robert m. howard and shawn t. cobb - latham & watkins

VICTORY THROUGH PRODUCTION: ARE LEGACY

COSTS OF WAR SCUTTLING THE “GOCO MODEL”?

Robert M. Howard and Shawn T. Cobb

I. Introduction................................................................................... 261II. The GOCO Program ................................................................... 263

A. GOCO Program: Risk and Reward ...................................... 264B. GOCO Facility Organization and Construction.................. 267C. The GOCO Program Today ................................................ 269D. Three 1990s Reports from the GAO on GOCO Facility

Cleanup Costs Recommend “Cost Sharing” with FormerContractors ............................................................................. 270

III. Under the GOCO Model, the U.S. Government ConsistentlyLimited the Upside Profit Potential on the Ground GOCOContractors Operated Risk-Free .................................................. 271A. Statutory Limitations Imposed “Hard Caps” on Military

Contract Profits...................................................................... 272B. The Renegotiation Act Provided the Government with

Authority to Reduce Profits Well Below the Statutory Caps 273C. Standard Government Contracts Included the Combination

of Statutory “Hard” Caps and the Renegotiation Act’s“Soft” Caps ............................................................................. 278

D. The Government’s Choice and Use of Cost-Plus-Fixed-FeeContracts Were Calculated to Limit the Contractors’Facility-Related Liabilities ..................................................... 280

E. The Government Applied Pressure in UnconventionalWays to Control GOCO Facility Operations and Profits .. 282

IV. The GOCO Model: Standard Government ContractingProvisions....................................................................................... 283A. Overview ................................................................................. 283B. Contract Standardization ....................................................... 284C. GOCO Contract Types......................................................... 286D. Facilities Contracts................................................................. 286

Robert M. Howard ([email protected]) chairs the San Diego-based Environment,Land & Resources Department of Latham & Watkins LLP. Shawn T. Cobb ([email protected]) is a senior associate at the firm. This article is dedicated to the memory ofGeorge H. Howard, an Army veteran; Edwin Fletcher Woodhead, a Navy veteran; andU.S. veterans from World War II through today.

259

1. Facilities Contracts: Design, Construction, Inspection,and Approval ..................................................................... 286

2. Facilities Contracts: Title ................................................. 2903. Facilities Contracts: Allocation of Risk............................ 2914. Facilities Contracts: Taxes................................................ 2975. Other Facilities Contracts ................................................ 297

E. Procurement Contracts.......................................................... 2981. Procurement Contracts: “Government Property”

Provision ............................................................................ 2982. Procurement Contracts: Insurance; Liability to Third

Persons............................................................................... 3013. Design, Construction, Inspection, and Approval ............ 3034. Taxes.................................................................................. 304

F. Government Contracts Reflect a Negotiated Balancing ofRisk and Profit so Contractors Would Not Have LimitedUpside Potential and Unlimited Downside Liability........... 307

V. Three Pathways for Recovery ...................................................... 307A. Pathway No. 1: CERCLA Allocation Litigation ................. 307

1. Cleanup Costs Are a “Cost of War”................................ 309a. Cadillac Fairview/California v. Dow Chemical Co.......... 310b. FMS Corp. v. United States ........................................... 311c. Shell Oil Co. v. United States......................................... 313d. Exxon Mobil Corp. v. United States ............................... 313

2. Under Federal Case Law, the Government Is a PotentialCERCLA “Owner” and “Arranger,” Even at 100 PercentContractor-Owned Facilities................................................ 315

3. Partial Ownership of Manufacturing Equipment MayIndependently Make the Government Liable as aCERCLA “Owner” ........................................................... 318

B. Non-GOCO CERCLA Liability Cases Relied Upon by theUnited States .......................................................................... 3201. The United States v. Bestfoods CERCLA “Operator”

Liability Standard is Unwarranted in GOCO Contexts. 3202. U.S. Regulatory Power of Markets Does Not Make the

United States a CERCLA Operator ................................ 3233. “Buyer-Seller” Cases ......................................................... 3244. Privately Owned Shipyard Cases Are Divided ................ 3265. “Failure in the Evidence” CERCLA Liability Cases ...... 3286. U.S. Funding to Temporarily Convert an Underutilized

Private Automobile Factory for Military Weaponry DoesNot Make the United States a CERCLA “Operator”.... 330

7. TDY Holdings, LLC v. United States.................................. 3318. Summary of the Non-GOCO CERCLA Cases Favored

by the United States ......................................................... 333

260 Public Contract Law Journal • Vol. 46, No. 2 • Winter 2017

C. Pathway No. 2: Direct Contractor Reimbursement UnderPreviously Performed Government Contracts ..................... 3331. Contract Dispute Act Reimbursement Cases: Recovery

of Later-Arising CERCLA Liabilities Under theContract Settlement Act of 1944 ..................................... 334

2. Contract Dispute Act Reimbursement Cases: ContractRecovery of Later-Arising CERCLA Liabilities Underthe “Taxes Clause”............................................................ 338

D. Pathway No. 3: “Allowable” Indirect Reimbursement viaOverhead on Current and Future Contracts ........................ 3401. Legal Standard for Allowability ....................................... 3402. Applicable Case Law on Environmental Cost

Allowability........................................................................ 342VI. Lockheed v. United States: A Test Case on the Interaction of

“Indirect” Overhead and Allowability Versus “Direct”CERCLA Reimbursement............................................................ 343A. Background Facts of Lockheed I and II .................................. 344B. Lockheed I (Double Recovery Defense).................................. 346C. Lockheed II (CERCLA Allocation) ......................................... 347D. The Lockheed I and Lockheed II Appeal.................................. 349

VII. U.S. Government GOCO Settlements (Post-1997).................... 351A. Government Funding of GOCO Facility Cleanups

(Pre-1997) ............................................................................... 351B. The Handful of Post-1997 Environmental Cost-Allocation

Agreements for GOCO Plants Still Favor Contractors....... 354VIII. Conclusion..................................................................................... 354

Appendix A: DoD GOCO Settlements and LegacyEnvironmental Cleanup Allocations............................................. 355

I. INTRODUCTION

The costs of World War II and the wars of the twentieth century that fol-lowed continue to accrue today. The costs will continue to accrue for de-cades to come, well beyond the lifetimes of those who fought the battlesand manned the arsenals. The costs take the form of expensive weaponryand lengthy site remediation. Such is the environmental legacy of the UnitedStates’ early generation industrial practices during the course of history’smost explosive industrial expansion.

U.S. defense strategy in World War II—and for decades thereafter—hinged upon a philosophy of “victory through production,” calling for the“production of war supplies in proportions previously unimagined.”1 The

1. See Lichter v. United States, 334 U.S. 742, 763, 765 (1948) (upholding the RenegotiationAct while noting the “results amply demonstrated the infinite value of that production in win-ning the war”).

Legacy Costs of War and the “GOCO Model” 261

government could not do it alone. Under conditions of extreme nationalduress, “Congress sought to do everything possible to retain and encourageindividual initiative in the world-wide race for the largest and quickest pro-duction of the best equipment and supplies. It clung to its faith in private en-terprise.”2 Private industry demanded in return nothing more than a fair anddurable allocation of risk. The model worked.3

The same national defense program that achieved “victory through pro-duction” from World War II through the Cold War is now fading into in-significance. Why would the U.S. government allow such an unthinkableoutcome? The short answer is because the costs of past wars have becomeburdensome and distasteful to an increasingly debt-ridden U.S. government.

The costs of past wars have reached the point where it is now politicallytolerable (although strategically short-sighted) to fault the very contractorsthat had been instrumental in achieving victory. In so doing, the U.S. gov-ernment is breaking faith with a “grand bargain”4 it formed with private in-dustry, which has acted as a cornerstone of defense policy for the last sevendecades. That choice will have dangerous long-term strategic consequences.Going forward, no rational contractor can reasonably rely upon any U.S.government contract commitment purporting to hold harmless contractorsin exchange for their work––and accept, until completion and without renego-tiation, all the “costs of war.” Today, the U.S. government is aggressively re-neging on past contracts in favor of reallocating risks it once assumed inorder to obtain lower-cost military products.

This article opens with a discussion of the historical basis for the develop-ment of the Government-Owned, Contractor-Operated (GOCO) model andthe U.S. government’s standard contract rules as they relate to environmen-tal costs. With this historical context, the article continues by exploring thethree primary paths available to contractors to obtain reimbursement for en-vironmental costs stemming from our country’s legacy of war: (1) direct re-imbursement through the Comprehensive Environmental Response, Com-pensation, and Liability Act (CERCLA); (2) direct reimbursement throughgovernment contracts performed long ago; and (3) indirect reimbursementthrough the allowability of environmental costs on existing government con-tracts. Finally, the article concludes by examining the history of past U.S.

2. Id. at 768.3. ARTHUR HERMAN, FREEDOM’S FORGE: HOW AMERICAN BUSINESS PRODUCED VICTORY IN

WORLD WAR II (Preface) (2012) (noting U.S. industry built “two-thirds of all Allied militaryequipment used in World War II,” including 86,000 tanks, 2.5 million trucks, 8,800 naval ves-sels, and 41 billion rounds of ammunition). The U.S. aircraft industry built a staggering 232,000airplanes between 1940 and 1944 (159 per day). NORTH AMERICAN AIRCRAFT, INC., ANNUAL RE-

PORT 4 (1944) (documenting that North American produced 29,000 planes during that four-yearperiod, or 12.5% of the United States’ airplane output); accordNORTH AMERICAN AIRCRAFT, INC.,ANNUAL REPORT 4–5 (1945) (documenting that 304,400 aircraft were built in the United Statesfrom 1939 to 1945, averaging 140 per day).4. Christopher H. Marraro, Shell v. U.S.: Court Holds Government to Its World War II-Era

“Grand Bargain” with Aviation Gas Refiners, LEGAL BACKGROUNDER (Wash. Legal Found.,Wash., D.C.), July 11, 2014, at 1–2.


settlements at GOCO facilities and the test-case litigation between the gov-ernment and Lockheed Martin relating to allowability and double recoveryfor environmental contamination at three industrial sites in California.

II. THE GOCO PROGRAM

World War II brought immense risk to the United States and threatenedto overwhelm its defense manufacturing capability. To address this threat,the U.S. government devised a strategically vital defense program thatteamed government and industry to mobilize the United States’ immense in-dustrial potential. This program is commonly known as the GOCO pro-gram. As stated by a senior advisor to President Franklin D. Roosevelt atthe beginning of World War II, “The government can’t do it all. . . . Themore people we can get into this program[,] . . . the more brains we canget into it, the better chance it will have to succeed.”5

Pursuant to the authority of the First War Powers Act of 19416 and laterthe Defense Industrial Reserve Act of 1948,7 the U.S. government began toconstruct and operate GOCO facilities across the nation. The strategic pur-pose of the GOCO program was to avoid the problem of sudden mobiliza-tion and demobilization experienced after World War I and to maintain at anational level an “essential nucleus of Government-owned industrial plantsand an industrial reserve of machine tools and other industrial manufactur-ing equipment . . . for immediate use to supply the needs of the armed forcesin time of national emergency or in anticipation thereof.”8

The reach of the GOCO program was significant. For all intents and pur-poses, defense contractors found themselves a few steps short of nationaliza-tion and becoming an “adjunct of the Federal Government, operated in itsbehalf.”9 Defense contractors informed their stockholders that profitswould henceforth become secondary to the war effort.10 Certain non-defenseindustries, such as the automobile industry, were practically nationalized aswell, compelled to stop commercial automobile production and completely

5. HERMAN, supra note 3, at 92 (quoting the former head of General Motors, WilliamKnudsen).

6. The First War Powers Act of 1941 was signed into law less than two weeks after the PearlHarbor attack and expanded the executive branch’s authority to better manage federal agenciesand the war effort. First War Powers Act of 1941, Pub. L. No. 77-354, §§ 1, 201, 55 Stat. 838,838–39 (1941).

7. 10 U.S.C. § 2535 (2012).8. Id. § 2535(a)(1).9. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 3 (1943) (reporting that Douglas Aircraft

produced one-sixth of the total U.S. aircraft output in 1942 and increased production over2770% from 1939 levels, but profits plunged from eighteen million dollars before the war tosix million dollars for record sales of one billion dollars (0.6%) because it was the company’s“duty to its Government in time of war”).10. LOCKHEED AIRCRAFT CORP., TENTH ANNUAL REPORT OF THE PRESIDENT (1941) (“Your

company believes it has the responsibility, along with all private American industry, to producethe tools with which to win the war at the lowest possible cost to the people.”).


retool.11 Others walked the line.12 On the whole, U.S. industry openly com-mitted itself to “doing everything within [its] strength to further the nation’swar effort” and to accept sacrifice in the face of an “all-encompassing task ofwinning a great war.”13

The GOCO program was premised on the concept of mutual promisesbetween the U.S. government and industry, particularly with respect tothe risks inherent in defense production. As one defense contractor de-scribed, “[t]he national emergency defense program, with its vast and hastyexpansion, its necessary sacrifices and its emphasis on speed of productionregardless of cost, have brought many unavoidable and unpredictable haz-ards. . . .”14 Industry maintained that as part of this historical grand bargain,contractors’ collective sacrifices must not be “penalized and broken” as aconsequence of their all-out devotion to the nation’s war effort.15 The gov-ernment needed to do its part in preserving “strong [] industry, capable ofrapid [post-war] expansion.”16

A. GOCO Program: Risk and Reward

The GOCO model grew incrementally from “experimental” to large scalein very little time because it carefully balanced the risks and rewards of de-fense manufacturing—which was vital to manufacturers unfamiliar with mil-itary products and contracts.17 On the one hand, the U.S. government wasable to secure a number of strategic benefits, including exceptionally low-cost products, through the GOCO program. On the other hand, the U.S.government expressly retained the risk of facility damages or loss as a costof doing business. Low profits are fair, the government would theorize, be-cause there is no downside risk to the GOCO contractor.

The GOCO program benefited the U.S. government immensely throughdecades of war. It ensured immediate manufacturing capacity during nationaldefense emergencies and previously unheard-of production efficiencies. TheU.S. government’s call for 50,000 military aircraft per year in the early

11. During World War II, the U.S. government, through its War Production Board, orderedthe reallocation of the entire automobile industry toward the construction of airplanes andweaponry. CHARLES K. HYDE, ARSENAL OF DEMOCRACY: THE AMERICAN AUTOMOBILE INDUSTRY

IN WORLD WAR II 25–33 (2013). General Motors created the Eastern Aircraft Division andbuilt Grumman “Wildcat” fighters and “Avenger” torpedo planes and became the largest pro-ducer of naval aircraft during the war. See DONALD M. PATTILLO, PUSHING THE ENVELOPE:THE AMERICAN AIRCRAFT INDUSTRY 138–39 (1998).12. See, e.g., Act of June 28, 1940, Pub. L. No. 76-671, § 8(b), 54 Stat. 676, 680 (authorizing,

under certain conditions, the Secretary of the Navy to nationalize and operate “any existingmanufacturing plant or facility necessary for the national defense”).13. NORTH AMERICAN AVIATION, INC., ANNUAL REPORT TO STOCKHOLDERS 1 (1941).14. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 7 (1940).15. LOCKHEED AIRCRAFT CORP., TWELFTH ANNUAL REPORT OF THE PRESIDENT 3 (1943).16. NORTH AMERICAN AVIATION, INC., ANNUAL REPORT 8 (1945).17. The earliest government contracts to rearm the nation after World War I were called

“educational orders,” where small contracts were issued to allow contractors to use governmentproperty for manufacturing and to “learn how to make war goods at no risk to the company.”HYDE, supra note 11, at 5.


1940s when, in a good year, approximately 3,600 aircraft could be produced byU.S. industry, was called “wishful thinking.”18 Shortly thereafter, the U.S.government thanked one defense contractor for achieving a breathtaking out-put of more than 500 planes in one month—and immediately added that it“confidently expect[ed] [it to] increase [its] production further.”19

The GOCO program also allowed the U.S. government to obtain its mil-itary weapons at a dramatically lower cost.20 In many cases, the GOCO pro-gram’s cost efficiencies were the only economically viable way for the govern-ment to obtain certain weapons.21 Contractors operated GOCO facilitieseither rent-free or at very low rents to keep the costs of goods low.22 Defensecontracts also dramatically limited the available profits to the contractor—andeven authorized the U.S. government to “renegotiate” profits after the fact toreduce earnings on a program-by-program basis.23 In fact, contractor profitswere reduced, regularly over contractor objections, to razor-thin margins atGOCO facilities on the theory that contractors operated virtually “riskfree.”24 In exchange for the limited upside profit potential for contractors,the U.S. government contractually assumed the downside risk of GOCO facil-ity damages.25 U.S. government contracts typically contained the following“Liability for Facilities” or “Government Property” clause: “The Contractor

18. Id. at 12.19. Letter from Frank Knox, Sec’y of the Navy, to Leon A. Swirbul, Exec. Vice President,

Grumman Aircraft Engineering Co. ( Jan. 11, 1944).20. See, e.g., N. Am. Aviation, Inc. v. Renegotiation Bd., 39 T.C. 207, 218 (1962) (The fact

that the contractor was to have the right to use Government facilities free of cost in the perfor-mance of some of its contracts was taken into account by the negotiators when the contractswere negotiated.”).21. See R. ELBERTON SMITH, THE ARMY AND ECONOMIC MOBILIZATION 497 (1959) (stating that

Government-Owned, Contractor-Operated (GOCO) facilities were highly specialized and theonly economically viable way for the government to obtain various military weapons).22. To the extent a contractor paid rent, the revenue was used to maintain the GOCO facility

itself.23. Shell Oil Co. v. United States, 751 F.3d 1282, 1287 (Fed. Cir. 2014) (noting that the

“base price [of the contracts] was calculated with the goal of permitting an estimated profit ofbetween 6% and 7%” and “[p]rofits were further subject to the Renegotiation Act of 1942,which required contractors to repay excess profits to the Government”).24. SeeMajor Mark J. Connor, Government Owned-Contractor Operated Munitions Facilities: Are

They Appropriate in the Age of Strict Environmental Compliance and Liability?, 131 MIL. L. REV. 1, 6(1991) (“From its inception, the GOCO concept has provided a tradeoff for munitions plantcontractor-operators. In return for a lower level of profit than otherwise might be expected, the con-tractors received virtual immunity from risks resulting from munitions manufacturing operations.”).

The degree of risk assumed by the contractor should influence the amount of profit or feea contractor is entitled to anticipate. For example, where a portion of the risk has been shiftedto the Government through cost-reimbursement or price redetermination provisions, unusualcontingency provisions, or other risk-reducing measures, the amount of profit or fee should beless than where the contractor assumes all risk.

Newport News Shipbuilding & Dry Dock Co., ASBCA No. 6565, 71-1 BCA ¶ 8,705, at40,434.25. Shell Oil Co., 751 F.3d at 1287 (“The arrangement between the Oil Companies and the

Government was a cooperative endeavor in which the Oil Companies worked to achieve theGovernment’s goal of maximizing avgas production and the Government assumed the risks ofsuch increased production.”).


shall not be liable for any loss of or damage to the Facilities, or for expensesincidental to such loss or damage.”26 Additionally, U.S. government contractstypically mandated that GOCO contractors must not obtain facility-relatedinsurance because the U.S. government had assumed all liabilities and electedto self-insure, thus reducing the cost of goods produced at the GOCO facilityeven further.27

“Victory through production” presented dire risks to U.S. industry. TheU.S. government would be positioned as the sole customer to an entire “cap-tive” industry, and the threat of immediate contract termination by that in-dustry’s sole customer upon the conclusion of war literally threatened thesecontractors’ survival.28 Industry nonetheless held modest and reasonable ex-pectations: “In return, the Government, too, has an obligation to industry. Ithas a duty to remove by legislation and prompt equitable action all obstaclesand uncertainties in the path of restoration” of its contractors once the warsended.29 Among other obligations, that meant assuming the costs of war.

U.S. industry accepted the urgency and sacrifice as a fundamental duty.Other considerations were secondary to the prosecution of the war.30 Thehistorical mindset of the time, as one contractor described it, was “character-ized by intensive efforts to deliver the highest possible number of aircraftpossessing the greatest possible military utility at the lowest possible costto the Government.”31 Industry would be “devoted solely to war productionas long as the nation’s military welfare may require,”32 and “[e]very . . .worker in the factories and in the offices, worked with but a single thoughtand determination, to turn out each day every plane possible.”33 Industryagreed to “subordinate to defense production all conflicting activities as rap-idly as it becomes established that our national welfare demands such sacri-fices.”34 Commercial opportunities would be forfeited entirely and interna-tional work eliminated altogether, unless it otherwise served the defensepurposes of the United States and its allies.35

26. 32 C.F.R. § 7-702.18 (1979). See, e.g., U.S. Dep’t of Navy, Facilities Use Contract,N00019-69-C-9032, at 1 (Apr. 1, 1969) [hereinafter Contract No. N00019-69-C-9032]; U.S.Dep’t of Navy, Facilities Use Contract, N00019-82-E-9033, at 3-5 (Sept. 30, 1982) [hereinafterContract No. N00019-82-E-9033]; U.S. Dep’t of Navy, Contract for Plant Facilities, NOa-1031, at 6 (Nov. 16, 1943) [hereinafter Contract No. NOa-1031].27. See, e.g., U.S. Dep’t of Navy, Letter of Intent No. NOa(s)-2419, at 13; U.S. Dep’t of

Navy, Letter of Intent No. NOa(s)-846, at 23–24; U.S. Dep’t of Navy, Letter of Intent No.NOa(s)-2676, at 21–22 (Dec. 29, 1943).28. See DOUGLAS AIRCRAFT CO., INC., supra note 9, at 3–4.29. Id. at 3.30. See id.; see also LOCKHEED AIRCRAFT CORP., NINTH ANNUAL REPORT OF THE PRESIDENT 2

(1940) (stating Lockheed “has attempted to place its plant, its personnel, and its resources atthe service of the government’s defense program”).31. NORTH AMERICAN AVIATION, INC., ANNUAL REPORT 1 (1943).32. Id.33. GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT (1942).34. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 3 (1940).35. SeeHERMAN, supra note 3, at 162 (noting that the United States had ordered the complete

cessation of car and truck manufacturing as of January 15, 1942).


B. GOCO Facility Organization and Construction

To implement the GOCO program, the U.S. government needed to fundand build hundreds of industrial plants under Emergency Plant Facilities andDefense Plant Corporation contracts, and it solicited major manufacturers toparticipate in national defense manufacturing.36 At the height of the U.S.government’s GOCO program in the 1940s, approximately 1,200 GOCOfacilities operated across the country.37 The pace of construction becameso furious that the United States regularly built major GOCO facilities inonly six months, constructed aircrafts literally during and in parallel withplant construction, and even constructed federally owned plants on privatelyowned property.38 The U.S. government used various funding mechanisms,such as initial funding from a private bank coupled with reimbursement ofcontractors over sixty months (typical of Emergency Plant Facilities con-tracts) or direct Defense Plant Corporation funding,39 to build the GOCOwar plant inventory.

GOCO facilities are not military bases, although major facilities historicallyhad permanent military inspection personnel located onsite.40 GOCO facili-ties are unique creatures of emergency presidential orders and special con-gressional legislation.41 GOCO facilities are partially or wholly owned federalindustrial plants built with government funding and operated by selected con-tractors.42 However, significant parts of the facilities, such as buildings or realestate, could be privately owned by contractors.43 The urgency to construct

36. SMITH, supra note 21, at 476, 484–86, 494.37. See S. REP. NO. 80-1409, at 3 (1948).38. The time between signing a contract and building a GOCO plant often ran from four to

six months. HYDE, supra note 11, at 38; NORTH AMERICAN AVIATION, INC., ANNUAL REPORT TO

STOCKHOLDERS 9 (1940) (reporting that a one million square-foot GOCO was constructed inDallas in less than six months, and the first aircraft was actually delivered upon the first daythat the factory was formally opened); NORTH AMERICAN AVIATION, INC., ANNUAL REPORT TO

STOCKHOLDERS 4 (1941) (reporting that a GOCO was built in Kansas City in less than twelvemonths between 1940 and 1941). Four of the five major production plants built at Bethpagein the 1940s using emergency plant facility contracts were on 500 acres then owned by Grum-man. See HYDE, supra note 11, at 38.39. Space Gateway Support, LLC, ASBCA Nos. 55608, 55658, 13-1 BCA ¶ 35,232, at

172,906–08.40. The Bethpage, New York, GOCO had approximately 200 uniformed and civilian Navy

inspectors stationed onsite for decades. NAVPLANTREP—The Navy’s Man at Bethpage, GRUM-

MAN PLANE NEWS, July 13, 1973, at 8.41. The first GOCOs were built under the combined authority of (1) the First War Powers Act

of 1941, Pub. L. No. 77-354, 201, 55 Stat. 838 (1941); (2) Executive Order No. 9001, 3 C.F.R.§ 1941 Supp. 330 (1942); and (3) Executive Order No. 9264, 3 C.F.R. § 1938 Cum. Supp.1223 (1943).42. Belinda Snyder & Jeffery W. Thomas, GOGOs, GOCOs, and FFRDCs . . . Oh My! 1 (Fed.

Lab. Consortium for Tech. Transfer, 2014), https://www.federallabs.org/index.php?download=1FLcfl491 [https://perma.cc/2R3C-ULMD].43. U.S. Dep’t of Navy, Contract for Sale of Facilities, Noa-5661, at 2–3 (Dec. 18, 1947)

[hereinafter Contract No. Noa-5661].


manufacturing space as quickly as possible during World War II occasionallyled to mixed-ownership or “scrambled” GOCO facilities.44

Some GOCO facilities were so large that the U.S. government operated themwith dozens of contractors;45 other GOCO facilities had a single contractor overtheir entire operational history.46 Individual U.S. Department of Defense (DoD)branches typically controlled their respective GOCO facilities. The U.S. Armyoperated separately numbered Army Ammunition Plants (AAPs), the U.S. Navyoperated either Naval Industrial Reserve Ordnance Plants (NIROPs) or NavalWeapons Industrial Reserve Plants (NWIRPs), and the Air Force operated se-parately numbered Air Force Plants (AFPs).47 Other federal agencies occasion-ally controlled other uniquely named U.S. plants.

The construction of many GOCO facilities occurred during the 1940sand 1950s, but their useful lifespan had limits—GOCO facilities grew in-creasingly inefficient with age and suffered from a lack of government main-tenance and investment.48 By 1994, over ninety percent of the United States’GOCO facilities had been eliminated, and approximately seventy-eightGOCO facilities remained.49 The Army commander of one aging GOCOfacility lamented that DoD’s preference for the use of newer privatelyowned commercial facilities had left the remaining GOCO contractors ata competitive disadvantage because the U.S. government’s over-relianceon private facilities had diverted resources away from maintaining strate-gically vital GOCO facilities.50 Only a handful of GOCO facilities remainactive today.51 Most GOCO facilities have been closed and either sold or

44. The facilities at Allegany Ballistics Laboratory (ABL) in West Virginia and Bethpage,New York, were highly integrated mixed-ownership GOCO facilities where the contractorand the U.S. government owned various parcels of land. See, e.g., Letter from Henry Pass, Di-rector, Real Estate Div., Navy Facilities Eng’g Command, to Albert Wilson, Chief, Real Prop-erty Div., Gen. Servs. Admin. (Sept. 7, 1971) (calling the Bethpage GOCO a “scrambled” mixedownership facility).45. Air Force Plant (AFP) 42 in Palmdale, California, is still active and had over one dozen

contractors operating over eight different sites within the large complex.46. The Naval Weapons Industrial Reserve Plant (NWIRP) in Bethpage, New York, had a

single contractor—Grumman Aircraft Engineering Company and its successors—from 1941until facility closure and transfer in 2008 to Nassau County for redevelopment purposes.47. See generally U.S. GEN. ACCOUNTING OFF., GAO/NSAID-94-231, ENVIRONMENTAL

CLEANUP AT DOD: INCONSISTENT SHARING ARRANGEMENTS MAY INCREASE DEFENSE COSTS 3(1994) [hereinafter INCONSISTENT SHARING ARRANGEMENTS] (discussing each U.S. Departmentof Defense’s (DoD) GOCO plants); U.S. ARMY, JOINT MUNITIONS COMMAND, HISTORY OF AM-

MUNITION INDUSTRIAL BASE 13, 24, 65 (2010).48. See COLONEL BENJAMIN M. NUTT, EVOLVING THE ARMY’S GOVERNMENT-OWNED

CONTRACTOR-OPERATED (GOCO) FACILITIES BUSINESS MODEL 1, 5–6 (2011).49. INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at 3–4.50. The Army commander of the Iowa Army Ammunition Plant witnessed the decline and

loss of much of this Iowa GOCO’s munitions production capacity because of the governmentpolicy in favor of commercial production facilities and the loss of the DoD’s ability to surgethe munitions industrial base in time of future national emergency. See NUTT, supra note 48,at 4–5.51. See generally Norman Black, Pentagon Ponders Sale of Defense Plants, ASSOCIATED PRESS

(Oct. 25, 1986), http://www.apnewsarchive.com/1986/Pentagon-Ponders-Sale-of-Defense-Plants/id-f70cd8e67df8612b1438f7b8c841e712 [https://perma.cc/D4BF-69EY].


redeveloped,52 but many more have legacy contamination that still needs tobe remediated.53

C. The GOCO Program Today

Today, the GOCO program is a shell of its former self. The programcontinues to wither because the U.S. government has shifted its procurementdollars for weaponry and ammunition to more efficient commercial facilitiesand away from its aging GOCO inventory.54 Whereas it was once cheaperfor GOCO contractors to use low-rent or no-rent GOCO facilities, thecosts of maintaining these aging facilities have become a significant compet-itive burden.55 Even worse, the U.S. government is suing its contractors, tothe extent they have survived the ravages of competition into the jet age,56 inan effort to shift the costs of past wars onto the innovative makers of itsweaponry. The DoD is thereby smashing any hope of resurrecting a oncevital defense program in a future emergency.

This dramatic government turnaround and targeting of its principal con-tractors is not a consequence of war profiteering or unlawful conduct. It hasnothing to do with the terms of government contracts. In fact, the governmentactions plainly contravene the terms of its past contracts with its defense man-ufacturers.57 It is because building yesterday’s warplanes, tanks, bombs, andweapons invariably caused chemicals to be released into the environmentgiven the industrial standards of the time,58 and the legacy contaminationstill needs to be addressed today. That is a highly and increasingly expensiveundertaking.59 Compounding matters, a different generation now overseesmilitary and defense policy planning, and the lessons of history have faded.

Instead of treating environmental cleanup as an ongoing “cost of war” tobe assumed by the public at large, the U.S. government has chosen a differ-ent path forward with long-term adverse strategic consequences. The U.S.government contends that its available bench of defense contractors (again,to the extent they have survived) should assume enterprise-threatening

52. See id. (reporting that the DoD asked military departments to appraise defense manufac-turing plants with eye toward selling to private industry).53. See U.S. GOV’T ACCOUNTABILITY OFF., GAO-93-77, ENVIRONMENTAL CLEANUP: OBSERVA-

TIONS ON CONSISTENCY OF REIMBURSEMENTS TO DOD CONTRACTORS 17, 19 (1992) [hereinafterOBSERVATIONS ON CONSISTENCY]; INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at4–5; U.S. GOV’T ACCOUNTABILITY OFF., GAO-97-32, ENVIRONMENTAL CLEANUP AT DOD: BET-

TER COST-SHARING GUIDANCE NEEDED AT GOVERNMENT-OWNED, CONTRACTOR-OPERATED SITES

3 (1997) [hereinafter BETTER COST-SHARING GUIDANCE NEEDED].54. See NUTT, supra note 48, at 3–4.55. Id. at 8–9 (showing that the Iowa Army Ammunition Plant contractor lost contract bid at

“break-even” because its overhead costs to maintain the GOCO facility made it non-competitive).56. “Only ten manufacturers survived into the jet age with production of their own designs:

Boeing, Convair, Douglas, Lockheed, McDonnell, Northrop, North American, Republic, andthe principally naval firms Chance Vought and Grumman.” PATTILLO, supra note 11, at 200.57. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 4–5.58. See id.59. Connor, supra note 24, at 6.


liability dating back to World War II.60 These future liabilities can easilysurpass all the money ever made by the contractor during the war years.61

Decades after being lauded by its sole customer for out-producing theenemy and helping to win the nation’s wars, U.S. industry is now witnessingthe ravaging consequences of the U.S. government’s short-term memory.

The strategic turning point came in 1997. Through 1997, the U.S. gov-ernment funded 100 percent of all cleanup at its Navy, Army, and Air ForceGOCO facilities.62 As costs escalated and there was no end in sight, the nextgeneration of government policymakers re-evaluated its options. In 1997,the U.S. Government Accountability Office (GAO) urged the DoD tochange its long-standing policy of funding 100 percent of environmentalcleanup costs at its defense manufacturing facilities in favor of shiftingmore of the national cost of war onto defense contractors, regardless ofthe applicable government contracts and the prior allocation of risk setforth in those contracts.63 The DoD dutifully obeyed, while acknowledgingthe adverse strategic consequences to come.64

D. Three 1990s Reports from the GAO on GOCO Facility Cleanup CostsRecommend “Cost Sharing” with Former Contractors

The GAO reported on the GOCO program on three occasions between1992 and 1997.65 In each report, the GAO sounded the alarm about risingcleanup costs and a lack of DoD willingness to shift more of those costsonto its contractors. Not once did the GAO look at the content of the stan-dard GOCO contracts from prior decades, the risk allocation set forth inthose contracts, or the historical “grand bargain” that is the GOCO model.The GAO basically looked at CERCLA’s 1980s strict liability provisionsand the leverage it could provide over GOCO contractors, without any con-sideration of the pre-existing GOCO model or the governing contracts.66

60. Kenneth Michael Theurer, Sharing the Burden: Allocating the Risk of CERCLA Clean-UpCosts, 7 ENVTL. LAW. 477, 481 (2001); see also 32 C.F.R. §§ 7.203-22(a) (1965).61. SeeGRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORTS (1938–1980) (reporting that Grum-

man’s aggregate net income for the forty-two years between 1938 and 1980 totaled approximately$378 million—or approximately nine million dollars per year). One of several Long Island WaterDistricts potentially affected by the GOCO’s legacy contamination estimated $400 million in fu-ture groundwater treatment costs alone over the next thirty years. Christopher Twarowski, Beth-page’s Toxic Plume Creeps Closer to Contaminating Water Supply, LONG ISLAND PRESS (June 28, 2012).62. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 5.63. Id. at 9–10.64. See, e.g., id. at 5.

Navy officials stated that the Navy is reluctant to pursue GOCO contractors because ofconcerns they will pass costs back to the government as an allowable expense or through over-head charges. They also said that a divisive liability issue could slow cleanup operations andhurt relations between the Navy and its contractors.

Id.65. OBSERVATIONS ON CONSISTENCY, supra note 53, at 1; INCONSISTENT SHARING ARRANGE-

MENTS, supra note 47, at 3–4; BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 1.66. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 3 (“Because Superfund

holds parties liable for the billions of dollars needed to remediate past contamination regardless


In its first report in 1992, the GAO generally found the allowability rulesunder the Federal Acquisition Regulation (FAR) to be too generous in favorof contractors.67 In its second report in 1994, GAO confirmed and criticizedongoing Army, Navy, and Air Force funding of environmental cleanups atGOCOs with little to no effort to look to contractors for contribution.68 In1997, the third GAO report again documented consistent DoD funding ofGOCO cleanups and inconsistent efforts to solicit contractor participation.69

In combination, the three GAO reports from the 1990s document that fromWorld War II until at least 1997, the United States consistently viewed con-tractors as not being liable for legacy environmental liabilities at GOCO plantsfor one basic reason: past and future legacy environmental cleanup costs atGOCO plants are by law “allowable” under the FAR and cost accounting stan-dards and thus recoverable indirectly through contract overhead.70 In essence,the costs of past wars were being funded by costlier modern weaponry.

The GAO reports represent a historical turning point in the GOCOmodel.Ever since, the expectation has been for the DoD, using whatever leverage isavailable to the government, to foist onto contractors as much legacy environ-mental liability as they can bear, regardless of what the production and facilitiescontracts allocated to the government.71 The GAO never performed a com-plete analysis to understand the six-decade evolution of the GOCO modelwhen it first began evaluating solutions to the escalating cost of GOCO clean-ups. The DoD remained silent on the GOCO model and its strategic value.For these reasons, both the GAO and the DoD have disserved the GOCOmodel, an important strategic model that led to “victory through production.”

