BAE Spoiled $1.7B Radar Deal With Korea, Suit Says
By Adam Sege
Law360, Wilmington (February 3, 2016, 6:06 PM ET) -- Defense giant Raytheon sued BAE and two subsidiaries in Delaware Chancery Court on Tuesday over the soured $1.7 billion sale of F-16 aircraft radar upgrades to South Korea, saying BAE hid the fact the deal was in trouble and caused its ultimate demise.
While Raytheon Co. had met all its obligations as a subcontractor, prime contractor BAE Systems Holdings Inc. concealed mounting problems with the project and ultimately caused price increases that led to the deal's failure and the subcontractor's losses on the project, the complaint alleges.
“[R]elying on BAE-T’s representations, Raytheon invested millions of its own dollars in the upgrade program,” the suit states. “BAE-T, however, failed to meet its own obligations, both to the U.S. government and to South Korea, and these repeated failures ultimately caused Korea to cancel the purchase.”
The dispute relates to a planned, $1.7 billion sale in which Raytheon and BAE were to provide the South Korean government with radar upgrades for F-16 fighter jets, according to the complaint. After reaching an agreement with the Korean government, the U.S. government designated BAE as the prime contractor on the upgrades, with Raytheon listed as a subcontractor, the suit says.
Raytheon says it assigned 70 employees to the project and abided by all its obligations.
But the sale ultimately fell apart, with the Korean government ending its contract with the U.S., the U.S. government nixing its contract with BAE, and BAE terminating its subcontract with Raytheon.
Raytheon claims that cost increases caused by BAE contributed to the breakdown, and that BAE contributed to Raytheon’s losses by hiding warning signs about the project.
“Despite knowing the upgrade program was in serious trouble, BAE-T continued to tell Raytheon negotiations were on
track and that Raytheon should continue to invest its own funds,” Raytheon says.
The subcontractor’s claims against BAE and its subsidiaries include breach of contract, unjust enrichment, and breach of implied covenant of good faith and fair dealing.
In addition to its immediate losses associated with the botched deal, Raytheon says, the sale’s failure has impacted the subcontractor's future business by robbing it of an opportunity to demonstrate its capability in the F-16 radar market.
“For both companies, winning these contracts represented a beachhead into the large and lucrative F-16 upgrade marketplace, theretofore dominated by Lockheed Martin, the F-16’s original manufacturer, and by Northrop Grumman,
supplier of the F-16’s original radar system,” the suit states.
In a company statement emailed to Law360, BAE said it was "disappointed" to learn its former partner on the project had filed suit.
"As we have said previously, BAE Systems does not believe the company owes the Republic of Korea any monies related to Korea’s decision to cancel the KF-16 upgrade program," BAE continued. "By extension, we do not believe BAE Systems owes Raytheon any additional monies outside of the normal contractual termination settlement process. We are currently reviewing Raytheon’s complaint and will respond in due course through the appropriate legal processes.”
An attorney for Raytheon declined to elaborate on the company’s complaint.
Raytheon is represented by Jack B. Jacobs, Mark D. Hopson, Gordon D. Todd, Maureen B. Soles and Morgan Branch of Sidley Austin LLP.
Counsel information for BAE was not immediately available.
The case is Raytheon Co. v. BAE Systems Holdings Inc. et al., case number 11957, in the Court of Chancery of the State of Delaware.
