally agreed, and the remainder of the contract work would be delayed a corresponding twelve to fourteen months. They also predicted that the cost of completing the contract would exceed the ceiling price so substantially that it would be “unacceptable” to the contractors. The con- tractors asserted that a fundamental problem with the FSD contract was its fixed-price structure and proposed that the contract be modified. At the end of June 1990, the contractors missed the first flight date. The Navy did not terininate the contract. Instead, the contracting officer sent a letter to the contractors in July, expressing “serious 6a concern” regarding the deficient performance under the contract. He warned that the contractors’ failure to meet the first flight date “could jeopardize perfor- mance of the entire [contract] effort.” He also asked for the contractors’ plan to meet the rest of the origi- nal schedule as well as their proposal for contract revision. As the parties failed to reach an agreement, on August 17, 1990, the Navy unilaterally issued a con- tract modification, P00046, which revised the proto- type aircraft delivery dates but left Lot I and later milestones intact. The delivery schedules are: Aircraft Original P00046 Modified Number Delivery Date Delivery Date Prototype 1 June 1990 December 1991 2 July 1990 February 1992 3 August 1990 June 1992 4 September 1990 August 1992 5 October 1990 September 1992 6 November 1990 November 1992 7 December 1990 December 1992 8 | 9 January 1991 February 1993 Lot I June 1991 10 August 1991 ll October 1991 12 December 1991 13 March 1992 14 May 1992 7a C. Performance after contract modification After the contract modification, more problems arose concerning the performance of the contract. During the months leading to terinination, the con- tractors’ internal schedules showed that they would not meet the P00046 modified first flight date in December 1991. McDonnell Douglas XIII, 76 Fed. Cl. at 401. Instead, they projected three more months’ delay with the first flight date in March 1992. By December 1990, the contractors’ “confidence in the March 1992 flight date [was further] reduced.” They believed that such a date was achievable “only after significant changes.” At the same time, the contractors continued oper- ations, spending $120-150 million of their own money every month. McDonnell Douglas XIII, 76 Fed. Cl. at 427. In November 1990, the contractors submitted a formal request to the Navy to restru: ture the contract as a cost-reimbursement type contract. McDonnell Douglas X, 182 F.3d at 1322. D. The termination The contractors’ continued difficulties in perforin- ing the contract led the Department of Defense and the Navy to question the viability of the project. On Friday, December 14, 1990, then-Secretary of Defense Dick Cheney directed the Secretary of the Navy to show cause by January 4, 1991, why the A-12 program should not be terminated. 8a The following Monday, December 17, the Navy issued a cure notice to the contractors, stating that the government considered the contractors’ perfor- mance under the contract “unsatisfactory.” In par- ticular, the cure notice stated that the contractors had “failed to fabricate parts sufficient to permit final assembly in time to meet the schedule for delivery,” and had “failed to meet specification requirements.” The letter asserted that “these conditions [were] en- dangering performance of [the] contract,” and that unless these conditions were cured by January 2, 1991, the government might terminate the contract for default. In the following days, high-level meetings oc- curred between the responsible government person- nel and the contractors. McDonnell Douglas X, 182 F.3d at 1323. During these meetings, the contractors asserted that they could not “get there if [they didn’t] change the contract,” and that it “got to get reformed to a cost type contract or [they could not] do it.” When asked by the government if they could “correct defi- ciencies to provide an aircraft that meets the require- ments,” the contractors replied that “all deficiencies cannot be corrected. ... Mother [NJature won’t allow correction of all defects. We'll do the best we can and the Navy has to decide if that’s good enough.” On January 2, 1991, in responding to the cure notice, the contractors admitted that they would “not meet delivery schedules or certain specifi :tions of the original contract, or the revised FSU delivery schedule.” However, they denied that they were in Ya default because, in their view, the delivery schedules were invalid. They asserted that “the furdamental factual assumptions of the original contract, with respect to schedule and achievability of certain speci- fication requirements, were gravely mistaken,” and therefore, “the schedules and certain other specifi- cation requirements, such as weight, were impossible to satisfy.” The contractors concluded that “[iJn these circumstances, there [was] not an _ enforceable schedule or specifications against which to measure their performance.” They further declared that com- pliance with the government’s demand to cure by January 2, 1991 was “unachievable.” However, the contractors stated that they were “fully committed to the success of the [A-12] Program.” They again submitted their proposal to restructure the contract to a cost reimbursement contract. In ex- change for that restructuring, the contractors wou'd absorb a $1.5 billion fixed loss and would waive their claims for equitable adjustment. On January 7, 1991, Rear Admiral William Morris, the contracting officer at the time, issued a terinination letter to the contractors stating that the government was terminating the A-12 contract due to the contractors’ default. A few weeks later, the Navy sent a letter to the contractors demanding the return of approximately $1.35 billion in unliquidated pro- gress payinents under the terminated contract. McDonnell Douglas X, 182 F.3d at 1324. 