III. UNDER THE GOCO MODEL, THE U.S. GOVERNMENT

CONSISTENTLY LIMITED THE UPSIDE PROFIT POTENTIAL ON

THE GROUND GOCO CONTRACTORS OPERATED RISK-FREE

For decades, the Renegotiation Act had overshadowed profits at GOCOfacilities and the upside potential for contractors. First enacted in 1942,Congress repeatedly reauthorized the Renegotiation Act until it finally ex-pired after the Vietnam War.72 The Supreme Court found it constitu-

of wrongdoing, it is important that DLA and the services deal with potentially responsible par-ties on the basis of consistent policy and accurate data.”).67. OBSERVATIONS ON CONSISTENCY, supra note 53, at 1–2.68. INCONSISTENT SHARING ARRANGEMENTS, supra note 47, at 3–4.69. BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 6, 43.70. Id. at 6 (noting that the DoD’s policy for environmental cost sharing is to follow the Fed-

eral Acquisition Regulations (FAR) allowability rules, which provides for reimbursement to con-tractors for reasonable environmental costs).71. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 4–5.72. U.S. GOV’T ACCOUNTABILITY OFF., NSIAD-87-175, GOVERNMENT CONTRACTING: A PRO-

POSAL FOR A PROGRAM TO STUDY THE PROFITABILITY OF GOVERNMENT CONTRACTORS 13–14(1987). Congress reauthorized the Renegotiation Act for the final time on December 18,1975, allowing the law to lapse on September 30, 1976. Renegotiation Act of 1976, Pub. L.No. 94-185, 89 Stat. 1061 (1975).


tional.73 In the eyes of the U.S. government, “[r]enegotiation was estab-lished . . . as a method of lowering excessive prices on a contract-by-contractbasis.”74 But by 1959, even Congress had to admit that “[r]enegotation of in-dividual contracts and subcontracts involved serious practical difficulties andalso proved unfair to contractors who were not able to offset losses againstprofits.”75

Profit limitations for federal procurement contracts date back to the con-clusion of World War I and arose because of widespread allegations of prof-iteering on war contracts.76 Congress reported that profit on World War Icontracts ran well over ten percent in several industries,77 and 23,000 new mil-lionaires had been created.78 As a result, “[b]etween the armistice ending thefirst World War and the outbreak of World War II, Congress considered ap-proximately 200 bills and resolutions addressing limitation of war profits.”79

While Congress authorized additional defense manufacturing programs, “itdid so only after limiting profits to be realized by builders of new warshipsand aircraft” under the newly enacted Vinson-Trammel Act of 1934.80

A. Statutory Limitations Imposed “Hard Caps” on Military Contract Profits

The Vinson-Trammell Act of 193481 followed years of congressional inves-tigations and imposed fixed limitations on the profits that military contractorscould earn under cost-plus-fixed-fee (CPFF) contracts for ships and aircraft.82

In accordance with its provisions, “all profits in excess of [ten percent] of thecontract price realized by a contractor were to be recaptured.”83 Since 1956,the Vinson-Trammell Act has been codified at 10 U.S.C. § 2306(d) and lim-ited profits based upon various categories of work performed. It pertains to allU.S. Armed Forces and mandates the following:

The fee for performing a cost-plus-a-fixed-fee contract for experimental, develop-mental, or research work may not be more than [fifteen] percent of the estimated

73. Lichter v. United States, 334 U.S. 742, 765–67 (1948) (viewing congressional power tocontrol contract profits as comparable to conscription).74. JOINT COMM. ON INTERNAL REVENUE TAXATION, HISTORY AND BRIEF OUTLINE OF RENEGO-

TIATION 1 (1959).75. Id. at 1.76. See HYDE, supra note 11, at 4–5.77. See id. (referencing the Vinson-Trammell Act, Act of March 27, 1934, Pub. L. No. 73-

135, 48 Stat. 503 (1934)); Space Gateway Support, LLC, ASBCA No. 55608, 55658, 13-1BCA ¶ 35,232, at 172,895 (providing a history of GOCO facilities and government profitlimitations).78. JOINT COMM. ON INTERNAL REVENUE TAXATION, supra note 74, at 5; SMITH, supra note 21,

at 351.79. Space Gateway Support, LLC, 13-1 BCA ¶ 35,232, at 172,896.80. Id.81. Act of March 27, 1934, Pub. L. No. 73-135, 48 Stat. 503 (1934).82. See To Waive the Applicability of Section 2382 and 7300 of Title 10, United States Code, to Con-

tracts for the Construction or Manufacture of Naval Vessels or Military Aircraft with Respect to WhichFinal Payment Is Made Before October 1, 1981: Hearing on H.R. 7247 Before the Investigations Sub-comm. of the H. Comm. on Armed Servs., 96th Cong. 52 (1980) (statement of Walton H. Sheley,Acting Director, Procurement & Sys. Acquisition Div., U.S. Gen. Accounting Office).83. Space Gateway Support, LLC, 13-1 BCA ¶ 35,232, at 172,896.


cost of the contract, not including the fee. The fee for performing a cost-plus-a-fixed-fee contract for architectural or engineering services for a public work orutility plus the cost of those services to the contractor may not be more than[six] percent of the estimated cost of that work or project, not including fees.The fee for performing any other cost-plus-fixed-fee contract may not be more than[ten] percent of the estimated cost of the contract, not including the fee. . . .84

Similarly, profit limitations statutes have traditionally applied to non-military federal contracts under the Federal Property and AdministrativeServices Act of 1949:

(b) Cost-plus-a-fixed-fee contracts.

(1) In general. Except as provided in paragraphs (2) and (3), the fee in a cost-plus-a-fixed-fee contract shall not exceed [ten] percent of the estimated cost of the contract, not includingthe fee, as determined by the agency at the time of entering into the contract.

(2) Experimental, developmental, or research work. The fee in a cost-plus-a-fixed-fee contract for experimental, developmental, or research work shall not ex-ceed [fifteen] percent of the estimated cost of the contract, not including the fee.

(3) Architectural or engineering services. The fee in a cost-plus-a-fixed-fee contract forarchitectural or engineering services relating to any public works or utility project mayinclude the contractor’s costs and shall not exceed [six] percent of the estimated cost, notincluding the fee, as determined by the agency head at the time of entering intothe contract, of the project to which the fee applies.85

During World War II, government procurement officials imposed the“lower percentage” six percent profit cap typically reserved for federal “pub-lic works” onto various aircraft manufacturers, based the theory that theirproducts fit loosely within the definition of “public works” despite the obvi-ous research and development risks and costs.86 If any single contractor heldgovernment orders in excess of $500 million, the unwritten government pol-icy was to reduce the profit cap even further—to four percent.87

B. The Renegotiation Act Provided the Government with Authority to ReduceProfits Well Below the Statutory Caps

The ten-percent statutory profit limitation imposed by the Vinson-Trammell Act has rarely served any practical purpose at GOCO facilities be-cause the U.S. government typically resorted to an array of other tools tohold profits well below that ten-percent cap.88 One of the more commonly

84. 10 U.S.C. § 2306(d) (2012) (emphasis added). See also Act of August 7, 1939, Pub. L. No.76-309, 53 Stat. 1239, 1239 (1939); Act of February 19, 1948, Pub. L. No. 80-413, § 4(b), 62Stat. 21, 23 (1948); Federal Property and Administrative Services Act of 1949, Pub. L. No.81-152, § 304(b), 63 Stat. 377, 395 (1949).85. 41 U.S.C. § 3905(b) (2012) (emphasis added).86. See IRVING BRINTON HOLLY, JR., BUYING AIRCRAFT: MATERIEL PROCUREMENT FOR THE

ARMY AIR FORCES 376 (1989).87. Id.88. Congress suspended the Vinson-Trammell Act in 1940 and replaced it with the Excess

Profits Tax of 1940 that applied to all industries. HYDE, supra note 11, at 36. The Excess ProfitsTax started at fifty percent and reached ninety-five percent during World War II. DENNIS S.IPPOLITO, DEFICITS, DEBT AND THE NEW POLITICS OF TAX POLICY 44 (2012).


used profit limitation tools was the Renegotiation Act of 1942,89 whichvested the government with the extraordinary power to confiscate—afterthe fact, and at its sole discretion—any and all profits it deemed “excessive”through the “renegotiation” of government contracts.90 The Act permittedthe U.S. government to “renegotiate” the terms of a contract every sixmonths and withhold compensation owed to a contractor, even if otherwiseconsistent with the ten-percent cap, where it determined that the contractorwould accrue “excessive profits.”91 The legislation provided no benchmarkson acceptable profits. Virtually all major GOCO production contracts incor-porated this law.92 What constituted “excessive” profit rested largely in theeyes of the U.S. government.93

Upon reauthorization, the law later became known as the RenegotiationAct of 1951,94 and it remained effective through approximately 1976 whenit lapsed.95 The Renegotiation Act of 1951 permitted the government,upon issuing “an order determining the amount, if any, of . . . excessive prof-its” to “eliminate such excessive profits” on a program-by-program basis:

(A) by reductions in the amounts otherwise payable to the contractor under con-tracts with the Departments, or by other revision of their terms, [or]

(B) by withholding from amounts otherwise due to the contractor any amount ofsuch excessive profits.96

The Act authorized a five-member Renegotiation Board to require a“contractor to refund that portion of profits on Government contracts or re-lated subcontracts which [were] determined to be ‘excessive.’ ”97 To give asense of its utility, the U.S. government renegotiated approximately 869

89. Sixth Supplemental National Defense Appropriation Act, Pub. L. No. 77-528, § 403(a),56 Stat. 226, 245 (1942).90. See BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 10 (1942) (“[T]heWar Department,

the Navy Department and the Maritime Commission [have] the authority [under RenegotiationAct] to review profits realized from [g]overnment contracts and to determine what portion, ifany, in their opinion is excessive.”).91. U.S. Dep’t of Navy, Amendment No. 38, NOa(s)-2676, at 1–2 ( Jan. 1, 1945) (reducing

the per plane unit price from $39,000 to $36,350 and mandating a contract reduction of $8.7million) [hereinafter Amended Contract No. NOa(s)-2676]; accord Lichter v. United States,334 U.S. 742, 774–75, 783 (holding that the delegation of power to administration officials todetermine “excessive profits” is constitutional).92. See, e.g., NORTH AMERICAN AVIATION, INC., ANNUAL REPORT 13 (1942) (“Many of the con-

tracts which the company has are subject to renegotiation pursuant to the [Renegotiation] Actwhich was adopted in the spring of 1942.”). See also Lichter, 334 U.S. at 784 (recognizing thealready common practice as “a procedure already familiar to Congress” and an expression of“well-considered judgment” that “had [previously] been upheld by this Court in 1924.”).93. See SMITH, supra note 21, at 351.94. Renegotiation Act of 1951, ch. 15, 65 Stat. 7 (1951).95. “The [ninety-fourth] Congress did not complete action on legislation to extend the Re-

negotiation Act of 1951 beyond its expiration date of [September] 30, 1976.” Renegotiation Act,CQ ALMANAC (1977), http://library.cqpress.com/cqalmanac/cqal76-1187035 [https://perma.cc/L8EC-JL9D].96. Renegotiation Act of 1951, ch. 15, § 105, 65 Stat. 7, 13.97. JOINT COMM. ON INTERNAL REVENUE TAXATION, AN EVALUATION OF PROPOSALS TO EX-

TEND AND AMEND THE RENEGOTIATION ACT OF 1951 9 (1975).


contracts between 1968 and 1975 and required contractors to forfeit over$163 million in “excessive” profits.98 It mattered not at all how importanta contractor’s contribution to the overall war effort proved to be.

According to Boeing (the manufacturer of crucial B-17 and B-29 long-range bombers), the Renegotiation Board’s “views as to what constitutes areasonable percentage of profit [became] progressively lower” each year ofWorld War II.99 At the same time it clawed back profits, the U.S. govern-ment called upon Boeing to build so many “Superfortress” and “Flying For-tress” bombers that it required five other major companies to build the same“Boeing” bombers without compensation to Boeing.100 The demand for oneLockheed jet fighter grew so high that, “at the direction of the Army AirForces,” Lockheed agreed to turn over its engineering and developmentdata to a competitor for production.101 Lockheed’s profits were nonethelesskept at less than 1.5% of its sales.102

North American Aviation’s explanation to its stockholders of the deep,painful, and immediate impact of the Renegotiation Act is representative:

[M]any of the contracts of your Company were subject to renegotiation pursuantto the Act of Congress which was adopted in the spring of 1942, and stated thatconsequently the figures which appeared in the Annual Report might or might notbe the final figures, depending on the results of renegotiation with the Price Ad-justment Board of the Army Air Forces and your Company.

The renegotiation has been concluded and it has been determined that in additionto voluntary price reductions of $17,900,000 and the waiver of certain escalation pay-ments, your Company has derived additional excessive profits within the meaningof the Act in the amount of $18,200,000 for the fiscal year ended September 30,1942.103

The astounding $17.9 million in “voluntary” price reductions demanded bythe U.S. government, on top of $18.2 million in “excessive profits,” dwarfedNorth American’s entire 1942 profit of $7.3 million and was anything but vol-untary.104 It reflected nothing more than the application of a common govern-

98. Id. at 17–18 (noting that by comparison, the Renegotiation Board’s operational expensesduring that same eight-year period exceeded thirty-three million dollars, or twenty-one percentof the total forfeiture by contractors).

99. BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 14 (1945).100. See id. at 3–4 (reporting that “Boeing” aircraft were built by Lockheed, Douglas, GM,

Bell Aircraft, and Glenn L. Martin Co.).101. LOCKHEED AIRCRAFT CORP., THIRTEENTH ANNUAL REPORT OF THE PRESIDENT 2 (1944)

(reporting that the P-80 Shooting Star’s secret jet engineering and design data was transferredto North American Aviation for production in its Kansas City plant).102. LOCKHEED AIRCRAFT CORP., supra note 15, at 1 (1.1% net profit on sales, or $7,988,420

in profit for $697,408,167 in sales); LOCKHEED AIRCRAFT CORP., supra note 101, at 1 (0.75% netprofit on sales, or $4,522,848 profit for $611,537,771 in sales); LOCKHEED AIRCRAFT CORP.,FOURTEENTH ANNUAL REPORT OF THE PRESIDENT 1 (1945) (1.3% net profit on sales, or$5,469,888 profit for $417,615,160 in sales).103. NORTH AMERICAN AVIATION, INC., REVISED ANNUAL REPORT 1 (1942) (emphasis added).104. See Arthur Edward Burns, The Tax Court and Profit Renegotiation, 13 J.L. & ECON. 307,

311 (1970) (explaining that contractors often would report voluntary refunds and price reduc-tions to “avoid a finding of excessive profits” by the Renegotiation Board).


ment tactic to reduce contractor profits, i.e., threaten to withhold governmentcontracts from the sole available customer unless deep concessions are made.105

In hindsight, Congress acknowledged that the Renegotiation Act provedhighly subjective in favor of the U.S. government and did not reward con-tractors for cost savings.106 In a multi-year contract, for instance, profitsfrom one year could be recaptured by the Renegotiation Board, but not off-set with later unprofitable years—a phenomenon referred to at the time as“skimming off the cream.”107 Contractors consistently complained thattheir hard-earned cost savings—and thus higher profits—occasioned bynew manufacturing techniques would invariably be recaptured unfairly andexclusively by the U.S. government, undermining the incentives for contrac-tor innovation and independence.108

Administrative costs of operating under the annual profit reviews called forby the Renegotiation Act became a separate source of industry frustration.Contractors were compelled to file annual profitability reports with the Rene-gotiation Board, and the Board would decide—typically years afterward—whether it wanted to “renegotiate” any previously performed contracts.109

At Boeing, the U.S. government held net profits below 1.5% during his-tory’s most intense and successful expansion of defense production.110 Overthe same period, the U.S. government pressured Boeing to double and tripleits output as rapidly as possible while imposing eighty percent and highermarginal tax rates.111 Boeing had few options against the U.S. governmentother than public relations (i.e., calling public attention to the significantlosses it had incurred in developing the strategically important B-17 “FlyingFortress,” the government’s refusal to allow it to access foreign markets, thecompany’s “outstanding contribution to the War Effort,” and multipleawards for production excellence).112 Boeing’s production and efficiency

105. NORTH AMERICAN AVIATION, INC., supra note 103, at 1.106. JOINT COMM. ON INTERNAL REVENUE TAXATION, supra note 97, at 1.107. Id. at 117.108. GRUMMAN AIRCRAFT ENG’G CORP., 23RD ANNUAL REPORT 6 (1952); GRUMMAN AIRCRAFT

ENG’G CORP., 29TH ANNUAL REPORT 5 (1958); LOCKHEED AIRCRAFT CORP., supra note 15, at 1–2(1943) (reporting that Lockheed achieved large cost savings with “better utilization of personnel,more consistency of procedure, and the elimination of duplication,” but had to reserve fifteenmillion dollars and most of its profits for “renegotiation”).109. JOINT COMM. ON INTERNAL REVENUE TAXATION, STAFF REVIEW OF RECOMMENDATIONS

MADE ON THE RENEGOTIATION PROCESS: A PRELIMINARY REPORT 7–8 (1974).110. See, e.g., BOEING AIRPLANE CO., supra note 90, at 9, 11 (reporting 1942 net profit of

1.34%, or $5,238,000 in profits based upon $390,320,000 in government sales); BOEING AIR-

PLANE CO., REPORT TO STOCKHOLDERS 13 (1943) (reporting 1943 net profit of 0.91%, or$4,482,870 in profits based upon $493,188,161 in government sales).111. See BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 15, 17 (1944) (containing diagrams

showing Boeing’s sales expanded six-fold from $100 million to over $600 million between 1941to 1944); NORTH AMERICAN AVIATION, INC., supra note 31, at 1 (reporting North American dou-bled production output in one year from $253 million in 1942 to $509 million in sales in 1943).112. BOEING AIRPLANE CO., supra note 110, at 4 (reporting that Boeing received the Army-

Navy “E Award” repeatedly for production excellence); cf. GRUMMAN ENGINEERING AIRCRAFT

CORP., ANNUAL REPORT (1944) (reporting that Grumman received five renewals of the Navy“E” Award).


increased massively during each year of World War II, yet its profit marginscorrespondingly fell due to ever-increasing taxes and government confisca-tion; Boeing openly pleaded in its annual reports for the U.S. governmentnot to “renegotiate” more take-backs, but more often than not, these pleasfell on deaf ears.113

At Douglas Aircraft, the U.S. government kept defense-related profits to anaverage of 1.2% of sales, despite breathtaking output and production expan-sion.114 Again, the company’s profits decreased each year of the war becauseof renegotiation, despite record-breaking manufacturing achievements.115

Once the world’s leading commercial air transport manufacturers, DouglasAircraft, turned to building “Boeing” and “Consolidated Aircraft” bombers;trade secrets were subordinated to the needs of the nation’s war effort forthe first time in U.S. history.116

Through government action, profits across the defense industry were keptat razor-thin margins. Profit limitations applied to North American Avia-tion,117 even though it produced more aircraft and parts in 1944 than inthe previous nine years combined.118

According to Northrop’s annual reports from the 1950s through 1970s,the company’s profit margins typically ranged from two to three percent

113. See BOEING AIRPLANE CO., supra note 110, at 12 (“It is the Management’s consideredopinion that, because of the Company’s outstanding production and economy record duringthe year 1943 and the fact that 1943 profits are substantially lower than those of 1942 in theface of a large increase in volume of business, neither Boeing Airplane Company nor Boeing Air-craft Company should be subjected to renegotiation for the year 1943.”); BOEING AIRPLANE CO.,supra note 111, at 16, 22; BOEING AIRPLANE CO., REPORT TO STOCKHOLDERS 11–12 (1946).114. DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 8 (1941) (reporting 1.36% profits based

upon Army and Navy work); DOUGLAS AIRCRAFT CO., INC., ANNUAL REPORT 5 (1942) [hereinaf-ter DOUGLAS AIRCRAFT CO., INC., 1942 ANNUAL REPORT] (reporting 2.2% profits based on sales);DOUGLAS AIRCRAFT CO., INC., supra note 9, at 3 (reporting 0.6% profits based on sales); DOUGLAS

AIRCRAFT CO., INC., ANNUAL REPORT 6 (1944) (reporting 0.73% profits based on sales); DOUGLAS

AIRCRAFT CO., INC., ANNUAL REPORT 9 (1945) [hereinafter DOUGLAS AIRCRAFT CO., INC., 1945ANNUAL REPORT] (reporting 1.2% profits based on sales).115. DOUGLAS AIRCRAFT CO., INC., 1942 ANNUAL REPORT, supra note 114, at 5 (reporting that

1942 income declined more than thirty-nine percent compared to 1941 despite 177% outputincrease because of government profit limitation policies and seventy percent taxes); DOUGLAS

AIRCRAFT CO., INC., supra note 9, at 3 (reporting that Douglas Aircraft returned to the UnitedStates twelve million dollars, over twice the company’s 1943 profits); DOUGLAS AIRCRAFT CO.,INC., 1945 ANNUAL REPORT, supra note 114, at 4–5 (reporting that Douglas Aircraft produced29,385 heavy planes––a “war record represent[ing] one of the most outstanding industrial ac-complishments in the Nation’s history”).116. See DOUGLAS AIRCRAFT CO., INC., 1942 ANNUAL REPORT, supra note 114, at 8.117. North America’s wartime profits were less than three percent of sales, or fifty-seven mil-

lion dollars for two billion dollars in total sales to the government (2.9%). See NORTH AMERICAN

AVIATION, INC., supra note 16, at 2; see also NORTH AMERICAN AVIATION, INC., supra note 30, at 1(reporting 1.3% in 1943 based on $6,790,323 in net income from $509,139,649 in sales); NORTH

AMERICAN AVIATION, INC., supra note 3, at 1 (reporting 1.2% in 1944 based on $8,389,967 in netincome from $718,003,498 in sales).118. NORTH AMERICAN AVIATION, INC., supra note 3, at 3.


of sales, far below any statutory limit.119 The U.S. government confiscatedNorthrop’s profits of $550,000 in 1945 for work performed three years ear-lier in 1942.120 The U.S. government confiscated an additional $5 million in1958 for profits earned by Northrop three years earlier in 1955.121 The 1958clawback was significant compared to Northrop’s profit margin in 1958 ofonly 1.5% and its 1958 net income of $6.8 million.122

Grumman’s experience is particularly illustrative. The U.S. governmentapplied the Renegotiation Act as a tool to maintain its profit at two tothree percent of the cost of sales from World War II through the ColdWar.123 Grumman complained openly that the U.S. government’s use ofthe Renegotiation Act was unjust and unfairly prevented defense contractorsfrom recognizing the benefits of program-related engineering innovationand cost savings.124 At times, the U.S. government’s confiscatory take-backs became so extensive and painful that Grumman warned its stockhold-ers in annual reports that it could no longer fund its own basic expansiongoals and saw itself on the verge of losing its competitive standing.125 Grum-man cautioned that the U.S. government’s confiscatory policies failed to“foster a strong and efficient defense industry.”126

The confiscatory practices fueled by the Renegotiation Act had the prac-tical effect of making even contractor-owned production facilities increas-ingly government-owned because contractors were left with little capital tofund their own expansions and needed government funding.127 TheGOCO program operated within the harshest of business and political envi-ronments and offered limited upside potential for contractors—precisely whythe U.S. government was compelled to contractually assume the facility-relateddownside risks.

C. Standard Government Contracts Included the Combination of Statutory“Hard” Caps and the Renegotiation Act’s “Soft” Caps

The U.S. government implemented the statutory limitations on militarycontract profits through various vehicles, including the Armed Services

119. See NORTHROP CORP., 25TH ANNUAL REPORT 5 (1964) (summarizing earnings from1956–64, which ranged from 1.5% to 3.3%).120. NORTHROP AIRCRAFT INC., ANNUAL REPORT 16 (1945).121. NORTHROP AIRCRAFT INC., ANNUAL REPORT 15 (1958).122. Id. at 14.123. GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT 12 (1940); GRUMMAN AIRCRAFT

ENG’G CORP., ANNUAL REPORT 39 (1980).124. GRUMMAN AIRCRAFT ENG’G CORP., supra note 108, at 5.125. GRUMMAN AIRCRAFT ENG’G CORP., 23RD ANNUAL REPORT, supra note 108, at 5–6.126. GRUMMAN AIRCRAFT ENG’G CORP., 29TH ANNUAL REPORT, supra note 108, at 5.127. GRUMMAN AIRCRAFT ENG’G CORP., 23RD ANNUAL REPORT, supra note 108, at 5–6.

Funds for capital purposes cannot be retained for use in the business, even in a year of veryhigh sales, because of ‘Excess Profits Taxes.’ It has been necessary to finance with Govern-ment funds the new and modernized facilities we need to continue in business. As a result,a larger percentage of our plant is becoming Government owned.

Id.


Procurement Regulations (ASPR) and its successor military contract regula-tions, the FAR.128 At AFP 42 in Palmdale, California, for example, the gov-ernment routinely capped the contractors’ profits on production contracts at7% to 8.5%129 and then proceeded to incorporate the additional leverage af-forded by the Renegotiation Act through the standard ASPR provisions.130

The AFP 42 production contracts from the 1950s through the 1970s typi-cally incorporated the standard 1959 ASPR provision implementing the Re-negotiation Act,131 which then provided “(a) To the extent required by lawthis contract is subject to the Renegotiation Act of 1951 (50 U.S.C. App.1211 et seq.) as amended and to any subsequent act of Congress providingfor renegotiation of Contracts . . .”132 At virtually all GOCO facilities, theU.S. government incorporated into procurement contracts, and reviewed an-nually, the contractors’ profits under the Renegotiation Act.133

The annual profit reviews and aggressive application of the RenegotiationAct to GOCO contractors contrast sharply with the U.S. government’s viewtoday that its contractors are highly profitable and operated no differentlythan any other standard commercial relationship.134 To the contrary, themilitary contractors were operating within a highly controlled, low-margin

128. See, e.g., 41 C.F.R. § 5-3.404-3 (1961) (“Except as specified in paragraphs (b) and (c) ofthis § 5-3.404-3 the fixed fee shall not exceed [ten] percent of the estimated cost of the contractexclusive of the fee as determined by the head of the service conducting the procurement at thetime of entering into a cost-plus-a-fixed fee contract.”); see also 41 C.F.R. § 2-3.404-3 (1964) (“Inother cost-plus-fixed-fee contracts the fee . . . shall generally not exceed: [ten percent] in con-tracts for experimental, developmental or research work; and [seven percent] in all other con-tracts.”); ASPR 5A-3.405-5 (1976) (“Except as specified in (b), below, the fixed fee shall not ex-ceed [ten] percent of the estimated cost of the contract, exclusive of fee. . . .”); FAR 15.903 (1984)(“For other cost-plus-fixed-fee contracts, the fee shall not exceed [ten] percent of the contract’sestimated cost, excluding fee.”).129. See, e.g., Air Force, AF33(600)-37834, at 10 (Sept. 2, 1958) [hereinafter T-38 “Talon”

Contract No. AF33(600)-37834] (setting a fixed fee of 8.5% of costs); Air Force, AF33(600)-33168 (Feb. 18, 1958) [hereinafter T-38 “Talon” Contract No. AF33(600)-33168] (setting afixed fee of seven percent of costs).130. T-38 “Talon” Contract No. AF33(600)-37834, supra note 129, at 59.131. See, e.g., T-38 “Talon” Contract No. AF33(600)-37834; U.S. Dep’t of Def., F33657-74-

C-0024 (Sept. 12, 1973) [hereinafter F-5 “Freedom Fighter” Contract No. F33657-74-C-0024].132. 32 C.F.R. § 7.103-13(a) (1959).133. See NORTH AMERICAN AVIATION, INC., supra note 3, at 1 (noting that “practically all” 1944

income is subject to renegotiation and thus the company must make large reserves); NORTHROP AIR-

CRAFT INC., ANNUAL REPORT 19 (1945) (Note D); NORTHROP AIRCRAFT INC., supra note 119, at 48(Note G); NORTHROP AIRCRAFT INC., ANNUAL REPORT 50 (1976) (Note K) (noting that the Rene-gotiation Act of 1951 is expiring but profits would still be limited under Vinson-Trammell Act of1934).134. See, e.g., Findings of Fact and Conclusions of Law at 2, 36, 50, TDY Holdings, LLC v.

United States, No. 07-cv-787 (S.D. Cal. filed July 29, 2015), ECF No. 277 [hereinafter TDYFindings of Fact and Conclusions of Law] (holding that despite sixty years of aerospace workfor the government, the United States is not liable for legacy cleanup costs because the contrac-tor “sought the aviation contract work and financial inducements offered by the Governmentduring WWII to build and expand its existing plant” and “[t]hroughout its operating history,TDY repeatedly bid on such contracts to its financial benefit”).


environment.135 GOCO contractors accepted that situation based upon the“grand bargain” that the government would assume facility-related liabili-ties.136 The evolving government position of both limiting contractor prof-itability and assigning the downside risk of manufacturing to the contractoris found nowhere in any standard GOCO contract.

D. The Government’s Choice and Use of Cost-Plus-Fixed-Fee Contracts WereCalculated to Limit the Contractors’ Facility-Related Liabilities

The “[c]onclusion of World War I ‘reduced the aviation industry tochaos.’ Within months, over $100 million of contracts were cancelled. Asa result, [ninety percent] of the industry underwent liquidation.”137 At thestart of World War II, aircraft manufacturers would not enter fixed-pricecontracts because:

[M]any did not have sufficient funds for additional expansion . . . and were loath toundertake the entire risk of expanding because of fear that at the end of the waremergency they would [once again] be left with excess, useless plant to whichtheir capital was committed. Manufacturers did not wish to find themselvesheavily overcapitalized or overindebted at war’s end, risking reorganization orbankruptcy. The experience of the first World War and severe recession that fol-lowed were still fresh memories for many.138

In this environment, fixed-price contracts were unacceptable to contrac-tors, and the government could not get the products it needed to wagewar without some other type of contract.139 By necessity, the CPFF contractarose during World War II as a result of two competing forces: the govern-ment’s desire to reduce costs and restrict contractor profits and the contrac-tors’ reluctance to enter into any more fixed-price contracts at the risk of fu-ture enterprise-threatening loss.140

135. See generally Elmer J. Stone, Contract by Regulation, 29 LAW & CONTEMP. PROBS. 32, 32(1964)

Several billions of dollars of annual procurement is [a]ffected by no more than half-a-dozen basic and unalterable contract forms. This rigidity leaves little or no room for negoti-ation and ‘tailoring’ the contract to the transaction. It not infrequently causes hardships inperformance and financial results. . . . [A] system such as this is inconceivable in the pure com-mercial world. . . .

Id.136. LOCKHEED AIRCRAFT CORP., supra note 15, at 3 (“Your company does ask of its govern-

ment, however, that upon termination day it promptly receive the monies that are justly owed itand thus be in a position to work enterprisingly in the future as it has in the past for its reason-able existence.”).137. Space Gateway Support, LLC, ASBCA No. 55608, 55658, 13-1 BCA ¶ 35,232, at

172,895.138. Id. at 172,899.139. HOLLY, supra note 86, at 414.140. LOCKHEED AIRCRAFT CORP., supra note 15, at 1–2 (1943) (reporting that Lockheed expe-

rienced an increase in cost-plus-fixed-fee (CPFF) contracts from twenty percent in 1942 to sixtypercent in 1943, and fixed-fee contracts simultaneously dropped from eighty percent to fortypercent because the contractor “could not assume the risks” of fixed-price contracts and reluc-tantly accepted less profitable CPFF contracts).


The contract profiteering lessons of World War I, together with the strictprofit limitation provisions that followed, led “corporate officers to prefer[]to accept a contract foregoing profits if only they were guaranteed againstloss.”141 Because contractors “in their fear of uncontrolled costs flatly re-fused to accept traditional fixed-price or lump-sum contracts . . . theCPFF contract, for all its obvious drawbacks, seemed to be the only practicalescape.”142 “The CPFF contract was designed to allay the manufacturer’sfears regarding costs over which he had no control.”143 The CPFF contractguaranteed a fixed fee on top of production and overhead costs, and it shiftedthe risk of unforeseeable liabilities to the government under standard “holdharmless” and “liability for facilities” contract provisions.144 For years,CPFF contracts also prevented contractors from knowing how much profitthey would ultimately retain because the U.S. government needed to reviewand approve the costs.145

Any government program that is built on unlimited future contractor li-ability, such as CERCLA, and balanced against decades of capped, renego-tiated, and recaptured past profits, is inherently unsustainable. Such a pro-gram has the one-sided effect of limiting the costs of production for thegovernment and assigning all downside risk for defense manufacturing tocontractors. This structural imbalance is inconsistent with a typical commer-cial relationship and is profoundly inequitable for purposes of CERCLA al-location. Indeed, even the government has argued elsewhere “that a ceilingof less than [four] percent on fees,” an amount consistently greater than var-ious GOCO contractor profits, “make[s] the range of allowable compensa-tion too narrow.”146

In short, the U.S. government’s position of today that GOCO contractorsmust share heavily in potentially devastating legacy environmental liabilitiesis inconsistent with the language and purpose of the CPFF contracts, inwhich the government historically assumed the risk of plant-related damagesand losses in exchange for closely managed contractor profits. Having devel-oped the CPFF program to encourage contractors to produce goods for thegovernment in a hostile and low-cost environment, the U.S. government isinexplicably shifting plant-related liabilities onto contractors a half-centurylater as if the contracts never existed.

141. HOLLY, supra note 86, at 333.142. Id. at 335–36.143. Id. at 335.144. See FAR 16.306 (describing CPFF contracts).145. LOCKHEED AIRCRAFT CORP., supra note 15, at 3 (noting that given Lockheed’s large num-

ber of CPFF contracts, “all elements of cost must be finally approved by the government beforethe company’s position can be considered definite and its reimbursements thereunder secure. Todate this company alone has $215,000,000 of items on which it has yet to receive finalapproval.”).146. HOLLY, supra note 86, at 376.


E. The Government Applied Pressure in Unconventional Ways to ControlGOCO Facility Operations and Profits

The U.S. government applied pressure against contractors in various waysto recover contract payments. The U.S. government went so far as to with-hold from one contractor any new work unless it surrendered previouslyearned profits.147 The contractor had to “voluntarily” surrender profits asa quid pro quo for more government work, even at a time when the U.S.government mandated that the GOCO facility perform only military workand had no other options.148 For example, in order to secure a large contractof 2,000 F8F “Bearcats” and 1,100 F6F “Hellcats,” the Acting Secretary ofthe Navy, Artemus Gates, demanded that Grumman first voluntarily returnover seventy percent, or $18.6 million, in what he described as “unconscio-nable” 1944 annual profits.149 Gates acknowledged in the same letter, how-ever, that those profits had been earned by Grumman, “primarily . . .through exceptional efficiency in the attainment of quantity and quality pro-duction, economy in the use of materials, facilities, and manpower with itsconsequent reduction of costs[.]”150 Only in the eyes of the governmentcould extraordinary efficiency and performance be “unconscionable.” Grum-man surrendered its profits, obtained more work, and reduced the produc-tion costs of “Hellcat” fighters from the original price of $60,000 each to$36,350 (a forty-percent reduction), well below all competitors.151 TheU.S. government and war effort benefitted.

The U.S. government applied leverage to reduce GOCO contractor prof-its by whatever means available. The Undersecretary of the Navy, JamesForrestal, instructed Navy procurement officials in 1943 “to make every ef-fort to get [the contractor’s] business on a fixed price basis.”152 In response,one contractor reminded the Navy that fixed-price contracts are “impracti-cal” because it could not control national inflation, which the governmentactively fueled: the “War Labor Board almost daily grants [wage] increases

147. See Letter from Artemus L. Gates, Acting Sec’y, U.S. Dep’t of Navy, to Grumman Air-craft Eng’g Corp. 2 (Dec. 18, 1944) [hereinafter Gates Letter].148. HOLLY, supra note 86, at 428.149. See Gates Letter, supra note 147, at 2–3.150. Id. at 2.151. To the company’s frustration, the U.S. government did not reward Grumman for its

achieved cost-savings and efficiencies. As Grumman became more skilled and decreased theper-unit cost of F6F “Hellcats” by forty percent, despite material shortages, these savingsdid not benefit Grumman because they were forcibly taken back by the government. U.S.Dep’t of Navy, Fixed Price Contract, NOa(s)-846 (Dec. 29, 1943) [hereinafter Contract No.NOa(s)-846]; U.S. Dep’t of Navy, Fixed Price Contract, NOa(s)-2676 (Dec. 29, 1943) [herein-after Contract No. NOa(s)-2676]; Letter from E.M. Pace, Jr., Acting Assistant Chief, Bureau ofAeronautics, U.S. Dep’t of Navy, to Grumman Aircraft Eng’g Corp. (Apr. 28, 1944). All man-ufacturing improvements and cost savings attained by Grumman ultimately did not benefitGrumman, except to the extent the Navy would award additional low-profit contracts to itshighest-performing contractor. Letter from Leon Swirbul, Exec. Vice President, Grumman Air-craft Eng’g Corp., to Rudolph Halley, S. Comm. Chief Counsel (Mar. 28, 1945).152. Letter from Captain A.C. Miles, Bureau of Aeronautics, U.S. Dep’t of Navy, to L.R.

Grumman, President, Grumman Aircraft Eng’g Corp. (Mar. 29, 1943).


to various labor groups around the Country.”153 These inflationary pressurescoupled with government-influenced material and worker shortages com-pounded the inability of contractors to operate in a fixed-fee environment.154

Nevertheless, the government at times forcibly converted profit-guaranteeingCPFF contracts into far riskier and less profitable “fixed-fee” contracts.155

Over the years, the U.S. government regularly called upon contractors toremit millions of dollars, even under fixed-price contracts.156 At the conclusionof the Korean War, the U.S. government forced contractors to forfeit profitsthat were already below the average profit margins of other U.S. indus-tries.157 Contractors warned shareholders that the U.S. government’s “rene-gotiation” of already thin profits was patently unfair, caused painful losses,and amounted to nothing more than an “alarming” decision to punish con-tractors while removing “all incentive for efficiency.”158 Because of the U.S.government’s relentless clawback tactics, for decades contractor profits aver-aged less than three percent of gross sales.159 The U.S. government’s confis-catory policies actually drove various contractors to pursue diversificationinto commercial work for their own viability.160

IV. THE GOCO MODEL: STANDARD GOVERNMENT

CONTRACTING PROVISIONS

A. Overview

Government contracts are vital in understanding the respective risks andresponsibilities of the United States and its contractors at GOCO facilities atspecific points in time. Given that the United States funded most or all of theconstruction and use of GOCO facilities, logically the contracts vest sub-stantial rights in favor of the U.S. government. However, the same contractsthat so strongly favor the U.S. government in various respects demonstratethat the United States bears significant—and often exclusive—liability for

153. Letter from L.R. Grumman, President, Grumman Aircraft Eng’g Corp., to CaptainA.C. Miles, Bureau of Aeronautics, U.S. Dep’t of Navy (Apr. 1, 1943).154. Id.155. See GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT (1943).156. See, e.g., U.S. Dep’t of Navy, Amendment No. 64, NOa(s)-4799 ( July 9, 1948) [herein-

after Amended Contract No. NOa(s)-4799] (requiring Grumman to refund $5,866,736.96and decreasing contract by a total of over $18 million); see also Letter from L.R. Grumman,President, Grumman Aircraft Eng’g Corp., to Hugh A. Fulton, S. Comm. Chief Counsel(Aug. 17, 1943) (stating that Grumman returned ten million dollars in profits from 1942 and1943).157. See GRUMMAN AIRCRAFT ENG’G CORP., ANNUAL REPORT 4–5 (1955).158. GRUMMAN AIRCRAFT ENG’G CORP., 27TH ANNUAL REPORT 4 (1956); see also GRUMMAN

AIRCRAFT ENG’G CORP., 28TH ANNUAL REPORT 3 (1957).159. See, e.g., GRUMMAN AIRCRAFT ENG’G CORP., 36TH ANNUAL REPORT 8 (1965).160. See GRUMMAN AIRCRAFT ENG’G CORP., 28TH ANNUAL REPORT, supra note 158, at 2–3 (re-

porting that the first commercial aircraft program started in 1957 with the “Gulfstream” pro-gram to reduce the dependence on government contract work).


environmental contamination that occurred as a result of the government-directed production and use of GOCO facilities.

