ATK Thiokol, Inc. v. United States

ATK Thiokol, Inc. v. United States

Opinion

 [*1330]  BRYSON, Circuit Judge.

ATK  [**2] Thiokol, Inc., manufactures rocket motors for government and commercial buyers. One of its products is the Castor family of solid rocket motors, which are "strap-on" motors designed to attach to a launch vehicle and provide additional thrust. In the 1990s, ATK began developing the Castor IVA-XL rocket. In 1995, ATK announced that it was closing the Huntsville, Alabama, plant where it had previously built the Castor IVA-XL motor. At that time, ATK analyzed each of the products made by the Huntsville plant as part of a corporate restructuring effort. ATK determined that there was a market for the Castor IVA-XL motor and that the motor would be more competitive if it were upgraded. Specifically, ATK decided to make technical changes to the motor's design and test fire the motor. The parties refer to those steps as the "Development Effort." ATK moved production of the Castor IVA-XL motor to its Utah facility in 1995. From 1995 through 1999, ATK marketed the upgraded motor to various potential customers, including McDonnell Douglas, Lockheed Martin, and the U.S. Air Force.

In February 1996, the Japanese company Mitsubishi Heavy Industries expressed interest in purchasing modified Castor  [**3]  [*1331]  IVA-XL motors for Japanese government launch vehicles. While Mitsubishi was willing to pay for adapting and attaching the motors to the launch vehicles, it refused to pay for the more general, nonrecurring work associated with upgrading the Castor IVA-XL motor, in particular the Development Effort. On June 8, 1997, Mitsubishi executed a Statement of Work with ATK. The Statement of Work required ATK to deliver the motor that ATK was updating "to support the general requirements of the strap-on market." ATK began the Development Effort in July 1997. In October 1998 ATK and Mitsubishi executed a final contract for the purchase. The contract provided for a lump-sum payment for each upgraded motor and a price for modifying each motor to fit to the Japanese launch vehicles. There was no provision for payment of the Development Effort costs.

ATK accounted for the Development Effort costs as indirect independent research and development ("IR&D") costs and disclosed them as such in a proposed advance agreement submitted in 1997 to a U.S. Defense Department Divisional Administrative Contracting Officer ("DACO"). The effect of including particular charges as indirect IR&D costs is that the charges  [**4] are allocated to all of the contractor's contracts for the year, including government contracts. ATK's consistent and disclosed accounting practice was to treat research and development costs as indirect costs unless (1) the particular contract in question specifically required that ATK incur the cost; (2) the contract paid for the cost; or (3) the cost had no reasonably foreseeable benefit to more than one cost objective. From 1990 through 1997, the Defense Department had periodically reviewed that accounting practice and found it to be in accordance with the accounting regulations applicable to government contractors.

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