GM Wins $68M State Court Judgment Against Northrop
Regarding ATF Subcontract
An Indiana court May 3 awarded General Motors Corp. and Allison Engine Co. Inc. $67.7 million in a long-running dispute with Northrop Grumman Corp. regarding a subcontract under the Air Force Advanced Tactical Fighter (ATF) program (General Motors Corp. v. Northrop Corp., Ind. Super. Ct., No. 49D05-9902-CP-154, 5/3/02).
The judgment reflects a jury award of $31.3 million on four counts and $36.4 million in prejudgment interest on the jury award.
In 1986 Northrop and Lockheed were competing to develop the Air Force's next generation Advanced Tactical Fighter. Like the B-2 stealth bomber, also made by Northrop, its version of the ATF, known as the YF-23, incorporated a number of features to promote stealth, including burying the engines in the aircraft fuselage to shroud rotating engine parts and hot engine exhaust from radar and infrared detection.
Allison Incurred Increased Costs
In September 1987, Northrop's Aircraft Division--which, along with Lockheed, was a prime contractor on the demonstration/validation phase of the ATF program--awarded GM's Allison Gas Turbine Division a $13 million research and development subcontract to design, develop, and fabricate nine sets of Engine Exhaust Liners--actively cooled exhaust troughs that shielded and channeled the engine's exhaust over the YF-23's aft deck. Allison used a patented, proprietary cooling technology known as Lamilloy® to design the Exhaust Liners.
In 1988, Northrop ordered a second component from Allison known as the Trailing Edge, which closed out the Exhaust Liners at the end of the aircraft's aft deck.
Allison incurred large cost increases on the Exhaust Liner (EEL) and Trailing Edge (TE) subcontracts. The EEL subcontract experienced increased costs, including associated profit, of $29.6 million beyond the $13 million price that Northrop paid, i.e., total costs of $42.6 million.
The TE subcontract had incurred costs and associated profit of $7.3 million. For that contract, there was no agreed to price, and Northrop had paid nothing for that work.
Allison Claimed Northrop Withheld Information
The liners performed successfully during flight tests of Northrop's YF-23 in August 1990. However, in April 1991, Northrop lost the ATF competition to the YF-22 built by Lockheed.
In September 1991, Allison sued Northrop in Marion County Superior Court in Indianapolis, Ind., to recover its increased costs.
Allison claimed that Northrop:
- withheld "superior knowledge" of the environment in which the liners would have to function,
- provided defective specifications, and
- made major changes to the work during the course of contract performance.
Allison claimed that Northrop's conduct required Allison to develop a more complex, heavier, and much more expensive to manufacture Exhaust Liner system, and that the master agreement executed by the parties entitled Allison to be reimbursed for its increased costs.
With respect to the Trailing Edge contract, Allison alleged that the parties had failed to agree on a price for that added work and that it was entitled to be paid a reasonable price measured by its actual costs.
The sum of incurred costs and profit for the EEL and TE work totaled about $49.9 million, but Northrop had previously paid about $13 million of that, leaving the $36.9 million sued for ($29.6 million plus $7.3 million), an attorney familiar with the case told FCR May 6.
The case was originally scheduled for trial in July 1995, but the original trial judge reconsidered earlier rulings and granted summary judgment to Northrop on the Exhaust Liner claims. In September 1997, the Indiana Court of Appeals reversed the trial court and remanded for trial, and the Indiana Supreme Court denied further review.
A jury trial was held before a new trial judge commencing Jan. 22, 2002. It resulted in a jury verdict in favor of GM and Allison on March 13. The jury found for GM and Allison on each of the Exhaust Liner counts--superior knowledge, defective specifications, and major changes--and awarded $25.8 million as Exhaust Liner damages.
The jury also found for GM and Allison on the Trailing Edge claim and awarded $5.4 million for that claim. The jury rejected Northrop's arguments that Northrop had not withheld superior knowledge, provided defective specifications, or made changes to the work.
The jury rejected Northrop's argument that Allison had not given proper notice of its claims. Finally, the jury rejected Northrop's defense on the Trailing Edge claim that Allison was limited to the $2.2 million Allison initially proposed for that work--but not accepted by Northrop--as a not-to-exceed ceiling price. The jury also found against Northrop on its counterclaim.
Thus, Allison recovered $31.3 million, or about 85 percent of the $36.9 million it had sought on the two claims.
Then, on May 3, Judge Gary L. Miller awarded $36.3 million in prejudgment interest for the 11-year period from the dates Allison submitted its Exhaust Liner and Trailing Edge claims--August and December of 1990--through the date of judgment. Together with the $31.3 million jury verdict on the underlying claims, Allison's total recovery is $67.7 million.
Sources said Northrop is considering filing an appeal.
Allison Engine Company Inc., based in Indianapolis, was formed to succeed Allison Gas Turbine Division in 1993, and later became part of Rolls-Royce in 1995. Northrop Aircraft Division became part of Northrop Grumman Corporation.