B. Contract Standardization

In relying on government contracts to allocate responsibility for environ-mental remediation costs, one of the most significant hurdles simply is findingthe contracts. In many cases, key contracts have been lost or destroyed in thedecades since performance.161 In other cases, contracts (or portions thereof )may remain classified.162 Fortunately, the United States—and the DoD inparticular—relied heavily on the use of standardized contract provisions be-tweenWorldWar II and today.163 GOCO contractors (and the United States)may be able to rely on that standardization to demonstrate the existence of keycontract terms, even in the absence of a complete contract.164

The United States began the process of standardizing DoD procurementprocedures and contract provisions with the Armed Services ProcurementAct of 1947.165 The ASPR was first promulgated, albeit in a limited fashion,on May 19, 1948.166 This early version of the ASPR did not include any spe-cifically required contract language, instead providing some basic policiesand assigning responsibility for various procurement functions to certain of-fices within the government.167 The first required contract clauses appearedin the 1954 edition of the Code of Federal Regulations,168 but these clauseswere limited to three specific types of contracts: (1) Fixed-Price Supply Con-tracts, (2) Cost-Reimbursement Type Supply Contracts, and (3) PersonalServices Contracts.169 No required contract provisions were provided for

161. See generally Renee M. Collier & Lt. Col. Timothy J. Evans, Department of Defense Af-firmative Cost Recovery Against Private Third Parties, 58 A.F. L. REV. 125, 144 (2006) (arguing di-ligent efforts must be used to locate the early contract documents when bringing an affirmativecost recovery claim).162. See 32 C.F.R. § 2001.12(c)(1) (outlining the duration of time information remains

classified).163. See STEVEN W. FELDMAN, GOVERNMENT CONTRACT GUIDEBOOK § 26:1 (4th ed. 2015).164. See E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367, 1370 n.3 (Fed. Cir.

2004) (imputing standard contract language in the absence of the World War II-era contract).165. See Armed Services Procurement Act of 1947, Pub. L. No. 80-413, 62 Stat. 21 (1948).166. See 32 C.F.R. §§ 400.100–404 (1949); see also id. § 400.102 (effective May 19, 1948). The

Armed Services Procurement Regulations (ASPR) were later codified at 32 C.F.R. parts 1–32.Contract provisions were generally located in Part 7, and policies (as well as certain supplemen-tal contract provisions) regarding government property were generally located in Part 13.167. See 32 C.F.R. §§ 400.100–404.168. These ASPR contract provisions were first promulgated on December 13, 1952. 17 Fed.

Reg. 11,315 (Dec. 13, 1952). This article generally does not address “supplemental” contractprovisions promulgated by the various branches of the DoD, such as the Air Force ProcurementInstructions, the Navy Procurement Directives, the Army Procurement Procedure, and the De-fense Supply Procurement Regulations (all under the ASPR), or the various supplements to theFAR. See 32 C.F.R. §§ 1000.101–608 (1954) (containing Air Force Procurement Procedures,later known as the Air Force Procurement Instructions); 32 C.F.R. § 590.101 (1954) (containingArmy Procurement Procedures). While these supplemental contract clauses may be relevant inparticular GOCO cases, a detailed examination of each of these supplements is beyond the scopeof this article.169. 32 C.F.R. §§ 7.100, 7.200, 7.500 (1954).


Facilities Contracts.170 The 1954 ASPR contract provisions were amendedand expanded twice in the following ten years to include additional requiredprovisions for Fixed Price and Cost-Reimbursement Type Research and De-velopment Contracts (1960) and Fixed Price Construction Contracts(1964).171 The ASPR was expanded to include required contract provisionsfor Facilities Contracts in late 1964.172

The ASPR remained in effect until March 8, 1978, when it was renamedthe Defense Acquisition Regulation (DAR).173 The DAR then merged withthe Federal Procurement Regulations to form the consolidated Federal Acqui-sition Regulations in 1984, which remain in effect today.174 As detailed below,many of the ASPR contract provisions relating to GOCO facilities closely par-allel similar provisions found in pre-ASPR contracts.175 Likewise, many of theASPR/DAR contract clauses were transferred—at least in substance—to theFAR.176 On May 15, 2007, the FAR was amended, ostensibly to “improve[]the management of government property while fostering efficiency, flexibility,innovation and creativity by adopting property practices typically used in thecommercial arena while continuing to protect the Government’s interest.”177

In large part, this “efficiency” was achieved by removing many of the FacilitiesContract clauses that had previously favored GOCO contractors attemptingto recover environmental remediation costs.178

170. See id. § 7.102. The ASPR did provide general policy guidance for Facilities Contracts.See 32 C.F.R. §§ 13.000–506 (1954). The ASPR also provided required contract clauses to beinserted into Fixed Price and Cost-Reimbursement Type Supply Contracts that utilized govern-ment property in the performance of these contracts. See 32 C.F.R. § 13.500; see also id. § 13.503(requiring the use of the contract provision in all Cost-Reimbursement Type Supply Contracts).171. See 32 C.F.R. §§ 7.102, 7.401 (1960) (adding Fixed Price and Cost-Reimbursement

Type Research and Development Contract provisions at §§ 7.400 and 7.500, respectively); 32C.F.R. §§ 7.601, 7.602 (1964) (adding Fixed Price Construction Contract provisions at § 7.600).172. 29 Fed. Reg. 14,813, 14,822 (Oct. 31, 1964) (codified at 32 C.F.R. § 7.701 (1965)).173. U.S. DEP’T OF DEF., DIRECTIVE 5000.35 1 (1997); see also 43 Fed. Reg. 15,150, 15,151

(Mar. 8, 1978) (“Effective with the issue of this part, the ASPR is redesignated as the DARand all policies and procedures continue in force.”). The DAR was first formally promulgatedin the Code of Federal Regulations on December 31, 1979. Defense Acquisition Regulation(DAR), 44 Fed. Reg. 77,158, 77,158 (Dec. 31, 1979); see also 32 C.F.R. vii (1979); KATE M.MANUEL ET AL., CONG. RESEARCH SERV., R42826, THE FEDERAL ACQUISITION REGULATION

(FAR): ANSWERS TO FREQUENTLY ASKED QUESTIONS 10 (2015). Due to the volume of theDAR, the government elected to publish these regulations directly in the Code of Federal Reg-ulations rather than in the Federal Register. 32 C.F.R. vii; see also CFR Publication of ArmedServices Procurement Regulations, 41 Fed. Reg. 18,505, 18,558 (May 6, 1976) (announcingthe alternate mode of publication).174. FAR pts. 1–51. The FAR carried over many of the provisions from the DAR and the

ASPR. MANUEL ET AL., supra note 173, at 10–11; see FAR 52.106 (describing the derivation ofFAR clauses and providing notations for identifying “verbatim” and “almost verbatim”transitions).175. See discussion infra Part IV.D–E.176. See, e.g., FAR 52.245 (containing many of the Facilities Contract provisions formerly

codified at 32 C.F.R. § 7.700); FAR 52.229-3 (containing taxes clause formerly codified at 32C.F.R. § 7.103-10(b)); see also discussion infra Part IV.D–E.177. Federal Acquisition Regulation; FAR Case 2004–025, Government Property, 72 Fed.

Reg. 27,364, 27,364 (May 15, 2007).178. Compare FAR 52.245 (2007) with FAR 52.245 (1984).


C. GOCO Contract Types

GOCO contracts fall into one of two broad categories: “facilities” con-tracts and “procurement” contracts. In the context of this article, facilitiescontracts refer to contracts for the construction, maintenance, use, and ac-quisition or disposal of the physical infrastructure at GOCO facilities.179

Procurement contracts refer to contracts that call for the use of GOCO fa-cilities to manufacture particular goods for the government.180 These twogeneral categories of contracts must often be read together to understandfully the allocation of risks and responsibilities between the governmentand its GOCO contractor at a particular facility and at a particular pointin time.

D. Facilities Contracts

Government procurement regulations recognize three types of facilitiescontracts: (1) Facilities Acquisition contracts, (2) Facilities Use contracts,and (3) Consolidated Facilities contracts.181 Facilities Acquisition contractsgovern the initial design and construction of the government facilities andare primarily useful to identify who assumed responsibility for that plant’sdesign and construction.182 Facilities Use contracts govern a contractor’suse of a GOCO facility after it has been acquired or constructed.183 FacilitiesUse contracts include a number of significant provisions, including the allo-cation of certain risks associated with use of the facilities to the governmentand the contractor.184 Finally, Consolidated Facilities contracts are a combi-nation of Facilities Acquisition and Facilities Use contracts, governing both acontractor’s initial acquisition or construction of the government’s facilities,and the contractor’s subsequent use of those facilities.185

1. Facilities Contracts: Design, Construction, Inspection, and Approval

Perhaps the most fundamental—although indirect—way the governmenthas impacted industrial operations at U.S.-funded GOCO facilities is throughits control of the design and construction of those GOCO facilities. DuringWorld War II, this control was achieved through contract clauses such asthe following: “All of said Emergency Plant Facilities shall be in general

179. The ASPR, the DAR, and the FAR generally refer to these contracts as “Facilities Use,”“Facilities Acquisition,” and “Consolidated Facilities” contracts. See, e.g., 32 C.F.R. § 7.701(1965).180. This includes traditional “procurement” contracts, such as Fixed Price and Cost-

Reimbursement Type Supply Contracts under the ASPR. This article does not address Researchand Development contracts, which by their nature are less likely to cause significant environ-mental contamination.181. See, e.g., 32 C.F.R. § 7.701 (1965) (containing initial ASPR Facilities Contract provi-

sions); FAR 52.245 (1984) (containing initial FAR Facilities Contract provisions).182. See Connor, supra note 24, at 9.183. Id.184. See id.185. See 29 Fed. Reg. 14,813, 14,823 (Oct. 31, 1964).


accordance with the drawings, specifications, descriptions and instructions setforth in Appendix A. . . .”186 This provision—or one very similar—is found inevery single one of the approximately nine facilities construction contracts ex-ecuted to construct NWIRP No. 464 during World War II.187 The govern-ment promulgated a similar, mandatory contract provision for use in all Con-solidated Facilities and Facilities Acquisition contracts in 1964, whichremained in effect until 2007.188

In practice, the government’s specifications in Facilities Acquisition con-tracts often include more than just a generic description of the industrial fa-cilities to be constructed. For example, at NWIRP No. 464, the UnitedStates specified the wells that provided water for industrial purposes, thetraps and drains in the plant floors that captured industrial wastewater, therecharge basins that returned industrial wastewater to the Long Island aqui-fer, and the sewers and pipes that integrated these facilities.189 Likewise, theUnited States specified the industrial equipment that would populate thenewly constructed industrial space, including thousands of pieces of indus-trial equipment necessary to manufacture naval aircraft.190 The requisite

186. U.S. Dep’t of Navy, Emergency Plant Facility Contract, DANOa-10, at 2 (Dec. 29,1941) [hereinafter Contract No. DANOa-10] (directing the emergency government-fundedconstruction of certain GOCO facilities at NWIRP No. 464).187. Contract No. DANOa-10, supra note 186; U.S. Dep’t of Navy, Emergency Plant Facil-

ities Contract, NOd-1571 (Nov. 4, 1940) [hereinafter Contract No. NOd-1571]; U.S. Dep’t ofNavy, Emergency Plant Facilities Contract, NOd-2377 (Oct. 14, 1941) [hereinafter ContractNo. NOd-2377]; U.S. Dep’t of Navy, Emergency Plant Facilities Contract, NOa-45(Apr. 16, 1942) [hereinafter Contract No. NOa-45]; U.S. Dep’t of Navy, Emergency Plant Fa-cilities Contract, NOa-125 (Sept. 30, 1942) [hereinafter Contract No. NOa-125] [hereinafterEPF Contracts]; U.S. Dep’t of Navy, Contract for Plant Facilities, NOa-255 ( June 21, 1943)[hereinafter Contract No. NOa-255]; U.S. Dep’t of Navy, Contract for Plant Facilities,NOa-1031 (Nov. 16, 1943) [hereinafter Contract No. NOa-1031]; U.S. Dep’t of Navy, Con-tract for Plant Facilities, NOa-1024 (Nov. 30, 1943) [hereinafter Contract No. NOa-1024];U.S. Dep’t of Navy, Contract for Plant Facilities, NOa-1045 ( July 18, 1944) [hereinafter Con-tract No. NOa-1045] [hereinafter CPF Contracts].188. This provision was initially promulgated at 32 C.F.R. §§ 7.702-2 and 7.703-2. See 32

C.F.R. § 7.702-2 (1965) (“The Contractor . . . shall acquire, construct, or install the Facilities,and perform the work related thereto, described in the Schedule.”); 29 Fed. Reg. at 14,823; seealso 32 C.F.R. § 7.703 (1965). The 1964 variant of 32 C.F.R. §§ 7.702-2 and 7.703-2 remainedunchanged throughout the history of the ASPR and the DAR. See 32 C.F.R. §§ 7-702.2, 7-703.2(1983) (containing final issuance of the DAR under the Code of Federal Regulations, incorpo-rating 1964 variant of §§ 7.702-2 and 7.703-2). A virtually identical provision was incorporatedinto the FAR when it was first promulgated in 1984, which remained substantively unchangeduntil it was removed and reserved on May 15, 2007. FAR 52.245-10(b) (1984) (containing theinitial FAR provision for Facilities Acquisition contracts: “The Contractor . . . shall acquire,construct, or install the facilities and perform the related work as described in the Schedule.”);see also 48 Fed. Reg. 42,587 (Sept. 19, 1983) (containing initial promulgation of FAR 52.245-10);72 Fed. Reg. 27,364 (May 15, 2007) (removing and reserving FAR 52.245-10). The ASPR used aX.XXX-XX citation format until the 1976 edition of the Code of Federal Regulations, at whichpoint the format changed to X-XXX.XX until the promulgation of the FAR in 1984. Compare,e.g., 32 C.F.R. pt. 7 (1976) with 32 C.F.R. pt. 7 (1974).189. 1946 SUMMARY OF FACILITIES CONTRACTS 4 (1946) (summarizing of key terms from

NWIRP No. 464 construction contracts following World War II).190. CPF Contracts, supra note 187, at 49 (“All items of the Plant Facilities, other than Civil

Works . . . shall be . . . called the Machinery, and shall be acquired and installed in accordance


equipment is precisely specified—often down to the manufacturer and modelnumber—and includes equipment that require or directly relate to the use(and potential release) of hazardous substances: furnaces, salt baths, chemicalstorage tanks, acid proof bricks and cement, and even trichloroethylene(TCE) degreasers.191

The government reinforced these “specifications” requirements with a se-ries of related provisions concerning changes, inspections, and approvals.First, Facilities Acquisition contracts largely prohibited the GOCO contrac-tor from making any changes or alterations to the GOCO’s design specifica-tions without the prior written consent of the government.192 Second, theUnited States ensured it had virtually unlimited inspection and supervisionrights with respect to its GOCO facilities.193 Finally, the United States

with the lists and descriptions in Appendix A. . . .”). The EPF Contracts broadly define “Emer-gency Plant Facilities” to include all work performed under each Emergency Plant FacilitiesContract, which includes the acquisition and installation of industrial equipment specified in Ap-pendix A to each EPF Contract.191. See, e.g., Contract No. DANOa-10, supra note 186 (App’x A) (specifying purchase of De-

trex model 800 trichloroethylene (TCE) degreaser); Emergency Plant Facilities Contract, NOa-125, supra note 187 (App’x A) (specifying purchase of two Detrex model 800 TCE degreasers).192. See, e.g., CPF Contracts, supra note 187, at 49 (“The Contractor may at any time make

changes in Appendix A with the written consent of the Contracting Officer.”); EPF Contracts, supranote 187, at 2 (“The Contractor may at any time make changes in, additions to or deletions fromthe drawings, specifications and lists of machinery . . . provided that . . . if any such change . . . willcause substantial delay . . . or will result in an [increase in] cost . . . the written consent of theContracting Officer to such change . . . shall be obtained.”). A similar clause was mandated bythe ASPR. 32 C.F.R. §§ 7.702-4, 7.703-4 (1965) (containing ASPR-required “Changes” clausefor Facilities Acquisition contracts providing only for changes to the Facilities or Scheduleas directed by the government’s Contracting Officer); 29 Fed. Reg. at 14,822. This ASPR pro-vision remained unchanged throughout the history of the ASPR and the DAR. See 32 C.F.R.§§ 7-702.4, 7-703.4 (1983) (containing final promulgation of DAR incorporating 1964 variantof ASPR 7.702-4, 7.703-4). Substantively similar clauses were incorporated into the FAR andremain in effect today. FAR 52.243-1, 52.243-2 (1984) (containing “Changes” clauses forFixed Price and Cost Reimbursement contracts).193. See, e.g., EPF Contracts, supra note 187, at 20 (“The Contracting Officer . . . shall at all

times be afforded proper facilities for inspection of the Emergency Plant Facilities, both duringand after construction, and shall at all reasonable times have access to the premises, work andmaterials. . . .”); CPF Contracts, supra note 187, at 5 (“From time to time as the acquisition,construction and installation of the Plant Facilities proceeds, the said facilities shall be inspected,and accepted or rejected on behalf of the Department . . . by the Inspector of Naval Aircraft, and. . . by the Officer-in-Charge.”). The ASPR mandated the use of a similar clause in all Consol-idated Facilities and Facilities Acquisition contracts. 32 C.F.R. §§ 7.703-6, 7.702-6(a) (1965)(containing ASPR-required “Inspection” clause for Facilities Acquisition contracts stating,“The Facilities and work called for by this contract shall be subject to inspection and test bythe Government.”); 29 Fed. Reg. at 14,823. This clause was retained throughout the historyof the ASPR and the DAR. See 32 C.F.R. §§ 7-702.6(a), 7-703.6 (1983) (containing final promul-gation of the DAR incorporating 1964 variant of ASPR 7.703-6, 7.702-6(a)). The most notablechange in this provision came with the initial promulgation of the FAR in 1984, which placed amuch more significant inspection burden on the contractor (rather than the government) to en-sure compliance with contract requirements. FAR 52.246-12 (1984) (containing Inspection ofFacilities and Inspection of Construction clauses, respectively, providing, “The Contractorshall maintain an adequate inspection system and perform such inspections as will ensure thatthe work . . . conforms to contract requirements.”); 48 Fed. Reg. 42,598 (Sept. 19, 1983). How-ever, the government continued to retain broad inspection and supervision rights to ensure fa-cilities constructed with U.S. funds “strictly compl[ied]” with government requirements. Id.


expressly reserved to itself the right to “approve” of the GOCO facilitiesboth during and after construction.194

While these contract clauses provided the United States with exceptionalcontrol over the design and construction of GOCO facilities, there remainedthe possibility that a GOCO contractor would alter the GOCO facilitiesafter they were initially constructed or acquired. The government mitigatedthis possibility through its Consolidated Facilities and Facilities Use con-tracts.195 These contracts commonly include provisions that prohibited thecontractor from altering virtually any aspect of the GOCO facilities withoutthe government’s prior, express approval.196

These facilities contract provisions raise a number of challenges for theU.S. government in shifting the expense of environmental remediation atGOCO facilities onto its former GOCO contractors. First, the government

(“All work shall be conducted under the general direction of the Contracting Officer and is sub-ject to Government inspection and test at all places and at all reasonable times before acceptanceto ensure strict compliance with the terms of the contract.”). These provisions remained in effectuntil the 2007 revision to the FAR, although certain inspection rights remained. 72 Fed. Reg.27,364, 27,381, 27,394 (May 15, 2007) (removing and reserving FAR 52.246-10, but retainingFAR 52.246-12); FAR 52.245-1(g) (providing government inspection rights with respect to“property management plan[s], systems, procedures, records, and supporting documentationthat pertains to Government property . . . includ[ing] all site locations.”).194. See, e.g., CPF Contracts, supra note 187, at 2 (“The acquisition, construction and instal-

lation . . . of land, land improvements, buildings, building improvements and building installa-tions . . . shall be subject to approval and supervision by an Officer-in-Charge . . . ; this includesapproval of plans and specifications, costs, subcontractors, subcontracts, architects, engineersand fees.”); Contract No. NOa-45, supra note 187, at 3; Contract No. NOa-125, supra note187, at 3 (“[N]one of the items of the Emergency Plant Facilities shall be acquired, constructed,or installed unless the Contracting Officer . . . shall have first approved the plans and specifica-tions therefore, the purchase price thereof, the subcontractor supplying or constructing thesame, and the terms of any subcontract. . . .”). Similar mandatory clauses were incorporatedinto the ASPR and remained unchanged through the DAR. 32 C.F.R. §§ 7.703-6, 7.702-6(b)(1965) (containing ASPR-required “Inspection” clause for Consolidated Facilities and FacilitiesAcquisition contracts, stating, “The Contracting Officer may at any time require the Contractorto remedy . . . any Facilities or work which are defective or otherwise not in conformity with therequirements of this contract.”); 29 Fed. Reg. at 14,823; see also 32 C.F.R. §§ 7-702.6(b), 7-703.6,(1983) (containing final promulgation of the DAR incorporating 1964 variant of ASPR 7.703-6,7.702-6(b)). The FAR does not include a separate contract provision regarding government “ap-proval” (beyond FAR 52.246-10 and 52.246-12, discussed supra note 167), but instead condi-tions payment upon final acceptance by the government. See FAR 46.501 (1984); 29 Fed.Reg. at 14,823; see also FAR 46.501 (2007).195. See generally 32 C.F.R. §§ 7-702, 7-704 (1984) (containing ASPR and DAR Consolidated

Facilities and Facilities Use contract provisions, respectively); FAR 52.245-9 (containing FARUse and Charges contract provisions).196. See, e.g., U.S. Dep’t of Navy, Facilities Management Contract, NOw 6116-u, at 12

(Apr. 1, 1963) [hereinafter Contract No. NOw 6116-u] (“The Contractor shall not constructor make . . . any Civil Works improvement to buildings or land owned or leased by the Govern-ment, or any Civil Works alteration . . . until such letter agreement . . . shall have been executedby both parties. . . .”); 32 C.F.R. § 7.705-7(a) (1965) (containing optional ASPR provision forFacilities Use contracts stating, “The Contractor shall not construct or make, at its expense,any fixed improvement to, or structural alteration in the nature of, buildings or land ownedor leased by the Government, without prior written approval of the Contracting Officer.”);32 C.F.R. § 7-705.7 (1983) (containing identical DAR provision); FAR 52.245-7(d)(7) (1984);but see 72 Fed. Reg. 27,364, 27,383 (May 15, 2007) (removing and reserving FAR 52.245-7).


cannot credibly disclaim knowledge of the industrial waste practices of itsGOCO facilities because the industrial waste-processing infrastructure liter-ally had been designed by the contractor and approved by the governmentbefore, during, and after construction.197 Second, the government cannotfairly blame its contractors for not changing the industrial process designsat GOCO facilities on their own because the government expressly forbadeits contractors from making any such changes without its prior written ap-proval.198 Finally, the United States cannot blame its contractors for failingto bring industrial waste processing deficiencies to its attention because thegovernment ensured it had extensive access and inspection rights over itsGOCO facilities at all times.199 In combination, these facility contract pro-visions ensured that the government had nearly absolute power over itsGOCO facilities. These same provisions—which, in many cases, were stillprescribed under the FAR until at least 2007—help demonstrate that theU.S. government assumed the risk and responsibility for facility-related en-vironmental contamination at GOCO facilities.

2. Facilities Contracts: Title

GOCO facilities contracts routinely state that the government holds legaltitle to GOCO facilities.200 This is hardly notable—after all, the UnitedStates did pay for these “government-owned” facilities. What is notable,however, is the breadth of these title-vesting clauses. In many cases, the gov-ernment takes title not only in the GOCO facilities as they exist, but also toany future changes, additions, or alterations to the facilities, and to any otheritem or component (such as industrial equipment) that is reimbursed undergovernment contracts in connection with the facilities.201 Contractors havepointed to the government’s extensive ownership rights in GOCO facilitiesto argue that the government, rather than the contractor, should bear a sig-nificant allocation of environmental responsibility under CERCLA.202

197. Contract No. NOw 6116-u, supra note 196, at 12.198. Id.199. Id.200. CPF Contracts, supra note 187, at 5; 32 C.F.R. §§ 7.702-15, 7.703-12, 7.704-9 (1965)

(containing ASPR mandatory “title” clauses for Consolidated Facilities, Facilities Acquisition,and Facilities Use contracts, respectively, in first promulgation of facilities contract clausesunder the ASPR); 32 C.F.R. §§ 7-702.15, 7-703.12, 7-704.9 (1983); FAR 52.245-7(d), 52.245-10(c), 52.245-11(c) (1984); FAR 52.245-1(e); see also 32 C.F.R. § 13.405 (1954) (containing gen-eral ASPR policy requiring unspecified contract provision for all Facilities contracts retainingtitle in the government or transfers title to the government “at the earliest practicable time”);17 Fed. Reg. 11,315, 11,315–16 (Dec. 13, 1952).201. See 17 Fed. Reg. at 11,317.202. See generally Cadillac Fairview/Cal., Inc. v. Dow Chem. Co., Nos. 83–8034 MRP, 93–

7996 MRP, 1997 WL 149196, at *19 (C.D. Cal. Feb. 21, 1997) (holding the United States “re-sponsible for any share of the response costs under CERCLA which might otherwise be attrib-utable to the Rubber Companies”).


3. Facilities Contracts: Allocation of Risk

The government recognizes that there are certain risks associated with theuse of industrial facilities. Facilities may be damaged or destroyed over time,and industrial processes may harm neighbors or other third parties. Govern-ment regulations require the use of three related contract provisions to allo-cate responsibility for these risks at GOCO facilities.203 The first provision isthe “Liability for the Facilities” clause: “The Contractor shall not be liablefor any loss of or damage to the Facilities, or for expenses incidental tosuch loss or damage. . . .”204 As stated, this mandatory clause allocates therisk of loss of or damage to the GOCO facilities to the government—notthe contractor. There are, however, three general exceptions: (a) loss or dam-age caused by the willful misconduct or lack of good faith of the contractor’sofficers, directors, or senior managerial employees;205 (b) loss or damagethat the contractor is otherwise responsible for under the terms of thecontract;206 and (c) loss or damage for which the contractor is insured or

203. See, e.g., 32 C.F.R. § 7.702-18 (1965).204. 32 C.F.R. §§ 7.702-18, 7.703-16, 7.704-14 (1965) (containing mandatory ASPR “Liabil-

ity for the Facilities” clause for Consolidated Facilities, Facilities Acquisition, and Facilities Usecontracts, respectively); 32 C.F.R. §§ 7.702-18, 7.703-14, 7.704-14 (1972) (September 1970amendment); 32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1979) (October 1976 amendment);32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1983); FAR 52.245-8(b) (1984); see also 29 Fed.Reg. 14,813, 14,826 (Oct. 31, 1964) (containing initial promulgation of Facilities Contract pro-visions); Armed Services Procurement Regulations, 36 Fed. Reg. 7887, 7935 (Apr. 28, 1971) (tobe codified at 32 C.F.R. pt. 7) (September 1970 amendment); 48 Fed. Reg. 42,585–86 (Sept. 19,1983) (containing initial FAR promulgation of clause); 60 Fed. Reg. 48,218 (Sept. 18, 1995)(containing non-substantive amendment to all contract clauses in FAR part 52); Federal Acqui-sition Regulation; Certification Requirements, 62 Fed. Reg. 233, 239 ( Jan. 2, 1997) (amendingportion of subsection (f ) concerning evidence of insurance); Federal Acquisition Regulation;FAR Case 2004-025, Government Property, 72 Fed. Reg. 27,364, 27,384 (May 15, 2007) (re-moving and reserving clause). Substantially similar variants of this clause are also found inpre-ASPR facilities contracts. See, e.g., CPF Contracts, supra note 187, at 6 (“The Contractorshall not be responsible to the Department for any loss of or damage to the Plant Facilities . . .whether or not caused by the negligence of the Contractor, its agents, servants or employ-ees. . . .”); U.S. Dep’t of Navy, Agreement Amending Emergency Plant Facilities ContractNo. Noa-45, at 4 (May 11, 1944) [hereinafter Amended Contract No. Noa-45] (“The Govern-ment assumes the risk of loss of or damage to the Emergency Plant Facilities, whether or notcaused by the negligence of the Contractor, its agents, servants or employees, including expensesincidental to such loss or damage. . . .”); Contract No. NOw 6116-u, supra note 196, at 4 (“TheContractor shall not be liable for loss of or damage to the Facilities, or for expenses incidental tosuch loss or damage.”).205. For purposes of this article and ease of reference, “senior managerial employees” refers

to:

managers, superintendents, or other equivalent representatives, who [have] supervision or di-rection of (A) all or substantially all of the Contractor’s business; or (B) all or substantially allof the Contractor’s operations at any one plant or separate location, in which the Facilities areinstalled or located; or (C) a separate and complete major industrial operation in connectionwith which the Facilities are used.

32 C.F.R. § 7.702-18(a)(i) (1965) (defining ASPR); see also 32 C.F.R. § 7-702.18(a)(i) (1983)(identical DAR definition); FAR 52.245-8(c) (1984).206. 41 C.F.R. § 3-56.713 (1974).


expressly required to be insured under the terms of the contract.207 Theseexceptions raise two important points.

The first point concerns the scope of the exception relating to willful mis-conduct or lack of good faith. By the plain language of the government’s “Li-ability for the Facilities” clause, mere negligence on the part of the contrac-tor does not shift the risk of loss from the government to the contractor.208

Likewise, even willful misconduct or lack of good faith by the contractor’slow-level employees will not shift the risk of loss to the contractor, unlessthat misconduct or lack of good faith is by one of the contractor’s officers,directors, or senior managerial employees.209 This is a remarkably narrowexception, which effectively places the risk of any loss to the facilities onthe government—unless that loss is caused by (a) the willful misconduct orlack of good faith of (b) a handful of the contractor’s most senior officers,directors, and managerial personnel.

The second point concerns the “insurance” exception, which shifts therisk of loss for the facilities back to the contractor if the loss was insuredor should have been insured pursuant to the contract.210 While this clausehas the potential to narrow the government’s allocation of risk for facilitiesloss, the government largely eliminated this exception through anotherclause in the “Liability for the Facilities” provision: “Unless expressly di-rected in writing by the Contracting Officer[], the Contractor shall not in-clude as an element of price or cost under any contract with the Governmentany amount on account of the cost of insurance (including self-insurance)against any form of loss or damage to the Facilities. . . .”211

207. 32 C.F.R. §§ 7.702-18(a)(iv)–(v), 7.703-16, 7.704-14 (1965); 32 C.F.R. §§ 7.702-18,7.703-14, 7.704-14 (1972) (containing September 1970 amendment to include conclusive pre-sumption against contractor following notification by Contracting Officer to contractor’s offi-cers, directors, or similar high-level supervisory personnel of disapproval of contractor’s “Main-tenance” or “Property Control” programs); 32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1979)(October 1976 amendment); 32 C.F.R. §§ 7-702.18, 7-703.14, 7-704.14 (1983); FAR 52.245-8(c) (1984); see also sources cited supra note 204. Similar exceptions are contained in contractsexecuted prior to the ASPR. See, e.g., CPF Contracts, supra note 187, at 6; Amended ContractNo. NOa-45, supra note 204, at 4.208. See 32 C.F.R. § 7-702.18 (1965).209. Id. § 7.702-18(a)(i).210. Id. § 7.702-18(a)(iii)–(iv).211. Id. §§ 7.702-18(c), 7.703-16, 7.704-14; 32 C.F.R. §§ 7-702.18(c), 7-703.14, 7-704.14

(1983); FAR 52.245-8(f ) (1984); see also 29 Fed. Reg. at 14,826 (containing initial promulgationof Facilities Contract provisions); 48 Fed. Reg. at 42,585–86 (containing initial FAR promulga-tion of clause); 60 Fed. Reg. at 48,218 (containing non-substantive amendment to all contractclauses in FAR part 52); 62 Fed. Reg. at 239 (amending portion of subsection (f ) concerningevidence of insurance); 72 Fed. Reg. at 27,384 (removing and reserving clause). Pre-ASPR facil-ities contracts often were even more explicit:

The Government hereby requests the Contractor not to carry or incur the expense of, anyinsurance against any form of loss of or damage to the Emergency Plant Facilities during theownership thereof by the Government. . . . The Contractor agrees that if any insuranceagainst any form of loss of or damage to Emergency Plant Facilities shall be carried by theContractor . . . no cost of such insurance . . . will be charged directly or indirectly to the Gov-ernment. . . .


Simply put, the contractor could obtain insurance coverage for the gov-ernment’s facilities—but the government refused to pay for it. In practice,the government did not require its contractors to obtain comprehensive gen-eral liability insurance coverage over government-owned property.212 Thispractice was the result of a broader policy by the government to self-insuregovernment-owned property (including GOCO facilities), believing thatsuch an approach would ultimately reduce the cost of goods.213 The govern-ment continued its self-insurance policy through at least the 2000s.214

The issue of insurance leads to the second government-mandated Facili-ties Contract provision relating to allocation of risk: the “Insurance; Liabilityto Third Persons” clause: “The Contractor shall procure and thereaftermaintain workmen’s compensation employer’s liability, comprehensive gen-eral liability (bodily injury) and comprehensive automobile liability (bodilyinjury and property damage) insurance with respect to performance underthis contract. . . .”215 As discussed above, the government has long favoreda policy of self-insuring government-owned property. The “Insurance; Lia-bility to Third Persons” clause provides a limited exception to that policywith respect to certain third-party injuries. This exception is limited in the

Amended Contract No. NOa-45, supra note 204, at 4 (amending article 3(b) of Contract No.NOa-45); U.S. Dep’t of Navy, Agreement Amending Emergency Plant Facilities ContractNo. DANOd-2377 (Apr. 28, 1943) [Amended Contract No. DANOd-2377]; see also CPF Con-tracts, supra note 187, at 6.212. See generally 32 C.F.R. § 7.702-18 (1965) (containing all ASPR-required Facilities Con-

tract provisions, none of which requires the contractor to obtain comprehensive insurance cov-erage over the government facilities); 32 C.F.R. §§ 7-702.18 (1983) (same under the DAR);FAR 52.245 (1984).213. See, e.g., U.S. COMPTROLLER GEN., PSAD-75-105, EXTENDING THE GOVERNMENT’S POL-

ICY OF SELF-INSURANCE IN CERTAIN INSTANCES COULD RESULT IN GREAT SAVINGS 1, 9–11 (1975)(discussing the government’s—and specifically the DoD’s—“long-established policy for self-insuring its property” and proposing that the policy be extended to achieve additional cost sav-ings); see also, e.g., Fed. Housing Admin., Comp. Gen. B-7067, at 800 (Comp. Gen. Mar. 20,1940) (reciting government-wide self-insurance policy in context of Federal Housing Authorityrequest in 1940); D.C. GEN. ACCOUNTING OFF., B-287209, PURCHASE OF COMMERCIAL INSUR-

ANCE AGAINST CATASTROPHIC RISKS 1–2 (2002) (reciting government-wide self-insurance policyin 2002).214. See U.S. COMPTROLLER GEN., supra note 213, at 34.215. 32 C.F.R. §§ 7.203-22(a), 7.702-19, 7.703-15 (1965) (containing ASPR clauses for Con-

solidated Facilities and Facilities Acquisition contracts); 32 C.F.R. § 7.203-22(a) (1968) (1966amendment); 32 C.F.R. §§ 7-203.22(a), 7-702.19, 7-703.15 (1983); FAR 52.228-7, 52.245-7( j),52.245-10(f ) (1984) (containing FAR Consolidated Facilities and Facilities Acquisition contractprovisions); see also 29 Fed. Reg. at 14,827 (containing initial promulgation of Facilities Contractprovisions); 32 Fed. Reg. 5508 (Apr. 4, 1967) (containing substantially similar December 1966amendment to § 7.203-22); 48 Fed. Reg. at 42,544 (containing initial FAR promulgation);55 Fed. Reg. 52,799 (Dec. 21, 1990) (amending FAR 52.228-7 to allow agencies to set limitson indemnification); 60 Fed. Reg. at 48,218 (containing non-substantive amendment to all con-tract clauses in FAR part 52); Federal Acquisition Regulation; Subcontracting Plans, 61 Fed.Reg. 2638, 2639 (Jan. 26, 1996) (removing two “alternate” provisions from FAR 52.228-7 that ap-plied to contractors with partial or complete tort immunity, and corresponding non-substantiveamendments to FAR 52.245-7 and 52.245-10); 70 Fed. Reg. 43,583 ( July 27, 2005) (correctingtypographical error in FAR 52.245-10); 72 Fed. Reg. at 27,382 (removing and reservingFAR 52.245-7 and 52.245-10).


context of environmental remediation actions, where the “injury” is typicallyto property rather than person.216

In accordance with the government’s general policy in favor of self-insurance, this third-party liability provision allocates the uninsured risk ofthird-party loss to the government:

The Contractor shall be reimbursed . . . (ii) for liabilities to third persons for lossor damage to property . . . or for death or bodily injury, not compensated by in-surance or otherwise, arising out of the performance of this contract, whether ornot caused by the negligence of the Contractor, its agents, servants, or employ-ees . . . and expenses incidental to such liabilities. . . .217

Under the terms of this government-mandated clause, the contractor is en-titled to contractual reimbursement for any liability it may suffer to a thirdparty that is not compensated by insurance. As with the standard “Liabilityfor the Facilities” clause, there are exceptions for (a) loss or damage causedby the willful misconduct or lack of good faith of the contractor’s officers,directors, or senior managerial employees;218 (b) loss or damage that thecontractor is otherwise responsible for under the terms of the contract;219

and (c) loss or damage for which the contractor is insured or expressly re-quired to be insured under the terms of the contract.220 Unlike the “Liabilityfor the Facilities” clause, the “Insurance—Liabilities to Third Persons”clause plainly states that the contractor is entitled to reimbursement forsuch liabilities even if they result from the contractor’s negligence.221

The third government-mandated Facilities Contract clause relevant to theallocation of risk is the “Indemnification of the Government” clause:

216. It is worth emphasizing that the “Insurance—Liability to Third Persons” clause is not arequired (or optional) clause in Facilities Use contracts. See 32 C.F.R. § 7.704 (1965); 32 C.F.R.§ 7-704 (1983); FAR 52.245-11 (1984). Third-party injuries arising from use of the facilitiesunder a Facilities Use contract are addressed in the “Indemnification of the Government” con-tract provision, discussed infra Part IV.D.3.217. 32 C.F.R. § 7.203-22(c) (1965); 32 C.F.R. § 7.702-19 (1965) (containing ASPR clause

for Consolidated Facilities and Facilities Acquisition contracts, cross-referencing ASPR 7.203-22); 32 C.F.R. § 7.203-22(c) (1968); 32 C.F.R. §§ 7-203.22(c), 7-702.19, 7-703.15 (1983);FAR 52.228-7, 52.245-7( j), 52.245-10(f ) (1984); see also 29 Fed. Reg. at 14,827 (containing ini-tial promulgation of Facilities Contract provisions); 32 Fed. Reg. at 5508 (containing substan-tially similar December 1966 amendment to § 7.203-22); 48 Fed. Reg. at 42,544 (containing ini-tial FAR promulgation); 55 Fed. Reg. at 52,799 (amending FAR 52.228-7 to allow agencies toset limits on indemnification); 60 Fed. Reg. at 48,218 (containing non-substantive amendmentto all contract clauses in FAR part 52); 61 Fed. Reg. at 2639 (removing two “alternate” provi-sions from FAR 52.228-7 that applied to contractors with partial or complete tort immunity, andcorresponding non-substantive amendments to FAR 52.245-7 and 52.245-10).218. FAR 52.228-7(e)(3).219. FAR 52.228-7(e)(1).220. 61 Fed. Reg. at 2639.221. “The Contractor shall be reimbursed . . . for liabilities to third persons . . . whether or not

caused by the negligence of the Contractor, its agents, servants, or employees. . . .” 32 C.F.R.§ 7.203-22(a) (1965); 32 C.F.R. § 7-203.22 (1983) (identical DAR provision); FAR 52.228-7(c)(1984) (substantively similar FAR provision); see also sources cited supra note 217; 70 Fed. Reg.at 43,583 (correcting typographical error in FAR 52.245-10); 72 Fed. Reg. at 27,383 (May 15,2007) (removing and reserving FAR 52.245-7 and 52.245-10).


