Robert Levinson, Bloomberg, 4 January 2017.
President-elect Donald Trump may find that canceling major defense contracts will be more difficult than he might like.
Trump has sent shivers down the spines of defense industry executives with his recent Twitter attacks on the cost of Boeing Co.’s Air Force One presidential aircraft and Lockheed Martin Corp.’s F-35 Joint Strike Fighter, even going as far as to say in a Dec. 22 tweet that he asked Boeing to price a competitor to the F-35.
Government Executive reports that it may not be so easy for even a president to cancel a contract he doesn’t like. According to Michael Fischetti, executive director of the National Contract Management Association, “You might not like it, but if you asked for it and got what you asked for, you’re required to pay for it.”
Rules for contracting with the federal government are spelled out in great detail in the Federal Acquisition Regulation. The government may terminate a contract “‘when it is in the government’s interest’ to do so,” which is interpreted broadly, Fischetti said.
Contractors generally cannot recover anticipatory profits or consequential damages when the government terminates a contract for convenience, according to the Congressional Research Service. However contractors may be entitled to settlements which “typically include any costs incurred in anticipation of performing the terminated work and profit thereon.”
In addition to having to pay potential settlement costs, the government must consider if a replacement for the canceled product or service is available in a reasonable period of time. For example if President Trump decided to cancel the F-35, the Air Force, Navy and Marine Corps would have to find an alternative to accomplish the missions they had planned for the jet. Building a new fighter jet is a decades-long process.
The president could, instead, not request appropriations in future budgets for more of a particular system. The U.S. military plans to purchase more than 2,400 F-35s with the buy stretching out to 2038. The president could simply decide that he will not request any more money or planes to be purchased after 2020 or some other point in the future without having to cancel any existing contracts.
Congress could try and push back and add the money and planes back into any appropriations bills it wishes but it would ultimately have to negotiate with the president to reach a compromise or override a veto should he exercise it.