10a Il. LITIGATION HISTORY A. The first round In June 1991, the contractors sought relief in the Court of Federal Claims under the Contract Disputes Act, 41 U.S.C. § 609(a), requesting that the court: (1) grant the contractors’ equitable adjustment claims, (2) convert the government’s termination for default into a termination for convenience, (3) deny the gov- ernment’s demand for return of progress payments, (4) award the contractors costs and a reasonable profit under the contract, (5) award the contractors settlement expenses, and (6) award damages for breach of contract. After several years of litigation, the Court ov Federal Claims ruled that the government’s default termination was invalid. McDonnell Douglas Corp. v. United States, 35 Fed. Cl. 358, 368-71 (1996) (“McDonnell Douglas IV”). It found that the con- tracting officer failed to exercise “reasoned discretion” before the default termination because Secretary Cheney’s actions effectively forced the Navy to terminate the A-12 contract for default. Jd. at 369-71. Therefore, it vacated the government’s termination for default and converted it into a termination for convenience. Jd. at 361. The court ultimately denied the government’s claim for return of $1.35 billion in unliquidated progress payments, and entered judg- ment of approximately $1.2 billion in favor of the contractors. McDonnell Douglas Corp. v. United lla States, 40 Fed. Cl. 529, 555-56 (1998) (“McDonnell Douglas IX”). On appeal, we reversed, holding that because the termination for default was related to the contractors’ performance, it was within the discretion of the government. McDonnell Douglas X, 182 F.3d at 1321. We remanded the case for the trial court to determine whether the default termination was justified. /d. B. The second round After a six-week trial on remand, the Court of Federal Claims ruled in favor of the government. McDonnell Douglas XI, 50 Fed. Cl. at 319. The court sustained the default termination based solely on the contractors’ failure to meet the December 1991 first flight date. Jd. at 315-19. It declined to base its de- termination of justified default on the contractors’ alleged financial inability to perform the contract, anticipatory repudiation, and failure to comply with weight and other specification requirements. Jd. at 319-24. The court also rejected the contractors’ argu- ments that the unilateral schedule was unreasunable and therefore unenforceable, or, if enforceable then the Navy waived the unilateral schedule and first flight date of December 1991; that the contract was commercially impossible to perform; and that the Navy had to disclose its alleged superior knowledge despite the assertion of the state secrets privilege. /d. at 324-26. The court then entered judyinent in favor of the government. /d. at 326. 12a On appeal, we affirined the trial court’s de- termination that the unilateral schedule imposed by the government was enforceable and not waived, that the Military and State Secrets privilege precluded litigation of the contractors’ “superior knowledge” claim, and that the government’s claim for progress payments was not at issue in the case. McDonnell Douglas XII, 323 F.3d at 1018-24. However, we held that the trial court misapplied the controlling standard in determining whether the default termination was justified. Jd. at 1012-14. Therefore, we again vacated and remanded. /d. Specifically, we stated that a default te: mination did not require “absolute impossibility of performance or a contractor’s complete repudiation or abandon- ment.” /d. at 1015. On the other hand, the govern- ment cannot justify u default termination “based solely on a contractor’s concerns about meeting a con- tractual schedule milestone or specification require- ments.” Jd. Instead, the government must establish by a preponderance of the evidence of a “reasonable belief on the part of the contracting officer that there was no reasonable likelihood that the contractor could perform the entire contract effort within the time remaining for contract performance.” /d. at 1016. (citing Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987)). l3a C. The third round On remand, the Court of Federal Claims stated as follows: The case turns on whether the Circuit's remand meant for the clauses, “entire con- tract effort” and “contract completion date” to mean exactly what they appear to mean — the contractors’ expansive view; or whether the remand permits our use of a more com- pact yardstick — coinciding