Except as provided in the “Insurance—Liability to Third Persons” clause, theContractor shall indemnify and hold the Government harmless against claimsfor injury to persons or damage to property of the Contractor or others arisingfrom the Contractor’s possession or use of the Facilities. However, the provisionsof the Contractor’s related procurement contracts shall govern the Government’sassumption of liability for such claims arising out of or related to the performanceof each such related procurement contract and involving the possession or use ofthe facilities.222

Generally, this clause allocates the risk of third-party injury arising out of“possession or use” of the facilities to the contractor, subject to two keyexceptions. First, in the case of Consolidated Facilities and Facilities Acqui-sition contracts, this clause is expressly subordinate to the “Insurance—Liability to Third Persons” clause described above, which generally requiresgovernment reimbursement of contractor liabilities incurred in the perfor-mance of the contract that are not covered by insurance.223 To the extentthis clause has any meaning in such contracts, it appears limited to third-party injuries occasioned by “possession or use” of the facilities that is notconnected with the performance of the underlying Facilities Contract.

Second—and most importantly for most GOCO contractors—the “Indem-nification of the Government” clause does not require the contractor to indem-nify the government for third-party injuries when the government’s facilitiesare being used in the performance of a government procurement contract.224

Commercial work performed at a GOCO facility is another story. Commercialwork could generally not exceed 25 percent of the workload at a GOCO.225 Asdiscussed below, government procurement regulations routinely allocate the

222. 32 C.F.R. §§ 7.702-20, 7.703-16, 7.704-15 (1965) (containing ASPR clauses for Consol-idated Facilities, Facilities Acquisition, and Facilities Use contracts, respectively, with the “In-surance—Liability to Third Persons” reference deleted from the Facilities Use clause); 32C.F.R. §§ 7-702.20, 7-703.16, 7-704.15 (1983); FAR 52.245-7( j), 52.245-10(f ), 52.245-11(i)(1984); see also 48 Fed. Reg. at 42,583–84, 42,587, 42,588–89 (containing initial FAR promulga-tion); 50 Fed. Reg. 26,904 ( June 28, 1985) (containing non-substantive amendment to FAR52.245-11); 60 Fed. Reg. at 48,218 (containing non-substantive amendment to all contractclauses in FAR part 52); 61 Fed. Reg. at 2639 (removing two “alternate” provisions fromFAR 52.228-7 that applied to contractors with partial or complete tort immunity, and corre-sponding non-substantive amendments to FAR 52.245-7 and 52.245-10); Federal AcquisitionRegulation; Geographic Use of the Term “United States,” 68 Fed. Reg. 28,079, 28,087(May 22, 2003) (containing non-substantive amendment to FAR 52.245-11); 70 Fed. Reg. at43,583 (correcting section references in FAR 52.245-10 and 52.245-11); 72 Fed. Reg. at27,383 (removing and reserving FAR 52.245-7, 52.245-10, and 52.245-11).223. See, e.g., compare 32 C.F.R. § 7.203-22(c) (1968) with 32 C.F.R. § 7.702-20 (1965).224. 32 C.F.R. § 7.702-20 (1964) (stating that indemnification is not required in areas gov-

erned by an “Insurance—Liability to Third Persons” clause)225. 32 C.F.R. §§ 7.702-23, 7.704-16 (1965) (containing ASPR “Notice of use of the facili-

ties” clauses for Consolidated Facilities and Facilities Use contracts, respectively, stating, “TheContractor shall notify the Contracting Officer in writing whenever: (i) use of the Facilities forGovernment work is less than seventy-five percent (75%) of the total use of the Facilities. . . .”);32 C.F.R. §§ 7-702.23, 7-704.16 (1983) (containing substantially similar DAR clauses); FAR52.245-7(f ), 52.245-11(e) (1984) (containing FAR clauses identical to DAR clauses); see also 72Fed. Reg. at 27,364 (removing and reserving FAR 52.245-7 and 52.245-11); FAR 52.245-9(c)(authorizing commercial use of government facilities without limitation, but subject to rentalcharge and government right to terminate such use at any time).


risk of third-party loss arising out of the performance of government procure-ment contracts to the government, not the contractor.226

In combination, these three government-mandated provisions allocatingrisks for Facilities Contracts demonstrate the allocation of such risks tothe government. Subject to certain very limited exceptions, the risks of (a) fa-cilities loss or damage, and (b) liability for third-party injuries arising out ofthe performance of Facilities Contracts rest with the government rather thanthe contractor. The only risk clearly allocated to the contractor is the risk ofliability for third-party injuries arising out of possession and use of the facil-ities, but even that allocation is limited to the contractor’s use of the facilitiesfor purely commercial purposes—a situation that should account for nomore than 25 percent of a typical GOCO facility’s historical industrial man-ufacturing. This allocation of virtually all facility-related risks to the govern-ment is not surprising in light of the government’s desire to keep its cost ofgoods low and its attendant policy of self-insuring government property. Asthe practical embodiment of that policy, these contract provisions reflect acarefully bargained-for exchange between the government and its GOCOcontractors: the GOCO contractors would further reduce the cost ofgoods produced at GOCO facilities by avoiding the expense of most insur-ance, but, in return, the government had to assume the insurable risk of fa-cility loss or damage as well as the risk of liabilities to third parties occa-sioned by the performance of government contracts.

The crucial legal question is whether these mandatory “Allocation ofRisk” contract provisions apply toward legacy GOCO facility environmentalcontamination—and therefore relieve a GOCO contractor of liability forsuch contamination. In the only case to interpret any of these clauses todate, a contractor successfully invoked the “Liability for the Facilities”Clause in this fashion.227 In ConocoPhillips, the United States filed a CERCLAcost recovery action against the successor of its GOCO contractor at theNWIRP in McGregor, Texas, after the discovery of substantial soil andgroundwater contamination emanating from the GOCO site.228 The contrac-tor filed a motion to dismiss the government’s CERCLA action, arguing, inpart, that it was not liable because its operations were governed by a seriesof contracts that contained the “Liability for the Facilities” clause.229 Thecourt examined the clause in light of the governing procurement regulationsat that time (1951) and concluded that the clause is “broad enough . . . to pro-tect [the contractor] from liability under CERCLA.”230 Notably, the

226. See discussion infra Part.IV.E.2.227. See United States v. ConocoPhillips Co., No. W-11-CV-167, 2012 WL 4645616, at *8–9

(W.D. Tex. Sept. 30, 2012).228. Id. at *1, *5.229. Id. at *4–7. The ConocoPhillips clause is effectively identical to the other clauses recited in

this Part: “Contractor shall not be liable for any loss of or damage to the facilities provided here-under or for expenses incidental to such loss or damage. . . .” Id. at *7.230. See id. at *9.


ConocoPhilips court concluded that the “Liability for the Facilities” clause isbroad enough include liability for groundwater contamination that extendedoff-site from the GOCO facility.231

4. Facilities Contracts: Taxes

Another potentially important provision that may be found in pre-ASPRGOCO Facilities contracts (particularly those executed during WorldWar II) is the “Taxes” clause. Generally, this clause states that the U.S. gov-ernment will either exempt the GOCO contractor from liability for “taxes”or “charges” incurred in connection with use of the facility, or reimburse theGOCO contractor for such “taxes” or “charges.”232 Under the ASPR, DAR,and FAR, the nearest variant of the World War II-era “Taxes” clause is the“Federal, State, and Local Taxes” clause of government Procurement Con-tracts.233 The “Taxes” clauses are discussed further below in the context ofProcurement Contracts.234

5. Other Facilities Contracts

While the primary “Facilities Acquisition,” “Facilities Use,” and “Consol-idated Facilities” contracts are often the most important Facilities Contractsfor purposes of allocating bargained-for risk and environmental responsibil-ity, other facilities contracts may be useful in establishing certain key facts.For example, the U.S. government may enter into contracts concerningthe maintenance or capital improvement of its existing facilities.235 Thesecontracts may be embodied in a separate Facilities Contract,236 or theymay be a supplement or modification to a governing Facilities Use contract,or they may appear to be an entirely different contract, such as a FacilitiesMaintenance Contract.237 Whatever their title, these subsidiary facilitiescontracts may demonstrate the government’s continuing awareness of andresponsibility for the industrial waste infrastructure and processes that ser-vice a particular GOCO facility. Occasionally, these subsidiary facilities con-tracts may also contain valuable admissions against interest.238

231. Id.232. See, e.g., CPF Contracts, supra note 187, at 21. The ASPR, the DAR, and the FAR do

not contain standardized taxes provisions for Facilities contracts. See, e.g., 32 C.F.R.§§ 7.701–705-13 (1965); 32 C.F.R. §§ 7-702.12, 7-706.4 (1983); FAR 52.245 (1984).233. See, e.g., 32 C.F.R. §§ 7.103-10, 11.401 (1954); 32 C.F.R. § 11.401-2 (1976); FAR

52.299-3.234. See discussion infra Part IV.E.4.235. 32 C.F.R. § 7.701 (1965).236. W. NOEL KEYES, GOVERNMENT CONTRACTS UNDER THE FEDERAL ACQUISITION REGULA-

TION 1020 (3d ed. 2003); Jules M. Lipton, Contractual Arrangements Covering the Use of Govern-ment Property by Defense Contractors, 32 FORDHAM L. REV. 217, 224 (1963).237. See, e.g., Skip Kirchdorfer, Inc. v. United States, 14 Cl. Ct. 594, 597 (1988) (providing

example of of a facility maintenance contract because Skip Kirchdorfer, the contractor, wasawarded a contract by the Department of the Air Force to perform maintenance services atthe Patrick Air Force Base).238. See, e.g., U.S. Dep’t of Navy, N00019-91-E-9001, at 1–2 (Mar. 11, 1991) [hereinafter

Contract No. N00019-91-E-9001] (directing GOCO contractor to rehabilitate a portion of


E. Procurement Contracts

While Facilities Contracts generally address the construction and use ofGOCO facilities over time, GOCO Procurement Contracts are specificallydirected toward the production of particular goods by the contractor at aGOCO facility.239 Not all Procurement Contracts are of equal import be-cause a handful of Procurement Contracts may account for a significantpercentage—or even a significant majority—of all manufacturing operationsconducted at a GOCO facility.240

1. Procurement Contracts: “Government Property” Provision

The government tied its Facilities Contract clauses to GOCO Procure-ment Contracts through the mandatory use of the “Government Property”provision. As the name suggests, the Government Property provision gov-erns the use of government property in the performance of the ProcurementContract.241 The most important aspect of the “Government Property”

Navy Weapons Industrial Reserve Plant (NWIRP) 464 by “[r]eplac[ing] three undergroundstorage tanks that do not meet Environmental Protection Act requirements”); U.S. Dep’t ofNavy, Amendment/Modification No. P00009, N00019-95-E-0043, at 4 (Sept. 9, 1998) [herein-after Contract No. N00019-95-E-0043] (“Review of historical documents indicates that theContractor acted in good faith during the period of occupancy and prior to a change in environ-mental regulations.”).239. The ASPR refers to Procurement Contracts as “Supply Contracts” and divides such con-

tracts into “Fixed Price” and “Cost Reimbursement” contracts. See 32 C.F.R. §§ 7.100, 7.200(1965). Unless otherwise stated, the distinction between Fixed Price and Cost ReimbursementProcurement Contracts is not directly relevant to the clauses discussed in this part. Note, how-ever, that certain other clauses contained in Cost Reimbursement type contracts may supportcontractors seeking reimbursement for environmental remediation costs incurred in connectionwith such contracts. See, e.g., 32 C.F.R. § 7.203-4 (1954) (containing ASPR provision addressing“Allowable cost[s]” under Cost Reimbursement contracts); FAR 31.2 (discussing allowability).240. See Letter from L.B. Richardson, Contracting Officer, Bureau of Aeronautics, U.S.

Dep’t of Navy, to Grumman Aircraft Eng’g Corp. ( Jan. 4, 1944).241. 32 C.F.R. §§ 7.203-21, 13.503 (1954) (containing mandatory ASPR “Government Prop-

erty” clause for Cost Reimbursement-type Supply contracts, cross-referencing ASPR 13.503); 17Fed. Reg. 11,315 (Dec. 13, 1952) (containing initial promulgation of ASPR “Government Prop-erty” clause for Cost Reimbursement-type Supply contracts). The “Government Property” clausesfor Procurement contracts are some of the most commonly amended clauses in the ASPR andFAR, yet none of these amendments have a significant impact on the analysis presented in this ar-ticle. In the interest of brevity, this article will not detail the amendments to this provision forFixed Price contracts, which generally match amendments made to the corresponding Cost Reim-bursement contract provision. Amendments to this clause for Cost Reimbursement contracts in-clude: 32 C.F.R. §§ 7.203-21, 13.503 (1961) (May 1960 amendment); 32 C.F.R. §§ 7.203-21,13.503 (1962); 32 C.F.R. § 7.203-21 (1966) (February 1965 amendment); 32 C.F.R. § 7.203-21(1972) (September 1970 amendment); 32 C.F.R. § 7-203.21 (1983) (containing final publicationof the DAR, incorporating September 1970 amendment); FAR 52.245-5 (1984) (containing sub-stantially similar FAR “Government Property” clause for Cost Reimbursement contracts); 22 Fed.Reg. 11,040, 11,061 (Dec. 31, 1957) (containing December 1957 amendment to ASPR 13.503,amending paragraph (i) “to authorize the omission of inventory schedules for productionscrap”); 23 Fed. Reg. 6345, 6350 (Aug. 19, 1958) (containing August 1958 amendment toASPR 13.503, amending paragraph (b) to incorporate “title” guidance from the DoD 7800.6(Nov. 1, 1957), and paragraph (c) to fully incorporate the recordkeeping provisions of ASPR30.2; not separately published in the C.F.R.); 25 Fed. Reg. 14,283 (Dec. 31, 1960) (containingMay 1960 amendment to ASPR 13.503); 26 Fed. Reg. 5309 (June 14, 1961) (containing May1961 amendment to ASPR 13.503, amending paragraph (b) regarding title in manner not material


provision is that it extends not just to the government property (e.g., GOCOfacilities) provided to the contractor at the start of performance, but also toany other property acquired by the contractor in the course of performancefor which the government pays:

(b) Title to all property furnished by the Government shall remain in the Govern-ment. Title to all property purchased by the Contractor, for the cost of which theContractor is entitled to be reimbursed . . . shall pass to and vest in the Govern-ment upon delivery of such property by the vendor. Title to other property, thecost of which is reimbursable to the Contractor under this contract, shall passto and vest in the Government upon (i) issuance for use of such property in theperformance of this contract, or (ii) commencement of processing or use ofsuch property in the performance of this contract, or (iii) reimbursement of thecost thereof by the Government, whichever first occurs.242

As in GOCO Facilities Contracts, the government’s title to “governmentproperty” is not affected by its “incorporation or attachment” to any propertynot owned by the government, and the government retains broad “access”rights to the “government property.”

(c) Title to the Government property shall not be affected by the incorporation orattachment thereof to any property not owned by the Government . . . .

* * *

(g) The Government shall at all reasonable times have access to the premiseswhere any of the Government property is located.243

Likewise, the government expressly refuses to pay for any insurance coveragethat would protect against loss or damage to the “government property,” andit allocates the risk of loss or damage to itself:

(f ) (i) The Contractor shall not be liable for any loss of or damage to the Govern-ment property, or for expenses incidental to such loss or damage. . . .

(ii) The Contractor shall not be reimbursed for, and shall not include as an item ofoverhead, the cost of insurance, or any provision for a reserve, covering the risk ofloss of or damage to the Government property. . . .244

to discussion above); 26 Fed. Reg. 9641 (Oct. 12, 1961) (containing August 1961 amendment toASPR 13.503, amending paragraph (i) concerning inventory schedules due to Contracting Officerupon completion of contract); 30 Fed. Reg. 1736 (Feb. 9, 1965) (containing non-substantive No-vember 1964 amendment to ASPR 7.203-21 to cross reference § 13.703, and amendment to§ 13.703 to incorporate provisions previously at § 13.503); 36 Fed. Reg. 7887, 7934 (Apr. 28,1971) (to be codified at 32 C.F.R. pt. 7) (containing non-substantive September 1970 amendmentto ASPR 7.203-21 incorporating provisions previously at § 13.703 and revoking § 13.703); 48 Fed.Reg. 42,478, 42,581–83 (Sept. 19, 1983) (containing initial FAR promulgation); 50 Fed. Reg.26,904 (June 28, 1985) (containing non-substantive amendment); 55 Fed. Reg. 3889 (Feb. 5,1990) (containing non-substantive amendment to Alternate I language); 68 Fed. Reg. 28,079,28,087 (May 22, 2003) (containing non-substantive amendment); 69 Fed. Reg. 17,741, 17,748(Apr. 5, 2004) (containing amendments to paragraphs (i) and ( j) concerning scrap and abandon-ment procedures); 72 Fed. Reg. 27,364, 27,384 (May 15, 2007) (removing and reserving clause).242. 32 C.F.R. § 13.503(b) (1954).243. Id. § 13.503(c), (g).244. 32 C.F.R. § 13.503(f )(ii) (1954). This provision contains exceptions that are substantially

identical to the exceptions to the mandatory “Liability for the Facilities” provision in Facilities


The “title” aspects of this clause are particularly important in the contextof environmental contamination at GOCO sites. As drafted, this mandatoryASPR clause ensures that the government holds legal title to anything it paysfor—such as chemicals used in the industrial manufacturing process (e.g., thechemical compound TCE used for degreasing operations)—from the mo-ment it is delivered to or used by the contractor, if not earlier.245 Often,the government reinforces its ownership of these chemicals through theuse of supplemental provisions:

SECTION 22–TITLE AND IDENTIFICATION

The title to all materials, parts, assemblies, sub-assemblies, supplies, equipmentand other property for the cost of which the contractor is entitled to be reim-bursed hereunder, except property to which the Government shall already havetitle, shall automatically pass to and vest in the Government . . .

Such broad title-vesting protects the government if, for example, the con-tractor goes bankrupt before completing performance. The government pro-tects itself in such a scenario because it would obtain physical control of thematerials for which it paid and be in a position to redirect those government-owned materials to another contractor to provide the end product. However,this provision is broad enough to ensure the government also owns the haz-ardous chemicals used in the manufacturing process as well as the bypro-ducts and waste generated by that manufacturing process:

By virtue of the title-vesting provisions in its contracts for the manufacture of newrocket engines, the United States owned the “materials” allocated to the contracts.Once perchlorate was purchased and allocated . . . The United States held abso-lute title to and an ownership interest in this “material.”

* * *

The United States has not pointed to any clause in the title-vesting provisions thatexcepts “waste” from Government ownership. . . . The courts favor a literal inter-pretation of the title-vesting clause. . . . The Government’s argument—that it isnot liable because it did not own the perchlorate after it became “waste”—would create a loophole in the [CERCLA] statute that could be exploited byother polluters, who could easily contract for a shift in ownership.246

The government’s broad title clause is consistent with another commonlypaired provision concerning the disposal of “salvage or scrap” materials thatare not consumed in the course of manufacturing the end product but retainsome inherent value:

SECTION 22–TITLE AND IDENTIFICATION

(d) It is contemplated that all such property will be used by the contractor for theperformance of this contract or of other cost-plus-fixed-fee contracts with the

Contracts. Compare id. § 13.503(f ) (1954) with 32 C.F.R. §§ 7.702-18, 7.703-16, 7.704-14(1965).245. See, e.g., 32 C.F.R. § 13.503(b) (1954).246. American Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-01734, 2010 WL

2635768, at *28–29 (C.D. Cal. June 30, 2010).


Navy Department. However, as to any such property not immediately essential tothe performance of this contract, including salvage or scrap material, the contractorwith the written consent of the Bureau of Aeronautics Representative may, and atthe inspector’s written direction shall, sell, lend or transfer or otherwise dispose ofsuch property free and clear of any and all right, title or interest of the Govern-ment in and to the property transferred to such persons and upon such termsand conditions as the inspector may approve, ratify or direct. The proceeds, ifany, of any of such transfers and dispositions shall be retained by the contractorand . . . applied in reduction of payments otherwise due to the contractor. . . .247

This clause ensures that the contractor will not enjoy additional windfallprofits from the disposal of unused materials that have value. It is not, how-ever, a right for the government to convert unilaterally a U.S. liability, suchas chemical byproducts and process waste, into the contractor’s liability. Theproblem for the government is that, as with many other provisions discussedabove, all scrap disposal decisions remain in the hands of the government.The contractor must dispose of the unused scrap “materials” (with value)as directed or approved by the government.

These “materials” title-vesting clauses in Procurement Contracts are rele-vant to whether the government can be held liable as a CERCLA “ar-ranger.”248 The government cannot disclaim its ownership of the hazardoussubstances used in—or wastes generated by—the industrial processes usedto manufacture its goods. Likewise, the government cannot disclaim its author-ity over the hazardous materials—the contract language expressly vests dispo-sal decisions and ownership in the government. These clauses standing aloneare relevant to the CERCLA liability analysis for “arranger” liability.249

2. Procurement Contracts: Insurance; Liability to Third Persons

GOCO Procurement Contracts also mirror Facility Contract provisionsthrough the mandatory use of the “Insurance; Liability to Third Persons”clause:

(a) The Contractor shall procure and thereafter maintain workmen’s compensa-tion employer’s liability, comprehensive general liability (bodily injury) and com-prehensive automobile liability (bodily injury and property damage) insurancewith respect to performance under this contract. . . .

. . . .

(c) The Contractor shall be reimbursed . . . (ii) for liabilities to third persons forloss or damage to property . . . or for death or bodily injury, not compensated byinsurance or otherwise, arising out of the performance of this contract, whether or

247. U.S. Dep’t of Navy, Contract No. NOa(s)-1679, at 18 (Apr. 1, 1944) (emphasis added);see also U.S. Dep’t of Navy, Contract No. NOw(A) 65-0065-f, at 67 (Mar. 4, 1965) (containingsimilar clause in “Progress Payments” contract provision).248. See, e.g., Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 122 (D.D.C. 2014)

(explaining the elements of “arranger liability” analysis), aff ’d, 833 F.3d 225 (D.C. Cir. 2016).249. See, e.g., id. (explaining arranger liability requires ownership of the hazardous substances

as well as evidence that the government planned for, controlled, or took intentional steps to dis-pose of the substances).


not caused by the negligence of the Contractor, its agents, servants, or employees. . . and expenses incidental to such liabilities. . . .250

This is the exact same provision discussed previously in the context of Con-solidated Facilities and Facilities Acquisition contracts.251 Briefly, this clause(a) requires the contractor to obtain certain limited forms of insurance cov-ering third-party liability and (b) allocates the risk of uninsured third-partyliabilities to the government.

The government’s mandatory inclusion of this clause in its ProcurementContracts is important for two reasons. First, this provision completes theallocation of risk for GOCO facilities. While this provision was incorporatedby reference into Consolidated Facilities and Facilities Acquisition contracts,it was not incorporated into Facilities Use contracts. Instead, pursuant to the“Indemnification of the Government” provision, Facilities Use contracts al-locate the risk of third-party liability to the contractor, subject to the termsof any underlying Procurement Contract. The mandatory use of this pro-vision in Procurement Contracts ensures it is the government—not thecontractor—that bears the risk of third-party liabilities when GOCO facili-ties are used in the performance of government contracts. The contractorbears the risk of third-party liability when GOCO facilities are used in theperformance of purely commercial ventures.

Second, this clause preserves the government’s self-insurance policy forpurposes of its Procurement Contracts, thereby ensuring the U.S. govern-ment obtains its goods at the lowest possible cost. Just as the government re-fuses to pay for insurance coverage for third-party liabilities (beyond the lim-ited forms prescribed by regulation) under its Facilities Contracts, thegovernment also refuses to pay for such insurance for the use of its facilitiesin the performance of government Procurement Contracts. When combinedwith the government’s allocation of the risk of uninsured loss to itself, thesestandard contract clauses strongly discourage GOCO contractors from ob-taining comprehensive general liability insurance coverage—coverage thatwould have extended to environmental contamination.

250. 32 C.F.R. § 7.203-22 (1954); see also 32 C.F.R. § 7.203-22 (1965) ( January 1960 amend-ment); 32 C.F.R. § 7.203-22 (1968) (December 1966 amendment); 32 C.F.R. § 7-203.22 (1983)(incorporating ASPR December 1966 amendment); 17 Fed. Reg. 11,315, 11,316 (Dec. 13, 1952)(containing initial ASPR promulgation); 25 Fed. Reg. 14,075, 14,198 (Dec. 31, 1960); 32 Fed.Reg. 5508 (Apr. 4, 1967) (December 1966 amendment to subsection (c) not material to discus-sion above). This provision was modified under the FAR to allow for the possibility of govern-ment approval of additional forms of insurance and to limit the government’s exposure foruninsured third-party liabilities arising from contract performance to the availability of appro-priated funds. FAR 52.228-7 (1984) (containing “Insurance—Liability to Third Persons” provi-sion); see also 48 Fed. Reg. 42,544 (Sept. 19, 1983) (containing initial FAR promulgation);55 Fed. Reg. 52,799 (Dec. 21, 1990) (containing non-substantive amendment to introductory par-agraph); 61 Fed. Reg. 2639 (Jan. 26, 1996) (containing various non-substantive amendments).251. See discussion infra Part IV.D.3.


3. Design, Construction, Inspection, and Approval

Procurement Contracts typically require GOCO contractors to build therequisite products according to government design specifications:

SECTION 3–DESCRIPTION OF ITEMS AND SPECIFICATIONS

Item 1: Each airplane shall be furnished completely assembled and ready for flightin accordance with Specification SD-286-3 dated 30 September 1942 . . .252

As with Facilities Contracts, these design specification clauses are reinforcedwith additional provisions relating to changes, inspections, and approvals.

H-16 CONFIGURATION CONTROL–ENGINEERING CHANGES, DEVIA-TIONS AND WAIVERS–DOD-STD-480A (1979 DEC) (NAVAIR 7-104.89(A))(MOD)

(a) Any Engineering Change Proposal (ECP) . . . affecting an item being acquiredunder this contract shall be in accordance with DOD-STD-480A . . . .

(b) No Class I engineering change shall be implemented until authorized by theContracting Officer (CO) . . . .253

252. U.S. Dep’t of Navy, Contract No. NOa(s)-846, supra note 26, at 3; see also Contract No.NOw(A) 65-0065-F, supra note 247, at 3.253. U.S. Dep’t of Navy, Contract with Grumman Aerospace Corp., N00019-82-C-0125,

at 7-38 (Feb. 5, 1982) [hereinafter Contract No. N00019-82-C-0125]; see also Contract No.NOw(A) 65-0065-f, supra note 247, at 38; U.S. Dep’t of Navy, Contract No. F33657-70-C717, at 34 (Nov. 1, 1970) [hereinafter Contract No. F33657-70-C717] (similar). Acquisitionregulations include similar provisions that restrict “changes” to those authorized by the gov-ernment rather than the contractor. See, e.g., 32 C.F.R. §§ 7.103-2, 7.203-2 (1954) (containingASPR “Changes” provisions for Fixed Price and Cost Reimbursement Supply contracts, re-spectively, allowing changes by the “Contracting Officer”); 32 C.F.R. §§ 7.103-2, 7.203-2(1960) ( January 1958 amendments); 32 C.F.R. § 7.203-2 (1966) (November 1964 amend-ment); 32 C.F.R. § 7.203-2 (1968) (April 1967 amendment); 32 C.F.R. §§ 7-103.3, 7-203.2(1983) (incorporating January 1958 and April 1967 ASPR amendments, respectively); FAR52.243-1, 52.243-2 (1984) (containing FAR “Changes” provisions). See also 21 Fed. Reg.6403, 6410 (Aug. 25, 1956) (adding paragraph to ASPR 7.103-2 regarding “disposition of in-ventory resulting from changes”); 23 Fed. Reg. 3609, 3624 (May 27, 1958) (amending ASPR7.103-2 and 7.203-2); 23 Fed. Reg. 4719, 4734 ( June 27, 1958) (amending caption of ASPR7.103-2 and removing “Disposition of Inventory Resulting from Changes” paragraph); 28Fed. Reg. 4879, 4887 (May 16, 1963) (containing minor revision to § 7.203-2); 30 Fed.Reg. 1717, 1736 (Feb. 9, 1965) (containing November 1964 amendment to § 7.203-2); 32Fed. Reg. 517, 517 ( Jan. 18, 1967) (October 1966 amendment); 48 Fed. Reg. 42,572,42,572–73 (Sept. 19, 1983) (containing initial FAR promulgation); 52 Fed. Reg. 30,078,30,079 (Aug. 12, 1987) (reinstating ASPR requirement for contractor to assert its right toan adjustment); 54 Fed. Reg. 48,994, 48,995 (Nov. 28, 1989) (amending introductory textof alternate clause in FAR 52.243-1). The earliest promulgation of the “Changes” provisionemphasized the right and obligation of the government to maximize the use of governmentproperty in its procurement contracts: “In the interest of economy, the Government has abasic responsibility fully to utilize its property. Consistent therewith the Government has re-served the right in the above clause to make changes in the amount of Government-furnishedproperty, including the right to increase the amount of Government-furnished property.” 32C.F.R. § 7.203-2 (1954).


SECTION 3–INSPECTION

All materials and workmanship shall be subject to inspection and test by the Gov-ernment during manufacturing and at all other times and places . . . . Final inspec-tion and acceptance will be made at the point of delivery . . . .254

The cumulative effect of these provisions is that the government con-trolled (1) what products would be built at its GOCO facilities and(2) how those products would be built. The government’s control over theindustrial processes of its GOCO facilities was extensive. To provide one ex-ample, one contractor had to request permission from the Navy to apply onecoat of zinc chromate primer (rather than two) to the rivet heads of the air-craft it was producing.255 The government would be hard pressed to claimthat it did not know or could not control its GOCO contractors’ industrialpractices when it knew and controlled those processes literally down to theindividual screws.

4. Taxes

Government contracting regulations address the issue of taxes, which hasrecently become relevant to GOCO contamination matters. With respect toFixed Price Contracts, the government typically provides that the contractincludes all taxes existing on the contract date and that the contract pricemay be increased to compensate the contractor for any later-arising taxes256:

(b) Federal taxes. Except as may be otherwise provided in this contract, the contractprice includes all applicable Federal taxes in effect on the contract date.

. . . .

254. Contract No. NOa(s)-846, supra note 252, at 4; see also Contract No. NOw(A) 65-0065-f,supra note 247, at 13; U.S. Dep’t of Navy, Contract F33657-70-C-0717, at 34 (Nov. 1, 1970);Contract No. N00019-82-C-0125, supra note 253, at 7-33 (similar). Acquisition regulations in-clude similar provisions ensuring the government’s inspection rights with respect to both endproducts and the materials that are used to create those end products. See, e.g., 32 C.F.R.§§ 7.103-5, 7.203-5 (1954) (containing ASPR “Inspection” provisions for Fixed Price andCost Reimbursement Supply contracts, respectively); 32 C.F.R. § 7-103.5 (1960) (May 1958amendment); 32 C.F.R. § 7-203.5 (1965) (May 1960 amendment); 32 C.F.R. § 7-203.5 (1976)(containing first C.F.R. publication of October 1974 amendment); 32 C.F.R. §§ 7-103.5, 7-203.5 (1983) (incorporating November 1982 and October 1974 amendments, respectively);FAR 52.246-1, 52.246-2, 52.246-3 (1984) (addressing inspection requirements generally forFixed Price Supply contracts and Cost Reimbursement Supply contracts). See also 23 Fed.Reg. at 3621 (revising § 7.103-5 to clarify that government elects whether to repair or replacedefective supplies and § 7.203-5 to conform to Standard Form 32); 23 Fed. Reg. 6339, 6347(Aug. 19, 1958) (containing May 1958 revision to § 7.103-5); 25 Fed. Reg. 14,007, 14,196(Dec. 31, 1960) (containing May 1960 revision to § 7.203-5); 29 Fed. Reg. 11,795, 11,820–21(Aug. 19, 1964) (amending § 7.203-5 to add optional requirement for Military Specification(MILSPEC) inspection system); 32 Fed. Reg. 16,405, 16,405 (Nov. 30, 1967) (containingminor revision to § 7.203-5 regarding MILSPEC inspection system).255. Letter from William T. Schwendler, Vice President & Chief Eng’g, Grumman Aircraft

Eng’g Corp., to Bureau of Aeronautics Representative, Grumman Aircraft Eng’g Corp.(Sept. 14, 1944).256. The Taxes Clause and the Shell and ExxonMobil decisions are discussed further in the

context of contract-based recovery of response costs from the government infra Part V.C.


(e) Price adjustment. If, after the contract date, (i) the Federal Government . . . ei-ther imposes or increases . . . any direct tax or any tax directly applicable to thematerials or components used in the manufacture or furnishing of the completedsupplies or services covered by this contract . . . and . . . the Contractor is obligedto and does pay or bear the burden of any such tax . . . the contract price shall becorrespondingly increased. . . .257

With respect to Cost Reimbursement Contracts, government regulationsstate that no similar provision is necessary because the government’s pay-ment of such taxes is purely a question of allowability:

Cost-reimbursement contracts. No specific tax clause is required in any cost-reimbursement contract. In all such contracts the problem of Federal, State andlocal taxes (which presents solely a question of allowability of costs in connectionwith the performance of cost-reimbursement contracts) is covered in the contractclause dealing with reimbursement of costs. . . .258

At first glance, the Taxes Clause appears directed towards taxes ratherthan environmental liability under CERCLA. However, a variant of the stan-dard Taxes Clause recited above has been interpreted by at least two federalcourts to include CERCLA costs incurred in connection with the performanceof the contract.259 In Shell Oil v. United States, the successors-in-interest tovarious World War II aviation gas (avgas) contractors sued the United Statesto recover CERCLA costs imposed against the contractors in connectionwith certain World War II contracts.260 The United States and Californiainitially prevailed in imposing a percentage of CERCLA cost on its contrac-tors.261 Following that outcome, the contractors filed a contract actionagainst the government under the Contract Dispute Act, arguing that theTaxes Clause of their World War II-era contracts required the government

257. 32 C.F.R. §§ 7.103-10, 11.401 (1954); 32 C.F.R. § 11.401-1 (1965) (similar); 32 C.F.R.§ 11.401-1 (1973) (similar) (containing first C.F.R. publication of November 1971 amendment;see 32 C.F.R. § 7-103.10(e) (1983) (containing DAR provisions incorporating November 1971ASPR amendment for “Advertised and Certain Negotiated Contracts” and July 1960 amend-ment for “Noncompetitive Negotiated Contracts”); FAR 52.229-3 (containing similar FAR pro-vision stating that the contract price includes all existing federal, state, and local taxes and duties,but that “[t]he contract price shall be increased by the amount of any after-imposed FederalTax”); 25 Fed. Reg. 14,076, 14,266 (Dec. 31, 1960); 26 Fed. Reg. 9625, 9640 (Oct. 12, 1961)(containing August 1961 amendment of ASPR 11.401 to exclude state and local taxes); 29Fed. Reg. 2837, 2837 (Feb. 29, 1964) (containing non-substantive amendment to introductoryparagraph of ASPR 11.401); 33 Fed. Reg. 7343, 7401 (May 18, 1968) (to be codified at 32C.F.R. pt. 7) (containing non-substantive amendments to ASPR 11.401); 34 Fed. Reg. 9255,9264 ( June 12, 1969) (to be codified at 32 C.F.R. pt. 11) (containing non-substantive amend-ment to ASPR 7.103-10 to correct references); 37 Fed. Reg. 12,549, 12,607 ( June 27, 1972)(to be codified at 32 C.F.R. pt. 11) (containing November 1971 amendment to ASPR 11.401“Advertised and Certain Negotiated Contracts,” revoking paragraph excluding adjustmentsfor employment taxes). Variations of this clause are also present in pre-ASPR Procurement Con-tracts at GOCO facilities. See, e.g., CPF Contracts, supra note 187, at 21.258. 32 C.F.R. § 11.402 (1954); 32 C.F.R. § 11-402 (1983) (similar).259. Shell Oil Co. v. United States, 751 F.3d 1282, 1296 (Fed. Cir. 2014); Exxon Mobil Corp. v.

United States, 101 Fed. Cl. 576, 579 (2011); see also Shell Oil Co. v. United States, __ Fed. Cl. __(Jan. 6, 2017) (awarding contractors $99,590,847 under Taxes Clause for CERCLA clean-up costs).260. Shell Oil Co., 751 F.3d at 1284–85.261. See id. at 1285.


to reimburse the contractors for these later-incurred CERCLA “charges.”262

The Federal Circuit concluded that

Contrary to the Government’s arguments, CERCLA costs are “charges” withinthe meaning of the relevant contract provision: The avgas contracts promise reim-bursement of “any new or additional . . . charges” the Government imposes on theOil Companies “by reason of the production, manufacture, sale or delivery of[avgas].” CERCLA is a federal law requiring responsible parties to pay the“costs of removal or remedial action” . . . and is thus a charge (i.e., cost) imposedby a federal law. The plain language of the new or additional charges provisionthus requires the Government to indemnify the Oil Companies for CERCLAcosts incurred “by reason of” the avgas contracts.263

It is too early to conclude whether the Shell and ExxonMobil avgas contractcases will be limited only to contracts with Taxes Clauses that expressly in-corporate the term “charges.” Similar clauses (including the term “charges”)appear in various, but not all, World War II-era GOCO contracts.264 At aminimum, it appears Shell and ExxonMobil provide GOCO contractorswith a creative opportunity to recoup environmental costs resulting fromWorld War II-era industrial production.265 If, however, the Shell and Exxon-Mobil holdings are extended to apply to the later ASPR/DAR version of theTaxes Clause (either as a later-arising “tax” or “duty”), this clause may openthe door for contractors to shift their CERCLA liabilities to the governmentthrough contracts that were performed a half-century ago.266

262. Id. at 1285, 1290. The Shell Taxes Clause reads: “Buyer shall pay . . . any new or addi-tional taxes, fees, or charges . . . which Seller may be required by any municipal, state, or federallaw in the United States . . . to collect or pay by reason of the production, manufacture, sale ordelivery of the commodities delivered hereunder.” Id. at 1290.263. Id. at 1292–93 (emphasis added).264. A 1944 NWIRP 464 contract for the production of 500 F7F-1 fighter aircraft contains a

“Federal, State and Local Taxes” provision that reads, in relevant part:

[T]he Government wil [sic] issue appropriate tax exemption certificates . . . in respect ofany tax . . . or . . . similar tax or charge . . . imposed by the Federal Government . . . and directlyapplicable to . . . the materials required or used in the production . . . or to the . . . production,processing, manufacture, construction . . . or use of such supplies or materials . . . [providedthat] the Government . . . may reimburse the contractor for any such tax or charge . . . .

Contract NOa(s)-1679, supra note 247, at 22. Likewise, a 1948 NWIRP 464 contract with theNavy and the Air Force for production of various aircraft contains a “Federal, State and LocalTaxes” provision that reads, in relevant part:

If, (i) after the date of this contract, the Federal Government shall impose or increase anyduty . . . or any . . . tax, or any other tax directly applicable to . . . the materials used in themanufacture or production . . . or directly upon the . . . production, processing, manufacture,construction . . . or use of such articles, work or materials, and (ii) the Government . . . doesnot issue . . . a tax exemption . . . and (iii) the Contractor is required . . . to bear the burden ofsuch tax, then the prices stated herein shall be increased accordingly.

Dep’t of Navy, NOa(s)-9738, at 5 (May 12, 1948) [hereinafter Contract No. NOa(s)-9738].265. On January 6, 2017, the Court of Federal Claims awarded four oil companies $99,590,847

on remand for the U.S. government’s breach of the Taxes Clause. Shell Oil Co. v. United States,__ Fed. Cl. __ (Jan. 6, 2017).266. Even if Shell and ExxonMobil are not extended to apply to the ASPR/DAR variant of the

Taxes Clause, contractors may still be able to rely on the reasoning of Shell and ExxonMobil toargue that other ASPR/DAR-period contract clauses require the United States to reimburse


F. Government Contracts Reflect a Negotiated Balancing of Risk andProfit so Contractors Would Not Have Limited Upside Potential andUnlimited Downside Liability

Standard government contracts between the United States and its defensecontractors from World War II and thereafter evidence a carefully negoti-ated balancing of risk and reward for both sides. As the contract clauses dis-cussed above demonstrate, the government knowingly accepted a significantamount of risk in connection with government-owned facilities and the pro-duction of defense materials. In exchange, the government ensured it re-tained extraordinary control over the facilities and industrial processesused to manufacture its goods—and the government used that control tokeep the cost of goods low. These contract provisions are directly relevantwhen determining an appropriate allocation of CERCLA response costs be-tween the government and its contractors. Additionally, certain provisionsmay provide contractors after that CERCLA equitable allocation with acontract-based avenue for recovery of any CERCLA costs imposed.

V. THREE PATHWAYS FOR RECOVERY

There are essentially three pathways for a defense contractor to recoverfrom the U.S. government for the legacy costs of war: (1) direct reimburse-ment from the United States under CERCLA sections 107 or 113 for theUnited States’ share of liability;267 (2) direct reimbursement from the UnitedStates under past government contracts for the contractor’s share of CERCLAliability;268 and (3) indirect reimbursement of the contractor under existingand future government contracts for environmental cleanup through in-creased overhead charges payable by the United States in its role as a “cus-tomer” under today’s government contracting rules of allowability.269 Withrespect to each of these three avenues, the percentage allocation between thegovernment and contractor can be determined in litigation or negotiatedthrough a cost-sharing or “advance agreement.”270

A. Pathway No. 1: CERCLA Allocation Litigation

Defense contractors face the potential for “enormous liability underCERCLA at numerous sites where they once cooperated with the government

environmental remediation costs. See, e.g., Contract No. NOw(s) 6116-u, supra note 196, at 12(providing for indirect reimbursement to contractor via procurement contract allowability for“any costs growing out of its performance of this contract” (if not otherwise directly reimbursed)and directing contractor to “pay to the proper authority all . . . taxes, assessments, or similarcharges” (emphasis added)).267. United States v. Shell Oil Co., 294 F.3d 1045, 1053 (9th Cir. 2002).268. See E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367, 1372 (Fed. Cir.

2004).269. See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-92-253FS, DOD ENVIRONMENTAL

CLEANUP: INFORMATION ON CONTRACTOR CLEANUP COSTS AND DOD REIMBURSEMENTS 2–3 (1992).270. KEYES, supra note 236, at 656.


U.S.CERCLA

Allocationsin

MilitaryProcu

remen

tan

dM

anufacturingCases

Priv

atel

y-ow

ned

zinc

min

e(E

astB

ayM

un.

Util

. Dis

t.)

Priv

atel

y-ow

ned

Age

nt O

rang

e he

rbic

ide

plan

ts(M

axus

Ene

rgy;

Vert

acC

hem

.)

Priv

atel

y-ow

ned

expl

osiv

e pl

ant(

Tayl

or)

Priv

atel

y-ow

ned

ship

yard

(Sta

teof

Was

h.)

Cou

nty-

owne

d av

iatio

n fa

cilit

y(M

iam

i-D

ade

Cty

.)

Priv

atel

y-ow

ned

aero

spac

e pl

ant(

TDY

Hol

ding

s)

Thre

e C

alifo

rnia

priv

atel

y-ow

ned

Lock

heed

sout

hern

C

alifo

rnia

pro

pella

nt p

lant

s (L

ockh

eed

Mar

tin)

San

Die

go

Ship

yard

s

AIS

LIC

and

St

eadf

ast

Ins.

Whi

ttake

r Si

te-U

.S.

CER

CLA

“o

wne

r”

and

“arr

ange

r”

at p

rivat

e ro

cket

m

otor

pla

nt

AFP

14

Bur

bank

, C

A

“Une

xcel

led

Che

mic

al”

NJ

Mun

ition

sSi

te

AFP

36

Even

dale

, O

H

DO

E G

OC

O,

Can

aan,

CT

NW

IRP

Tole

do, O

HA

FP 4

4,

Tucs

on,

AZ;

AFP

83

,A

lbuq

uer-

que,

NM

; N

WIR

P Fr

idle

y,

MN

Con

ocoP

hilli

ps a

t NW

IRP

McG

rego

r, TX

(GO

CO

)

Cad

illac

Fai

rvie

w a

t Tor

ranc

e, C

A (G

OC

O)

Priv

atel

y-ow

ned

FMC

rayo

n pl

ant i

n V

ASh

ell O

il “a

vgas

” be

nzol

was

te a

t McC

oll,

CA

site

Con

trac

tor’

s CER

CLA

Allo

catio

n to

Be

Rei

mbu

rsed

100

%

by U

.S. v

ia C

ontr

acts

Ford

at W

illow

Run

, MI (

GO

CO

)

DuP

ont a

t Mor

gant

own

Ord

nanc

e W

orks

, WV

A (G

OC

O)

Shel

lTax

es C

laus

e C

ase

20%

10%

0%30

%40

%U

.S. C

ERC

A L

iabi

lity

50%

60%

70%

80%

90%

100%

in producing critical military and national-security products and services.”271

Since 1997, there have been dozens of settlements with the United States onthe allocation of GOCO cleanups, but only a handful of litigated CERCLAliability and allocation decisions.272 There have also been five cases interpret-ing various provisions of standard government contracts in the context ofwhether today’s CERCLA liabilities can be addressed by yesterday’s govern-ment contracts, some of which have been performed over a half-century ago.273

Government contracts are highly relevant for two purposes. First, govern-ment contracts are relevant to the threshold determination of CERCLA“owner,” “operator,” and “arranger” liability and the equitable allocationof that CERCLA liability. For instance, the contracts highlight the U.S. gov-ernment’s promise to hold a contractor harmless and inform the court of therelative degree of involvement and control.274 Second, once CERCLA liabil-ity is adjudicated and a percentage is allocated to a contractor, the contractsserve the dual purpose of being a potential vehicle to reimburse the contrac-tor for its allocated share.275 To compare, set forth above is a summary ofvarious allocation outcomes in the context of military procurement and man-ufacturing at both GOCO and non-GOCO facilities.

1. Cleanup Costs Are a “Cost of War”

At least four federal courts in three separate circuits (Third, Ninth, andFederal) have described cleanup costs—at both government-owned andcontractor-owned facilities—arising from defense manufacturing as a “costof war” the U.S. government must assume. In each of these cases, the courtshave examined the governing contracts and the extent of the government’srole in the industrial processes at the site to conclude that the United Stateswas liable for environmental remediation costs. Likewise, in each of thesecases, the courts have condemned the government’s revisionist attempts to

271. Brief of Plaintiff-Appellee Lockheed Martin Corporation at 51, Lockheed Martin Corp. v.United States, No. 14-5302 (D.C. Cir. filed June 15, 2015), ECF No. 1557495 [hereinafter Lock-heed Brief].272. See, e.g., Cadillac Fairview/Cal., Inc. v. Dow Chem. Co., Nos. 83-8034 MRP (Bx), 93-

7996 MRP (Bx), 1997 WL 149196 (C.D. Cal. Feb. 21, 1997) (Torrance, California, GOCO);FMC Corp v. United States Dep’t of Commerce, 19 F.2d 833, 833 (3d Cir. 1994) (en banc)(Front Royal, Virginia, facility); Shell Oil Co., 294 F.3d at 1045 (McColl, California, disposal fa-cility); Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-01734, 2010 WL2635768 (C.D. Cal. June 30, 2010) (Santa Clarita, California rocket fuel facility); LockheedMartin Corp. v. United States, 35 F. Supp. 3d 92, 97 (D.D.C. 2014) (three California rocketfuel facilities), aff ’d, 833 F.3d 225 (D.C. Cir. 2016).273. United States v. ConocoPhillips, No. W-11-CV-167, 2012 WL 4645616, at *8 (W.D.

Tex. Sept. 30, 2012); E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367, 1373(Fed. Cir. 2004); Ford Motor Co. v. United States, 378 F.3d 1314 (Fed. Cir. 2004) (en banc)(B-24 “liberators” built at the Willow Run, Michigan, GOCO); Shell Oil Co. v. United States,751 F.3d 1282, 1288–89 (Fed. Cir. 2014); Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576,581 (2011).274. Alfred R. Light, Restatement for Arranger Liability Under CERCLA: Implications of Burling-

ton Northern for Superfund Jurisprudence, 11 VT. J. ENVTL. L. 371, 379–80 (2009).275. See Shell Oil Co., 751 F.3d at 1292–93, 1296.


foist these legacy costs of war on its contractors. In theory, as long as theUnited States is liable as either a CERCLA owner, operator, or arranger,or any combination of the three, a court has broad discretion to allocateup to 100 percent liability to the United States as a “cost of war” on any de-fensible theory.276

a. Cadillac Fairview/California v. Dow Chemical Co.

One of the leading GOCO cases is Cadillac Fairview/California v. DowChemical Co., which involved a plant in Torrance, California, that made pre-cursor chemicals for synthetic rubber to benefit the U.S. rubber program.277

The U.S. government owned the land, equipment, and processing chemicals,the onsite disposal ponds, and all materials purchased by the contractor.278

Dow operated the GOCO plant starting in 1943, but the U.S. government“exercised pervasive control” over plant operations, including through theapplicable contracts, government specifications, inspector oversight, andcapital improvements.279 The U.S. government set production levels andregularly referred to the contractor as its “agent.” 280

The U.S. government had “substantial expertise in the industrial produc-tion of synthetic rubber,”281 was aware that this production process gener-ated waste, and agreed to Dow’s method of onsite disposal.282 A U.S. RubberReserve official indicated that he favored ground disposal of waste at theTorrance site.283 The U.S. government prepared reports of the plant’sground-based disposal.284 The U.S. government reimbursed the contractorfor the net cost of disposal; performed annual site inspections, includingwaste handling; stationed one permanent onsite inspector; and occasionallyoverrode the contractor’s objections to styrene reprocessing methods.285

The Cadillac Fairview/California court determined that the specific risk al-location arrangements in the contracts would be relevant to consider underCERCLA for equitable allocation purposes.286 The contractor’s facility usecontract contained a then standard “Liability for the Facilities” clause, whichassigned risks to the U.S. government: “[The GOCO contractors] shall in noevent be liable for, and shall be held harmless against, any damage to or loss

276. See Cadillac, 1997 WL 149196, at *19; TDY Findings of Fact and Conclusions of Law,supra note 134, at 28 (holding that district courts have the “discretion to decide what factorsought to be considered, as well as the duty to allocate costs according to those factors” (quotingBoeing Co. v. Cascade Corp., 207 F.3d 1177, 1187 (9th Cir. 2000))).277. Cadillac, 1997 WL 149196, at *1, *3.278. Id. at *15.279. Id. at *11.280. Id. at *13–14.281. Id. at *4.282. Id. at *5.283. Id.284. Id.285. Id. at *6, *14–15.286. Id. at *16–17.


or destruction of property . . . in any manner, arising out of or in connectionwith the work hereunder.”287

The Cadillac Fairview/California court held the United States liable as aCERCLA “owner,” “operator,” and “arranger.”288 As such, the court equi-tably allocated 100 percent liability to the United States,289 reasoning,among other things, that environmental remediation is a “cost of war”that should be placed on society as a whole.

b. FMC Corp. v. United States

FMC Corp. v. United States is noteworthy because it resulted in significantCERCLA “owner,” “operator,” and “arranger” liability for the United Statesat a contractor-owned facility.290 FMC involved a 440-acre privately ownedrayon plant in Front Royal, Virginia.291 After Pearl Harbor, the U.S. gov-ernment needed massive amounts of high-tenacity rayon for war-relatedproducts, such as airplane and truck tires.292 The U.S. government desig-nated high-tenacity rayon as a “critical” national defense product and com-missioned the contractor to “convert its plant” into a war plant.293 The U.S.government designed, supplied, and contracted for the installation of themanufacturing equipment necessary to convert and expand the facility.294

All plans, specifications, and drawings for equipment and installation weresubmitted to the U.S. government for approval.295 The U.S. governmentprotected the available textile labor force via draft deferments, directedworkers to the facility, and provided housing support.296 It supervised theworkers, had onsite representatives, and had the authority to call for the re-moval of workers.297 The U.S. government mandated the amount and sellingprice of rayon, controlled the contractor’s profits, and selected the product’send users.298 The U.S. government built and owned a nearby plant to pro-vide the raw materials necessary for production.299 If the FMC plant ownerdid not comply with the government’s production directives, the facilityrisked seizure.300

The U.S. government knew of the FMC facility’s waste disposal methodsand provided equipment for waste disposal.301 Environmental standards

287. Id. at *15.288. Id. at *16.289. Id. at *19.290. FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 834 (3d Cir. 1994).291. Id. at 835–36.292. Id. at 835.293. Id. at 836.294. Id. at 837.295. Id.296. Id.297. Id. at 837–38.298. Id. at 837, 843.299. Id.300. Id. at 836.301. Id. at 835, 838.


were “lax” compared to today’s standards.302 As the U.S. government or-dered more high-tenacity rayon product, it produced more waste, more un-lined waste basins were filled, and more basins were needed.303 The U.S.government thus had a heavy hand in the amount of overall waste generatedat the FMC facility.304

The U.S. Environmental Protection Agency (EPA) sought to recover envi-ronmental response costs from the contractor’s successor-in-interest decadesafter World War II concluded.305 The contractor’s successor responded bysuing the United States for CERCLA contribution.306 Shortly before trial,the United States entered into a settlement agreement conceding CERCLA“owner” liability (based on the government’s ownership of the industrialequipment through 1948), but it contested “operator” and “arranger” liabil-ity.307 Under the terms of the settlement agreement, the United Stateswould accept eight percent “owner” liability, and if subsequently found liableas a CERCLA “operator” and “arranger,” that liability would increase totwenty-six percent.308 Thus, the only question left to decide in court waswhether the United States ought to pay a higher percentage under the settle-ment because of CERCLA “operator” and “arranger” liability.309

In a context limited to “war plants,” the Third Circuit applied a “substan-tial control” test310 in weighing whether the United States could be held li-able as a CERCLA “operator.”311 The Third Circuit noted it would be “arevisionist view of history” to ignore the nation’s overriding motivation forthe “efficient operation of the facility as a whole” during the war312 and ul-timately concluded that the United States had “substantial control” of and“active involvement” in the private textile rayon plant and was thus liableas a CERCLA “owner,” “operator,” and “arranger.”313 The Third Circuitheld, “[A]t bottom our result simply places a cost of war on the UnitedStates, and thus on society as a whole, a result which is neither untowardnor inconsistent with the policy underlying CERCLA.”314

302. Id. at 835.303. Id. at 837–38.304. Id. at 838.305. See id. at 834–35.306. Id. at 834.307. Id. at 838.308. Id.309. The United States also claimed sovereign immunity for Comprehensive Environmental

Response, Compensation, and Liability Act (CERCLA) claims arising out of “wartime regula-tory activities.” Id. at 835, 838–39. The court thoroughly examined and rejected this defense.Id. at 838–42.310. “Under this test, a corporation will be liable for the environmental violations of another

corporation if there is evidence that it exercised ‘substantial control’ over the other corporation.”Id. at 843.311. Id.312. Id. at 845.313. Id.314. Id. at 846. Following this outcome, the United States has consistently resisted FMC’s

“substantial control” test to determine CERCLA “operator” liability at war plants. Most


c. Shell Oil Co. v. United States

Shell has significance for war plant cases in both the CERCLA allocationand contract reimbursement contexts.315 The Ninth Circuit decided theCERCLA allocation issues,316 and, as required by the Tucker Act, Shell’scontract-based claims against the United States were transferred to and de-cided in the Court of Federal Claims and Federal Circuit.317

Shell arose from wartime aviation gas or “avgas” production and the use ofan off-site disposal facility in southern California known as the McCollsite.318 The war plant case spawned multiple trial court and appellate deci-sions on both coasts.319 The allocation case involved an avgas byproductknown as benzol and turned upon whether the legacy liability of the bypro-duct is a “cost of war” that the U.S. public should pay.320 Applying its “moralas well as legal sense,” the Shell trial court equitably allocated 100 percent ofthe costs for benzol-related liability to the United States.321

d. Exxon Mobil Corp. v. United States

In Exxon Mobil Corp. v. United States,322 a Texas court recently addressed“who pays, and how much” after the “nation’s need for wartime suppliesmade duringWorldWar II and the Korean War left lasting environmental ef-fects.”323 The case relates primarily to wartime avgas refining, and the courtfound both the U.S. government and contractor liable under CERCLA.324

On partial summary judgment, the court focused on liability and left equitableallocation for later proceedings, although the court indicated that the alloca-tion will not be to Exxon Mobil’s liking because of the “limited nature of fed-eral control over the refineries’ operation.”325

recently, the United States claims FMC’s relevance is “dubious” in light of United States v. Best-foods, 524 U.S. 51 (1998), which addresses operator liability in an unrelated parent-subsidiarycontext. See Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 521 (S.D. Tex. 2015).315. United States v. Shell Oil Co., 294 F.3d 1045, 1045 (9th Cir. 2002); Shell Oil Co. v.

United States, 751 F.3d 1282, 1284–85, 1289 (Fed. Cir. 2014); Shell Oil Co. v. United States,80 Fed. Cl. 411, 412, 414 (2008). The Shell contract case is famous because it rested not on theopen-ended language of Contract Settlement Act of 1944 made famous in FMC Corp., 29 F.3d833, and Ford Motor Co. v. United States, 378 F.3d 1314 (Fed. Cir. 2004) (en banc), but on theTaxes Clause.316. Shell Oil Co., 294 F.3d at 1049.317. Shell Oil Co., 751 F.3d at 1289; Shell Oil Co., 80 Fed. Cl. at 418.318. Shell Oil Co., 294 F.3d at 1049, 1051.319. See, e.g., GenCorp., Inc. v. Olin Corp., 390 F.3d 433 (6th Cir. 2004); Morton Int’l, Inc. v.

A.E. Stanley Mfg. Co., 343 F.3d 669 (3d Cir. 2003); Carson Harbor Vill., Ltd. v. UnocalCorp., 287 F. Supp. 2d 1118 (C.D. Cal. 2003) (illustrating some of the cases the war plantcase spawned).320. United States v. Shell Oil Co., 13 F. Supp. 2d 1018, 1027 (C.D. Cal. 1998).321. Id. at 1030; accord Shell Oil Co., 294 F.3d at 1060–61 (“We therefore affirm the district

court’s allocation of 100% of the cleanup costs for benzol waste to the United States.”).322. Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 490 (S.D. Tex. 2015).323. Id.324. Id. at 519.325. Id. at 529, 537.


At the start of World War II, predecessors of Exxon Mobil operated twoprivately owned avgas refineries in Texas and Louisiana.326 During WorldWar II and the Korean War, these predecessors contracted with the U.S.government to expand their avgas production and build additional plantsfor the production of synthetic rubber.327 The U.S. government purchasedland adjacent to the refineries or leased land within the refineries to buildgovernment-owned plants, often under separate construction contractswith the oil companies.328 Four government-owned plants existed on theTexas site and produced synthetic rubber, toluene, and avgas components.329

Unlike the privately owned refineries, the U.S. government typically ownedthe synthetic rubber plants at the same facilities.330 Despite different owner-ship of the refineries and chemical plants (and even the property underneaththe buildings), they remained “sufficiently integrated at each site to be partof the same ‘facility.’ ”331 Notably, the waste of the contiguous privatelyowned and government-owned plants was released as part of the same oper-ation, management, and purpose, rendering them all one CERCLA “facil-ity.”332 After the wars, the oil companies purchased the GOCO plants.333

The U.S. government exercised significant control over the GOCO facil-ities, but substantially less control over the privately owned refineries. TheU.S. government regularly inspected the GOCO facilities,334 but it didnot operate the refineries, supervise employees, inspect, or make personnelor labor decisions.335 The GOCOs shared some but not all the waste dispo-sal and treatment facilities with the privately owned refineries.336 Theamount of waste overwhelmed available treatment systems and options,and the war remained the higher priority.337 The U.S. government approveda small waste mitigation project in Baton Rouge, but the contractor waiteduntil after the war to install it.338 The U.S. government controlled produc-tion and capped profits at six percent—and even renegotiated profits downfurther, over protests from the oil companies.339

Under agreements with the states decades later, Exxon Mobil incurred$71 million in remediation costs at the privately owned refineries, after

326. Id. at 497.327. Id. at 490–91.328. Id. at 499, 501.329. Id. at 499–500.330. Id. at 496 (noting that the U.S. Defense Plant Corporation arranged for the construction

of synthetic rubber plants known as “Plancors,” and “[u]nlike most avgas refineries, however, thegovernment—not the contracting companies—owned the Plancors.”).331. Id. at 516, 518.332. Id. at 519.333. Id. at 501–02.334. Id. at 526.335. Id. at 498.336. Id. at 501.337. Id. at 502.338. Id. at 502–03.339. Id. at 496, 498.


which the contractor sued the United States under CERCLA for past and un-known future costs.340 The Exxon Mobil court understood the history of gov-ernment control of industry during wartime, noting the United States “treatedall the nation’s refineries as units in one vast national refinery.”341 The U.S.government needed the ultra-performance of avgas to achieve military vic-tory,342 but decades later, the legacy “costs of war” continued to mount andthe government would not assume liability. The court held the United Statesliable as a CERCLA “operator” for the chemical plants, but found insufficientcontrol of the contractor’s waste operations to hold the United States liable asa CERCLA “operator” of the privately owned refineries.343

2. Under Federal Case Law, the Government Is a Potential CERCLA“Owner” and “Arranger,” Even at 100 Percent Contractor-Owned Facilities

In 2010, Judge Howard Matz in the Central District of California issued aseries of seminal CERCLA rulings in the context of legacy contaminationarising from military production at a contractor-owned site.344 The site atissue is the 996-acre Whittaker site in Santa Clarita, California.345 TheUnited States did not provide any facility funding or equipment, and no fa-cilities contracts were at issue.346 These court opinions answer the basicquestion of whether the United States can be an CERCLA “owner,” “oper-ator,” or “arranger” at a 100 percent contractor-owned facility.

Steadfast Insurance was the first of these three cases to be decided by JudgeMatz.347 Steadfast Insurance had issued a ten-year policy to a new propertyowner upon Whittaker’s sale of the contaminated California site in 1998 andsought to hold the United States liable under CERCLA, in part as a site “op-erator.”348 Judge Matz granted summary judgment in favor of the UnitedStates, finding that the U.S. government was not a CERCLA “operator”

340. Id. at 491, 503.341. Id. at 498 (internal quotation marks omitted).342. Id. at 494 (stating that the British Minister of Fuel and Power credited avgas with victory

in the Battle of Britain).343. Id. at 491.344. Steadfast Ins. Co. v. United States, No. CV-06-4686, 2009 WL 3785565, at *1 (C.D.

Cal. Nov. 10, 2009); Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV09–01734AHM (RZx), 2010 WL 2635768 (C.D. Cal. June 30, 2010); Am. Int’l Specialty Lines Ins.Co. v. United States, No. CV-09–01734, 2013 WL 135405 (C.D. Cal. Jan. 9, 2013).345. Whittaker filed a separate CERCLA action against the United States in 2013, but that

case was later dismissed when Whittaker elected to pursue a section 107 joint and several liabil-ity action against the United States rather than a section 113 contribution action. WhittakerCorp. v. United States, No. 2:13-cv-01741-FMO, slip op. at *1, *13–14. (C.D. Cal. Feb. 10,2014), ECF No. 53.346. Steadfast Ins. Co., 2009 WL 3785565, at *1 (involving site owned from 1942–67 by Ber-

mite Powder Co., after which Whittaker owned the site, and “Whittaker was not required towork on USA contracts”).347. Steadfast Ins. Co., 2009 WL 3785565.348. Complaint ¶¶ 65–66, Whittaker Corp. v. United States, No. 2:13-cv-01741-FMO-JC

(C.D. Cal. filed Mar. 11, 2013), ECF No. 1.


at the Whittaker site because it did not manage the facility’s wastes under thestringent and narrow Bestfoods standard.349

In 2009, while Steadfast Insurance remained pending, American Interna-tional Specialty Lines Insurance Company (AISLIC) filed a separate CERCLAaction against the United States in connection with the same Whittaker facil-ity.350 The court ultimately consolidated the Steadfast Insurance and AISLICcases.351 AISLIC incurred liability from legacy contamination in its role asWhittaker’s insurer.352 From 1954 through 1987, over ninety percent of pro-duction at the Whittaker site involved ammunition manufacturing and militaryrocket motor work for the United States.353 Notably, the site was not usedin support of government contracts prior to 1954, so no World War II-eracontracts were at issue.354 The first AISLIC case looked only at CERCLAliability.355

In 2010, one year after the Steadfast Insurance CERCLA “operator” deci-sion in favor of the government, Judge Matz found the United States to beliable as both a CERCLA “owner” and “arranger” of the Whittaker site.356

At the outset, the court observed that the available Whittaker governmentprocurement contracts consistently contained the standard title-vesting clausethat assigned ownership of the production chemicals and byproducts to theU.S. government.357 A literal reading of the title-vesting clause, the court rea-soned, led to the conclusion that the United States owned all the productionchemicals and ultimately the waste.358 Citing Northrop Grumman Corp. v.County of Los Angeles,359 the court rejected the U.S. government’s efforts torepudiate title to the undesired byproducts of the government-owned rawmaterials that were used to make and power its rockets,360 reasoning therewas nothing in the government procurement contracts that excepted the un-desired waste from U.S. ownership.361 The court also noted the U.S. govern-ment owned the rocket motors that caused the perchlorate and solvent

349. Steadfast Ins., 2009WL 3785565, at *8. The Bestfoods standard is discussed infra Part V.B.1.350. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *1.351. Consent Decree at 2, Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-

01734, (C.D. Cal. July 7, 2014), ECF No. 377 [hereinafter Consent Decree].352. Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09–01734, 2010 WL

2635768, at *18 (C.D. Cal. June 30, 2010).353. Id. at *2.354. Id.355. See generally id.356. Id. *27, *30.357. All contracts incorporated ASPR 7-104.25, later found at FAR 52.232. Id. at *5.358. Id. at *6, *28.359. Northrop Grumman Corp. v. Cty. of Los Angeles, 134 Cal. App. 4th 424 (Cal. Ct. App.

2005). The issue inNorthrop Grumman was the extent to which a California county could tax “fed-eral” property and whether the materials and supplies used in defense contracts by a contractor are“federal” property. The California court held that standard title-vesting provisions in federal con-tracts sweep under U.S. government ownership all “supplies” (defined to include paints, chemicals,oils, and acids) and “materials” (defined to include all “property incorporated into an end productor consumed or expended in performing a contract”). Id. at 424, 428, 431–34.360. See Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *29.361. Id. at *28 (citing Northrop Grumman, 134 Cal. App. 4th at 433).


contamination,362 which, in combination with the U.S. government’s owner-ship of the chemicals and their byproducts, is sufficient to hold the UnitedStates liable as an “arranger” under CERCLA.363

Separately, the U.S. government also owned certain manufacturing equip-ment used in support of Whittaker site industrial operations, which wassufficient to hold the United States liable separately as an “owner” underCERCLA.364 The court reasoned that “[u]nder CERCLA, ‘an owner ofequipment necessary to the operation of the [factory] line is no less an‘owner’ than a part-owner of land.’ ”365 In sum, Judge Matz found theUnited States liable as both a CERCLA “owner” and “arranger” at the pri-vately owned Whittaker site, even though the government did not hold titleto any of the land or buildings.366

The second AISLIC case answered the question of CERCLA allocation asbetween the U.S. government and, technically, the contractor’s insurer.367

The court openly criticized the allocation trial because both sides “cherrypick[ed]” information to support their allocation positions.368 The courtstarted with a “base” allocation formula of twenty-five percent for “owner”liability, fifty percent for “operator” liability, and twenty-five percent for “ar-ranger” liability.369 In theory, being liable as either a CERCLA “owner,”“operator,” or “arranger” is sufficient grounds in and of itself to be held100 percent equitably responsible for any cleanup because courts enjoywide discretion in making such allocations,370 but the second AISLICcourt used its own baseline formula where all three needed to be shown se-parately to be 100 percent liable, and each carried different weight.

The United States had been previously determined to be zero percent li-able as a CERCLA “operator” at the Whittaker facility by Judge Matz’s 2009Steadfast Insurance summary judgment decision.371 Having found the UnitedStates liable as a CERCLA “owner” and “arranger” in 2010, the maximumliability that the court could assign to the United States under the baselineformula would be fifty percent.372 Judge Matz factored in the relative

362. Id. at *24.363. Id. at *28.364. Id. at *26, *30.365. Id. at *21 (quoting United States v. Saporito, 684 F. Supp. 2d 1043, 1057 (N.D. Ill. 2010)).366. See id. at *1, *27, *29, *30.367. See Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09–01734, 2013 WL

135405 (C.D. Cal. Jan. 9, 2013).368. Id. at *1.369. Id. at *4.370. See generally Cadillac Fairview/Cal., Inc., Nos. 83-8034 MRP (Bx), 93-7996 MRP (Bx),

1997 WL 149196 (C.D. Cal. Feb. 21, 1997) (holding that courts can consider one factor, severalfactors, or the totality of the circumstances to make equitable allocation decisions at GOCO andnon-GOCO facilities).371. See Steadfast Ins. Co. v. United States, No. CV-06-4686, 2009WL 3785565, at *8 (C.D.

Cal. Nov. 10, 2009).372. Am. Int’l Specialty Lines Ins. Co., 2013 WL 135405, at *4 (holding CERCLA “owner” and

“arranger” liability carried a maximum twenty-five percent weight for each under the JudgeMatz base formula).


knowledge of the parties, the level of care and cooperation, and the benefitsderived from the work to adjust the outcome a few percentage points up ordown.373 Judge Matz went so far as to reverse himself in the second AISLICdecision by finding, without citing any authority, ownership responsibility ofthe waste “should primarily rest with the contractor.”374 No new evidence orlaw was offered to justify that sudden and unexplained reversal. Ultimately,the court reached an equitable allocation of forty percent for the UnitedStates and sixty percent for AISLIC.375 In 2013, both parties appealed theallocation outcomes in the consolidated Whittaker site cases.376 In 2014,the United States settled for a partial payment to AISLIC of past costsand thirty-three percent liability for future costs.377

3. Partial Ownership of Manufacturing Equipment May IndependentlyMake the Government Liable as a CERCLA “Owner”

One common characteristic of GOCO plants is that the U.S. governmenttypically owned the vast majority of the manufacturing equipment at theseplants during key operational periods.378 Ownership of manufacturing equip-ment proved dispositive in 2011 when another California federal court heldthe United States liable as a CERCLA “owner.”379 TDY Holdings operatedas a government contractor for over six decades at a San Diego-based aeronau-tical manufacturing facility where the government owned various manufactur-ing machinery and equipment for drones and unmanned aerial systems.380

The TDY Holdings case built upon the settled principle that equipment fur-nished by the government to contractors for weapon-manufacturing purposesfalls within the CERCLA definition of “facility.”381

Government ownership of manufacturing “facilities” also was a key consid-eration in the first AISLIC case.382 Highly relevant to the court’s CERCLAanalysis was the fact that the pertinent government contracts containedtitle-vesting provisions specifying that the U.S. government held title to all

373. Id. at *5.374. Id. at *8.375. Id. at *5.376. Consent Decree, supra note 351, at 2.377. Id. at 9–10 (stating that the United States settled for $2,034,959 in “past costs” and

thirty-three percent in “future costs” as of 2010). The United States also settled the SteadfastInsurance matter. Consent Decree at 2, Steadfast Ins. Co. v. United States, No. CV-06-4686,(C.D. Cal. Nov. 10, 2009), ECF No. 250.378. Various lists of manufacturing equipment requested from the government for the con-

struction at Bethpage can be found in correspondence for emergency construction. See Letterfrom E. Clinton Towl, Vice President, Grumman Aircraft Eng’g Corp., to U.S. Dep’t ofNavy (Mar. 9, 1945); Request for Equipment and Request for Additional Emergency Plant Fa-cilities from E. Clinton Towl, Vice President, Grumman Aircraft Eng’g Corp., to U.S. Dep’t ofNavy (Mar. 30, 1945).379. See TDY Holdings, LLC v. United States, No. 07 CV-0787, slip op. at 4–5, 6 (S.D. Cal.

July 15, 2011).380. Id. at 2–3.381. 42 U.S.C. § 9601(9) (2012) (CERCLA definition of “facility”).382. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *24–25 (C.D. Cal. June 30, 2010).


raw materials used in the manufacturing processes—and those raw materials ul-timately became the key sources of facility contamination.383 It does not matterwhether chemical byproducts are transferred from government-owned equip-ment to non-government-owned facilities, such as grounds or buildings; theUnited States remains liable as an “owner.”384 Further, it is not necessary toshow which government-owned equipment is responsible for the contamina-tion; it is sufficient to show that the government equipment was a “necessarypart” of the overall manufacturing process.385 According to the first AISLICcourt, military rocket engines whose contents were released into the environ-ment became “facilities” within the broad meaning of CERCLA because mil-itary components are “equipment.”386

This vesting of title in the United States has been a standard feature of gov-ernment contracts since at least the 1940s.387 The title-vesting provisions ingovernment contracts are “particularly compelling in the context of militarycontracts, when the contracted-for goods are needed for national defense.”388

The byproducts of defense manufacturing from government-owned raw ma-terials and chemicals impose CERCLA “owner” liability on the United States“regardless of whether it had any control over the disposal activities.”389

In Elf Atochem North America, Inc. v. United States, another equipment-ownership case, the U.S. government designated DDT as a “strategic pesti-cide” necessary for the country’s efforts in World War II and conceded thatits ownership of the DDT manufacturing equipment constituted “owner-ship” under CERCLA.390 The DDT byproducts and waste streams fromthe government equipment were deposited onsite. The Elf Atochem courtfound the government to be liable as a CERCLA “owner” because itowned the “facilities” (i.e., DDT manufacturing equipment) that generatedthe waste streams deposited at the contractor’s New Jersey facility.391

383. Id. at *6.384. Id. at *22–23 (citing Elf Atochem N. Am. Inc. v. United States, 868 F. Supp. 707, 708

(E.D. Pa. 1994)).385. Id. at *23 (citing United States v. Saporito, 684 F. Supp. 2d 1043, 1062 (N.D. Ill. 2010)).386. Id. at *24.387. See Northrop Grumman Corp. v. Cty. of Los Angeles, 134 Cal. App. 4th 424, 432–33

(2005) (reasoning that government title to “all property used in the performance of federal de-fense contracts under the title-vesting clause” has been well-settled under federal law for over100 years since the seminal U.S. Supreme Court decision in United States v. Ansonia Brass & Cop-per Company, 218 U.S. 452, 466–67 (1910)).388. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *25 (quoting Northrop Grumman,

134 Cal. App. 4th at 431, 433). The standard government contract language in Northrop Grum-man states that the United States takes title to contractor property through the title-vesting pro-vision of the “Progress Payments Clause,” codified at FAR 52.232-16(d):

(d) Title. (1) Title to the property described in this paragraph (d) shall vest in the Govern-ment. Vestiture shall be immediately upon the date of this contract, for property acquired orproduced before that date. Otherwise, vestiture shall occur when the property is or shouldhave been allocable or properly chargeable to this contract.

389. Am. Int’l Specialty Lines Ins. Co., 2010 WL 2635768, at *27.390. Elf Atochem N. Am., Inc. v. United States, 868 F. Supp. 707, 709 (E.D. Pa. 1994).391. Id. at 712–13.