with the Govern- ment’s restricted view. The Government did not establish a contract closing date and the contracting officer did not conduct a Lishon analysis pnor to termination. McDonnell Douglas XIII, 76 Fed. Cl. at 437 n.92. The court concluded that the government could not “pre- vail if the law requireld] an enforceable contract completion date at termination,” but went on to state that the government’s “burden of proof [did] not necessarily require the Government to provide a completion date for the entire contract effort.” Jd. at 388. Based on its understanding that we “implied in this case that a court may choose a reasonable period of performance Lo use as uw measure of progress on the contract,” id. at 420, the court found that the Navy’s unilateral modification, POUO46, was a yardstick that “enable[d] the court to consider the contractors’ pro- gress in light of factors that are probative of their ability and willingness to perforin,” id. at 389. Using P00046 as the yardstick and considering “all of the 14a relevant facts and testimony,” id. at 421, including mitigating factors for the contractors, the court con- cluded that the overall evidence of record supported a conclusion that the government was justified in tersninating the contract for failure to make progress, id. at 430. In addition, the trial court stated that the judg- ment in the case mooted the government's alternative argument that the contractors did not provide adequate assurances to the contracting officer after receiving the notice to cure. Jd. at 434. The contractors timely appealed. We have juris- diction pursuant to 28 USC. § 1295(a)(3). Wl. DISCUSSION A. Standard of review Whether the government is justified in terminat ing a contract for default is a question of law based on factual underpinnings. McDonnell Douglas X, 182 F.3d at 1325. We review issues of law de novo, with- out deference to the trial court. McDonnell Douplas XII, 3823 F.3d at 1012 (citation omitted). However, we will not disturb the trial court’s factual findings, such us its evaluation of evidence of default, unless they are clearly erroneous. /d. 15a B. Analysis 1. Termination for failure to make progress in the absence of a contract completion date In McDonnell Douglas XII, we quoted the language from Lisbon in toto and directed the Court of Federal Claims to determine “the perforimance required by the contract’ and the contract completion date.” 323 F.3d at 1018 (emphasis added, footnote added). We acknowledge that this specific instruction, if read literally, turns out to be difficult to apply. This is largely due to the unique facts of this case and the disadvantage we faced last time when deciding the case without the benefit of sufficient fact findings from the trial court. See id. at 1014. The difficulty in strictly applying the Lisbon test lies in the critical fact that P00046 revised the pro- totype aircraft delivery dates but left Lot I delivery ‘ Generally, obligations arising from the exercise of an option are part of a new contract only when the option was the principal subject matter of the bargain, i.e., an option contract. Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999) (citing 3 Eric Mills Holmes, Corbin on Contracts § 11.1 (1996)). In this case, because the option to purchase Lot | production aircraft is not the principal subject matter of the original bargain, it is properly considered as part of the original A-12 contract between the contractors and the government. Thus, “the performance required by the contract” includes the design, manufacturing, and testing of the eight prototype planes under the FSD contract, the manufacturing and testing of the six Lot I production aircraft, and other testing and supporting of the project. l6a dates unchanged. As such, there is an overlap be- tween the modified delivery schedule for the eight prototype aircraft and the original delivery schedule for the Lot I production aircraft. See Delivery Sched- ules, supra. The government insists that the Lot I schedule remains in effect because that portion of the original contract was not modified by P00046. How- ever, “[t]he A-12 contract was designed as a long-term research and development effort, structured so that each period of performance built upon preceding work.” McDonnell Douglas XIII, 76 Fed. Cl. at 432. Because the eighth test plane would serve as the prototype for the Lot I aircraft, the contractors could not have delivered Lot I aircraft according to the original schedule as that would require delivering the production aircraft prior to the prototype planes. Therefore, we agree with the Court of Federal Claims that the “[a]pplication of the contract in [the] manner [advocated by the government] would be nonsensical.” McDonnell Douglas XIII, 76 Fed. Cl. at 432. It follows that the contract, as modified by P00046, does not provide a definite contract completion date.” Id. at 401. * The contractors offered legal principles, such as judicial estoppel and waiver, to support this point. We do not believe it is necessary to reach those arguments. Whether the contract has a completion date is a question of fact. Common sense in this case dictates the conclusion that “(t]he overlapping schedule offered by the Government as a basis for assessing default is unrea- sonable and likely unenforceable.” McDonnell Douglas XIII, 76 Fed. Cl. at 432. 