In short, federal courts have held that government ownership of nothingmore than certain manufacturing equipment at a 100 percent contractor-owned site is enough to make the United States primarily liable as a CERCLA“owner” because waste-generating equipment is “arguably more culpable”than mere land ownership.392

B. Non-GOCO CERCLA Liability Cases Relied Upon by the United States

As discussed above, the body of CERCLA case law specific to GOCO facil-ities is limited and not particularly favorable to the U.S. government.393 In theabsence of GOCO cases favoring the United States, the U.S. government nowrelies on a series of approximately nine non-GOCO decisions in an attempt tomitigate its liability.394 Some of these cases involve factually distinguishable sit-uations where the United States is acting in its role as a “market regulator”rather than as a GOCO owner and operator. Others involve standard buyer-seller commercial transactions where the United States is merely an ultimateproduct consumer and, like all similarly situated non-governmental consumers,is not liable as a CERCLA “operator” for legacy contamination at privatelyowned plants. The extent of U.S. involvement in each of these cases is differentand far less substantial than the U.S. government’s typical involvement at aGOCO facility.395

1. The United States v. Bestfoods CERCLA “Operator” LiabilityStandard Is Unwarranted in GOCO Contexts

The U.S. opening position in CERCLA allocation actions at GOCO andnon-GOCO facilities often starts with a common refrain: under United Statesv. Bestfoods, corporate parents are generally not liable for the environmental

392. United States v. Saporito, 684 F. Supp. 2d 1043, 1057 (N.D. Ill. 2010) (The “owner ofequipment necessary to the operation of the plating line is no less an ‘owner’ than a part-ownerof land.”). In Saporito, the United States argued in favor of CERCLA “owner” liability against aprivate party based upon its mere ownership of the metal plating equipment from which releasestook place. Id. The Saporito court agreed. Metal plating lines are now deemed a “facility” underCERCLA, separate and apart from land ownership itself. Id.393. See Lockheed Martin Corp v. United States, 35 F. Supp. 3d 92, 120 (D.D.C. 2014)

(“While many CERCLA actions have been brought by government contractors against theU.S. government, only a few appear to have reached the allocation stage.”), aff ’d, 833 F.3d225 (D.C. Cir. 2016).394. See United States v. Bestfoods, 524 U.S. 51, 51–52 (1998); Steadfast Ins. Co. v. United

States, No. CV-06-4686, 2009 WL 3785565 (C.D. Cal. Nov. 10, 2009); Miami-Dade Cty. v.United States, 345 F. Supp. 2d 1319 (S.D. Fla. 2004); E. Bay Mun. Util. Dist. v. United States,142 F.3d 479 (D.C. Cir. 1998); Maxus Energy Corp. v. United States, 898 F. Supp. 399 (N.D.Tex. 1995); United States v. Vertac Chem. Corp., 46 F.3d 803 (8th Cir. 1995); State of Wash.v. United States, 930 F. Supp. 474 (W.D. Wash. 1996); United States v. Taylor, 1993 WL760996 (W.D. Mich. 1993); Rospatch Jessco Corp. v. Chrysler Corp., 962 F. Supp. 998 (W.D.Mich. 1995). These government cases are all cited in the recent decision, Exxon Mobil Corp. v.United States, 108 F. Supp. 3d 486, 521–33 (S.D. Tex. 2015) and in Miami-Dade Cty., 345F. Supp. 2d at 1340.395. Even cases such as Exxon Mobil found the World War II GOCO cases to be different in

terms of the “pervasive levels of control.” 108 F. Supp. 3d at 527 (quoting Lockheed Martin Corp.,35 F. Supp. 3d 148–49).


liabilities of their subsidiaries, and thus it follows that the United States can-not be liable for the environmental contamination that results from govern-ment work performed at GOCO or non-GOCO facilities.396 The U.S. gov-ernment’s reliance on Bestfoods in GOCO cases is overstated and misplaced.Bestfoods had nothing to do with government contracting or GOCO facilities.The facility at issue in Bestfoods was a privately owned Michigan chemicalplant with no known government business.397 In 1989, the United Statessued a corporate parent (Bestfoods) seeking recovery of the subsidiary’s(Ott Chemical Co.) highly expensive cleanup.398

Bestfoods is a corporate veil-piercing case in which the central question iswhether a corporate parent’s normal “limited liability” protections underMichigan’s state corporate law can be overcome to hold the parent respon-sible for a subsidiary’s CERCLA liabilities.399 The Supreme Court reasonedthat nothing in CERCLA “purports to rewrite” the deeply ingrained statecorporate laws holding corporate parents separate and non-liable for a sub-sidiary’s environmental liabilities.400 Piercing the corporate veil is thus not aforegone conclusion, the court attested, even after CERCLA became law in1980 and even if a subsidiary is a polluter.401 In fact, the rule of limited cor-porate parent liability is not to be readily relaxed in the face of CERCLA:“The critical question is whether, in degree and detail, actions directed tothe facility [not to the subsidiary corporation itself] by an agent of the parentalone are eccentric under accepted norms of parental oversight of a subsidi-ary’s facility.”402 For example, if a parent observes all corporate formalitiesand carefully maintains all indicia of separateness, “yet provided active,daily supervision and control over hazardous waste disposal activities ofthe subsidiary,” the parent would under those narrow circumstances haveno basis to escape CERCLA liability.403

Bestfoods has not been applied successfully to any GOCO case, and there isgood reason not to do so. Bestfoods stands for the proposition that “eccentric”parental control of the subsidiary’s facility is necessary for a corporate parentto lose the deeply engrained limited liability protections afforded under statelaw and be liable under CERCLA. Bestfoods does not stand for the tangentialand opposite position—now aggressively advanced by the government inGOCO and non-GOCO cases alike—that the U.S. government enjoys thesame limited liability protections with respect to its GOCO facilities as a

396. United States v. Bestfoods, 524 U.S. 51, 51–52 (1998); ExxonMobil Corp., 108 F. Supp. 3dat 521 (“The government argues that FMC’s continuing relevance is dubious.”).397. Bestfoods, 524 U.S. at 56–57.398. Id. at 57–58 (noting that the EPA estimated costs “into the tens of millions of dollars”

and the United States needed as many contributors as possible to fund the cleanup).399. Id. at 55, 61.400. Id. at 63.401. Id. at 62 (stating that nothing in CERCLA rejects the “bedrock principle” that a parent is

not normally liable for a subsidiary’s polluting facility).402. Id. at 70, 72 (emphasis added).403. Id. at 66 n.12.


corporate parent does with respect to its subsidiaries’ facilities. The flaw inthis argument is fundamental: the U.S. government is not a corporation. Thegovernment and its contractor do not have a corporate parent-subsidiary re-lationship, and there is no need to pierce a “corporate veil” of the UnitedStates to impose CERCLA liability on the United States. It is illogical to im-pute onto GOCO contractors the high legal standard and heavy evidentiaryburden associated with corporate veil-piercing to ensure the United Statespays its fair share to remediate the environmental costs of war.

The United States has nonetheless advanced Bestfoods—with some success—in certain non-GOCO cases.404 Bestfoods started out illustrating nothingmore than how the United States could, in an offensive CERCLA cost re-covery action, pierce a Michigan corporate veil statute to reach a better-funded corporate parent to impose CERCLA liability.405 The U.S. govern-ment has since bootstrapped Bestfoods into a CERCLA quasi-defense thatcalls for a heavy contractor evidentiary burden, i.e., having to show the gov-ernment’s “eccentric” corporate parent-like control of GOCO and non-GOCO facilities.406 Specifically, the U.S. government and various courtscontend today that defense contractors must show that the United Statesmanaged, directed, and conducted operations at GOCO facilities specificto pollution—often decades before concerns regarding waste disposal wereeven known or considered worthy of serious oversight.407

Bestfoods never addressed whether the United States is entitled to a form ofCERCLA immunity similar to that provided corporations under state law.The only GOCO case that considered the necessary degree of governmentcontrol over a facility to impose CERCLA “operator” liability is FMCCorp. v. United States,408 a case that the United States now contends is no lon-ger relevant.409 The demise of FMC’s GOCO-specific “substantial control”standard is premature. If courts are going to adopt the Bestfoods “corporateparent” standard for the government—in all defense manufacturing contextsand regardless of the “GOCO model”—rather than FMC’s GOCO-specific“substantial control” standard, courts should at least recognize the vast

404. See Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 521 (S.D. Tex. 2015). In2009, Steadfast Insurance applied the Bestfoods standard favored by the government and reached aconclusion cited by the United States ever since. Steadfast Ins. Co. v. United States. No. CV-06-4686, 2009 WL 3785565, at *6 (C.D. Cal. Nov. 10, 2009). Although the United States regularlycites Steadfast Insurance for its zero percent government CERCLA “operator” liability, it doesnot mention that the United States ultimately assumed thirty-three percent of future costs atthat privately owned facility after it was found liable as both a CERCLA “owner” and “arranger”in the first AISLIC case. Am. Int’l Specialty Lines Ins. Co. v. United States, No. CV-09-01734,2010 WL 2635768, at *26–30 (C.D. Cal. June 30, 2010); Consent Decree, supra note 351, at 10.405. Bestfoods, 524 U.S. at 55–60.406. Exxon Mobil Corp., 108 F. Supp. 3d at 521–22.407. See id. at 521 (citing Bestfoods standard favoring direct control of a facility’s pollution op-

eration and observing that “[m]any lower courts have recognized that FMC’s test is not helpfulafter Bestfoods”).408. FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 843 (3d Cir. 1994).409. See United States v. Bestfoods, 524 U.S. 51, 51–52 (1998); Exxon Mobil Corp., 108

F. Supp. 3d at 521.


factual and historical distinctions that led to the two standards. To put con-tractors recruited specifically for the defense program at crucial moments ofnational peril into the exclusive position of “operator” liability unless thecontractor can “pierce the veil” and show the government eccentrically man-aged the facility and its wastes, especially at a point in history when thatwould have been unthinkable, is an outright repudiation of the mutual prom-ises that formed the very basis of the GOCO model.

2. U.S. Regulatory Power of Markets Does Not Make theUnited States a CERCLA Operator

In East Bay Municipal Utility District v. United States, a California utilitydistrict acquired an abandoned zinc mine while developing its reservoir sys-tem.410 The United States regularly cites this case in the GOCO context.411

As the new “owner,” the utility district found itself saddled with environ-mental liability from legacy contamination at the mine.412 The utility districtargued that the United States is also liable for this contamination because theUnited States indirectly controlled the mine during wartime operationsthrough its activities as a market consumer and regulator.413 East Bay Munic-ipal is not a GOCO case; the United States never owned the zinc mine.414 Inaddition, no contractual privity existed between the United States and theutility district or the predecessor owners of the mine,415 so no governmentcontracts influenced the analysis. This case evaluated whether the UnitedStates could be held liable as a CERCLA “operator” based solely upon theextent of the U.S. government’s indirect control of the mine during wartimeoperations through market and regulatory measures.416

As a market participant, the United States contracted with the privatelyowned mine to buy zinc at premium prices to supply its defense contractorsduring World War II,417 provided advance financing to open the mine,418

and controlled prices in the zinc market.419 As a market regulator, theUnited States incentivized workers to continue working in the zinc miningindustry,420 worked to close competing gold mines to keep zinc mine

410. E. Bay Mun. Util. Dist. v. United States, 142 F.3d 479, 480 (D.C. Cir. 1998).411. See, e.g., Exxon Mobil Corp., 108 F. Supp. 3d at 523–24, 526; United States v. Shell Oil

Co., 294 F.3d 1045, 1053–54 (9th Cir. 2002).412. E. Bay Mun., 142 F.3d at 480.413. Id. at 480–81.414. Id. at 481 (stating that the U.S. government’s interventions at the site took two funda-

mental forms: control of zinc prices and control of the labor market).415. See id. at 480–81.416. See id. at 487 (holding that the U.S. government’s actions were “not enough to make it

an operator under CERCLA”).417. Id. at 486.418. Id. at 481, 485.419. Id. at 485 (stating that market control of zinc prices to make the war cheaper “do not

bring the government as buyer one whit closer to managerial control”).420. Id.


workers in place, and had the contingent power to seize the mine if it refusedto supply the government.421

Of note, East Bay Municipal pre-dates Bestfoods,422 but the East Bay Munic-ipal court nonetheless applied a comparable standard, described by the courtas “running the facility, typically on a day-to-day, managerial basis.”423 TheEast Bay Municipal court found no government managerial control of the zincmine,424 and thus no basis to hold the United States liable as a CERCLA op-erator.425 The East Bay Municipal court concluded that the U.S. govern-ment’s World War II-era regulatory controls of the zinc and labor marketsdid not rise to the level of “actual control” or “authority to control” neces-sary to impose CERCLA operator liability.426 The East Bay Municipal courtalso reasoned that the War Production Board’s power to seize the mine didnot impose the level of duress necessary to impose CERCLA operator liabil-ity.427 Simply put, regulatory authority, without more, is insufficient to im-pose CERCLA liability on the U.S. government. That proposition is notcontroversial, but the basic facts remain distinguishable from the typicalGOCO facility.

3. “Buyer-Seller” Cases

The U.S. government regularly argues that two “Agent Orange” cases ab-solve the United States of CERCLA liability at GOCO facilities. These twocases—Maxus Energy Corp. v. United States428 and United States v. VertacChemical Corp.429—are factually similar. Both cases involve privately ownedfacilities that produced the chemical ingredients for Agent Orange, a power-ful Vietnam War-era defoliant.430 These chemical ingredients had both mil-itary and commercial applications, although the manufacturers marketed thecommercial version in a diluted form.431 The contractors at the sites in ques-tion produced and delivered undiluted Agent Orange to the U.S. militaryduring the 1960s pursuant to high priority contracts that effectively allowedcontractors to obtain materials more quickly for production.432 The UnitedStates did not buy or obtain title to the precursor chemicals.433 The

421. Id. at 486–87.422. Id. at 483 & n.1.423. Id. at 485.424. Id.425. Id. at 487.426. Id. at 486–87.427. Id. at 486.428. Maxus Energy Corp. v. United States, 898 F. Supp. 399, 404 (N.D. Tex. 1995) (noting

that Maxus is the successor of prior owners of the Newark, New Jersey, facility, including Di-amond Shamrock and Occidental).429. United States v. Vertac Chem. Corp., 46 F.3d 803 (8th Cir. 1995)430. Id. at 807; Maxus, 898 F. Supp. at 401–02.431. Maxus, 898 F. Supp. at 402; Vertac Chem., 46 F.3d at 807.432. Vertac Chem., 46 F.3d at 806–07; Maxus, 898 F. Supp. at 402, 403 (noting that the U.S.

government issued Diamond Alkali a priority rating on its contracts to expedite delivery of pre-cursor chemicals from subcontractors necessary for Agent Orange).433. Maxus, 898 F. Supp. at 403; Vertac Chem., 46 F.3d at 807, 811.


contracts did not specify any particular production process.434 The UnitedStates did not hire, fire, discipline, or manage the contractors’ employees.435

The U.S. government had no permanent onsite inspectors.436 The U.S. gov-ernment occasionally performed quality-assurance inspections focused onconformance with product specifications and labeling, but not on waste dis-posal activities.437

A byproduct of Agent Orange production is dioxin.438 Federal and stateenvironmental regulators ordered site cleanups decades after contract per-formance, and the contractors in turn sued the United States for CERCLAcontribution.439 The question presented was whether the United Statesqualified as a CERCLA “operator” or “arranger” under these factual circum-stances,440 and, in each instance, the court concluded that the CERCLA li-ability standard had not been met.441

The two courts in the 1995 Agent Orange cases applied the 1994 FMC “sub-stantial control” test to determine CERCLA operator liability because Bestfoodshad not yet been decided.442 However, even under the broader FMC standard,the United States never exerted sufficient control to qualify as a CERCLA “op-erator” or “arranger” at either site.443 The evidence showed the U.S. govern-ment’s involvement to be “sporadic and minimal.”444 The contract priorityrating system did not rise to the level of “commandeering” the private manufac-turing facilities.445 The contractors failed to show that the United States partic-ipated in the management and daily operations of the plant for purposes ofCERCLA “operator” liability,446 and they also failed to show that the UnitedStates owned the raw materials or dictated the manner of disposal necessaryfor CERCLA “arranger” liability.447 The relationship between the U.S. gov-ernment and the Agent Orange contractors, the court reasoned, was fairly

434. Maxus, 898 F. Supp. at 402.435. Id.; Vertac Chem., 46 F.3d at 807.436. Vertac Chem., 46 F.3d at 809.437. Maxus, 898 F. Supp. at 402–03; Vertac Chem., 46 F.3d at 807.438. See Maxus, 898 F. Supp. at 405.439. Id. at 404 (noting that Maxus sought recovery of approximately $31.5 million in past

cleanup costs and unspecified future costs).440. Id.441. Id. at 407, 408; Vertac Chem., 46 F.3d at 809, 811.442. Maxus, 898 F. Supp. at 408; Vertac Chem., 46 F.3d at 808–09.443. Maxus, 898 F. Supp. at 408; Vertac Chem., 46 F.3d at 808–09 (“[W]e hold that it cannot

genuinely be disputed that the United States was never actively involved on a regular basis in,and thus never exerted substantial control over, operations at the Jacksonville facility while Her-cules was producing Agent Orange.”).444. Vertac Chem., 46 F.3d at 811.445. Maxus, 898 F. Supp. at 405 (stating that Maxus alleges the United States “effectively

commandeered the Newark Plant for use in the national defense effort”).446. Id. (holding the United States not liable as a CERCLA operator because it did not par-

ticipate in facility’s management or daily operations).447. Maxus, 898 F. Supp. at 405, 407; United States v. Iron Mountain Mines, Inc., 881

F. Supp. 1432, 1451 (E.D. Cal. 1995) (“No court has imposed arranger liability on a partywho never owned or possessed, and never had any authority to control or duty to dispose of,the hazardous materials at issue.”); Vertac Chem., 46 F.3d at 811.


described as being that of an ordinary “buyer-seller.”448 Once again, as in EastBay Municipal, the U.S. government’s market and regulatory powers alone didnot create CERCLA liability.449

The U.S. government now argues in the GOCO context that, as in theAgent Orange cases, the United States was merely in a “buyer-seller” rela-tionship with its GOCO contractors around the country and is therefore ex-empt from CERCLA liability at those GOCO sites.450 There are multipleproblems with that argument, but chief among them is that none of theAgent Orange cases is a GOCO case. In fact, when the United States pro-posed constructing a dedicated GOCO plant for Agent Orange production,then-existing producers roundly objected and stated their privately ownedchemical facilities could do the job.451 Accordingly, the United States“held no financial ownership interest in the land, buildings, tools, machineryor other equipment used by [the Agent Orange manufacturers].”452

4. Privately Owned Shipyard Cases Are Divided

Shipyards present a common non-GOCO factual scenario where privateindustry supports wartime government contract work that is later linked tolegacy facility contamination. Contamination of the shipyard sediments typ-ically results from painting or the removal of paints from ships.453 The casesare divided in this situation.

State of Washington454 concerned a 100 percent privately owned—and nowclosed—shipyard that did both commercial and military work.455 The Navyused the shipyard for repair services and small boat construction operationsduring wartime.456 The State of Washington and a former shipyard ownersued the United States for contribution as a CERCLA “operator,” citingthe Navy’s past onsite supervision of shipyard operations, financing, use ofgovernment-owned equipment, and general awareness of shipyard wastes.457

448. Maxus, 898 F. Supp. at 406–08 (finding that the United States-contractor relationship “isone of buyer and seller,” the United States merely facilitated the acquisition of critical ingredients,and never owned the chemicals and thus the byproducts); Vertac Chem., 46 F.3d at 810–11.449. Vertac Chem., 46 F.3d at 810.450. See generally Theurer, supra note 60, at 511 (“The ordinary contractual relationship be-

tween buyer and seller will not result in government liability.”); Patrick E. Tolan Jr., Environ-mental Liability Under Public Law 85-804: Keeping the Ordinary Out of Extraordinary ContractualRelief, 32 PUB. CONT. L.J. 215, 282–83 (2003) (explaining how a buyer-seller relationship be-tween the government and contractor places CERCLA liability on the contractor).451. Maxus, 898 F. Supp. at 407–08 n.6 (noting that Diamond joined forces with its fellow

herbicide manufacturers in lobbying the United States to decide against producing AgentOrange in its own phenoxy herbicide facility).452. Maxus, 898 F. Supp. at 402; accord Vertac Chem., 46 F.3d at 807.453. State of Wash. v. United States, 930 F. Supp. 474, 474, 482–83 (W.D. Wash. 1996).454. State of Wash., 930 F. Supp. 474.455. Id. at 477, 482 (explaining that shipyard work was a combination of commercial and

Navy work).456. Id. at 484.457. Id. at 483–84.


Although only one cost-plus-fixed-fee contract could be located,458 theNavy admitted that it had utilized the shipyard’s services and acted as an ul-timate consumer of ship repair services for Navy minesweepers and harbortugs during World War II.459 The United States did not change any ofthe shipyard’s procedures and conducted none of the work.460 The shipyardgenerated and handled its waste in the same manner before and during thewar.461 To the extent U.S. government inspectors worked at the shipyardon an intermittent basis, they focused exclusively on efficiency and cost con-trol.462 In short, the U.S. government controlled none of the activities lead-ing to pollution.463 The U.S. government limited its role to that of a stan-dard commercial consumer of shipyard services.464

State of Washington pre-dates Bestfoods, but it remains useful to the UnitedStates today because it did not follow FMC and ultimately found no govern-ment operator liability.465 The State of Washington court openly noted thecompeting “actual control” and “authority to control” CERCLA “operator”tests that had been used by other courts, but observed that the tests all seemto boil down to the following common sense standard: “Active involvementin the activity that produces the contamination is what is required for ‘oper-ator’ liability.”466 The State of Washington court held that the United Statesdid not become actively involved in the day-to-day shipyard activities thatproduced the contamination.467 As a result, the United States bore noCERCLA operator liability at the shipyard.468

State of Washington demonstrates one possible outcome for a closed ship-yard with no current strategic value to the U.S. government. Active shipyardsof more immediate strategic importance are treated differently. In 2015, theNavy accepted approximately thirty-three percent liability for the past andfuture cleanup of two active and strategically important private San Diegoshipyards that performed both military and commercial work.469 Notably,

458. Id. at 484.459. Id.460. Id. at 485.461. Id.462. Id.463. Id.464. See id. (comparing the United States to any other customer at the shipyard).465. Id.466. Id. at 483.467. Id. at 485.468. Id. (“Viewing the totality of the evidence depicting the circumstances as a whole at the

Shipyard during the war years, the United States cannot be considered to have been actively in-volved in the day-to-day activity that produced the contamination.”).469. Order at 32, City of San Diego v. Nat’l Steel & Shipbuilding Co., No. 09-cv-02275-

WQH-JLB (S.D. Cal. July 10, 2014) (stating that the Navy agreed to pay a “minimum” of$21,189,454 in an anticipated $65,500,000 cleanup (32.3%), and between twenty-eight andthirty-three percent of any future costs above and beyond that budgeted amount).


these two San Diego shipyards are the only active shipyards on the WestCoast available to work on large Navy ships.470

The U.S. government’s dramatically different CERCLA liability and allo-cation outcomes in factually analogous shipyards are reminders of the starkdifference in closed versus active facilities and their relative importance toongoing military programs. If the U.S. government still needs the contami-nated facility to manufacture a product or deliver services, it is much morelikely to accept CERCLA liability and a substantial allocation of environ-mental remediation costs.471

5. “Failure in the Evidence” CERCLA Liability Cases

The U.S. government has advanced United States v. Taylor472 and Miami-Dade County v. United States473 in the CERCLA liability context in cases involv-ing military procurement and defense manufacturing facilities, but they arebest described as “failure in the evidence”-type cases that prevented a findingof CERCLA owner or operator liability for the United States.474 In Taylor, theUnited States (through the EPA) and the State of Michigan sought recoveryfrom multiple potentially responsible parties (PRPs) at a contaminated1950s-era Michigan industrial facility that was 100 percent privately ownedand had a thirty-five-year history of various commercial uses.475 The westernside of the site manufactured 105-mm artillery shells for the Army over a five-year period.476 No other government connection existed.

The former manufacturer went bankrupt in 1975 and abandoned thewestern side of the site—where the government contract work had takenplace—in horrible condition.477 The eastern side continued commercial op-erations for another ten years before it too was abandoned.478 The PRPsbeing sued by U.S. regulators counter-claimed against the Army, alleging

470. See U.S. DEP’T OF TRANSP., MARITIME TRADE & TRANSPORTATION 76–77 (2007) (statingthat National Steel and Shipbuilding Company (NASSCO) and BAE Systems shipyards are theonly major San Diego shipyards available for Navy use); see also Ronald D. White, Full SteamAhead for NASSCO Shipyard in San Diego, L.A. TIMES ( July 3, 2011), http://articles.latimes.com/2011/jul/03/business/la-fi-made-in-california-shipyard-20110703 [https://perma.cc/G3QS-LXVJ] (describing NASSCO as “the West Coast’s last major shipyard” and one ofonly six active shipyards nationally).471. The thirty-three percent CERCLA allocation at two active San Diego shipyards of

NASSCO and BAE in City of San Diego v. National Steel & Shipbuilding Co., No. 09-CV-2275,2014 WL 3489282 (S.D. Cal. July 10, 2014), compares to the ninety percent U.S. allocation as-sumed at the strategically important AFP 42 in Tucson where aircraft missile manufacturing oc-curs to this day.472. United States v. Taylor, No. 1-90-CV-851, 1993 WL 7600996, at *1 (W.D. Mich.

Dec. 9, 1993).473. Miami-Dade Cty. v. United States, 345 F. Supp. 2d 1319 (S.D. Fla. 2004).474. See generally Exxon Mobil Corp. v. United States, 108 F. Supp. 3d 486, 521–533 (S.D.

Tex. 2015); Miami-Dade Cty., 345 F. Supp. 2d at 1340.475. See Taylor, 1993 WL 7600996, at *1, *5.476. Id. at *1–2.477. Id. at *2.478. Id.


it was liable as a CERCLA “operator” and “owner” of the western side of thesite where military projectiles had been made.479

Taylor pre-dates both Bestfoods and FMC. The Taylor court noted multiplestandards for CERCLA operator liability in the case law480 and ultimatelychose to apply a “prevention test” similar in substance to the “authority tocontrol” test in order to assess the Army’s operator liability.481 The Taylorcourt found the Army lacked the authority under the government contractsto control operations at the facility or its waste-handling practices.482 Withrespect to owner liability, while the Army once owned some of the equip-ment used to manufacture the artillery rounds,483 the court did not find suf-ficient evidence of government ownership of any pollution-causing equip-ment necessary to impose CERCLA “owner” liability.484 The evidence inTaylor simply failed.

In 2001, Miami-Dade County sued the United States for CERCLA con-tribution in the cleanup of TCE at the Miami International Airport.485 Thecounty owned the airport and acted as the landlord for over 100 commercialtenants that used TCE for aviation-related work.486 The United Statesowned the airport for six years from 1942 to 1948, and the Air Force leasedportions of the airport as a military reserve base from 1948 to 1961.487 Thecounty’s theory of liability focused on one defense contractor (Aerodex) thatwas a county tenant and once overhauled and repaired Air Force engines.488

Miami-Dade County repeatedly failed to carry its burden of proof onbasic evidentiary matters.489 Only four “partial” U.S.-Aerodex contractscould be found because Aerodex was bankrupt and most records had beenlost.490 The county could not show any TCE usage during the period ofU.S. airport ownership or lease.491 No proof existed that the United Statesever used TCE at the site,492 and there was no evidence the Air Force reim-bursed Aerodex for TCE use on federal work.493 No evidence was offered

479. Id. at *17.480. Id. at *7–8.481. Id. at *18 (defining the “prevention test” as “whether the Army had either the authority

and power or the control of operations or actual involvement such that it had the ability to pre-vent the releases or threatened releases of hazardous substances at the site”).482. Id. at *18.483. See id. at *18–19.484. Id. at *19–20 (glossing over the contracts’ Title-Vesting Clause and possible government

ownership of the chemical by-products, holding “there is insufficient evidence to show that thegovernment owned or should have had responsibility for the hazardous materials left on theproperty”).485. Miami-Dade Cty. v. United States, 345 F. Supp. 2d 1319, 1324 (S.D. Fla. 2004).486. Id. at 1327–28.487. Id. at 1324, 1327.488. Id. at 1328.489. Id. at 1351–52.490. Id. at 1328, 1330.491. Id. at 1337–38.492. Id. at 1337.493. Id. at 1350.


that TCE from former United States-owned parcels was the source of con-tamination,494 and any U.S. contamination would have contributed little tothe county’s cleanup.495

The Miami-Dade County court applied Bestfoods to conclude that theUnited States is not liable as a CERCLA “operator.”496 The United Statesadmitted liability as a CERCLA “owner”497 based on its temporary airportownership, but the evidence proved so thin that the court could not even sus-tain an equitable allocation against the U.S. government on that basis.498 Inshort, the county’s case was so flawed that it simply could not obtain an eq-uitable allocation from the U.S. government, even with the U.S. govern-ment’s admitted “owner” liability.499 The U.S. government’s reliance onthese “failure in the evidence” cases is still at odds with the basic operationalhistory at GOCO facilities.

6. U.S. Funding to Temporarily Convert an Underutilized PrivateAutomobile Factory for Military Weaponry Does Not Make theUnited States a CERCLA “Operator”

Rospatch Jesso Corp. v. Chrysler Corp., another pre-Bestfoods CERCLA liabil-ity decision, stems from a privately owned Michigan automobile plant con-verted temporarily during the KoreanWar to supply military aircraft engineswith the help of federal loans.500 The current plant owner (a furniture man-ufacturer) incurred CERCLA cleanup costs and sued the past owner (an au-tomobile manufacturer), which in turn sued the Air Force for contribu-tion.501 The Rospatch court addressed whether the United States qualifiedas a CERCLA “owner or operator” of the Michigan plant and concludedthe CERCLA operator standard had not been met.502

Rospatch is not a GOCO case, and no privity of contract ever existed be-tween the current owner and the United States.503 A heavily indebted auto-mobile manufacturer from the 1950s accepted substantial U.S. loans to con-vert its underutilized plant into a facility to manufacture Air Force aircraftand engines during the Korean War.504 The automobile manufacturer oper-ated under both production and facilities use contracts because the UnitedStates provided surplus equipment and machinery to produce the militaryengines.505 The U.S. government also funded the contractor’s equipment

494. See id. at 1338.495. Id.496. See id. at 1346.497. Id. at 1336.498. Id. at 1340.499. Id. at 1342.500. Rospatch Jessco Corp. v. Chrysler Corp., 962 F. Supp. 998, 999–1000 (W.D. Mich.

1995).501. Id. at 999.502. Id.503. Id. at 1000.504. Id..505. Id. at 1000–01.


purchases.506 The equipment and machinery remained government-owneduntil their return upon the conclusion of contract performance and theplant’s sale in 1954.507 During the contract performance period, the U.S.government retained one inspector at the plant.508

Against this factual background, the Rospatch court granted the UnitedStates summary judgment on CERCLA “operator” liability but not onCERCLA “owner” liability.509 The Rospatch court acknowledged this casepresented a close call: the degree of U.S. involvement fell somewhere be-tween FMC (where the United States is found to be a CERCLA “operator”of a privately owned rayon plant) and Vertac (where the United States is notan operator of a privately owned Agent Orange plant).510 The Rospatch courtreasoned that the converted plant lacked evidence of FMC’s “substantial con-trol”511 or Vertac’s “actual control.”512 Specifically, the Air Force never im-pinged on management,513 there was no U.S. involvement in the design orownership of the plant, and no Air Force involvement in plant managementor engine production.514 Because the United States supplied government-owned equipment, however, the Rospatch court kept alive the issue of whetherthe United States is a CERCLA “owner.”515 The lesson of Rospatch is thatheavy U.S. loans to convert an underutilized commercial plant for militarywork does not in and of itself create CERCLA “liability.”

7. TDY Holdings, LLC v. United States

In 2007, TDY Holdings sued the United States for an equitable allocationof CERCLA costs for the cleanup of a manufacturing site in San Diego.516

The facility was owned by the Port of San Diego—not the U.S. governmentor the contractor.517 Ryan Aeronautical and its successors manufactured mil-itary aircraft and parts at the site from World War II until 1999.518 The ma-jority of the work was in support of U.S. military contracts.519 Californiaregulators ordered the contractor to remediate polychlorinated biphenyls(PCBs) (in oils and capacitors), chromium (from metal coating), and chlori-nated solvents (from metal degreasing).520

506. Id. at 1001.507. Id. at 1001–02.508. Id. at 1005.509. Id. at 1002, 1006, 1009.510. Id. at 1005.511. Id.512. Id. at 1005–06.513. Id. at 1005 (noting that the contractor made all decisions, and the Air Force did not

supervise or report to the U.S. government on a day-to-day basis).514. Id. at 1006.515. Id. at 1009.516. TDY Findings of Fact and Conclusions of Law, supra note 134, at 1, 3, 27.517. Id. at 1.518. Id. at 1–2, 4 (noting that the site remained an active manufacturing site from 1939 to 1999).519. Id. at 1–2.520. Id. at 2.


TDY Holdings based its entitlement for contribution from the UnitedStates on CERCLA “owner” liability.521 The U.S. government admitted itonce owned equipment at the site, some of which was related to the legacycontamination.522 The court concurred that both the contractor and UnitedStates were CERCLA “owners.”523 After a twelve-day bench trial, however,the court found the contractor 100 percent liable for past and future costsunder a CERCLA “operator” theory and because, in the court’s discretion,it “is the most relevant factor in allocating costs.”524

The contractor followed industry standards prevalent at the time, did notdemonstrate disregard of the environment, and no singular catastrophicevent caused the contamination.525 It is undisputed that the United Statesowned certain manufacturing equipment and observed the production pro-cesses.526 However, the United States-owned equipment was removedtwenty years before operations at the site ceased.527 It mattered not at allto the court that the United States owned the chemicals used in the processor that the government supplied equipment that released contaminants.528 Italso ultimately did not matter that “for decades there was no perceived ur-gency to clean up solvent as its hazardous nature was unknown.”529 Whatmattered most to the TDY Holdings court was the contractor’s “mainte-nance” obligations, its failure to maintain the facility and equipment, andits “careless storage practices.”530

The contractor did not seek a determination of U.S. liability as a CERCLA“operator,”531 but the court nonetheless applied Bestfoods to find no such lia-bility for the U.S. government at the TDY Holdings site.532 The UnitedStates inspected for quality but did not supervise plant management or haveresponsibility for plant maintenance or waste management.533 The U.S.government did not order, coerce, or force the site to operate as a militarydefense plant.534 The court never discussed any risk allocation features ofany contracts.

521. Id. at 2–3.522. TDY Holdings, LLC v. United States, 122 F. Supp. 3d 998, 1004, 1014 (S.D. Cal. 2015)

(e.g., electrical transformers, hydraulic presses, and processing tanks).523. Id. at 1013.524. Id. at 1003, 1013, 1022525. Id. at 1004.526. Id.527. Id. at 1014 (noting that CERCLA owner liability for the United States at the TDY

Holdings site is limited to the period between 1939 and 1979).528. Id. (“[T]he critical issue for an equitable allocation under CERCLA is control over the

disposal of the contaminants at the [s]ite, not which party held title to the contaminants.”).529. Id. at 1019.530. Id. at 1004, 1009–10, 1012, 1015, 1017–20 (citing TDY Holdings’ maintenance short-

comings over ten times in the opinion).531. Id. at 1015.532. Id. at 1017.533. Id. at 1015.534. Id. at 1016.


The TDY Holdings court treated the relationship between the contractorand the government for equitable allocation purposes as a “mutually benefi-cial” standard commercial relationship unchanged by the obvious defensepurpose or military products.535 The case has been appealed and is set fora 2017 oral argument.536 Significantly, between ninety and one hundred per-cent of all past cleanup costs has been allocated to the government throughoverhead reimbursement,537 and nothing in the decision would alter thatcontract-based recovery pathway.

8. Summary of the Non-GOCO CERCLA Cases Favored by theUnited States

The non-GOCO cases most favored by the United States in the GOCOcontext typically focus on “operator” liability issues and have certain com-mon facts that limit their influence and applicability. The cases generallystand for the unobjectionable proposition that CERCLA operator liabilitydoes not make sense if the level of U.S. involvement is limited to a role ofmarket regulator or an ultimate product consumer similar to that of any com-mercial purchaser. That rationale makes sense in those circumstances be-cause purchasers in standard buyer-seller transactions are generally not liableas CERCLA “operators” for legacy contamination at aging manufacturingplants. GOCO cases, by definition, are built on a different model and havefar more substantial levels of government involvement. None of the cases re-lied upon by the United States in GOCO allocation settlements or lawsuitsdigs deep into the GOCO model or the risk allocation set forth in facilitiesuse or procurement contracts, as discussed below.

C. Pathway No. 2: Direct Contractor Reimbursement Under PreviouslyPerformed Government Contracts

Two established pathways exist today for contract-based reimbursementof later-arising CERCLA liabilities: (1) post-World War II terminationagreements that incorporate the terms of the Contract Settlement Act of1944, and (2) the Taxes Clause, provided that government contract clauseincludes key terminology. These two contractual pathways both involve con-tracts performed decades ago and fall under the exclusive jurisdiction of theU.S. Court of Federal Claims by virtue of the Tucker Act.538 There is no

535. Id. at 1022.536. TDY Holdings, LLC v. United States, No. 15-CV-56483 (9th Cir. Sept. 28, 2015) (ap-

peal docketed).537. TDY Holdings, 122 F. Supp. 3d at 1020.538. The U.S. Court of Federal Claims has exclusive jurisdiction for contract claims above

$10,000 involving the United States pursuant to the Tucker Act, which dates back to 1887. Com-pare 28 U.S.C. § 1491 with 28 U.S.C. § 1346(a) (2012), which gives the district courts and U.S.Court of Federal Claims concurrent jurisdiction on claims at or below $10,000.


Contract Dispute Act statute of limitations barrier because of the age of therelevant contracts pre-date 1995.539

The first pathway of contract-based recovery of CERCLA liabilities wasforged through two seminal 2004 U.S. Court of Federal Claims and FederalCircuit cases, DuPont540 and Ford.541 The second pathway under the TaxesClause followed years later in the U.S. Court of Federal Claims and the Fed-eral Circuit and involved the Shell542 and ExxonMobil543 “avgas” cases. Theseparallel U.S. Court of Federal Claims and Federal Circuit pathways and re-late specifically to a contractor’s affirmative recovery rights against the U.S.government, and for that reason are distinguishable from the contract-baseddefenses available to contractors in fending off recovery by the United States,such as the “Liability for Facilities” Clause upheld by a federal court in 2012in United States v. ConocoPhillips.544

1. Contract Dispute Act Reimbursement Cases: Recovery of Later-ArisingCERCLA Liabilities Under the Contract Settlement Act of 1944

Both DuPont and Ford involve a similar fact pattern. Following an alloca-tion of CERCLA environmental liabilities under federal or state law, thecontractor, using long-expired contracts, successfully sued the United Statesfor 100 percent recovery of those CERCLA costs under the Contract Dis-pute Act. Of note, this pathway provides direct reimbursement and does not

539. The Contract Disputes Act’s six-year statute of limitations does not apply retroactivelyto claims based on contracts that pre-date 1995. As the U.S. Court of Federal Claims most re-cently explained in Salt River Pima-Maricopa Indian Community v. United States, 86 Fed. Cl. 607,611 (2009) (internal citations omitted):

The Federal Acquisition Streamlining Act of 1994 (FASA) amended the CDA to requirethat any claim brought under the CDA be initiated with a contracting officer within six yearsof the accrual of such claims. . . . Section 10001 of the FASA stated that the amendments con-tained in the act would be implemented in a manner prescribed in regulations promulgatedpursuant to the FASA. . . . The Office of Federal Procurement Policy (OFPP) subsequentlyissued a rule in the Federal Acquisition Regulation (FAR) implementing the FASA’s amend-ments. . . . The relevant Federal Acquisition Regulation requires that “[c]ontractor claimsshall be submitted, in writing, to the contracting officer for a decision within 6 years after ac-crual of a claim, unless the contracting parties agreed to a shorter time period. This 6-yeartime period does not apply to contracts awarded prior to October 1, 1995.” . . . As enacted,the FASA also was silent as to the retroactivity of the statute of limitations and left it to theOFPP to decide whether or not to implement retroactively. The OFPP decided not to makethe statute of limitations retroactive, and as a result, the statute of limitations does not apply tocontracts entered into before October 1, 1995.

See also Sucesion J. Serralles, Inc. v. United States, 46 Fed. Cl. 773, 783 (2000) (“The regulationsdenied retroactive application of the six-year statute of limitations to contracts awarded beforeOctober 1, 1995.”).540. E.I. DuPont de Nemours & Co. v. United States, 365 F.3d 1367 (Fed. Cir. 2004).541. Ford Motor Co. v. United States, 378 F.3d 1314 (Fed. Cir. 2004).542. Shell Oil Co. v. United States, 751 F.3d 1282, 1290 (Fed. Cir. 2014).543. See Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576, 581 (2011).544. United States v. ConocoPhillips Co., No. W-11-CV-167, 2012 WL 4645616, at *5

(W.D. Tex. Sept. 30, 2012). ConocoPhillips is important because it is the only case decidedthus far where the World War II-era government contract barred later-arising CERCLA liabil-ity against the contractor.


create an overhead burden associated with indirect reimbursement under theallowability rules. These two 2004 Federal Circuit cases explain how directcontract reimbursement of later-arising CERCLA liabilities using old con-tracts is feasible, although both cases called upon creative arguments to over-come difficult Anti-Deficiency Act hurdles.

In DuPont,545 DuPont initiated a Contract Dispute Act action to recoverCERCLA costs incurred decades after the performance of a single 1940cost-plus-fixed-fee contract that was terminated in 1946.546 A contaminatedgovernment-owned munitions plant had been acquired, built, and operatedfor the exclusive benefit of the United States by DuPont in 1940 in Morgan-town, West Virginia, pursuant to a government contract.547 In 1946, theU.S. government terminated the contract and entered into a “supplementaltermination agreement” that could not be found, but which the court in-ferred would have contained standard language from the Contract Settle-ment Act of 1944.548 The Contract Settlement Act provided authority to ter-minate war contracts and outlined the methods to reimburse governmentcontractors and subcontractors under consistent standards.549

In 1984, four decades after World War II, the EPA requested that DuPontperform a voluntary cleanup.550 The contractor entered into a consent decreein 1990 before filing a claim under the Contract Dispute Act in 1993 for reim-bursement of over $1.3 million in previously allocated CERCLA liabilities.551

After exhausting its administrative remedies under the Contract Dispute Act,DuPont sued the United States in the U.S. Court of Federal Claims.552

The DuPont GOCO contract contained a standard “reimbursement”clause for the costs to construct the government-owned munitions plantthat would be operated by DuPont.553 The terminated contract also con-tained an indemnity provision.554 Both the trial court and the Federal

545. E.I. DuPont de Nemours & Co., 365 F.3d at 1367.546. Id. at 1369–70.547. Id. at 1369; E.I. DuPont de Nemours & Co. v. United States, 54 Fed. Cl. 361, 363

(2002).548. The standard language of the supplemental termination agreement provided an “Un-

known Claims Clause” whereby the cost-plus-fixed fee “shall cease and be forever released ex-cept: Claims by [the contractor] against the Government which are based upon responsibility of[the contractor] to third parties and which involve costs reimbursable under the contract, butwhich are not now known to [the contractor].” DuPont, 365 F.3d at 1370 & n.3.549. See Sen. James Murray, Contract Settlement Act of 1944, 10 LAW & CONTEMP. PROBS. 683,

686 (1944).550. E.I. DuPont de Nemours & Co., 54 Fed. Cl. at 363–64.551. Id. at 364.552. E.I. DuPont de Nemours & Co., 365 F.3d at 1371.553. The GOCO cost-plus-fixed-fee contract provided:

The Contractor shall be reimbursed in the manner hereinafter described for such of its ac-tual expenditures in the performance of the work under this contract, heretofore or hereafterincurred, as may be approved or ratified by the Contracting Officer and as are included in thefollowing items: . . . Losses, expenses, and damages, not compensated by insurance or otherwise . . . .

Id. at 1369–70 (emphasis added).554. The Morgantown GOCO’s Indemnification Clause provided in relevant part:


Circuit concluded that all later-arising CERCLA costs were reimbursableunder the broad contract language of the terminated cost-plus-fixed-fee con-tract.555 The Federal Circuit reasoned that the supplemental terminationagreement (authorized and based upon the Contract Settlement Act of1944) kept those CERCLA claims alive decades later.556 Not even theAnti-Deficiency Act557 could alter the outcome because the Contract Settle-ment Act’s open language regarding claims that are “not now known,” whichhad been incorporated into the supplemental termination agreement, pro-vided the necessary statutory authorization to recognize the ongoing federalobligation to pay the contractor decades after contract termination.558

A few months after DuPont, the Federal Circuit in Ford again consideredwhether a contractor can recover its later-arising CERCLA costs under gov-ernment contracts terminated after World War II.559 In overruling an ad-verse lower court decision, the Federal Circuit held that long-expiredGOCO contracts provide an appropriate avenue to recover legacy environ-mental liabilities.560

In 1941, at the U.S. government’s direction and under the terms of aCPFF contract, Ford constructed the “Willow Run Bomber Plant” to man-ufacture B-24 “Liberator” bombers.561 At the time, it was the world’s largestbomber plant.562 The massive facility was built with government funds andleased back to the contractor through the end of World War II.563 The plant

It is the understanding of the parties hereto, and the intention of this contract, that allwork under this Title III is to be performed at the expense of the Government and thatthe Government shall hold [DuPont] harmless against any loss, expense (including expenseof litigation), or damage (including damage to third persons because of death, bodily injuryor property injury or destruction or otherwise) of any kind whatsoever arising out of or in con-nection with the performance of the work . . . .

Id. at 1370.555. E.I. DuPont de Nemours & Co., 54 Fed. Cl. at 372; E.I. DuPont de Nemours & Co., 365 F.3d

at 1372–73.556. See E.I. DuPont de Nemours & Co., 365 F.3d at 1374 (noting that the government obli-

gations to make DuPont whole “remains in effect”).557. The Anti-Deficiency Act dates back to 1870. As currently codified at 31 U.S.C. § 1341,

the Anti-Deficiency Act prohibits members of executive branch from making any contractualcommitments binding future congressional appropriations without statutory authority to doso. A contractual indemnity with the federal government that lacks statutory authorization isvoid. See Nat’l Gypsum Co., ASBCA. Nos. 53259, 53568, 03-1 BCA ¶ 32,054, at 158,452(2002) (holding that because indemnification clause in World War II era contract was “unlim-ited in amount, and not otherwise authorized by law, it violated the Anti-Deficiency Act and theExecutive Order under which the contract was entered into”).558. See E.I. DuPont de Nemours & Co., 365 F.3d at 1379–80.559. Ford Motor Co. v. United States, 378 F.3d 1314, 1314 (Fed. Cir. 2004).560. Ford Motor Co. v. United States, 56 Fed. Cl. 85, 98 (2003), overruled by 378 F.3d at

1320.561. Ford Motor Co., 378 F.3d at 1315.562. See PATTILLO, supra note 11, at 139; see also Scott Held, Volunteers Vow They Will Replace

Vintage Collection, NEWS-HERALD (Oct. 13, 2004), http://www.thenewsherald.com/news/volunteers-vow-they-will-replace-vintage-collection/article_0b2a92a5-7fa0-5557-bbe7-bd607e94caef.html [https://perma.cc/7AC7-5ZWW].563. Ford Motor Co., 378 F.3d at 1315.


focused on defense-related aircraft manufacturing for only four to fiveyears.564 The bomber contract was terminated upon the conclusion ofWorld War II.565 Like so many other GOCO plants of the era, the WillowRun plant used chemicals, metal coating treatments, and sludge ponds forthe byproducts of defense manufacturing.566

Nearly five decades later, in 1988, the State of Michigan and the EPA pur-sued CERCLA cost recovery against Ford and at least six other Willow RunPlant GOCO contractors for environmental liabilities arising from the perfor-mance of World War II government contracts.567 In a 1997 arbitration, Fordwas allocated a 9.763% CERCLA liability share for the cleanup of WillowRun Plant.568 After quantifying its CERCLA liability, Ford sought reimburse-ment of its costs under the 1946 “termination contract” and the Contract Set-tlement Act of 1944.569 The contractor exhausted its administrative remediesand then filed a complaint in the U.S. Court of Federal Claims.570

The DuPont and Ford cases are factually similar in that the original CPFFcontracts that built the GOCO facilities were terminated by the governmentat the conclusion of the war and supplemented by a 1946 termination agree-ment governed by the Contract Settlement Act of 1944. Both terminationagreements incorporated critical language from the Contract Settlement Actthat kept the door open for reimbursement of costs that were “not nowknown” at the time of termination.571 Citing its seminal DuPont decisionfrom the same year, the en banc Federal Circuit held that, as long as a termina-tion contract included the “not now known” language drawn from the Con-tract Settlement Act, “there is no temporal limit” on when a contractor’s liabil-ities must accrue for reimbursement purposes, provided the origin of the later-arising CERCLA costs relates to the performance of the GOCO contract.572

The Federal Circuit held the government contracts obligated the U.S.government to reimburse its former contractor fully for any later-arisingCERCLA environmental costs, even if those liabilities accrued fifty-plusyears after the government contract had been terminated: “We concludethat Ford’s claim for reimbursement is not barred merely because the orig-inating events are long past, for the liability for cleanup did not arise until

564. Id.565. Id.566. Id.567. Id.568. Id.569. Id. at 1316.570. Id.571. The Ford-Air Force termination agreement provided:

Claims of the Contractor against the Government which are based upon responsibility ofthe Contractor to Third parties . . . and which involve costs reimbursable under the Con-tract . . . but which are not now known to the Officers, Directors, or other personnel ofthe Contractor whose duties include the acquisition of such knowledge.

Id. at 1318.572. Id. at 1319–20.


after the enactment of CERCLA and other environmental laws, and theclaim was timely made after it arose.”573

Contract Dispute Act cases such as DuPont and Ford make clear that themunitions and aircraft manufacturing contracts entered (and terminated) insupport of World War II authorize the “direct” reimbursement of all “later-arising” CERCLA costs, even though incurred by the contractor decadeslater.

2. Contract Dispute Act Reimbursement Cases: Contract Recovery ofLater-Arising CERCLA Liabilities Under the “Taxes Clause”

Not all government contracts have the dual benefit of relating to WorldWar II-era production and having been terminated under the Contract Set-tlement Act of 1944, i.e., features that side-step the Anti-Deficiency Act andtrigger reimbursement of claims “not yet known.” If the Contract SettlementAct of 1944 offered the only opportunity for direct contract recovery forCERCLA liabilities, a limited number of contractors would benefit. A sec-ond contract-based theory gained acceptance in 2014 after a procedurally bi-zarre multi-year battle with the United States that involved multiple appealsand remands between the U.S. Court of Federal Claims and the FederalCircuit.574

In two factually similar “avgas” refinery cases, the U.S. Court of FederalClaims twice addressed the novel issue of government contract liabilityunder the “Taxes Clause” for a contractor’s later-arising CERCLA liabil-ity.575 Neither case involved Contract Settlement Act issues, and thus an al-ternative pathway for recovery needed to be developed. In both cases, thecourt held that government-imposed CERCLA cleanup costs, even if in-curred decades after the applicable production contracts expired, qualify asa recoverable “charge” or “tax,” as those terms are traditionally defined instandard government contracts.576

The first case to address the Taxes Clause theory of recovery was Shell.577

In 2006, Shell and other oil companies filed a Contract Dispute Act lawsuitagainst the United States following an extended CERCLA litigation.578

Whereas the Ninth Circuit had already adjudged the United States to be100 percent liable for direct payments under CERCLA for benzol wastes,

573. Id.574. Shell Oil Co. v. United States, 751 F.3d 1282 (Fed. Cir. 2014).575. See Shell Oil Co. v. United States, 93 Fed. Cl. 439 (2010), vacated, 672 F.3d 1283 (Fed.

Cir. 2012); Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576, 580 (2011).576. See Shell Oil Co., 93 Fed. Cl. at 444; Exxon Mobil Corp., 101 Fed. Cl. at 580.577. There is a complicated case history for the Shell Taxes Clause case. See Shell Oil Co. v.

United States, 80 Fed. Cl. 411, 413 (2008); Shell Oil Co. v. United States, 86 Fed. Cl. 470, 471(2009); Shell Oil Co., 93 Fed. Cl. 439, vacated, 672 F.3d 1283.578. Compare Shell Oil Co. v. United States, 672 F.3d 1283, 1285 (Fed. Cir. 2012) with

United States v. Shell Oil Co., 294 F.3d 1045, 1045 (9th Cir. 2002) (deciding CERCLA alloca-tion for the McColl, California site).


the Shell contract case sought 100 percent contract reimbursement for non-benzol CERCLA liabilities.579

The two contractors in Shell had produced aviation gas from 1942 to 1943pursuant to ten contracts and sought reimbursement for $18 million inCERCLA remediation costs that had been imposed by California andthe EPA for the cleanup of its waste streams.580 The court held that theCERCLA cleanup costs are reimbursable post-production “charges” underthe “Taxes Clause.”581 The Taxes Clause states: “ [A]ny new or additionaltaxes, fees, or charges, other than income, excess profits, or corporate franchisetaxes, which [contractor] may be required by any municipal, state or federal lawin the United States or any foreign country to collect or pay by reason of theproduction, manufacture, sale or delivery of the [avgas].”582

In Exxon Mobil, the second Taxes Clause case, Judge Smith noted that thecontractor’s predecessors had produced a form of high-octane aviation gasnecessary to national defense pursuant to three 1942–43 government con-tracts.583 In 1987 and 1995, state regulators ordered the cleanup of theWorld War II-era byproducts of this avgas production.584 The Taxes Clausein these 1942–43 contracts was identical to that in Shell, requiring govern-ment reimbursement for “taxes” and any new or additional “charges.”585

The ExxonMobil court held the term “charges” in the Taxes Clause includesenvironmental cleanup costs.586 The very purpose of the clause, the courtreasoned, is “to remove the potential risks any reasonable producer would bereluctant to take on.”587 In so doing, the court dismissed all Anti-DeficiencyAct, untimeliness, laches, and other government defenses.588 Without expresslycalling the liability to be assumed by the government a “cost of war,” the courtstated that war-related risks should be borne by the U.S. government.589 Thetrial court granted Exxon Mobil summary judgment on the issue of govern-ment contract liability for the cleanup.590

The Federal Circuit ultimately vindicated Judge Smith’s Shell and Exxon-Mobil decisions.591 The Federal Circuit noted upon the seventieth anniver-sary of World War II how “we must recall and place into its appropriate

579. Shell Oil Co. v. United States, 751 F.3d 1282, 1290 (Fed. Cir. 2014).580. Shell Oil Co., 80 Fed. Cl. at 412–14.581. Id. at 416–17.582. Shell Oil Co., 751 F.3d at 1290 (emphasis added).583. Exxon Mobil Corp. v. United States, 101 Fed. Cl. 576, 578 (2011).584. Id. at 579.585. Id. at 578 (emphasis added).586. Id. at 579–80.587. Id. at 581.588. Id. at 580.589. Id. at 581 (“ExxonMobil entered into the Avgas Contracts with the Government to fa-

cilitate the war effort, and the Government’s need for excessive amounts of avgas prompted theGovernment to insure ExxonMobil’s production costs.”).590. Id.591. See Shell Oil Co. v. United States, 751 F.3d 1282, 1285 (Fed. Cir. 2014). On remand, the

Court of Claims awarded the oil companies over $99 million for CERCLA costs and the U.S. gov-ernment’s breach of the Taxes Clause. Shell Oil Co. v. United States, __ Fed. Cl. __ (Jan. 6, 2017).


context the atmosphere of stark determination for victory at all costs, whichdrove our war effort after the Japanese Empire attacked. . . .”592 The FederalCircuit held the term new or additional “charge” in the Taxes Clause “must beinterpreted to require reimbursement for the Oil Companies’ CERCLA costsarising from avgas production.”593 The Federal Circuit also rejected the gov-ernment’s Anti-Deficiency Act arguments.594 The gross inequity of shiftingnational defense liabilities onto a handful of surviving GOCO contractorsthat answered the nation’s call was not lost on the U.S. Court of FederalClaims and Federal Circuit in theDuPont, Ford, ExxonMobil, and Shellmatters.

D. Pathway No. 3: “Allowable” Indirect Reimbursement via Overhead onCurrent and Future Contracts

Today’s federal procurement contracts may indirectly fully fund cleanupcosts at contaminated GOCO and non-GOCO facilities under governmentcontract allowability rules and cost accounting standards. Cleanup costs aredeemed a cost of doing business that, subject to limited exceptions, contractorsmay pass on to their government “customers.” It matters not whether the con-tractor or the government is liable under CERCLA—it is purely a function ofthe cost of producing goods at a price that the government desires.

Charging cleanup costs through overhead is an important option availableto contractors, and it is typically the mechanism contractors resort to duringthe years of cleanup before CERCLA allocation is negotiated or litigated.Contract overhead reimbursement has its disadvantages, however, becauseit makes the contractor’s products more expensive and therefore less compet-itive. Stated differently, the hidden costs of past defense products are makingtoday’s more expensive. At sites with high cleanup costs, over-reliance uponoverhead reimbursement can make the contractor’s business non-viable. Atsites with lower cleanup costs, overhead tends to be a more efficient pathwaythan CERCLA or Contract Dispute Act litigation.

1. Legal Standard for Allowability

The FAR establishes the contractual authority by which the governmentobtains the goods and services it requires, and it has the force of law.595 Ac-cording to the FAR, a cost is allowable if it is “reasonable,” “allocable” togovernment contracts, and not specifically unallowable.596 In the specific

592. Id. at 1284.593. Id. at 1296 (noting the U.S. government’s “near-complete authority” over the plants and

the grand bargain of “low profits in return for the Government’s assumption of certain risks”).594. Id. at 1299, 1301–02 (explaining that the First War Powers Act, as delegated to the avgas

oversight agency, was sufficient authorization for future charges under the Taxes Clause).595. Statement of Interest of the United States of America, United Techs. v. Am. Homes Assur-

ance Co., No. 292-cv-267-JBA (D. Conn. filed May 11, 2001), ECF No. 1445 [hereinafter FirstStatement of Interest]. The First Statement of Interest is attached as an exhibit to the Second State-ment of Interest, see infra note 618 and accompanying text. The pages are filed out of sequence, butthe relevant pages of the First Statement of Interest can be found at ECF page 11 and 16.596. FAR 31.201-2(a).


context of “environmental costs,” the Defense Contract Audit Agency(DCAA) instructs that “costs incurred to clean up environmental contamina-tion are considered to be normal business expenses.”597 DCAA has promul-gated a number of guidelines for applying the FAR where government con-tractors incur environmental costs as part of their business.598

DCAA cost allowability standards for environmental costs follow the gen-eral cost accounting rule of reasonableness.599 The DCAA Contract AuditManual (CAM) explicitly recognizes that, as a matter of policy, “[e]nviron-mental costs are normal costs of doing business and are generally allowablecosts if reasonable and allocable.”600 Allowable environmental costs arebroadly defined to include “costs to prevent environmental contamination,costs to clean up prior contamination, and costs directly associated withthe first two categories including legal costs.”601 These allowability guide-lines are favorable for contractors.602 Industry standards at the relevanttime of the release of contamination provide the crucial benchmark for re-covery: a “contractor should not be denied recovery of clean-up costs, if itcomplied with the laws, regulations, and permits in effect at the time of thecontamination.”603

Pursuant to the DCAA guidelines, environmental cleanup costs are speci-fically unallowable where the “environmental clean-up costs are the result ofcontractor violation of laws, regulations, orders or permits, or disregard ofwarnings for potential contamination. . . .”604 There must, however, be afinding of contractor wrongdoing. To disallow cleanup costs, DCAA in-structs that the evidentiary burden is on the government to show by a “pre-ponderance of the evidence” that the contractor “violated the law, regula-tion, order or permit, or the contractor disregarded warnings for potentialcontamination. That is, it must be more likely that the government’s allega-tion of wrongdoing is correct than it is not.”605

The U.S. government has routinely considered environmental remedia-tion costs to be allowable at GOCO facilities and contractor-owned facilitiesoperated in support of defense programs. In fact, the DoD has acknowledgedthis very point to the GAO: there are “currently no additional limitationson the allowability of contractor environmental cleanup costs” under theFAR.606 Therefore, “[w]hen no contractor malfeasance exists, the [FAR]

597. DEFENSE CONTRACT AUDIT AGENCY, DCAAM 76140.1, DCAA CONTRACT AUDIT MAN-

UAL § 7-2120.3 (2015).598. See generally id. at § 7-2120.599. Id. at § 7-2120.5.600. Id. § 7-2120.1.601. Id. § 7-2120.2.602. See id. §§ 7-2120.6, 7-2120.7 (allowing cleanup costs for a closed site to be transferred as

overhead for the contractor’s new location).603. Id. § 7-2120.13(e) (emphasis added).604. Id. § 7-2120.13(a).605. Id. § 7-2120.13(d).606. BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 43.


allowability criteria dictate that the government should pay for its fair shareof environmental cleanup costs.”607 To date, no GOCO contractor has beendenied outright the right to recover its cleanup costs for legacy contamina-tion at a GOCO facility based upon a theory of “contractor wrongdoing.”

2. Applicable Case Law on Environmental Cost Allowability

Based upon a review of the available case law from the Armed ServicesBoard of Contract Appeals (ASBCA), other Boards of Contract Appeals,and the U.S. Court of Federal Claims, to date not a single case existswhere a contractor’s costs for environmental cleanup has been held to be un-allowable based upon standard industry practices. Further, no published caselaw exists applying the exception for contractor unlawful actions in a fashionto deny across-the-board a contractor’s cleanup costs based upon a retroac-tive application of today’s commercial standards.

There is one U.S. Court of Federal Claims case which, albeit indirectly,considers the allowability of environmental cleanup costs and finds infavor of the contractor. In KMS Fusion, Inc. v. United States, the governmentcontractor brought a breach of contract action against the U.S. Departmentof Energy (DOE) in connection with a research and development project in-volving highly radioactive tritium for use in fusion technology.608 At the out-set of trial, the DOE conceded the allowability of costs for environmentalremediation.609 The remaining issues went to trial and both the contractorand the DOE prevailed on various claims.610

Subsequent to the judgment in the underlying lawsuit, the contractor filedan application seeking attorney fees and expenses pursuant to the Equal Accessto Justice Act (EAJA)611 and the U.S. government’s initial disallowance ofcleanup costs.612 The contractor alleged that the DOE’s failure to settle timely“the issue of whether plaintiff ’s claim for reimbursement of $359,610.00 in-curred for site studies and environmental remediation . . . was reasonableand allowable” was unjustified.613 The DOE argued that its litigation positionwas reasonable because the “plaintiff had engaged in ‘environmental wrong-doing’ during the period at issue.”614 The court rejected the DOE’s unsup-ported “speculation and innuendo”: “As a starting point, [DOE] was unableto produce evidence supporting its allegation of environmental wrongdoing.Second, [contractor] asserts correctly that [DOE] was unable to produce anypertinent statute or regulation supporting its contention.”615

607. Id.608. KMS Fusion, Inc. v. United States, 39 Fed. Cl. 593, 596–97 (1997).609. Id. at 597, 599.610. Id.611. 28 U.S.C. § 2412; KMS Fusion, 39 Fed. Cl. at 593.612. KMS Fusion, 39 Fed. Cl. at 593.613. Id. at 599.614. Id.615. Id. (emphasis added).


The court further criticized the government for “unnecessarily invokingthe specter of [CERCLA].”616 Based on these findings, the court held thatthe DOE’s allegation against the contractor “was not substantially justified”and that the contractor was thus entitled to an award of its attorney fees pur-suant to the EAJA.617

Additionally, in statements of interest filed in United Technologies Corp.,the U.S. government itself represented in federal court that environmentalcleanup costs are allowable.618 The U.S. government filed the statement ofinterest to object to an insurance company’s attempt to shift the costs of en-vironmental remediation onto a government contractor and, by extension,the government itself.619 The contractor had been reimbursed through over-head for cleanup costs through its government contracts, and the insurancecarrier argued that any recovery under its policy to the contractor wouldconstitute impermissible “double recovery.”620

The U.S. government argued that federal procurement law prohibitedan insurer from offsetting its insurance obligations for cleanup, owed to agovernment contractor policyholder, from amounts that the contractor re-ceived for environmental cleanup from the government through forwardpricing (i.e., overhead).621 In doing so, the U.S. government defined “costs”to “[i]nclude both direct costs . . . and indirect costs. . . . Environmental reme-diation costs are indirect costs.”622 The U.S. government explained that it “has al-lowed [environmental remediation costs] to be incorporated into the prices ithas paid under negotiated government contracts through their inclusion inoverhead cost pools that are separately applied to thousands of underlyingcontracts.”623 Thus, the DoD explicitly has taken the position that “environ-mental remediation costs are indirect costs” that are allowable.

VI. LOCKHEED V. UNITED STATES: A TEST CASE ON THE

INTERACTION OF “INDIRECT” OVERHEAD AND ALLOWABILITY

VERSUS “DIRECT” CERCLA REIMBURSEMENT

Lockheed Martin Corp. v. United States624 served as a particularly importanttest case for defense contractors seeking to recover environmental responsecosts from the government. The case was recently decided in favor of the

616. Id.617. Id. at 600.618. See First Statement of Interest, supra note 595; Second Statement of Interest of the

United States of America, United Techs. v. Am. Homes Assurance Co., No. 292-CV-267-JBA (D. Conn. filed Aug. 23, 2001), ECF No. 1445 [hereinafter Second Statement of Interest].The relevant pages of the Second Statement of Interest can be found at ECF page 22 and note 8.619. First Statement of Interest, supra note 595, at 1–2, ECF p. 1–2.620. United Techs. Corp. v. Am. Home Assurance Co., 237 F. Supp. 2d 168, 171 (D. Conn.

2001).621. First Statement of Interest, supra note 595, at 1–2, ECF p. 1–2.622. Second Statement of Interest, supra note 618, at 5 n.8, ECF p. 22 n.8.623. Id. at 14, ECF p. 24.624. Lockheed Martin Corp. v. United States, 833 F.3d 225 (D.C. Cir. 2016).


contractor. The key issue presented in Lockheed is the potential overlap of directCERCLA reimbursement to a defense contractor (Pathway No. 1 above625)with indirect reimbursement via allowability (Pathway No. 3 above626). TheUnited States argued that indirect allowability of environmental costs acts asan absolute defense for the United States against CERCLA claims by its con-tractors, i.e., allowing such claims to proceed would result in an impermissible“double recovery.” Alternatively, the United States argued that it should be en-titled to a dollar-for-dollar credit in a CERCLA allocation action for any pre-viously allowable costs it has paid its contractor.627

A. Background Facts of Lockheed I and II

Lockheed involves a claim for CERCLA contribution by a defense contrac-tor against the United States with respect to three sites in southern Califor-nia used to develop and manufacture rocket systems in Cold War rocket pro-grams for approximately twenty years.628 None of the three sites at issue inLockheed was a traditional GOCO facility—two were privately owned andone was city-owned.629

Lockheed’s predecessor, the Lockheed Propulsion Company,630 workedprimarily as a subcontractor to Boeing under five subcontracts to theShort Range Attack Missile program.631 As a subcontractor, Lockheed’s pre-decessor did not routinely operate in direct contractual privity with theUnited States. Lockheed’s predecessor researched, developed, and manufac-tured solid rocket propellant and large solid propellant motors exclusively insupport of Cold War defense and space program work.632 President Eisen-hower declared various missile and space programs, including the programson which Lockheed’s predecessor worked, to be “highest priority.”633

The industrial operations utilized at the Lockheed sites involved flushing(i.e., “hogging out”) propellant using water and solvents and the use of“evaporation pits” and “burn pits” for wastes.634 These practices, whichwere standard industry practices at the time, resulted in soil and groundwater

625. See discussion supra Part V.A.626. See discussion supra Part V.D.627. Opening (Proof ) Brief of the United States, Lockheed Martin Corp. v. United States,

No. 14-5302 (D.C. Cir. filed Apr. 15, 2015), ECF No. 1547460 [hereinafter United States Open-ing Brief].628. Lockheed Martin Corp. v. United States, 664 F. Supp. 2d 14, 15 (D.D.C. 2009) [Lock-

heed I]; Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 98, 101 (D.D.C. 2014)[Lockheed II], aff ’d, 833 F.3d 225 (D.C. Cir. 2016).629. See Lockheed I, 664 F. Supp. 2d at 15; Lockheed II, 35 F. Supp. 3d at 98, 101.630. Lockheed I, 664 F. Supp. 2d at 15 n.1 (explaining that Lockheed Propulsion Company

was a division of Lockheed Aircraft Corporation, which became Lockheed Corporation in1977 and ultimately Lockheed Martin Corporation in 1995).631. Lockheed II, 35 F. Supp. 3d at 102–03.632. Id. at 98–99 (stating that Lockheed supported four space programs––Vanguard, Ex-

plorer, Mercury, and Apollo––and President Eisenhower designated the Mercury and Apolloprograms to be the “highest national priority”).633. Id. at 99.634. Id. at 105.


contamination.635 The government controlled the specifications for theproduct, but it did not provide direction to Lockheed’s predecessor.636

The U.S. government attended daily status meetings, but the meetings didnot discuss waste disposal.637 The U.S. government acquiesced in the day-to-day disposal activities, but it did not manage or control waste disposalat the three sites.638 Both Boeing (as the general contractor) and the UnitedStates (as the customer) supplied onsite inspectors.639

Upon discovery of contamination in the 1980s, state and federal regulatorsordered Lockheed to perform an investigation and later a cleanup.640 TheU.S. government’s involvement and presence at the three Lockheed facilitieshad concluded years before the contamination first became known,641 andtherefore, the California regulators focused exclusively on Lockheed to imple-ment the work.642 Lockheed initially rejected but then accepted responsibilitybased upon a closer evaluation of the contaminants involved that tied closelyto the facilities’ past practices.643 Lockheed estimated an aggregate of over$411 million in past and future cleanup costs at the three sites.644

Lockheed and the Defense Contract Management Agency (DCMA) ne-gotiated an advance agreement called the Discontinued Operations Settle-ment Agreement (DOSA) to address the allowability of cleanup costs at nu-merous Lockheed-related defense facilities, including the three closedsouthern California facilities.645 Procedurally, the cleanup costs were col-lected into accounting pools at the corporate level and then spread over aportfolio of contracts for five years.646 Under the advance agreement, thepercentage of indirect cleanup costs passed on to U.S. government contractswould correlate with the U.S. government’s share of Lockheed’s annualbusiness.647 The DOSA expressly prohibited double recovery and mandatedreimbursement to the United States if that occurred.648 Lockheed remainedobligated to credit the overhead pool for any direct payments to Lockheed of

635. Id. at 135–36 (noting that the specific groundwater contaminants at issue were notknown to be environmental dangers at the time, and pouring wastes on the bare ground was “en-tirely consistent with the general standards of care in existence at that time”).636. Lockheed II, 35 F. Supp. 3d at 102.637. Id. at 102–03.638. Id. at 150.639. Id. at 104 (stating that Boeing had twenty full-time and the United States had four to five

full-time inspectors at the Redlands Lockheed facility, and the United States leaned on Boeingfor inspections at Lockheed facilities, none of which involved risks of environmental pollution).640. Id. at 106.641. Id. at 101, 106–07.642. Id. at 106–07.643. Id. 106, 109 (explaining that Lockheed eventually accepted responsibility because the

Lockheed facility was the only source of ammonium perchlorate in the watershed).644. Id. at 105 (noting that as of 2014, Lockheed estimated $287 million in past and $124

million in future cleanup costs at the three facilities).645. Id. at 111–12.646. United States Opening Brief, supra note 627, at 15.647. Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 111–12 (D.D.C. 2014)

[Lockheed II], aff ’d, 833 F.3d 225 (D.C. Cir. 2016).648. Lockheed II, 35 F. Supp. at 112.


cleanup costs.649 In short, the higher the overhead pool, the higher Lock-heed’s costs for bidding purposes would be; conversely, the lower the over-head pool, the lower the cost of goods for the U.S. government.650

The DOSA essentially allowed Lockheed to recover approximatelyeighty-three percent of its defense-related environmental cleanup costs atthese three non-federally owned southern California facilities.651 The re-maining seventeen percent related to non-federal work and would presum-ably be passed on to Lockheed’s non-federal customers through overheadon those private contracts.652 Ordinarily, having eighty-three percent of ananticipated $411 million cleanup funded by the government would be con-sidered a spectacular result.653 However, nearly a decade after Lockheed en-tered the advance agreement, the escalating costs of cleanup at the threeclosed southern California facilities made the contractor’s overhead and itscost of production higher than anticipated relative to its competitors.654

Notwithstanding its advance agreement, the contractor sued the UnitedStates under CERCLA seeking to convert its high overhead costs (madehigher by the nearly $287 million in past cleanup costs) into direct CERCLApayments to be assumed by the United States that would improve the con-tractor’s ability to win future business. Lockheed did not fare well.