17a The contractors would have us apply the Lisbon test literally and hold that the absence of a contract completion date per se precludes the government from ever justifiably terminating a contract for failure to make progress. We cannot adopt such a broad cate- gorical rule. The propriety of such a default terimi- nation, even though ultimately a question of law, is a fact-sensitive inquiry. The Lisbon test requires the contracting officer’s reasonable belief that there was no reasonable likelihood of timely completion. Lisbon, 828 F.2d at 765. Therefore, it is inevitable that some case-by-case adjudication is required. To be sure, just as the prior panel did, we re- affirm that the test forinulated in Lisbon is a correct standard for determining whether a default termi- nation for failure to make progress is justified. How- ever, this test was announced in view of the specific facts presented in that case, where there was a definite contract completion date. Lisbon, 828 F.2d at 761, 762. It did not address the situation where, as in the present case, the contract does not specify a fixed completion date. See United States v. Alaska S.S. Co., 253 U.S. 113, 116, 40 S.Ct. 448, 64 L.Ed. 808 (1920) (stating that a court “will deterinine only actual matters in controversy essential to the decision of the particular case before it,” and that it “is not em- powered to decide .. . abstract propositions ... which cannot affect the result as to the thing in issue in the case before it”). As such, the Lisbon standard could not be literally applied in every default termination for failure to make progress case. 18a We are confident that Lisbon does not, as the contractors argue, foreclose a court’s review of a de- fault te::nination for failure to make progress merely because of an unascertainable contract completion date. This is evident from Lisbon itself, in which the court approved the Claims Court’s citation and interpretation of Universal Fiberglass Corp. v. United States, 210 Ct. Cl. 206, 537 F.2d 393, 397 (1976). Lisbon, 828 F.2d at 765. Universal Fiberglass involved a supply and service contract for more than 12,000 mail delivery trucks. 537 F.2d at 394. The contractor in that case repeatedly failed to meet the installment delivery schedule, even after several extensions of time. /d. at 394-95. It closed down almost all of the production lines and laid off most of its labor force. Jd. at 395. Meanwhile, a government audit showed that the contractor was insolvent. Jd. Time and again, the government asked the contractor to furnish its pro- posed revised delivery schedule, but to no avail. /d. The government issued a Preliminary Notice of Default and gave the contractor ten days to cure all of its defaults. Jd. at 396. After the contractors waived its rights to the full ten-day notice period, the gov- ernment promptly terminated the contract for failure to make progress. /d. * Universal Fiberglass was also cited with approval by the previous two panels in deciding the present case. See McDonnell Douglas X, 182 F.3d at 1328; McDonnell Douglas X/JI, 323 F.3d at 1015. 19a The Court of Claims held that the contract was properly terminated for failure to make progress. Jd. The court found that in the absence of a delivery schedule, i.e., the contract completion date, the “cure notice” served the purpose of advising the contractor when the time for default has been reached. Jd. at 398. The court reasoned: The contractor had already been asked to submit a new delivery schedule and had not done so. Nor had the contracting officer learned, from the contractor or any other source, any information to lead him to be- lieve that deliveries would or could ever be resumed. In such circumstances, a unilateral delivery schedule prescribed by him would have been an exercise in futility, except for forensic purposes, should we be so foolish as to give the absence of such a schedule any lega’ significance or weight. Id. We realize that the facts in Universal Fiberglass are not exactly the same as in the present case. First, the difficulties in designing and manufacturing stealth aircraft are incomparable tu those in making small three-wheeled mail delivery trucks. More importantly, as the contractors correctly point out, in Universal Fiberglass, the contractor “was making no progress at all, had never manufactured a vehicle under the new specifications it had agreed to, did not have the necessary parts and could not obtain them and had allowed its labor force to wither away.” Jd. at 20a 398. In contrast, in the present case, “[dJespite de- lays, the contractors continued operations. They were spending $120 to $150 million of their own money every month. They were committed to perfor: ming the A-12 contract until the date of termination.” McDonnell Douglas XIII, 76 Fed. Cl. at 427. However, the contractors’ commitment to per- forming the contract was not without conditions. Starting from as early as June 1990, the ccitractors had asserted that “the A-12 contractual schedule [was] not achievable and need[ed] to be changed.” They also