B. Lockheed I (Double Recovery Defense)

Lockheed was filed in 2008 and initially assigned to Judge Robertson in theU.S. District Court for the District of Columbia.655 The United States movedfor summary judgment on “double recovery” grounds, arguing that the DOSAprecluded Lockheed from obtaining any further recovery from the govern-ment under CERCLA.656 The government contended that CERCLA sec-tion 114(b)657 prevents Lockheed from further recovery because contractoverhead payments in accordance with the FAR are “pursuant to any otherFederal or State law.”658

Judge Robertson rejected the government’s “double recovery” defense, dis-tinguishing “government-as-client” indirect contract costs from “government-

649. Id.650. Id. at 117 (citing Judge Robertson’s analysis in Lockheed I).651. See United States Opening Brief, supra note 627, at 9 (stating that Lockheed will recover

eighty-three percent, or $341 million of $411 million in past and future cleanup costs).652. Lockheed II, 35 F. Supp. 3d at 97, 112 n.25 (explaining that non-federal work included

commercial, foreign, state, and educational work).653. See United States Opening Brief, supra note 627, at 1.654. See id. at 16 (asserting that any CERCLA recovery would be applied by Lockheed to “re-

duce the price of future contracts for all of Lockheed’s customers, including the United States”).655. Docket at 48, Lockheed Martin Corp. v. United States, No. 1:08-CV-01160, 35

F. Supp. 3d 92 (D.D.C. 2014).656. See Lockheed Martin Corp. v. United States, 664 F. Supp. 2d 14, 15, 18, 20 (D.D.C.

2009) [Lockheed I].657. 42 U.S.C. § 9614(b) (2012) (“Any person who receives compensation for removal costs

or damages or claims pursuant to any other Federal or State law shall be precluded from receiv-ing compensation for the same removal costs or damages or claims as provided in this chapter.”).658. Lockheed I, 664 F. Supp. 2d at 18.


as-PRP” direct CERCLA liability payments.659 No windfall could exist, in thecourt’s eyes, because the FAR has a Credits Clause whereby CERCLA recoveryis credited back to the United States,660 and the DOSA explicitly bars doublerecovery.661 Judge Robertson grasped the anti-competitive consequences ofover-reliance on “government-as-client” indirect contract reimbursement asthe only available contractor recovery pathway. The court reasoned:

[Although Lockheed] might be able to recover all of its response costs as indirectcosts on its government contracts [. . . ,] proceeding in that way makes Lockheedless competitive in future contests for government contracts, because its need torecover response costs through indirect cost payments would require inflatedand possibly non-competitive bids.662

On the government’s motion for reconsideration on its “double recoverydefense” under CERCLA section 114(b), Judge Robertson elaborated thatreimbursement payments under the DOSA that are otherwise compliantwith the FAR do not make the payments “pursuant to . . . Federal law.”663

The court considered the U.S. government’s arguments to the contrary tobe “far-fetched and unpersuasive,” and any examples of unfair burdens tothe taxpayers would be considered in the equitable allocation stage.664

C. Lockheed II (CERCLA Allocation)

Judge Robertson retired in 2010 after issuing his opinion denying theU.S. government’s “double recovery” defense in Lockheed I.665 Judge Huvellehandled the CERCLA allocation phase of the case.666 Lockheed II is impor-tant because it is the first and only case thus far to consider the impact ofallowability payments in the context of a CERCLA allocation action involv-ing the government.667 Lockheed II offers no shortage of cautionary lessonsfor contractors, but first among them is that the contractor’s belated selec-tion (or alteration) of a particular pathway for recovery can have significantlegal consequences. If not thought out in advance and handled properly, acontractor’s selection of remedies can lead to a quagmire of “double

659. Id. at 20.660. See FAR 31.201-5, which states: “The applicable portion of any income, rebate, allow-

ance, or other credit relating to any allowable cost and received by or accruing to the contractorshall be credited to the Government either as a cost reduction or by cash refund.”661. Lockheed I, 664 F. Supp. 2d at 19.662. Id. at 20.663. Memorandum Order at 3–4, Lockheed Martin Corp. v. United States, No. 1:08-cv-

1160, ECF No. 43 (D.D.C. Feb. 18, 2010).664. Id. at 5 (“Equitable considerations may be raised and dealt with later.”).665. See History of the Federal Judiciary, FED. JUDICIAL CTR., http://www.fjc.gov/servlet/

nGetInfo?jid=2026&cid=999&ctype=na&instate=na [https://perma.cc/4NCV-3T6Y] (last vis-ited July 6, 2016); Lockheed I, 664 F. Supp. 2d at 20.666. See Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92 (D.D.C. 2014) [herein-

after Lockheed II], aff ’d, 833 F.3d 225 (D.C. Cir. 2016).667. Lockheed II, 35 F. Supp. 3d 92 at 110 & n.21 (stating that the issue is one of “first im-

pression” and “looms large in any case where a major government contractor can sue the gov-ernment for recovery of environmental response costs under CERCLA”).


recovery” challenges that leave the contractor (and others in the industry) ina weakened position.668

The primary issue presented in Lockheed II is whether a traditional CERCLAallocation between a defense contractor and the U.S. government could be“equitably” adjusted based on the contractor’s prior recovery of remediationcosts as allowable indirect costs.669 Judge Huvelle started the CERCLA alloca-tion analysis with a fifty-fifty per capita baseline allocation between Lockheedand the United States.670 The court then performed a “traditional equitableallocation” using the “Gore” and “Torres” factors.671 The court evaluated therelative benefits to the United States of the rocket work, the degree of controlof waste handling under Bestfoods, the degree of cooperation, the government’sownership of the wastes under the contracts, the ownership of property andequipment, compliance with existing laws, and various contract provisions.672

Judge Huvelle concluded that under the traditional equitable allocation analysis,the United States would be liable for twenty percent of past and future costs atthe LaBorde Canyon site, twenty-five percent of past and future costs at thePotrero Canyon site, and thirty percent of past and future costs at the Redlandssite.673

Regarding the impact of allowability, Judge Huvelle agreed with JudgeRobertson that no risk of “double recovery” arose as a consequence of allow-ing Lockheed to recover CERCLA response costs from the government.674

Judge Huvelle observed that the “government has been complicit in design-ing the very [indirect cost recovery] system about which it so bitterly com-plains.”675 However, even though no double recovery existed, the courtnoted three examples of unfair “economic benefit” or “windfalls” to Lock-heed that would occur absent an equitable adjustment. Specifically, Lock-heed would recover $10 million in attorney fees incurred in bringing itsCERCLA action against the U.S. government, $18 million dollars in man-datory prejudgment interest under CERCLA, and “substantial” additionalprofit under its fixed-priced contracts with the government.676 Based on

668. See United States Opening Brief, supra note 627624, at 14, 16–18, 23 (alleging thatLockheed’s CERCLA lawsuit is an “overt attempt” to “recover the exact same response costsfrom the United States twice,” citing time-value of money complications, incomplete crediting,increased profits on fixed-price contracts, windfalls of pre-judgment interest, and attorney’sfees).669. See Lockheed II, 35 F. Supp. 3d at 110.670. Id. at 132.671. Id. at 132–33.672. Id. at 132–53.673. Id. at 153.674. Id. at 155 (“Thus, there is no ‘double recovery’ in the traditional sense because Lockheed

cannot recover more in response costs than it initially paid, and there is little potential for a wind-fall to the plaintiff from the crediting system.”).675. Id. at 156.676. Id. at 159–61. The DOSA allowability percentages applied to both cost-plus and fixed-

price type contracts with the U.S. government and did not take into account the potential for asignificant CERCLA recovery from the U.S. government at some point in the future. If Lock-heed received a share of past response costs from the United States, a significant percentage of


these three examples of “economic benefit” and because what is recoverableunder one system is not perfectly congruent with the other, the Lockheed IIcourt equitably reduced the U.S. government’s share of past cleanup costsat all three sites to zero.677 The U.S. government’s “traditional equitableallocation” of future costs remained largely intact, although the Lockheed IIcourt reduced this allocation by a “small equitable adjustment” of one per-cent at each site to reflect Lockheed’s high percentage of long-term fixed-price contracts.678 At the end of the Lockheed II court’s analysis, the UnitedStates was held liable under CERCLA for no past costs, and nineteen per-cent, twenty-four percent, and twenty-nine percent in future costs at thethree sites.679

D. The Lockheed I and Lockheed II Appeal

The United States was generally pleased with the Lockheed II CERCLAallocation outcome, but it continued to believe that Lockheed was improp-erly obtaining a “double recovery” of cleanup costs through allowability thatexceeded its nineteen percent to twenty-nine percent allocation.680 It ap-pealed.681 According to the U.S. government, the United States was ad-judged responsible for up to twenty-nine percent of the environmentalcleanup costs at the site, but it found itself reimbursing Lockheed for moreof the cleanup through allowability.682 As a result, Lockheed’s CERCLAaction against the United States was necessarily an attempt to secure addi-tional recovery “from a party that has already paid more than its fairshare.”683 “Lockheed’s CERCLA suit is plainly an attempt to recover its en-vironmental response costs for a second time.”684 In the government’s view,the trial court erred by (1) not absolutely barring Lockheed’s action underCERCLA’s “double recovery” prohibition, and (2) not fully crediting the pay-ments the United States had already made to Lockheed under allowability(amounting to fifty-five percent of total response costs) against the UnitedStates’ equitable share.685

Lockheed, on the other hand, attempted to substitute one form of reim-bursement for another and walked unwittingly into a “double recovery” trap.Finding itself on the short end of Judge Huvelle’s CERCLA allocation de-cision in Lockheed II was painful enough, but Lockheed now found itself at

those funds would be directed towards reducing Lockheed’s overhead burdens on existing fixedprice contracts, which would, in turn, result in substantially increased profits to Lockheed onthose contracts.677. Id. at 161.678. Id. at 162.679. Id.680. See United States Opening Brief, supra note 627, at 50.681. Id. at 23.682. Id. at 1.683. Id.684. Id. at 38.685. Id. at 22–23.


risk of losing much more, with sweeping ramifications to the entire industry.Oddly enough, Lockheed now had to defend the disappointing CERCLAoutcome in Lockheed II as “acceptable,” hoping not to lose more ground.686

To Lockheed and other contractors, the benefit of direct CERCLA reim-bursement from the United States—no matter the amount—is that it com-pels payment of cleanup costs from the Judgment Fund rather than as addi-tional overhead on the contractor’s existing and future governmentcontracts.687 That reduced overhead burden can, in turn, make the differ-ence between the contractor winning and losing new business. Accordingto Lockheed, the “government’s real complaint about equitable allocationseems to be that it will pay more for cleanup costs under contracts than itis responsible for under CERCLA,” but that “is simply a function of the con-tracting system that the government itself created. . . .”688

Lockheed aptly described the potential consequences:

[A] ruling for the government would punish government contractors that have along history of cooperation with the United States on projects critical to the na-tional defense, by requiring them to increase the costs of their goods and servicesto account, not only for their own share of CERCLA cleanup costs, but also forthe government’s.689

Lockheed was not alone in its opposition to the United States’ “doublerecovery” argument: the entire defense industry mobilized and aligned toprotect the “government contracting marketplace.”690 Industry groupsframed the core issue more broadly:

Put simply, the portion of remediation costs for which the government is respon-sible as a PRP is analytically distinct from the portion of the costs that are attrib-utable to the contractor’s operations. The former should be paid by the govern-ment outside of the government’s contracts with Lockheed, while the lattershould be included in the contractor’s indirect cost pools as permitted underthe Federal Acquisition Regulations.691

The D.C. Circuit ultimately sided with Lockheed and the defense indus-try, rejecting the “double recovery” arguments.692 While the court was sym-pathetic to the government’s argument and the policy reasons underlyingthat argument, the simple fact was that the district court’s CERCLA judg-ment did not create any sort of “double recovery.”693 Lockheed and the

686. Lockheed Brief, supra note 271, at 68–71, 72 (explaining why, although disappointedwith the CERCLA allocation, Lockheed chose not to appeal in the face of the government’s“win”).687. Id. at 53.688. Id. at 26.689. Id. at 54.690. See Brief of Amici Curiae National Defense Industrial Association and Aerospace Indus-

tries Association of America, Inc. in Support of Plaintiff–Appellee at 5, 15, Lockheed MartinCorp. v. United States, No. 14-5302 (D.C. Cir. filed June 22, 2015), ECF No. 1558991[Amici Curiae Brief].691. Id. at 16.692. Lockheed Martin Corp. v. United States, 833 F.3d 225, 238 (D.C. Cir. 2016).693. Id.


United States were each responsible for their own respective shares ofcleanup costs under CERCLA. But, the United States’ contractual agree-ment to reimburse Lockheed for Lockheed’s share through allowability didnot act to reduce the United States’ continuing liability for the government’sshare under CERCLA.694 The source of the government’s dissatisfactionwas that it played two separate roles in this case: first, as Lockheed’s ongoingcustomer, and second, as a responsible party under CERCLA with a legalduty to pay its own share of cleanup costs.695 As explained by the court:“The reason the government will end up paying far more than its own [nine-teen] to [twenty-nine] percent share of future costs is that it voluntarilyagreed to let Lockheed pass through its share, too.”696

The outcome of the Lockheed cases is important to the recovery of envi-ronmental costs in the defense industry for at least two reasons. First, theD.C. Circuit’s decision confirms that defense contractors can recover theirown environmental costs through allowability—despite the practical draw-backs of that approach—without risking a CERCLA “double recovery” de-fense that would preclude later recovery of the government’s share of re-sponse costs. Second and related, however, is that a contractor’s recoveryof costs through allowability may result in certain “economic benefits”that can later haunt the contractor in a CERCLA equitable allocation pro-ceeding.697 Ultimately, the Lockheed cases affirm that multiple paths areavailable to contractors seeking to recover their environmental costs fromthe government, but the tortured path of the case is a cautionary tale to con-tractors that they must be careful when deciding which path to pursue and—importantly—when to pursue those paths.

VII. U.S. GOVERNMENT GOCO SETTLEMENTS (POST-1997)

A. Government Funding of GOCO Facility Cleanups (Pre-1997)

Through at least 1997, the DoD had consistently funded 100 percent ofGOCO facility environmental cleanup (even at “mixed” privately and pub-licly owned war plants). In 1997, the GAO sharply criticized the DoD forthe escalating costs of GOCO facility cleanups and the lack of any effortby the DoD services to try to recoup these costs in some manner.698

According to the GAO, before 1997, the DoD did virtually nothing toshift the escalating costs of GOCO cleanups onto any of its contractors.699

694. See id. at 235–41.695. Id. at 235.696. Id. at 238.697. Lockheed Martin Corp. v. United States, 35 F. Supp. 3d 92, 156–61 (D.D.C. 2014).698. BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 10 (noting that the DoD

has never followed through with the GAO’s recommendations in 1992 and 1994 for cost recov-ery against government contractors and has no clear policy).699. Id. at 2 (stating that the Army has indemnified its contractor at ammunition plants, the

Navy has done nothing, and the Air Force is only beginning to seek contractor participation incleanup costs).


For example, “Navy officials stated that the Navy is reluctant to pursueGOCO contractors because of concerns they will pass costs back to the gov-ernment as an allowable expense or through overhead charges.”700 The Navy“also said that a divisive liability issue could slow cleanup operations and hurtrelations between the Navy and its contractors.”701 Subsequent history hasproven the Navy to be correct.

The Army looked no further than its own contracts and reasoned that “itwould be inappropriate to hold former contractors liable for the cleanupcosts because contamination resulted not from bad faith or willful miscon-duct, but from industrial practices that used to be considered acceptable.”702

The GAO noted a lack of consistency among the DoD services regarding ef-forts to recover costs from GOCO contractors.703 Unfortunately, the GAOmade no attempt whatsoever to evaluate or reconcile applicable governmentcontracts with its proposed policy. The takeaway from the GAO report wassimply for the DoD to pursue contractors to share costs. The GAO neverfully developed the potential legal and contractual shortcomings of that pol-icy recommendation.

Essentially, the GAO complained that the DoD cleanup costs have con-tinued to escalate and insisted that the DoD had to try something.704 TheDoD reminded the GAO (unsuccessfully) that a contractor’s cleanup costsare 100 percent “allowable,” so cost recovery efforts do little more thanshift costs from one “federal budget” to another.705 Basically, the battlefoisted upon the DoD by the GAO in 1997 boiled down to which “federalbudget” (i.e., environmental or procurement) ought to fund the legacycosts of war.706

Since the 1997 GAO report, the DoD has attempted to shift increasingpercentages of its environmental costs to its contractors, though not alwayssuccessfully. A significant number of contractors informed the governmentthat “cost sharing” would be out of the question.707 The first recovery ofcleanup money on behalf of the Navy occurred a decade later in 2007 in con-nection with the Navy-owned Allegheny Ballistics Laboratory in West

700. Id. at 5.701. Id.702. Id. at 16.703. Id. at 3, 5, 8, 10.704. See generally id.705. Id. at 5–6.706. See id. at 44. The GAO reported in 1997 that the Army followed no GOCO cost-sharing

policies for ammunition plants and generally indemnified its contractors for environmental lia-bilities. Similarly, neither the Navy nor the Air Force had ever obtained any cost-sharing agree-ments through 1997 at its GOCO facilities, and both the Navy and Air Force generally paid allGOCO environmental costs either through direct funding or indirect program overhead. Id.at 16.707. See, e.g., Robert M. Howard, Latham & Watkins, Naval Air Systems Command Dives-

titure of Naval Weapons Industrial Reserve Plant No. 387 ( July 30, 1999) (drafted by author atrequest of Northrop Grumman Corporation and objecting to any “ ‘voluntary’ cost sharing” atNWIRP 387).


Virginia.708 With some exceptions, in the years immediately following 1997negotiated allocations for GOCO facilities generally hovered around aninety percent–ten percent government–contractor split.709 The ten percentallocated to the contractor potentially remained “allowable” or negotiatedaway as consideration for some other benefit.710 The 2008 AFP 44 Arizonasettlement, for instance, reached a ninety percent–ten percent allocation andallowed the contractor’s ten percent share of future costs to be reimbursed asindirect charges.711 On the other hand, the 2008 NWIRP Fridley Minnesotaninety percent–ten percent settlement capped certain reimbursable costscomprising the contractor’s share as part of a larger sale of the facility tothe contractor.712 Over time, however, the government has pushed formore and more allocations against contractors, moving the average alloca-tion closer to fifty–fifty with no overhead reimbursement available for thecontractor’s negotiated share.

The July 2012 settlement at AFP 36 in Ohio is an example of a GOCOsettlement at a “scrambled” facility.713 The Ohio GOCO facility had a com-bination of government-owned and contractor-owned parcels.714 The AirForce owned the southernmost sixty-six acres.715 The entire “EvendalePlant” industrial complex totals about four hundred acres and specializesin aircraft engines.716 At AFP 36, the contractor (General Electric) assumed26.7% of past costs ($4 million of the $15 million in past costs) and thirty-three percent of future costs (estimated to be $13 million of a total of $40million).717

Several factors make the AFP 36 allocation unique. General Electricbought the GOCO facility from the government in 1989 (twenty-six years

708. Jesse Greenspan, Ex-Navy Contractor Pays $13M for Site Cleanup, LAW360 (Nov. 1, 2007),http://www.law360.com/articles/39087/ex-navy-contractor-pays-13m-for-site-cleanup [https://perma.cc/XD9R-G2W9] (“The Department of Justice, which filed a complaint and accompany-ing consent decreeWednesday in the U.S. District Court for the Northern District of West Vir-ginia, said the settlement marked the first time it had recovered environmental cleanup costsfrom a contractor on behalf of the Navy.”).709. In those instances soon after 1997 where a 90%–10% allocation was not followed, the

departure from the norm was attributable to (1) caps imposed on aggregate contractor liability(e.g., NWIRP St. Louis) or (2) the fact that the facility was in the process of being sold to thecontractor, and the allocation reflected the give-and-take of the purchase and sale negotiations(e.g., AFP “PJKS” in Colorado).710. See, e.g., Settlement Agreement and Administrative Order of Consent at 16, Air Force

Plant 44 v. Raytheon Co. (2008).711. See id.712. See Consent Decree at 17–19, 31, United States v. FMC Corp., No. 08-6240 (D. Minn.

Dec. 30, 2008).713. Gen. Elec. Co. v. United States, No. 12-CV-484, slip op. at 1-2, 8, 29 (S.D. Ohio July 2,

2012).714. See id.715. Complaint at 2, Gen. Elec. Co. v. United States, No. 1:12-cv-00484 (S.D. Ohio filed

June 25, 2012).716. Id. at 5 (the U.S. government once owned over 251 acres at the Evendale facility); Press

Release, General Electric Aviation, GE Aviation Renews Long-Term Commitment to Ohio(Nov. 5, 2009) (today’s Evendale facility comprises 400 acres and 10 major buildings).717. Gen. Elec. Co., No. 12-CV-484, slip op. at 2–3.


earlier) for $18.1 million.718 General Electric, however, felt pressure becauseit was funding 100 percent of the cleanup of its privately owned facility andsued the government. The plant had a substantially high percentage of com-mercial work.719 Estimated past and future cleanup costs of approximately$55 million in total also are at the middle to lower end of the aggregatecost scale for contaminated GOCO plants nationally.720

Under the circumstances, General Electric agreed to a higher percentageallocation compared to other GOCO facilities because it meant, at most,$4 million in past out-of-pocket expenses for a facility it already purchasedat a discount in 1989, coupled with the certainty of at least $26 millionfrom the government in future recovery and the possibility of $13 millionmore in indirect reimbursement through contract overhead. The higher con-tractor percentage thus reflected a decision by both parties to structure theagreement to remain silent on whether the contractor’s post-settlementcosts would be deemed allowable. In so doing, General Electric purposelyretained the right to seek such recovery of future costs if otherwise warrantedunder the FAR.

B. The Handful of Post-1997 Environmental Cost-Allocation Agreements forGOCO Plants Still Favor Contractors

Representative DoD settlements and informal environmental cleanup al-locations at other GOCO plants entered into since 1997 are set forth in Ap-pendix A of this article.

VIII. CONCLUSION

The “GOCOmodel” proved to be a silent strategic partner that helped winthe country’s wars. Yet today, the United States is walking away from thatproven structure under pressure by the GAO and others to shift the “costsof war” to the U.S. government’s former contractors. That is a tragic defensepolicy mistake that will eliminate the model’s availability for future use.

The existing allowability rules are a tremendous benefit to the industryand the government, which still needs specialized products and options toobtain those products. Although allowability rules may hurt overhead andcompetitiveness at extremely expensive cleanups, changing course mid-stream can open the doors to “double recovery” arguments. Failing to vigor-ously defend indirect recovery and allowability will encourage the U.S. gov-ernment to look for new ways to undermine this established pathway to payfor the costs of war.

718. Complaint at 6, Gen. Elec. Co., No. 1:12-cv-00484.719. See Air Force Plant 36, GLOBAL SECURITY (May 7, 2011, 2:42 PM), http://www.

globalsecurity.org/military/facility/afp-36.htm [https://perma.cc/K6RT-CC6J].720. See BETTER COST-SHARING GUIDANCE NEEDED, supra note 53, at 34–35 (explaining that

the total cleanup cost at AFP 4 was estimated to be $79.6 million and the total cleanup cost atAFP 44 was estimated to be $90.9 million).


APPENDIX

A:DoD

GOCO

SETTLEM

ENTSAND

LEGACY

ENVIR

ONM

ENTAL

CLEANUP

ALLOCATIO

NS*

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

1.AirForcePlant

“PJK

S,”

Jefferson

County,Colo.

LockheedMartin

Lessthan

sixpercent

(capped

at$3

.5million,and10

0percentallowable

asoverhead)

See

generally

ConsentAgreemen

t,UnitedStatesv.

LockheedMartin

Corp.,No.00

-cv-56

2-DBS,20

00EPAConsentLEXIS

44(D

.Colo.filedMar.14

,20

00).PJK

Sinvolved

a46

4-acre

GOCO,

sold

tothecontractorfor$3

.68million.TheAirForceassumed

$60millionin

estimated

pastandfuture

costs.Thecontractor

assumed

$3.5

millionin

allowable

overheadcosts,capped

at$3

50,000

per

year

fortenyears.

2.AlleganyBallistics

Laboratory,Mineral

County,W

.Va.

(NavyGOCO)

Hercules

AlliantTechsystem

s(ATK)

ATK

(199

5–20

11)

Approx.

fourpercent

(capped

at$3

million

overtenyears,or

$0.3

million

per

year)

Hercules(194

5–95

)

Approx.

sixteen

percent

See

Navy-ATK

Settlem

entAgreemen

tandConsentDecree,United

Statesv.

Hercules,No.07

-cv-87

-REM

(N.D

.W.V.Dec.20

,20

07),

ECFNo.12

.Estim

ated

$79.3millionin

cleanupat

1,57

2-acre

“mixed

use”NavyGOCO.From

1967

to95

,Herculesowned

adjacentmanufacturing“H

ercopel

Plant”

andim

ported

waste

toNavyGOCO.In

anallocationagreem

entwithATK,ATK

agreed

topay

totalcapped

amountof$3

millionin

future

capital

improvemen

tsovertenyears,capped

costsat

$300

,000

annually

intheform

of“allowable

capital

improvemen

texpen

ditures”

overten

years(sim

ilar

toin-kindrent).

TheDecem

ber

2007

settlemen

twithHerculesfor$1

2.95

millionis

unallowable.Totalcontractorcleanupcostsare$1

5.95

million

(twen

typercent)of$7

9millioncleanup.

Continu

ed

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

3.AirForcePlant70

,Sacramen

toand

Azusa,Cal.

Aerojet-Gen

eral

Corporation

Twelve

percent

See

ModificationNo.1to

the29

November

1992

Settlem

ent

Agreemen

tBetweentheUnited

StatesandAerojet-Gen

eral

Corporation§3.2,

Aerojet-G

eneral

Corp.,ASBCANo.40

309,

1998

WL

3598

6918

(ASBCA

Dec.21

,19

98).Eighty-eightpercentof

“SiteRestorationCosts”

allowable

andrecoverable

indirectcosts

inforw

ardpricing.

Contractor’slitigationcostspursuinginsurance

coverage

isallowable.See

Settlem

entAgreemen

t§J(1)

(Nov.

30,

1989

).Over$6

2millionin

costs.United

Statespays$3

6,84

0,00

0in

1989

settlemen

t.Id.§I(A)(1).

Oneormore

facility

contracts

had

indem

nityforhazardous

activities

from

1957

–79.

Aerojetpurchased

AFP70

(liquid

fuel

pocket

manufacturing)

for$7

.5million.AFP70

inSacramen

towas

builtin

1957

comprisedapproximately13

,000

acres(only

one

percentgo

vernmen

t-owned)and37

2,00

0squarefeet

ofbuildings

(only

seventy

percentowned).Governmen

t’sproductionfacilities

highly

integrated

into

contractor’s.AFP70

consisted

of52

.44acres

inRanchoCordova,California.

4.

Naval

Industrial

Reserve

Ordinance

Plant,Fridley,

Minn.

United

Defen

se(FMC)/BAE

Lessthan

tenpercent

Seegenerally

ConsentDecree,UnitedStatesv.FMCCorp.,N

o.0

:08-

cv-062

40-A

DM-JJK

(D.Minn.Dec.30

,20

08),ECFNo.8.

Contractorallocationof$4

.6millionas

aglobal

settlemen

twith

twoNW

IRPFridleycontractors

inconjunctionwith20

04$6

.5million,eigh

ty-acreGOCO

sale

tocontractor(U

nited

Defen

se).Id.at

15–1

6.Estim

ated

$50millionin

pastandfuture

cleanupthough

2020

,mainly

TCEin

groundwater.Only

$850

,000

isdeemed

notreim

bursable

tocontractorto

avoid

double-

counting.

Id.at

17.

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

5.Naval

Weapons

Industrial

Reserve

Plant,St.Louis,Mo.

McD

onnell

Douglas/B

oeing

Fortypercent

(capped

at$1

,973

,714

maxim

um)

See

Naval

WeaponsIndustrial

Reserve

Plant,St.Louis,Missouri

Environmen

talAgreemen

t¶VII

(July

2001

).Contractor’sforty

percentshareapplies

tomaxim

um

facility

cleanupcostsof

$4,934

,285

atNW

IRPSt.Louis,or$1

,973

,714,

allocatedto

the

contractoras

partofGOCO

site

purchaseagreem

entby

contractor.Thecapped

$1,973

,714

amountisnotreim

bursable

under

contracts.

6.AirForcePlant14

,Burbank,

Calif.

LockheedMartin

Fortypercentto

fiftypercentin

past

soilcosts

Fifty

percentin

future

costs

See

ConsentDecree¶¶3.2,

3.4,

4.1,

4.2,

UnitedStatesv.

Lockheed

MartinCorp.,No.97

-cv-42

14-M

RP(C

.D.Cal.Jan.20

,20

00),

regardingsettlemen

tofform

erAFPowned

byLockheedsince

1974

.AFP14

was

aGOCO

from

1947

through

1973

.Governmen

texchangedPlancors

forLockheed’sPlantB-1.Governmen

tpays

contractor$2

65millionin

pastcostsandfiftypercentofestimated

$110

millionin

future

costs.In

1997

,LockheedfiledCERCLA

cost

recovery

suitseeking$5

00million.

7.AirForcePlant83

,Albuquerque,

N.M

.Gen

eral

Electric

Ninepercent

See

ConsentAgreement¶J,UnitedStatesv.

Gen.Elec.Co.,No.09

-cv-545

-JEC

(D.N

.M.Feb.17

,20

10).TheAirForceassumed

ownership

ofthirty-three-acre,thirty-buildingGOCO

facility

in19

67from

AtomicEnergy

Commission.G

eneralElectricperform

edboth

militaryandcommercialwork.GeneralElectricbecam

eowner

offacility

in19

84.TheUnited

Statesassumed

ninety-onepercent

(47.8%

;U.S.Departm

entofEnergy

(DOE)43

.2%)liability,

and

General

Electricassumed

ninepercent.Id.at

3.Totalcleanupcosts

forAFP83

areapproximately$4

million.Ninepercentallocationto

contractordoes

notappearto

beallowable.

Continu

ed

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

8.Naval

Weapons

Industrial

Reserve

Plant,Toledo,Ohio

Teledyn

eApprox.

twelve

percentto

thirteen

percent

See

ProposedConsentDecree,

UnitedStatesv.

TeledyneTech.,Inc.,

No.08

-cv-10

85-D

AK,(D

.Ohio

Apr.29

,20

08).United

States

owned

thirty-acreGOCO

facility

foren

gines

since

1942

.Congress

authorizedno-cost

transfer

ofGOCO

tolocalport

authority

inNovember

2002

andtransfer

tookplace

only

sixmonthsbefore

Navycould

finishcleanup.Teledyn

ehad

beenoperatorfrom

1955

to20

08.Navyassumed

cleanupbefore

transfer

offacility

under

anEconomic

Developmen

tConveyance

toToledo-L

ucasCounty

Port

Authority.Port

Authority

agreed

tocomplete

cleanupunder

Ohio

lawspursuantto

$2.45millionfederal

U.S.Departm

entof

Defen

se(D

oD)grant.United

StatescomplaintallegesNavyspen

t$1

.67millionin

pastcosts,for$4

.12millionin

totalpastandfuture

costs($1.67

million+$2

.45million).Complaint¶12

,UnitedStates

v.TeledyneTech.,Inc.,No.08

-cv-10

85-D

AK,(D

.Ohio

Apr.29

,20

08);ProposedConsentDecree¶12

.Teledyn

e’sallocationis

$525

,000

(12.7%

).Contractorwould

assumecleanupresponsibility

ifPort

Authority

failsto

perform

.Contractors

costswould

be

treatedas

unallowable.ProposedConsentDecree¶27

(b).

9.Naval

Weapons

Industrial

Reserve

Plant,Bloomfield,

Conn.

Kam

anAerospace

Corp.

Approx.

zero

percent

See

Settlem

entAgreemen

tConsentDecree,

UnitedStatesv.

Kam

anAerospace

Corp.,No.08

-cv-79

4-JB

A(D

.Conn.July

10,20

08).In

exchange

forfuture

(andunallowable)cleanupcostsof$6

millionto

$8million,theeigh

ty-five-acreNavyGOCO

facility

isconveyedto

thecontractor.Id.¶¶19

,27

(b),33

.Noother

considerationis

provided.Kam

analso

owned

property

adjoiningNW

IRPand

perform

edacombinationofDoD

andcommercial

work.Priorto

conveyance,United

Statesspen

taboutthreemillion.Id.,

Complaint¶8,

UnitedStatesv.

Kam

anAerospace

Corp.,No.08

-cv-

794-JB

A(D

.Conn.May

23,20

08).First

$7.8

millionin

costsare

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

deemed

unallowable

under

contracts.Kam

anprovides

a$6

.2millionperform

ance

guaranteeanda$6

millionindem

nity

guarantee.

10.

AirForcePlant36

,Evendale,

Ohio

Gen

eral

Electric

26.7%

ofpastcosts

andthirty-three

percentoffuture

costs

See

ConsentDecree¶IV

,Gen.E

lec.Co.v.UnitedStates,No.1

2-cv-

484-MRB,(S.D

.Ohio

July

2,20

12),ECFNo.9.

Gen

eral

Electric

filedCERCLA

suitonJune25

,20

12to

recoverfifteenmillion

dollarsin

cleanupcostsincurred

byGen

eral

Electricbetween20

01and20

11.Sixty-six-acreAFP36

facility

was

owned

byUnited

Statesfrom

1940

to19

89,when

itwas

sold

toGen

eral

Electricin

1989

(twen

ty-threeyearsago)for$1

8.1million.GOCO

Plant

comprisesseventeen

percentandsoutherntipoflarger

400-acre

“EvendalePlant”

industrial

complexowned

byGen

eral

Electric

nearCincinnati.United

Statesagrees

topay

$11millionof$1

5millionin

pastcosts(73.3%

)and

sixty-sevenpercentofall“future

response

costs”

(approximately

$40million)im

posedbytheU.S.Environmen

talProtection

Agency

(EPA)andOhio

EPA.Facilityperform

edmilitaryand

commercial

work.Projected

future

cleanuparound$4

0million.

11.

AirForcePlant44

,Tucson,Ariz.

Raytheon/

Hugh

esLessthan

tenpercent

(capped

attw

enty

milliondollars,and

reim

bursable)

See

AirForcePlant44

Settlem

entAgreemen

t&

Admin.Order

on

Consent¶¶IV

–VI(200

8).T

heAirForcesettlemen

tsetfortha90

-10

allocationagreem

entbetweentheUnited

Statesandthe

contractorforfuture

costs;estimated

pastandfuture

cleanupcosts

exceeded

$130

millionthrough

2030

;1,36

5-acre

active

GOCO

inTucson;R

aytheonto

pay

upto

$23millionmaxim

um

capovertime

(ten

percentshareallowable

pursuantto

Decem

ber

2007

AFO

44“A

dvance

Agreemen

t”¶IV

(c));$5

millionin

pastcostsallocatedto

contractorto

bepaidsemi-annually

overtenyears;upto

$300

,000

per

year

tobepaidbycontractorin

future

costsuntil$2

0million

aggregatecapreached.

Continu

ed

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

12.

Naval

Weapons

Industrial

Reserve

Plant,McG

rego

r,Tex.

HerculesInc.,

(197

8-20

01);

Rockwell

Automation

(195

8–78

)

ConocoPhillips

(195

2–58

)

Sixteen

toeigh

teen

percent

Zeropercent

See

generally

ConsentDecree,

UnitedStatesv.

HerculesInc.,No.11

-cv-267

-WSS(W

.D.Tex.Oct.24

,20

11),ECF.No.2-1.

Form

erW

orldW

arII-era,9

,700

-acreArm

y,AirForce,then

NavyGOCO.

Closedin

1995

andplayedleadingrole

insolidfuel

rocket

motors

(Sidew

inders,Sparrow,Phoen

ix).Twocontractors

pay

$14million

aggregateandjointpaymen

tbytw

ocontractors

toUnited

States

(allunallowable)forpast,present,andfuture

cleanupcosts.

Id.¶6.

Navyreports$5

0millionin

pastcoststhrough

2010

and

rough

ly$2

8millionin

future

costs($78

millionin

total).

Perchlorate

groundwater

contaminationim

pactingdrinkingwater

of50

0,00

0people;form

erly

knownas

BlueBonnet

Ordnance

Plant

andthen

becam

eAFP66

in19

50sandthen

NW

IRPin

1966

.September

30,20

12dismissalofU.S.claimsagainst

contractor

Conoco

Phillips(195

2–58

)under

governmen

tcontractandstatute

oflimitations.

13.

Departm

entof

Energy

GOCO,

Canaan,Conn.

New

England

Lim

eCompany

Twen

ty-three

percent

See

Complaint¶¶10

–25,

Mineral

Techs.Inc.v.

UnitedStates,No.

14-cv-15

67-R

NC,ECFNo.1

(D.Conn.fi

ledOct.2

2,20

14),ECF

No.1;

ConsentDecree¶2,

Mineral

Techs.,

No.14

-cv-15

67-R

NC

(D.Conn.Oct.24

,20

14),ECF

No.11

.Form

erDOE/A

tomic

Energy

CommissionGOCO

owned

byUnited

Statesfortw

enty-twoyears(194

2–64

)and10

0percent

privately

owned

fornextfiftyyears.Facilityproducedmetalsin

support

ofU.S.atomic

program

s.United

Statespays$2

.3million

ofthreemilliondollarsin

PCBsandmercury

cleanupcosts.

Governmen

t-owned

equipmen

tthat

released

PCBsandmercury

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

(butnotdiscovereduntildecades

laterin

2000

).GOCO

usedto

supply

magnesium

metalforatomicen

ergy

andManhattanProject.

United

Statessold

GOCO

facility

in19

64to

Pfizer,afterwhich

more

releases

ofPCBsandmercury

occurred

from

sameequipmen

tPfizersold

facility

toplaintiff(alleged

tobesuccessoroforiginal

GOCO

contractor)

in19

92aftertw

enty-eightyearsofownership.

Contractorfunded

cleanupandthen

sues

United

Statesunder

CERCLA

forcost

recovery.CERCLA

allocation:seventy-seven

percentUnited

States;tw

enty-threepercentGOCO

contractor.

14.

Naval

Industrial

Reserve

Ordnance

Plant,

Pomona,

Cal.

Hugh

es/Gen

eral

Dyn

amics

Zeropercent

Approximately$5

millioncleanupin

late

1990

s.Noform

alcost-

sharingagreem

ent.DirectNavypaymen

tandcontractorcosts

reim

bursed

through

contracts.

15.

Naval

Weapons

Industrial

Reserve

Plant,Dallas,Tex.

Northrop

Grumman/Vough

tAircraft/

Triumph

Aerostructures

Zeropercent

ActiveGOCO

facility.Navyfunding10

0percentofestimated

$60

millionto

$70milliondollarsin

groundwater

andsoilremediation.

Nocost-sharingagreem

ent.Noen

vironmen

talcostsareincurred

bycurren

tcontractor.

16.

AirForcePlant3,

Tulsa,

Okla.

Rockwell

Zeropercent

Noform

alcost-sharingagreem

ent.Contractorcostsreim

bursed

through

contracts.

17.

AirForcePlant13

,W

ichita,

Kan.

Boeing

Approx.

fiftypercent

Settled

Feb.24

,20

16.See

ConsentDecree,

Boeingv.

UnitedStates,

No.1

6-cv-106

1(D

.Kan.20

16).Alsokn

ownas

theBoeingMilitary

AircraftFacility,

Plancor13

9,Plancor14

0.GOCO

operated

from

WorldW

arII

through

1979

andbuiltB-29s,B-47s,andB-52s.

United

Statesagrees

topay

Boeing$3

2.25

millionforpastand

future

costs,withallcostsassumed

byBoeingstartingin

fiscal

year

2014

unallowable.

Continu

ed

No.

Governmen

t-Owned

Plant

Contractor(s)

Contractor(s)

Share

Notes/Citations

18.

AirForcePlant15

,LongBeach,Calif.

Boeing

Approx.

fiftypercent

Settled

April7,

2016

.See

ConsentDecreein

Boeingv.UnitedStates,

No.16

-cv-24

16(C

.D.Cal.20

16).Alsokn

ownas

theLongBeach

Boeing“C

-1”Facility.Mixed

GOCO

facility

operated

from

World

War

IIthrough

2015

closure

withsign

ificantcommercial

work.

United

Statesagrees

topay

Boeing$4

0.75

millionforpastand

future

costs,withallcostsassumed

byBoeingstartingin

fiscal

year

2014

unallowable.

19.

AirForcePlant59

,BroomeCounty,N.Y.LockheedMartin/

McD

onnell

Douglas/B

AE

Zeropercent

PCBsin

soils.Cost-sharingagreem

entunder

negotiation.

Contractorcostsreim

bursed

through

contracts.

20.

LakeCityArm

yAmmunitionPlant

Rem

ington/O

lin

Zeropercent

Estim

ated

$300

+millionin

pastandfuture

cleanupcosts.Direct

Arm

ypaymen

tsandcontractorcostsreim

bursem

ent.

21.

New

port

Arm

yAmmunitionPlant

DuPont/

FMC/

Uniroyal

Zeropercent

Estim

ated

$55millionin

pastandfuture

cleanupcosts.Direct

Arm

ypaymen

tsandcontractorcostsreim

bursem

ent.

22.

Naval

Ordnance

Station,Louisville,

Ky.

Hugh

es/U

nited

Defen

seZeropercent

GOCO

conveyedto

localKen

tuckyauthorities

in19

96and

“privatized”withsamecontractors.C

ontractors

indem

nified

bythe

DoD

against

environmen

talclaimsandcosts.

23.

Naval

Weapons

Industrial

Reserve

Plant,Bedford,Mass.

Raytheon

Zeropercent

Closedin

2000

;$6

1millionin

estimated

costsfunded

directlyby

Navy.

*Notan

exhaustivelist

ofGOCOssince

1997

robert m. howard and shawn t. cobb - latham & watkins

Documents