predicted that the cost of completing the contract would exceed the ceiling price so sub- stantially that it would be “unacceptable” to the con- tractors. Insisting that the A-12 project could not “be accomplished under a fixed price type contract with- out [solving] the financial, schedule and specification problems,” the contractors proposed that the contract be modified. The contractors maintained this position throughout their performance of the A-12 contract. After missing the original first flight date, “[tJhe contractors were working to an aggressive schedule, but they would not sign up for one.” McDonnell Douglas XIII, 76 Fed. Cl. at 399. Because the con- tractors rejected the government’s proposal of a bi- lateral modification of the contract, the government imposed the unilateral modification of the delivery schedule for the prototype airplanes, P00046, “as a first step in achieving the overall delivery schedule.” McDonnell Douglas XIII, 76 Fed. Cl. at 400. 2la P00046 extended the first flight date from June 1990 to December 1991. The contractors’ projected delivery date, however, further slipped away. “Six months prior to termination, the contractors projected a twelve to fourteen-month delay in first flight [June- August 1991]. By termination, the contractors’ ex- pectations extended first flight to March 1992.” McDonnell Douglas XIII, 76 Fed. Cl. at 422. In fact, by December 1990, the contractors’ confidence in even the March 1992 flight date was reduced. They believed that such a date was achievable “only after significant changes.” As the trial court found, “Navy officials ... could not predict when the contractors would deliver first flight.” McDonnell Douglas XIII, 76 Fed. Cl. at 401. As the contractors themselves emphasize, “one cannot test an aircraft before it has been built, nor build a production airplane before developing its prototype.” Therefore, without the timely delivery of the prototype airplanes, there would be no basis for the government to prescribe a new delivery schedule for Lot I aircraft. In this sense, similar to the Court of Claim’s opinion in Universal Fiberglass, we believe requiring the contracting officer to artificially reset the contract completion date would have been “super- erogatory,” “except for forensic purposes.” See Uni- versal Fiberglass, 210 Ct. Cl. at 217, 5387 F.2d 393. Therefore, we agree with the trial court that this case is similar to Universal Fiberglass in that a schedule is not necessary because the cure notice supplants the schedule and 22a serves a similar function. The cure notice lets a contractor know that even if per- formance or delivery is not yet due, the contracting officer believes the contractor may not be making sufficient progress to complete the contract on time. The burden is then on the contractor to advise the Gov- ernment how it will complete the project on time, according to contract requirements. Id. at 419. One could analogize the per se rule advocated by the contractors to an injunction against the govern- ment. In granting or denying an injunction, a court follows traditional equitable principles and “balances the conveniences of the parties and possible injuries to them” to arrive at a “nice adjustment and recon- ciliation” between the competing claims. Weinberger v. Romero-Barcelo, 456 U.S. 305, 312, 102 S.Ct. 1798, 72 L.Ed.2d 91 (1982). When a government contract is terminated, there are two interests at issue — the contractor’s interest in holding the government to its obligation to carry out the contract, and the govern- ment’s interest in not wasting taxpayer dollars. The contractors in this case, however, would have us en- join the government from ever terminating a contract for failure to make progress based on a single factor — the contract lacks a set completion date. We reject such a per se rule because it serves only the con- tractors’ interest. Instead, we favor an ad hoc, factual inquiry that allows careful examination and weighing of all relevant circumstances. See McDonnell Douglas 23a XII, 323 F.3d at 1014 (stating that “[iJn determining whether a default terrnination was justified, a court must review the evidence and circumstances sur- rounding the termination, and that assessment in- volves a consideration of factual and evidentiary issues”). In fact, in our 2003 opinion, we provided the same guida: ce, stating that to determine whether a default termination is justified, “the trial court should focus on the events, actions, and communications leading to the default decision in ascertaining whether the contracting officer had a reasonable belief that there was no reasonable likelihood of timely completion.” McDonnell Douglas XII, 323 F.3d at 1017. Of course, in some cases, it is possible that a conclusion drawn from a comparison of the entire contract effort and the time remaining for contract performance is so clear that it becomes dispositive. See Lisbon, 828 F.2d at 765. However, in cases such as the present one, where such a comparison is inapplicable, the court must examine other factors, including the contractor’s failure to meet progress milestones, its problems with subcontractors and suppliers, its financial situation, and its performance history. See McDonnell Douglas XII, 323 F.3d at 1017. Only after analyzing the totality of the circumstances can a court determine whether a contractor failed to “(plrosecute the work so as to endanger performance” of the contract. See 48 C.F.R. § 52.249-9. 24a 2. Default termination of the A-12 contract It is true that the A-12 contract, as modified by F00046, lacks a definite contract completion date. E owever, this single factor, even though important, is insufficient to support the contractors’ contention that the government cannot sustain the default termina- tion. A court must also take into account other relevant facts and testimony in deciding whether the default termination was justified. In Lisbon, we held that the government bears the burden of justifying the propriety of a default termination. 828 F.2d at 765. We also stated that “the contracting officer’s termination decision [must] be based on tangible, direct evidence reflecting the im- pairment of timely completion.” McDonnell Douglas XII, 323 F.3d at 1016 (citing Lisbon, 828 F.2d at 766). The direct evidence includes the contractors’ “state- ments that they could not meet the contract specifi- cations, the contract delivery schedule, nor complete performance at the specified contract price.” Jd. at 1013 (quoting McDonnell Douglas X, 182 F.3d at 1332). The direct evidence also includes the “con- tracting officer’s testimony and contemporaneous documents.” /d. at 1016. The Court of Federal Claims made detailed factual findings based on the evidence. McDonnell Douglas XIII, 76 Fed. Cl. at 422-30. After reviewing the record, we see no clear error. Therefore, we only highlight a few important aspects here. 25a a. Contractors’ performance history and failure to meet progress milestones The contractors missed several milestones under the origina] contract, the most significant of which, of course, is the June 1990 first flight date. They also missed the July 1990 delivery date for the second prototype airplane. More tellingly, after the govern- ment unilaterally modified the contract through P00046, and in fact, in their response to the cure notice, the contractors unequivocally stated that they would not meet the revised delivery schedule for the eight prototype airplanes. Instead, they projected that the first flight date would be in March 1992, three months after the date imposed in P00046. By December 1990, the contractors were only “50%” con- fident in this date, believing it was achievable “only after significant changes.” The contractors and the amicus curiae argue that if we uphold the default termination here, the gov- ernment may terminate for failure to make progress a contract for any minor slippage in meeting any insignificant interim milestone. This is an exaggera- tion. First of all, due to the sequential “building block” structure of the A-12 contract, delivery of the prototype airplanes is not just any milestone. It is certainly not an insignificant milestone. Quite to the contrary, it is clearly one of the most important mile- stones in the entire contract. This is because, as the contractors admit, “one cannot test an aircraft before it has been built, nor build a production airplane before developing its prototype.” 26a Second, the delay in the delivery schedule is hardly just a minor slippage. The A-12 contract provided the June 1990 first flight date. In other words, it provided the contractors thirty months from the contract award time (January 1988) to deliver the first prototype plane. P00046, in extending the first flight date to December 1991, gave the contractors 60 percent more time to reach this significant milestone. Yet, the contractors, even though at first predicting that they would, concluded that they could not meet this schedule. In fact, they were not even sure if they could deliver in March 1992. According to the con- tractors’ own estimate, even assuming they could meet the March 1992 first flight date, they would not complete the design, manufacturing, and testing of the aircraft until July 1995, two years and three months after the Apnml 1993 TCHEVAL deadline specified in the original contract. More importantly, we are not upholding the default termination “based solely on a contractor’s concerns about meeting a contractual schedule milestone.” McDonnell Douglas XII, 323 F.3d at 1015 (citing Lisbon, 828 F.2d at 765). As we explained above, the contractors’ failure to meet progress mile- stones is one factor to he considered in the totality-of- the-circnmstances analysis. In this respect, we agree with the trial court that [mjissed milestones “indicate a pattern of nonperformance and delay which should not be ignored. Although not justifications for default in themselves, they provide a 27a context for understanding and evaluating plaintiff’s continued problems.” Such infor- mation should be relevant if we consider whether a reasonable contracting officer might reasonably have been concerned about [the contractors’] ability to complete the contract on time. McDonnell Douglas X11, 76 Fed. Cl. at 426 (quoting Universal Fiberglass, 537 ¥.2d at 397). b. Contractors’ financial situation Another piece of relevant inforimation we con- sider when reviewing a default termination is the contractors’ financial situation. “Ihe cost to complete a contract — more particularly, the inability of a con- tractor to perform a contract at the specified contract price ... [is a] fundamental element | of government contracts and [is] related to contract perforinance; as such, [it is] highly relevant to the question of default.” McDonnell Douglas X, 182 F.3d at 1328. The A-12 contract as initially awarded had a target contract price of $ 4,379,219,436 and a ceiling price of $ 4,777,330,294. In June 1990, the contrac- tors proposed that the fixed-price contract be modi- fied because the cost of completing the contract would exceed the ceiling price so substantially that it would be “unacceptable” to the contractors. The contractors repeatedly insisted on restruc- turing the contract from a fixed-price contract to a cost-reimbursement type contract. Even during the 28u high-level negotiation meetings following the govern- ment’s issuance of the cure notice, Mr. John McDonnell, the CKO of MDC, asserted that the contractors “can’t pet there if we don’t change the contract,” and that the contract “has pot to yet reformed to a cost type contract or we cannot do it.” In their January 2, 1991, written response to the cure notice, the contractors again submitted their proposal to restructure the contract to a cost reimbursement contract. In exchange for that restructuring, the con tractors would absorb a $1.5 billion fixed loss and would waive their claims for equitable adjustment. The sizeable concession the contractors were willing to make further illustrates the grave inadequacy of the contract price. Of course, the difficulty in the contractors’ finan cial situation, in and of itself, may not be sufficient to justify the default termination. See McDonnell Douglas XI, 50 Fed. Cl. at 320-21 (ruling that the contractors’ financial condition “was not endangering performance of the A-12 contract”). However, in this case, “inadequate financing is not collateral | because} it pervades the entire contract.” Universal Fiberglass, 210 Ct. Cl. at 216. Indeed, in the months leading to the termination, the contractors were spending $120-150 million of their own money every month. McDonnell Douplas XIII, 76 Fed. Cl. at 427. Captain Lawrence Elberfeld, the Navy's A-12 Program Man- ager, testified that the cost to complete the A 12 contract would be so “unthinkably” over the fixed- price ceiling that the contractors’ internal “worst case 29a estimate could bankrupt both corporations.” /d. at 429. More importantly, Captain Elberfeld testified that the cost overruns jeopardized the contractors’ performance because the contractor engaged in “cost cutting efforts like reducing staff, eliminating over- time, quick fixes that address and would remedy a cash flow situation.” Jd. at 428. For example, around the time when the contractors missed the original first flight date, they removed 110 people from the A- 12 program. /d. Captain Elberfeld concluded that the contractors’ cost cutting efforts to avoid bankruptcy led to “more corner-culting and more incomplete ef- fort and basically a longer process to get a product that may not be the product that we desire or need for the Navy.” /d. at 429. ce. Conclusion In summary, the government offered the con- tracting officer’s testimony, the contractors’ state- ments, and contemporary documents as direct evidence. The evidence, such as the contractors’ performance history (e.g., the failure to meet several milestones, including the significant first flight), coupled with the contractors’ dire financial difficulty, which negatively impacted their performance under the contract, shows that the contracting officer was reasonably justified in feeling insecure about the contractors’ rate of progress. Therefore, the government has 30a satisfied its burden to justify the default te:r:ni- nation.* Once the government has met this burden of proving that timely performance is beyond the contractors’ reach, the contractors have the burden of going forward to prove either that they were making progress such that timely completion of the contract was not endangered or that there was excusable delay. See Appeal of Mich. Joint Sealing, Inc., ASBCA No. 41477, 93-3 BCA 26,011 (Apr. 26, 1993). On appeal, the contractors assert no affirmative defense. They proffer no record evidence to show, without con- tract restructuring, that they could have completed the contract on any date. Certain arguments, such as waiver, are presented to support their proposition that, at termination, the A-12 contract lacked an enforceable completion date. Even if these arguments could be interpreted as the contractors’ defenses, we have already addressed them elsewhere in this opinion. In conclusion, because the government was justifiably insecure about the contract’s timely com- pletion and the contractors do not argue that their * Our current analysis may appear different from the one we previously instructed the trial court to perform, specifically, to determine the contract completion date. See McDonnell Douglas XII, 323 F.3d at 1018. We believe that this is warranted as under the law of the case doctrine, “it is not improper for a court to depart from a prior holding if convinced that it is clearly erroneous and would work a manifest injustice.” Arizona v. California, 460 U.S. 605, 619, 103 S. Ct. 1382, 75 L. Ed. 2d 318 (U.S. 1983). 3la failure to make progress could be excused, we sustain the default termination of the A-12 contract. 3. Default termination without contracting officer’s Lisbon analysis The contractors and the amicus curiae also assert that we cannot uphold the default termination be- cause the contracting officer, Admiral Morris, did not conduct the Lisbon analysis before the termination. They base this argument on the trial court’s finding that “Admiral Morris did not determine the entire effort required and the time left to complete that con- tract effort prior to termination.” McDonnell Douglas XIII, 76 Fed. Cl. at 424 n.72; see also id. at 437 n.92 (concluding “the contracting officer did not conduct a Lisbon analysis prior to termination”). This argument is unpersuasive. First of all, as we have stated earlier, because the modified A-12 contract does not contain a fixed completion date, a Lisbon analysis cannot be strictly applied. Second, we previously stated that “the gov- ernment is not required to establish that the con- tracting officer conducted the analysis necessary to sustain a default under the alternative theory.” Empire Energy Mgmt. Sys. v. Roche, 362 F.3d 1343, 1357 (Fed. Cir. 2004); see also Christopher Vill., L.P. v. United States, 360 F.3d 1319, 1337 (Fed. Cir. 2004) (“This court sustains a default termination if justified by circumstances at the time of termination, regard- less of whether the Government originally removed 32a the contractor for another reason.” (quoting Kelso v. Kirk Bros. Mech. Contractors, Inc., 16 F.3d 1173, 1175 (Fed. Cir. 1994))). The contractors and the amicus curiae attempt to distinguish the present case from Empire Energy. The amicus curiae emphasizes that there is a “critical distinction between failure to make progress as the asserted basis for default at the time of termination, and failure to make progress as an alternative basis for default, proven at trial, that supports an other- wise unsustainable termination for failure to timely deliver.” We discern no such distinction. In fact, the amicus’s contention is illogical-it would have us, on the one hand, uphold a default termination for failure to make progress when the contracting officer never even contemplated, much less evaluated, such a basis; while at the same time, reject another default termination for failure to make progress even though the contracting officer explicitly asserted such a basis. More importantly, we are less concerned about the label of the contracting officer’s action so long as, in fulfilling his duty, the contracting officer exercised reasoned judyiment and did not act arbitrarily. After reviewing the record, we believe that the contractors are not victims of arbitrary government action. Admiral Morris testified that concerns about the A-12 Program “increased [and] the risks increased” in the fall of 1990. Jd. at 424 n.70. The trial court found that 33a lals the end of 1990 approached, |Ad- miral Morris] was concerned that substantial development on the aircraft had yet to occur. He testified “[t]he contractors were indi- cating that they were experiencing an over- run that they could not absorb. Cost was obviously a factor and their failure to fabricate components, their failure to meet schedule were clearly impacting cost.” Id. at 423-24. Admiral Morris also testified that in the weeks leading to termination, the contractors “indicated that they would not be able to meet the delivery schedule that was currently in the contract. And they would not be able to perforin the contract without extraordinary relief or additional funding for the contract.” Jd. at 424 (alterations omitted). He ex- plained: “I didn’t know at that particular time when in fact they would be able, if ever, to achieve performance of the contract and I was hearing ‘we will not’ or ‘we could not.’” Jd. (alterations omitted). On December 17, 1990, Admiral Morris issued a cure notice, warning the contractors that their per- formance was “unsatisfactory” and the defect condi- tions were “endangering performance” of the contract. He explained that “[t]lhe purpose of the cure notice was to advise the contractors they were failing to make progress.” McDonnell Douglas XIIl, 76 Fed. Cl. at 402. He testified that he “had been extremely concerned with the communications coming in from the contractors that unless extraordinary relief were 34a provided, unless the contract were restructured into a cost-type contract, that they could not or would not perform, and that belief existed certainly on De- cember 17th.” Admiral Morris considered the problems of cost overruns to be a “real issue.” McDonnell Douglas XIII, 76 Fed. Cl. at 404. Even though he made an effort to resolve the issue “within the context of the contract” without restructuring the contract, “the contractors were insisting upon Public Law 85-804 extraordinary relief.”” Even in their January 2, 1991, written response to the cure notice, the co [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43085015_0591%3A02. Public record. Not legal advice.